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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 33-48887
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HOLLYWOOD CASINO CORPORATION
HWCC-TUNICA, INC.
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(Exact name of each registrant as specified in its charter)
DELAWARE 75-2352412
TEXAS 75-2513808
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(States or other jurisdictions of (I.R.S. Employer
incorporation or organization) Identification No.'s)
TWO GALLERIA TOWER, SUITE 2200
13455 NOEL ROAD, LB 48
DALLAS, TEXAS 75240
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (972) 392-7777
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Securities registered pursuant to Section 12(b) of the Act:
NONE NOT APPLICABLE
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Title of each class Name of exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether each of the Registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO______
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Hollywood Casino Corporation's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
Hollywood Casino Corporation, based on the closing price of such stock on April
9, 1998, was $23,871,521. For the purposes of this computation, all
officers, directors and 5% beneficial owners of Hollywood Casino Corporation are
deemed to be affiliates. Such determination should not be deemed an admission
that such officer, directors and beneficial owners are in fact, affiliates of
Hollywood Casino Corporation. As of April 9, 1998, 24,949,976 shares of Class
A Common Stock, $.0001 par value per share, were outstanding.
As of April 9, 1998, 1,000 shares of Common Stock of HWCC-Tunica, Inc., $.01
par value per share, were outstanding, all of which were held by an affiliate of
HWCC-Tunica, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report.
(1) Definitive proxy statement filed pursuant to Regulation 14A in connection
with the Annual Meeting of Shareholders to be held on May 28, 1998 --
Part III.
HWCC-Tunica, Inc. meets the conditions set forth in General Instruction
(J)(l)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format.
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PART I
ITEM 1. BUSINESS
GENERAL
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Hollywood Casino Corporation ("HCC" or the "Company") develops, owns and
operates distinctively themed casino entertainment facilities under the service
mark Hollywood Casino(R). Through its subsidiaries, HCC currently owns and
operates a riverboat gaming facility located in Aurora, Illinois (the "Aurora
Casino") approximately 40 miles west of downtown Chicago, and a casino and hotel
complex in Tunica County, Mississippi (the "Tunica Casino") located
approximately 27 miles south of Memphis, Tennessee. Both the Aurora and Tunica
facilities feature the Company's unique theme (the "Hollywood Theme"), which
incorporates the excitement and glamour of the motion picture industry by
utilizing designs inspired by famous movies, displays of motion picture
memorabilia and movie themed gaming, entertainment and dining areas. The
Company is also actively pursuing potential gaming opportunities in domestic and
foreign jurisdictions where gaming is legalized or is being actively considered.
Approximately 47% of HCC's outstanding common shares are listed and traded on
the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol
HWCC. The remaining outstanding HCC common shares are owned by certain general
partnerships and trusts controlled by Jack E. Pratt, Edward T. Pratt, Jr. and
William D. Pratt and by other family members (collectively, the "Pratt Family").
HCC owns all of the outstanding common stock of both Hollywood Casino -
Aurora, Inc. ("HCA") and HWCC - Tunica, Inc. ("HCT"). HCA is an Illinois
corporation organized by the Pratt Family during 1990 which owns and operates
the Aurora Casino. HCT is a Texas corporation formed by HCC during 1993 which
owns and operates the Tunica Casino. Prior to December 31, 1996, the Company
also owned approximately 80% of the common stock of Greate Bay Casino
Corporation ("GBCC"). On December 31, 1996, HCC distributed the common stock of
GBCC owned by HCC to its shareholders. As a result of the dividend, GBCC is no
longer a subsidiary of HCC. While a subsidiary of HCC, GBCC's principal asset
was the Sands Hotel and Casino (the "Sands") in Atlantic City, New Jersey. GBCC
also held, and continues to hold, management and consulting contracts with the
Aurora Casino and the Tunica Casino.
Effective as of April 1, 1997, HCC acquired the general partnership interest
in Pratt Management, L.P. ("PML"), the limited partnership which holds the
management contract on the Aurora Casino (see "Pratt Management, L.P." below),
from a subsidiary of GBCC. For all periods subsequent to the acquisition date
(April 1, 1997), PML is reflected as a consolidated subsidiary of HCC. The
remaining limited partnership interest continues to be held by a subsidiary of
GBCC and is reflected in the accompanying consolidated financial statements as a
minority interest.
The Company's casinos use casino information technology developed by Advanced
Casino Systems Corporation ("ACSC"), a subsidiary of GBCC. Such information
technology includes ACSC's table game and slot monitoring systems that provide
the casinos with the ability to capture and maintain information necessary to
track and rate patron play through the use of a casino players' card. In
addition, ACSC's systems allow the casinos to monitor, analyze and control the
granting of gaming credit, promotional expenses and other marketing costs.
The principal executive offices of HCC are located at Two Galleria Tower,
Suite 2200, 13455 Noel Road, Dallas, Texas 75240, telephone (972) 392-7777.
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THE AURORA CASINO
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The Aurora Casino commenced operations on June 17, 1993 and is one of only
four casinos in Illinois now operating within 50 miles of downtown Chicago. The
Aurora Casino currently consists of two multi-level riverboat casinos containing
an aggregate of approximately 32,100 square feet of gaming space with
approximately 975 slot machines and approximately 55 table games. The Aurora
Casino also includes an approximately 64,000 square foot land-based Pavilion
through which patrons board the facility's two riverboat casinos via enclosed
passenger loading ramps. The highly-themed Pavilion features a glass-domed,
four-story atrium with two grand staircases, two upscale lounges, a gourmet
restaurant, a large buffet and a diner. Patrons of the Aurora Casino are
offered valet and self-parking in two multi-level parking garages that
accommodate approximately 1,340 cars, as well as other available surface
parking.
One parking garage is located directly across the street and is connected to
the Pavilion through a climate controlled tunnel. The structure also contains
approximately 1,500 square feet of retail space, the "Hollywood Casino(R) Studio
Store," a highly-themed store selling logo items licensed from motion picture
studios as well as first-run movies on videocassette. See "Properties - The
Aurora Casino".
In 1995, the Company completed a 10,000 square foot expansion of one of the
Aurora Casino's riverboats. The casino expansion increased the Aurora Casino's
gaming space by approximately 45% to the current 32,100 square feet, allowing
the facility to offer patrons the maximum number of gaming positions permitted
by Illinois gaming regulations in a spacious, highly-themed setting. The
Company also completed a renovation of the Aurora Casino's second riverboat
casino in September 1995 which included the installation of new interior decor
more extensively utilizing the Company's Hollywood Theme and the reconfiguration
of gaming areas to provide a more spacious and comfortable setting.
Business Strategy. The Aurora facility's primary market is the affluent
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suburbs north and west of Chicago. Based on a sampling of its patrons, the
Company believes that the casino drew approximately 36% of its patrons from such
suburbs during 1997. Approximately 7.1 million people live within a 40-mile
radius and approximately 11.6 million people live within a 100-mile radius of
the Aurora Casino. The facility is easily accessible from major highways, can
be reached from downtown Chicago in approximately 50 minutes by trains which
average 20 trips a day, and is approximately 30 miles from O'Hare International
Airport. The four operating Chicago-area casinos, including the Aurora Casino,
have approximately 135,000 square feet of combined gaming space. No additional
casinos may be licensed in Illinois without the passage of new state
legislation; however, one existing license is currently available for reissue.
There are also five riverboat casino operations in northwestern Indiana which
compete within the Chicago-area market.
The Aurora Casino's riverboats currently depart from their landings for as
many as 14 daily cruises on weekdays and 17 daily cruises on weekends,
commencing at various times from 9:00 a.m. until 4:30 a.m. This schedule may be
varied, based on experience and seasonal factors. The use of a staggered cruise
schedule with two vessels significantly reduces the waiting time until the next
gaming session for patrons who miss a cruise departure. Once passengers board,
they are permitted to game during the half hour prior to the time the riverboat
departs. After the excursion, passengers are permitted to game for another half
hour before new passengers board, for a total of two to three hours of gaming
per cruise, depending on the cruising schedule. In addition, Illinois
regulations permit dockside gaming if the riverboat captain reasonably
determines that it is unsafe to cruise due to inclement weather, mechanical or
structural problems or river icing. During dockside gaming, the Aurora
riverboats operate on their normal schedules and passengers may leave the
vessels at any time but may board only during the half hour prior to the
regularly scheduled start of the cruise.
The Aurora Casino employs a marketing strategy designed to take advantage of
its proximity to the affluent northern and western suburbs of Chicago and the
large population base of the Chicago
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metropolitan area. Management uses a patron data base developed through ACSC's
systems to focus its marketing efforts on patrons who have been identified
through the system as having the characteristics of a higher value patron.
Given the limited number of gaming positions available on each daily casino
excursion, management believes that its process of identifying the premium
patron, encouraging participation in its various casino players' card programs
and tailoring promotions and special events to cater to this market segment
will enhance profitability.
The Aurora Casino also markets to the "mass" casino patron market segment
through various forms of advertising media as well as through group and bus tour
packages. Once new patrons are introduced to the Company's gaming facility and
its casino players' card programs, management uses its data base capabilities to
direct market to these patrons in an attempt to convert them into higher value
patrons.
Management believes that the Aurora Casino's facilities, in particular its
highly-themed dockside Pavilion and its close proximity to the Paramount
Theatre, an 1,800-seat art deco theatre in which the Company features headliner
entertainment, are appealing to both the premium and mass casino patron markets.
Entertainers who have appeared include Frank Sinatra, Tom Jones, Ann-Margaret,
the Temptations, Howie Mandel, Willie Nelson and the Bolshoi Ballet.
Casino Credit. Casino operations are conducted on both a credit and a cash
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basis. Gaming debts arising in Aurora in accordance with applicable regulations
are enforceable under Illinois law. For the year ended December 31, 1997,
gaming credit extended to customers accounted for approximately 14% of overall
table game wagering, while table game wagering accounted for approximately 13%
of overall casino wagering during the period. At December 31, 1997, gaming
receivables amounted to $2.1 million before allowances for uncollectible gaming
receivables which amounted to $483,000. Management of the Aurora Casino
believes that the allowances for uncollectible gaming receivables are adequate.
Employees and Labor Relations. In Aurora, all casino employees must be
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licensed by the Illinois Gaming Board. At December 31, 1997 there were
approximately 1,500 employees at the Aurora Casino, none of whom are represented
under collective bargaining agreements. Management considers its labor
relations to be good.
THE TUNICA CASINO
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The Tunica Casino opened on August 8, 1994 and is part of a three casino
cluster located in north Tunica County. The Tunica Casino features a 54,000
square foot casino with approximately 1,350 slot machines and 50 table games.
The facility currently has 506 hotel rooms and suites, an entertainment lounge,
themed bar facilities, two restaurants, a large themed buffet, an indoor pool,
banquet and meeting facilities, a showroom, parking for 1,850 cars and a 72-
space recreational vehicle park. The Tunica Casino also has a themed gaming
area, the "Adventure Slots" attraction. Completed in 1996, Adventure Slots
includes interactive special effects, multimedia displays of motion picture
memorabilia from famous adventure movies and over 200 slot machines with custom
graphic details.
The Tunica Casino's hotel experienced overall occupancy rates in excess of
92% during 1997 with occupancy rates approaching 99% during weekend and other
peak periods. Management believes that its hotel facility allows the Tunica
Casino to more effectively market to and attract overnight and extended stay
patrons.
Business Strategy. Tunica County is currently the closest legalized gaming
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jurisdiction to, and is easily accessible from, Memphis. Approximately 4.1
million residents live within a 150 mile radius of Tunica County (approximately
one million of whom live in the greater Memphis metropolitan area). Memphis also
hosts approximately 3.5 million tourists each year. Other markets within 250
miles of Tunica County include Little Rock, Jonesboro and Pine Bluff, Arkansas;
Nashville and Jackson,
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Tennessee, and Southeast Missouri. The Tunica Casino is accessible to its
primary geographic market via Highway 61 and Interstate 55. The Tunica Casino
is located in a cluster with gaming facilities operated by Harrah's
Entertainment, Inc. ("Harrah's") and Boyd Gaming Corporation ("Sam's Town"),
which gives potential patrons a variety of gaming options. The three operating
casinos have named their cluster "Casino Strip" in order to establish a
marketing identity for the cluster and have entered into a joint billboard
campaign promoting the Casino Strip name. These properties also operate a free
shuttle bus service between the three casinos. Additional joint marketing
activities, including radio advertising and joint special events, are
currently being conducted. Management believes that the critical mass of the
three property cluster, together with the ability of visitors to move freely
among these properties and to access the cluster from the main Tunica
highways, generates significant patron traffic to the Tunica Casino. The
Casino Strip resorts are currently constructing an 18-hole championship golf
course scheduled to open in the fall of 1998 on approximately 190 acres of
land adjacent to the Casino Strip. Once open, the golf course will be jointly
operated by the Casino Strip operators. Management believes that the golf
course will help strengthen the Casino Strip as a gaming and convention resort
destination.
The Tunica Casino employs a marketing strategy designed to take advantage of
its proximity to the large population base of the greater Memphis metropolitan
area and other major markets by (i) targeting the local day-trip market and (ii)
by utilizing its hotel rooms and recreational vehicle park to expand its patron
mix to include overnight visitors. Management also utilizes the ACSC developed
casino information technology to identify premium patrons; such information is
then used to encourage participation in its casino players' card program and
tailor promotions and special events to cater to this market segment.
Management believes that the Tunica Casino's unique theme (the casino was
constructed to resemble a large Hollywood sound stage set with authentic and
replica movie props presented in multimedia display cases with larger props
suspended from the ceiling) has broad patron appeal and distinguishes the Tunica
Casino from its competitors. Additionally, the nature of the theming will allow
for periodic and cost effective updating which management believes will
stimulate repeat visitors.
Casino Credit. Casino operations are conducted on both a credit and a cash
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basis. Gaming debts arising in Tunica in accordance with applicable regulations
are enforceable under Mississippi law. During 1997, gaming credit extended to
customers accounted for approximately 9% of overall wagering. At December 31,
1997, gaming receivables amounted to $1.4 million before allowances for
uncollectible gaming receivables amounting to $705,000. Management of the
Tunica Casino believes that the allowances for uncollectible gaming receivables
are adequate.
Employees and Labor Relations. At December 31, 1997, there were
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approximately 1,200 employees at the Tunica Casino, none of whom are represented
under collective bargaining agreements. Management considers its labor relations
to be good.
PRATT MANAGEMENT, L.P.
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Pursuant to the Agreement of Limited Partnership, PML makes distributions to
a GBCC subsidiary in an amount equal to 1% of the first $84,000 of net income
earned by PML each month and 99% of any net income earned above such amount, all
of which comes from management fees received from the management of the Aurora
Casino pursuant to the Aurora Casino Management Contract.
The Aurora Casino Management Contract. PML manages the Aurora Casino
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pursuant to the Aurora Casino Management Contract, which was executed in June
1991 and has an initial term of 99 years. PML acts as the sole and exclusive
agent in the supervision, direction and control of the management of the Aurora
Casino and any additions or expansions thereof.
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PML receives a quarterly base management fee generally equal to 5% of
operating revenues (as defined in the agreement). However, for so long as HCC's
Senior Secured Notes remain outstanding (see "Item 2. Properties - The Aurora
Casino" below), payment of the base services fee is (i) subject to a maximum of
$5.5 million in any consecutive 12 month period; (ii) subordinate to payment of
interest on the Senior Secured Notes and certain other indebtedness; and (iii)
conditioned upon compliance with indentures governing such indebtedness.
PML also receives an incentive fee equal to 10% of gross operating profit (as
defined in the agreement). However, for as long as the Senior Secured Notes
remain outstanding, the incentive fee may not be paid until Gross Operating Cash
Flow (as defined in the agreement) is at least $25 million for any consecutive
12 month period.
The Aurora Casino Management Contract can be terminated by either party upon
45 days prior written notice in the event of the other party's material breach
of the agreement, inability to pay debts generally as they become due,
bankruptcy or other similar proceedings, action to suspend normal business
operations, or imposition of any materially adverse levy or judgment.
Furthermore, PML has the right to terminate if HCA fails to furnish funds
required for PML to manage the Aurora Casino or fails to compensate or reimburse
PML. In such case, PML is entitled to liquidated damages in an amount equal to
10 times the aggregate base services fee and incentive fee earned by PML in the
preceding fiscal year.
THE SANDS
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Prior to December 31, 1996, the Sands was an indirect subsidiary of HCC. The
Sands is located in Atlantic City, New Jersey on approximately 4.8 acres of land
one-half block from the boardwalk at Brighton Park between Indiana Avenue and
Dr. Martin Luther King, Jr. Boulevard. The Sands facility consists of a casino
and simulcasting facility with approximately 76,000 square feet of gaming space
containing approximately 2,075 slot machines and 110 table games; a hotel with
532 rooms (including 58 suites); six restaurants; a cocktail lounge; two private
lounges for invited guests (the Plaza Club and the Island Club); an 800-seat
cabaret theater; retail space; an adjacent nine-story executive office building
with 77,000 square feet of office space for its executive, financial and
administrative personnel; the "People Mover", an elevated, enclosed, one-way
moving sidewalk connecting the Sands to the Boardwalk; and parking for
approximately 1,900 vehicles. In addition, a nearby warehouse and a building in
Atlantic City that houses an auto shop facility also support the operations of
the Sands.
COMPETITION
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The gaming industry is highly fragmented and characterized by a high degree
of competition among a large number of participants, some of which have greater
financial and other resources than the Company. Competitive gaming activities
include land-based casinos, dockside casinos, riverboat casinos, video lottery
terminals, Indian gaming and other forms of legalized gaming in the United
States and other jurisdictions. Casino gaming is currently permitted in a
number of states, including Colorado, Illinois, Indiana, Iowa, Louisiana,
Michigan, Mississippi, Missouri, Montana, Nevada, New Jersey and South Dakota,
and in Windsor, Ontario, Canada, as well as on Native American Indian lands in
certain states. Other jurisdictions may legalize gaming in the near future
through the introduction of proposals to legalize gaming in their state
legislatures. In addition, established gaming jurisdictions could award
additional gaming licenses or permit the expansion of existing gaming
operations. New or expanded operations by other persons can be expected to
increase competition for the Company's present and proposed gaming operations
and could have a material adverse impact on the Company.
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THE AURORA CASINO
The Illinois Riverboat Gambling Act and the rules promulgated by the Illinois
Gaming Board thereunder (the "Riverboat Act") authorizes only ten owner's
licenses for riverboat gaming operations in Illinois and permits a maximum of
1,200 gaming positions (as defined by the Illinois Gaming Board) at any time for
each of the ten licensed sites. All authorized owner's licenses have been
granted and no additional licenses or gaming positions can be permitted without
further state legislation; however, one licensed site ceased gaming operations
in July 1997. Four riverboat sites, including the Aurora Casino, are currently
licensed in Illinois within 50 miles of downtown Chicago. Two of these
riverboat sites are in Joliet, approximately 42 miles southwest of downtown
Chicago, and a third is in Elgin, Illinois, approximately 20 miles from Aurora,
45 miles from downtown Chicago and amid the affluent northern and western
suburbs. The Aurora Casino also competes directly with five riverboat
operations opened since 1996 in northwestern Indiana within 25 miles of downtown
Chicago. Increased competition from casinos in Indiana has resulted in greater
competition for patrons from the downtown Chicago market and from the suburban
Chicago market. The next closest operating casinos are in Milwaukee, Wisconsin,
approximately 90 miles from downtown Chicago, and in Peoria, and Rock Island,
Illinois, approximately 160 miles from downtown Chicago. Legislation could also
be introduced in the Illinois legislature to authorize one or more land-based
and/or riverboat casinos in downtown Chicago and/or the granting of additional
casino licenses elsewhere in Illinois including within the Company's principal
market. In addition, three groups have been chosen to operate casinos in the
Detroit, Michigan market; however, the establishment of a regulatory system and
subsequent licensing have yet to be accomplished. Accordingly, it is not
anticipated that any Detroit casino will be operational until 2001. Native
American Indian tribes are seeking to open casino facilities in northwestern
Indiana and Michigan under the Indian Gaming Regulatory Act. The opening of
additional casinos proximate to Chicago could have a material adverse impact on
the Aurora Casino.
THE TUNICA CASINO
The Tunica Casino faces intense competition from the other casinos operating
in north Tunica County. The Mississippi Gaming Control Act does not limit the
number of licenses that may be granted. Any significant increase in new capacity
in Tunica County could negatively impact the operations of the Tunica Casino.
Within the Casino Strip cluster, Sam's Town has 96,000 square feet of gaming
space with approximately 1,885 slot machines and 75 table games and
approximately 850 hotel rooms and Harrah's Mardi Gras currently has 50,000
square feet of gaming space with approximately 980 slot machines and 45 table
games and approximately 200 hotel rooms. A second casino owned by Harrah's in
the Casino Strip closed during 1997.
A three casino cluster consisting of Binion's Horseshoe, ITT Sheraton and
Goldstrike Casino ("Casino Center") is located north of the Casino Strip cluster
and closer to the Memphis market. Bally's operates a casino and hotel adjacent
to, but not connected with, the Casino Center. Fitzgeralds is located between
Casino Center and the Casino Strip cluster. During 1997, the Goldstrike Casino
completed a new 31-story, 1,200 room hotel tower and Binion's opened a new 300
room hotel tower. ITT has also recently completed construction of 150 hotel
rooms. The additional hotel capacity makes the Casino Center increasingly
competitive in attracting overnight visitors. The increase in competition in
the north Tunica County casino market could have a material adverse effect on
the Tunica Casino.
During July 1996, Grand Casinos opened a casino complex immediately north of
Casino Center with 140,000 square feet of gaming space including approximately
3,000 slot machines and 120 table games (the largest casino in Mississippi).
Two hotels with an aggregate of 776 rooms and a conference center are currently
available and a golf course and other amenities are scheduled for later
completion. The opening of this casino space increased casino capacity in
Tunica County by 24%.
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The Company believes that the most significant restrictions to the growth of
gaming in the Tunica market are the lack of an effective infrastructure and
secondary attractions outside the gaming industry. The Mississippi Department of
Transportation widened the highway leading to Tunica County from Memphis
(Highway 61) during 1996 and plans to widen the highway from eastern Mississippi
(Highway 304). Additional non-casino attractions such as golf courses are
scheduled to open in 1998 and discussions are continuing with developers with
respect to the construction of retail shopping and entertainment complexes. In
prior years, the shortage of hotel rooms was also considered a restriction to
growth; however, as previously noted, a number of casino operations completed
and opened hotel facilities during 1997. The total number of hotel rooms in
Tunica County increased to 4,432 rooms at the end of 1997 from 3,176 at the end
of 1996, an increase of 40%.
The Tunica Casino may eventually face competition from the opening of gaming
casinos closer to Memphis including DeSoto County, Mississippi, which is the
only county between Tunica County and the Tennessee border. DeSoto County has
defeated gaming proposals on three separate occasions, most recently in November
1996. In addition, gaming has been legalized in Coahoma County (immediately
south of Tunica County and more accessible from Little Rock, Arkansas) where
Lady Luck operates a facility on the Mississippi side of the Helena, Arkansas
bridge over the Mississippi River. Farther south, in Greenville, Washington
County, two casinos are now operating, and in Vicksburg, Warren County, there
are four casinos open. Casino gaming is not currently legalized in Tennessee or
Arkansas. Although management does not anticipate such legislation in the near
term, the legalization of gaming in either Tennessee or Arkansas could have a
material adverse impact on the Tunica Casino.
CASINO REGULATION
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ILLINOIS
The Riverboat Act authorizes riverboat gaming on navigable streams within or
forming a boundary of the State of Illinois except for Lake Michigan and any
waterway in Cook County, which includes Chicago. The Riverboat Act strictly
regulates the facilities, persons, associations and practices related to gaming
operations pursuant to the police powers of the State of Illinois, including
comprehensive law enforcement supervision. The Riverboat Act grants the
Illinois Gaming Board specific powers and duties, and all other powers necessary
and proper to fully and effectively execute the Riverboat Act for the purpose of
administering, regulating and enforcing the system of riverboat gaming. The
Illinois Gaming Board's jurisdiction extends to every person, association,
corporation, partnership and trust involved in riverboat gaming operations in
the State of Illinois.
Owner's Licenses. The Riverboat Act requires the owner of a riverboat gaming
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operation to hold an owner's license issued by the Illinois Gaming Board. The
Illinois Gaming Board is authorized to issue ten owner's licenses statewide.
Each owner's license permits up to two boats as a part of the riverboat gaming
operation. No entity may be licensed as the owner of more than one riverboat
gaming operation in Illinois, although a licensed owner may hold up to 10% of a
second riverboat gaming operation in Illinois. In addition to the ten owner's
licenses which may be authorized under the Riverboat Act, the Illinois Gaming
Board may issue special event licenses allowing persons who are not otherwise
licensed to conduct riverboat gaming to conduct such gaming on a specified date
or series of dates. Riverboat gaming under such a license may take place on a
riverboat not normally used for riverboat gaming.
An owner's license is issued for an initial period of three years and must be
renewed annually thereafter. An owner's license is eligible for renewal upon
payment of the applicable fee and a determination by the Illinois Gaming Board
that the licensee continues to meet all of the requirements of the Riverboat
Act. The Illinois Gaming Board also requires that officers, directors and
employees of a gaming operation and suppliers of gaming equipment, devices and
supplies and certain other suppliers be licensed. Licenses issued by the
Illinois Gaming Board may not be transferred to another person or entity.
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All licensees must maintain their suitability for licensure and have a
continuing duty to disclose any material changes in information provided to
the Illinois Gaming Board.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Gaming Board for changes in the following
areas; (i) key persons, (ii) type of entity, (iii) equity and debt
capitalization of the entity, (iv) investors and/or debt holders, (v) source of
funds, (vi) applicant's economic development plan, (vii) riverboat capacity or
significant design change, (viii) gaming positions, (ix) anticipated economic
impact, or (x) pro forma budgets and financial statements. A holder of an
owner's license is allowed to make distributions to its partners, stockholders
or itself only to the extent that such distribution would not impair the
financial viability of the gaming operation. Factors to be considered by the
licensee include, but are not limited to, the following: (i) working capital
requirements, (ii) debt service requirements, (iii) requirements for repairs and
maintenance, and (iv) capital expenditure requirements.
The Illinois Gaming Board will require a personal disclosure from any person
or entity (unless such person or entity qualifies as an institutional investor)
who or which, individually or in association with others, acquires, directly or
indirectly, beneficial ownership of more than 5% of any class of voting
securities or non-voting securities convertible into voting securities of a
publicly traded corporation which holds an ownership interest or a beneficial
interest in the holder of an owner's license. If the Illinois Gaming Board
denies an application for such an acquisition, commencing as of the date the
Illinois Gaming Board issues a notice that it denies such application, it will
be unlawful for such applicant to receive any dividends or interest on his or
its securities, to exercise, directly or indirectly, any right conferred by such
securities, or to receive any remuneration in any form from any person or entity
holding any license under the Riverboat Act for services rendered or otherwise.
If the Illinois Gaming Board denies an application for such a transfer and if no
hearing is requested or if the Illinois Gaming Board issues a final order of
disqualification, the holder of the affected owner's license shall purchase all
of the disqualified person's or entity's securities at the lesser of either the
market price or the purchase price of such securities.
An ownership interest in a holder of an owner's license may be transferred or
pledged as collateral only with the consent of the Illinois Gaming Board.
Regulation of Gaming Operations. The Riverboat Act does not limit the
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maximum bet or per patron loss and licensees may set any maximum or minimum
limits on wagering. Vessels must have the capacity to hold a minimum of 500
persons if operating on the Mississippi River or the Illinois River south of
Marshall County, and a minimum of 400 persons on any other waterway. The number
of gaming positions is limited to a maximum of 1,200 per license. Gaming
sessions are limited to a four hour duration; however, special event extended
cruises may be authorized by the Illinois Gaming Board.
If a riverboat captain reasonably determines for reasons of safety that
although seaworthy, the riverboat should not leave the dock or should return
immediately thereto, due to inclement weather, river icing, or mechanical or
structural difficulties, a gaming excursion may commence or continue while the
gangplank or its equivalent is raised and remains raised, in which event the
riverboat is not considered docked. Recently, the Illinois Gaming Board amended
its rules to clarify the circumstances under which dockside gaming will be
permitted and to require the imposition of a fine for violations of the cruising
requirements.
A $2 per person admission tax is imposed on the owner of a riverboat
operation. Such admission tax for the Aurora Casino amounted to $7.2 million,
$6.4 million and $5.4 million , respectively, during 1997, 1996 and 1995.
Additionally, a wagering tax is imposed on the adjusted gross receipts, as
defined in the Riverboat Act, of a riverboat operation at the rate of 20%. The
licensee is required to wire transfer all such gaming tax payments to the
Illinois Gaming Board. The wagering tax for the Aurora Casino amounted to $30.7
million, $31.3 million and $29.3 million, respectively, for the years 1997, 1996
and
9
<PAGE>
1995. Effective January 1, 1998 the wagering tax rate was revised to a
graduated tax at rates ranging from 15% to 35% based on total adjusted gross
receipts. Had the new rates been in effect for the year ended December 31,
1997, the Aurora Casino's wagering tax would have increased to $41.3 million.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming employees and into alleged violations of the Riverboat Act and
to take such disciplinary and enforcement action as it may deem necessary and
proper. Employees and agents of the Illinois Gaming Board have access to and
may inspect any facilities relating to the riverboat gaming operations at all
times.
A holder of any license is subject to imposition of penalties and fines,
suspension or revocation of such license, or other action for any act or failure
to act by such holder or his or her agents or employees, that is injurious to
the public health, safety, morals, good order and general welfare of the people
of the State of Illinois, or that would discredit or tend to discredit the
Illinois gaming industry or the State of Illinois. Any riverboat operation not
conducted in compliance with the Riverboat Act may constitute an illegal gaming
place and consequently may be subject to criminal penalties, which penalties
include possible seizure, confiscation and destruction of illegal gaming devices
and seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Riverboat Act also provides for civil penalties equal to the amount of gross
receipts derived from wagering on the gaming, whether unauthorized or
authorized, conducted on the day of any violation. The Illinois Gaming Board
may revoke or suspend licenses, as the Board may see fit and in compliance with
applicable laws of Illinois regarding administrative procedures, and may suspend
an owner's license, without notice or hearing, upon a determination that the
safety or health of patrons or employees is jeopardized by continuing a
riverboat's operation. The suspension may remain in effect until the Illinois
Gaming Board determines that the cause for suspension has been abated and it may
revoke the owner's license upon a determination that the owner has not made
satisfactory progress toward abating the hazard.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
MISSISSIPPI
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation including the Mississippi Gaming
Control Act ( the "Mississippi Act"). Gaming in Mississippi can be legally
conducted only on vessels of a certain minimum size in navigable waters of
counties bordering the Mississippi River or in waters of the State of
Mississippi which lie adjacent to the coastline of the three counties bordering
the Gulf of Mexico. Mississippi's gaming operations are subject to the
licensing and regulatory control of the Mississippi Gaming Commission (the
"Mississippi Commission") and various federal, state, and county regulatory
agencies.
The Mississippi Act does not restrict the amount or percentage of space on a
vessel that may be utilized for gaming nor does it limit the number of licenses
that the Mississippi Commission can grant for a particular area.
Each of HCT's directors, officers and certain key employees who are actively
and directly engaged in the administration or supervision of gaming in
Mississippi, or who have any other significant involvement with the gaming
activities of the Tunica Casino, must be found suitable therefor and may be
required to be licensed by the Mississippi Commission. All personnel
responsible for the direction and management of the Tunica Casino have been
found suitable by the Mississippi Commission. The finding of suitability is
comparable to licensing, and both require submission of detailed personal
financial information followed by a thorough investigation. An application for
licensing may be denied for any cause deemed reasonable by the issuing agency.
Changes in licensed positions must be reported to the issuing agency and the
Mississippi Commission has jurisdiction to disapprove a change in licensed
10
<PAGE>
positions. If the Mississippi Commission were to find a director, officer or
key employee unsuitable for licensing or unsuitable to continue having a
relationship with HCT, HCT would have to suspend, dismiss and sever all
relationships with such person or lose its license. HCT would have similar
obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a work permit.
The licenses obtained by HCT are not transferable and will need to be renewed
periodically. Presently, the policy of the Mississippi Commission is to award
casino licenses for two-year periods, subject to renewal. The Mississippi
Commission has the power to deny, limit, condition, revoke and suspend any
license, finding of suitability or registration, and to fine any person as it
deems reasonable and in the public interest, subject to an opportunity for a
hearing.
Any individual who is found to have a material relationship to, or material
involvement with, HCT may be required to be investigated in order to be found
suitable or to be licensed as a business associate of HCT. Key employees,
controlling persons or others who exercise significant influence upon the
management or affairs of HCT may also be deemed to have such a relationship or
involvement. Additionally, certain beneficial owners, lenders and landlords of
HCT may be required to be licensed. The landlord under the ground lease for the
Tunica Casino has been found suitable by the Mississippi Commission.
The statutes and regulations give the Mississippi Commission the discretion
to require a suitability finding with respect to anyone who acquires any debt or
equity security of HCT regardless of the percentage of ownership. In addition,
the Mississippi Commission has discretionary authority to require a holder of
any debt to file an application, to be investigated and to be found suitable.
While the Mississippi Commission generally does not require the individual
holders of obligations to be investigated and found suitable, the Mississippi
Commission retains the discretion to do so for any reason, including but not
limited to a default or where the holder of a debt instrument exercises a
material influence over the gaming operations of the entity in question. The
applicant is required to pay all costs of investigation.
Any owner of debt or equity securities found unsuitable and who holds,
directly or indirectly, any beneficial ownership of debt or equity interests in
HCT beyond such period of time as may be prescribed by the Mississippi
Commission may be guilty of a misdemeanor. Any person who fails or refuses to
apply for a finding of suitability or a license within 30 days after being
ordered to do so by the Mississippi Commission may be found unsuitable. HCT is
subject to disciplinary action if, after it receives notice that a person is
unsuitable to be an owner of its debt or equity securities or to have any other
relationship with it, HCT (i) pays the unsuitable person any distributions or
interest upon any securities of HCT or any payments or distribution of any kind
whatsoever (ii) recognizes the exercise, directly or indirectly, of any voting
rights in its securities by the unsuitable person, or (iii) pays the unsuitable
person any remuneration in any form for services rendered or otherwise, except
in certain limited and specific circumstances. In addition, if the Mississippi
Commission finds any owner unsuitable, such owner must immediately offer all of
such owner's securities in HCT for purchase, and HCT shall, in turn, purchase
the securities so offered, for cash at fair market value, within 10 days of the
date of such offer.
The Mississippi Commission has the power to impose additional restrictions on
the holders of HCT's securities at any time through its power to regulate
licensees.
Mississippi gaming regulations provide that a change in control of HCT may
not occur without the prior approval of the Mississippi Commission. Mississippi
law prohibits HCT from making a public offering of its securities without the
approval of the Mississippi Commission if any part of the proceeds of the
offering is to be used to finance the construction, acquisition or operation of
gaming facilities in Mississippi, or to retire or extend obligations incurred
for one or more of such purposes.
11
<PAGE>
Because HCT is licensed to conduct gaming in Mississippi, neither HCT nor any
affiliates may engage in gaming activities outside of Mississippi without the
prior approval of the Mississippi Commission. The Mississippi Commission has
adopted regulations related to foreign gaming approval, and HCT has been
approved by the Mississippi Commission under its regulations to engage in gaming
activities in certain jurisdictions outside of Mississippi.
License fees and taxes are based upon a percentage of the gross gaming
revenues received by a casino operation, or the number of slot machines operated
by such casino, or the number of table games operated by such casino. In
particular, gaming licensees must pay an annual $5,000 license fee and an
additional fee based on the number of gaming devices. A state gross revenues
fee of 8% is due on adjusted gross gaming revenues. Several local governments
have been authorized to impose additional gross fees on adjusted gross gaming
revenues of up to 4% or, alternatively, per person boarding fees, and annual
license fees based on the number of gaming devices on board. The City of Tunica
and Tunica County impose a combined fee of 4% on adjusted gross gaming revenues.
Such gaming taxes for the Tunica Casino amounted to $11.9 million, $10.7 million
and $10.7 million during 1997, 1996 and 1995, respectively. Gross gaming taxes
paid to the state are allowed as a credit against Mississippi state income tax
liability.
NON-GAMING REGULATION
- ---------------------
The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses generally,
such as the Clean Air Act, Clean Water Act, Occupational Safety and Health Act,
Resource Conservation Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act. The Company has not made, and does not
anticipate making, material expenditures with respect to such environmental laws
and regulations. However, the coverage and attendant compliance costs associated
with such laws, regulations and ordinances may result in future additional costs
to the Company's operations. For example, in 1990 the U.S. Congress enacted the
Oil Pollution Act to consolidate and rationalize mechanisms under various oil
spill response laws. The Department of Transportation has proposed regulations
requiring owners and operators of certain vessels to establish through the U.S.
Coast Guard evidence of financial responsibility in the amount of $5.5 million
for clean-up of oil pollution. This requirement would be satisfied by either
proof of adequate insurance (including self-insurance) or the posting of a
surety bond or guaranty.
The riverboats operated by the Company must comply with U.S. Coast Guard
requirements as to boat design, on-board facilities, equipment, personnel and
safety. Each of them must hold a Certificate of Seaworthiness or must be
approved by the American Bureau of Shipping ("ABS") for stabilization and
flotation, and may also be subject to local zoning and building codes. The U.S.
Coast Guard requirements establish design standards, set limits on the operation
of the vessels and require individual licensing of all personnel involved with
the operation of the vessels. Loss of a vessel's Certificate of Seaworthiness
or ABS approval would preclude its use as a floating casino.
All shipboard employees of the Company, even those who have nothing to do
with the marine operations of the vessel (such as dealers, waiters and security
personnel), may be subject to the Jones Act which, among other things, exempts
those employees from state limits on workers' compensation awards.
TRADEMARKS
- ----------
The Company uses the service mark "Hollywood Casino" which is registered with
the United States Patent and Trademark Office. The Company considers its rights
to the "Hollywood Casino" service mark to be well established and to have
significant competitive value to the Company's business. The loss of its right
to use the "Hollywood Casino" service mark and to prevent others from using the
same or a deceptively similar mark could have a material adverse effect on the
Company.
12
<PAGE>
The Company also uses the service mark "Hollywood" and other "Hollywood-
formative" marks to promote its casino and related services. These marks are
either registered or are the subject of pending registration applications with
the United States Patent and Trademark Office.
DEVELOPMENT ACTIVITIES
- ----------------------
On October 23, 1997, plans were announced to form a partnership between HCC,
New Orleans Paddlewheels, Inc. and Sodak Gaming, Inc. (the "Partnership"), with
each venture partner owning one third of the Partnership. Subject to receiving
final approval from the Louisiana Gaming Control Board, the Partnership has
announced plans to construct a resort complex in Shreveport, Louisiana,
approximately 200 miles east of Dallas, Texas. As presently planned, the
complex will include a riverboat gaming facility with 30,000 square feet of
gaming space, a 300-room hotel, a 65,000 square foot, themed pavilion and 25,000
square feet of retail entertainment space. HCC will operate the complex under a
long-term management contract.
Management believes that a proactive business development strategy is
critical to the Company's long-term growth and continued success, and is
committed to a development program that will maximize the Company's future
opportunities. Accordingly, the Company will continue to actively pursue
development of new casino entertainment venues by promoting the expansion of
legalized gaming and by exploring opportunities where gaming is already
sanctioned.
OTHER OPERATIONS
- ----------------
GBCC, which prior to December 31, 1996 was a subsidiary of HCC, disposed of
its remaining non-casino hotel operations during 1996 and early 1997. GBCC
managed and had an ownership interest (but no obligation to fund losses) in the
hotel operations of the Sands Hotel and Casino in San Juan, Puerto Rico. GBCC
also managed two non-casino hotels and had an ownership interest in one of the
hotels. For the year ended December 31, 1996, earnings before interest, taxes,
depreciation and amortization attributable to such operations amounted to $1.2
million.
ITEM 2. PROPERTIES
THE AURORA CASINO
- -----------------
The Aurora Casino consists of two, four-level riverboats, City of Lights I
and II, which have combined casino space of approximately 32,100 square feet and
approximately 1,200 gaming positions. The complex also includes the four-story,
approximately 64,000 square foot land based Pavilion and two parking garages.
The first parking garage contains approximately 18,000 square feet of office
space for administrative offices and approximately 13,000 square feet of office
space. HCA leases the parking garage, including the office space, from the City
of Aurora under a 30 year lease ending June 2023, with HCA having the right to
extend the term to a maximum of 99 years. The lease is treated as a capital
lease for financial reporting purposes.
In September 1996, HCA and the Aurora Metropolitan Exposition, Auditorium and
Office Building Authority ("ACCA"), a governmental agency, completed the joint
construction of a new five-story, approximately 500-space parking garage
directly across the street from, and connected by a climate-controlled tunnel
to, the Aurora Casino's Pavilion. The new garage provides additional parking
for casino patrons and includes approximately 1,500 square feet of retail space.
ACCA financed a portion of the construction costs through an $11.5 million, 7.5%
industrial revenue bond issue which yielded proceeds of approximately $10.5
million. HCA funded all remaining construction costs. The facility is owned by
13
<PAGE>
ACCA and operated by HCA pursuant to a 30-year lease with the right to extend
the lease for up to 20 additional years. Rental payments during the first 15
years equal ACCA's debt service costs related to the industrial revenue bond
issue. In addition, HCA pays ACCA base rent equal to $15,000 per month, subject
to a credit of $615,000 at the rate of $10,000 per month for improvements made
to ACCA's North Island Center banquet and meeting facilities. HCA is also
responsible for additional rent, consisting of costs such as any real estate
taxes, maintenance costs, insurance premiums and utilities arising out of its
operation of the garage. The lease is treated as a capital lease for financial
reporting purposes.
The Aurora Casino is pledged as collateral to the extent of $39 million
(subject to reductions for principal payments on HCA's intercompany note to HCC)
with respect to certain senior secured notes, due November 1, 2003 (the "Senior
Secured Notes") in the original face amount of $210 million issued by HCC on
October 17, 1995. The Senior Secured Notes bear interest, payable semiannually,
at the rate of 12 3/4% discounted to yield 13 3/4% per annum. The Senior
Secured Notes are redeemable at the option of HCC any time on or after November
1, 1999 at 106.375% of the then outstanding principal amount, decreasing to
103.1875% and 100%, respectively, on November 1, 2000 and 2001. Commencing with
the November 1, 1997 interest payment date and at each subsequent interest
payment date, HCC is required to make an offer to purchase not more than
$2,500,000 in principal amount of the Senior Secured Notes at a price of
106.375% of the principal amount tendered. On November 1, 1997, HCC made such
an offer resulting in the redemption of $2.5 million principal amount of the
Senior Secured Notes.
The indenture to the Senior Secured Notes contains various provisions
limiting the ability of HCC and certain defined subsidiaries to, among other
things, pay dividends or make other restricted payments; incur additional
indebtedness or issue preferred stock; create liens; create dividend or other
payment restrictions affecting certain defined subsidiaries; enter into mergers
or consolidations or make sales of all or substantially all assets of HCC, HCT
or any future guarantor; and enter into transactions with certain affiliates.
THE TUNICA CASINO
- -----------------
The Tunica Casino currently consists of a one-story, 60,000 square foot
casino, including 54,000 square feet of gaming space, 506 hotel rooms and suites
and support facilities that includes two restaurants, a buffet, an arcade and a
gift shop, banquet space, an enclosed pool and atrium, a showroom and
administrative offices. The 1996 construction on an eight-story, approximately
350-room hotel tower was completed with a portion of the proceeds from the
Senior Secured Notes discussed above. The Tunica facility also includes a 72-
space recreational vehicle park and a 1,850-space surface parking area.
The ground lease for the Tunica site has an initial term of five years from
the date gaming operations commence, and an option to extend the lease for nine
successive five-year terms. Rent during the initial term is equal to the
greater of 4% of Gross Revenues (as defined in the lease) or $1.1 million per
year. Because the ground lease for the Tunica site covers approximately 70
acres, there is sufficient land for future expansion should circumstances
warrant.
Substantially all of the assets of the Tunica Casino are pledged as
collateral for the Senior Secured Notes discussed above.
14
<PAGE>
DEVELOPMENT SITES
- -----------------
The Company holds an option to purchase approximately 159 acres of land in
Palmer, Massachusetts for possible development of a gaming resort complex in the
event that gaming is approved by the state legislature.
During 1993 and 1994, the Company acquired a lakeside site in the Dallas,
Texas area in the north Dallas suburb of Farmers Branch as well as two sites in
the Houston, Texas area, one on Clear Lake in the City of Seabrook and the other
on Lake Houston, for development in the event that Texas passed enabling
legislation to legalize gaming. Passage of such legislation is now believed to
be highly doubtful. An evaluation of the net realizable value of the properties
resulted in the Company recognizing an anticipated loss from the disposition of
such properties of approximately $3.4 million in 1996. During 1997, the Dallas
site was sold at a price approximating its net book value; accordingly, no gain
or loss was recognized on the sale. Management has concluded that the existing
valuation allowance continues to approximate the anticipated loss to be incurred
on the sale of the remaining properties.
ITEM 3. LEGAL PROCEEDINGS
PLANET HOLLYWOOD LITIGATION
- ---------------------------
Planet Hollywood International, Inc., a Delaware corporation, and Planet
Hollywood (Region IV), Inc., a Minnesota corporation (collectively, "PHII"),
filed a complaint in the United States District Court for the Northern District
of Illinois, Eastern Division on July 29, 1996 against HCC, HCA and a member of
the Pratt Family (collectively, the "Original Hollywood Defendants"). The
Original Hollywood Defendants filed with the Court on September 18, 1996 an
answer to PHII's lawsuit, along with numerous counterclaims against PHII, Robert
Earl and Keith Barish (collectively, the "PHII Defendants"). PHII filed with
the Court on January 21, 1997, an amendment to their complaint which, among
other things, added HCT (together with the Original Hollywood Defendants, the
"Hollywood Defendants") and GBCC as defendants. The Original Hollywood
Defendants filed with the Court on February 4, 1997, and GBCC and HCT filed with
the Court on February 20, 1997, answers and counterclaims to such amended
complaint.
In its lawsuit, PHII alleges, among other things, that the Hollywood
Defendants and GBCC have, in opening and operating the Hollywood Casino concept,
infringed on PHII's trademark, service mark and trade dress and have engaged in
unfair competition and deceptive trade practices. In their counterclaims, the
Hollywood Defendants and GBCC allege, among other things, that the PHII
Defendants have, through their planned use of their mark in connection with
casino services, infringed on certain of HCC's service marks and trade dress and
have engaged in unfair competition.
Given the uncertainties inherent in litigation, no assurance can be given
that the Hollywood Defendants will prevail in this litigation; however, the
Hollywood Defendants believe that PHII's claims are without merit and intend to
defend their position and pursue their counterclaims vigorously. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainties described above.
OTHER LITIGATION
- ----------------
HCC and its subsidiaries are also parties in various other legal proceedings
with respect to the conduct of casino and hotel operations. Although a possible
range of loss cannot be estimated, in the opinion of management, based upon the
advice of counsel, settlement or resolution of these proceedings should not have
a material adverse impact on the consolidated financial position or results of
operations of HCC and its subsidiaries.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
HCC's Class A common stock, 50,000,000 shares at $.0001 par value per share,
is HCC's sole voting security. Since May 28, 1993, HCC's common stock has
traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the
symbol HWCC. The prices set forth in the following table represent actual
transactions.
<TABLE>
<CAPTION>
PERIOD High Low
------ ------ -----
<S> <C> <C>
1997
First Quarter $5.13 $2.69
Second Quarter 4.13 2.81
Third Quarter 3.50 2.38
Fourth Quarter 3.56 1.75
1996
First Quarter $ 4.63 $3.13
Second Quarter 8.50 3.38
Third Quarter 10.75 4.63
Fourth Quarter 6.13 2.88
</TABLE>
As of April 9, 1998, there were approximately 500 holders of record of
HCC's voting common stock.
No cash dividends have been paid on HCC's common stock in the past and HCC
has no plans to pay cash dividends on its common stock in the foreseeable
future. See Note 4 of "Notes to Consolidated Financial Statements" for a
description of certain agreements that impose specified restrictions on the
transfer of funds between certain subsidiaries.
HCT's common stock, 1,000 shares with par value of $.01 per share, is its
sole voting security; all of the 1,000 shares outstanding are owned by HCC.
HCT has not paid dividends in the past and has no plans to pay any dividends
in the foreseeable future.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
The following tables present selected financial data for HCC and are
qualified in their entirety by the consolidated financial statements, including
the notes thereto, appearing elsewhere herein. The data as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and 1995, have been
derived from the audited consolidated financial statements of HCC contained
elsewhere in Item 8.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenues...................................... $267,757 $530,580 $539,943 $464,384 $343,340
-------- -------- -------- -------- --------
Expenses:
Departmental..................................... 185,753 426,769 396,157 338,776 249,139
General and administrative....................... 16,790 37,169 36,914 33,189 31,989
Management and consulting fees................... 3,927 - - - -
Depreciation and amortization.................... 18,901 40,836 40,955 30,960 25,003
Amortization of preopening costs................. - - - 11,002 2,120
Development...................................... 1,480 1,065 6,765 5,154 1,926
-------- -------- -------- -------- --------
Total expenses................................. 226,851 505,839 480,791 419,081 310,177
-------- -------- -------- -------- --------
Income from operations before write down
of assets........................................ 40,906 24,741 59,152 45,303 33,163
Write down of assets.............................. (19,678) (22,141) - - -
-------- -------- -------- -------- --------
Income from operations............................ 21,228 2,600 59,152 45,303 33,163
-------- -------- -------- -------- --------
Non-operating income (expenses):
Interest income.................................. 1,896 3,101 3,708 4,227 3,437
Interest expense................................. (30,305) (59,090) (55,558) (46,233) (43,141)
Gain (loss) on disposal of assets................ 552 (1,841) (514) (26) -
-------- -------- -------- -------- --------
Total non-operating expenses, net............. (27,857) (57,830) (52,364) (42,032) (39,704)
-------- -------- -------- -------- --------
(Loss) income before income taxes, extraordinary
and other items.................................. (6,629) (55,230) 6,788 3,271 (6,541)
Income tax (provision) benefit.................... (3,289) (63) (268) (1,527) 7,069
-------- -------- -------- -------- --------
(Loss) income before extraordinary and other
items............................................ (9,918) (55,293) 6,520 1,744 528
Minority interest in earnings of Limited
Partnership...................................... (5,012) - - - -
-------- -------- -------- -------- --------
(Loss) income before extraordinary item........... (14,930) (55,293) 6,520 1,744 528
Extraordinary item:
Early extinguishment of debt,
net of related tax benefits (1)................. (215) - (23,808) 126 (13,069)
-------- -------- -------- -------- --------
Net (loss) income................................. $(15,145) $(55,293) $(17,288) $ 1,870 $(12,541)
======== ======== ======== ======== ========
Basic (loss) income per common share (2):
(Loss) income before extraordinary item.......... $ (.60) $(2.24) $ .27 $ .07 $ .03
Extraordinary item............................... (.01) - (.97) .01 (.77)
-------- -------- -------- -------- --------
Net (loss) income............................ $ (.61) $(2.24) $ (.70) $ .08 $ (.74)
======== ======== ======== ======== ========
Diluted (loss) income per common share (2):
(Loss) income before extraordinary item.......... $ (.60) $(2.24) $ .26 $ .07 $ .02
Extraordinary item............................... (.01) - (.96) .01 (.57)
-------- -------- -------- -------- --------
Net (loss) income.............................. $ (.61) $(2.24) $ (.70) $ .08 $ (.55)
======== ======== ======== ======== ========
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets...................................... $277,602 $308,229 $514,463 $464,135 $369,255
Total debt, including capital
lease obligations................................ 226,922 232,046 496,847 432,117 345,451
Shareholders' equity (deficit).................... 17,627 45,144 (57,233) (39,947) (41,818)
</TABLE>
- ----------------
(1) Includes the following items: (i) for 1997, costs associated with HCC's
mandatory redemption of Senior Secured Notes, net of related tax benefit;
(ii) for 1995, costs associated with the October 1995 issuance of the Senior
Secured Notes by HCC; and (iii) for 1993, the accrual of $14 million of
costs associated with a 1994 recapitalization of GBCC, net of related tax
benefit.
(2) During 1997, HCC adopted the provisions of Financial Accounting Standards
No. 128, "Earnings per Share." The earnings per share calculation has been
restated for all prior periods presented.
17
<PAGE>
HOLLYWOOD CASINO-AURORA, INC. AND HWCC-TUNICA, INC.
- ----------------------------------------------------
The following tables set forth selected financial information for HCA and HCT
and are qualified in their entirety by, and should be read in conjunction with,
HCA and HCT's Financial Statements and notes thereto contained elsewhere herein.
HCA and HCT commenced operations on June 17, 1993 and August 8, 1994,
respectively. The data as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996 and 1995 have been derived from the audited financial
statements of HCA and HCT contained elsewhere in Item 8.
HOLLYWOOD CASINO-AURORA, INC.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993(1)
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues........................... $160,307 $163,391 $152,508 $148,000 $71,628
-------- -------- -------- -------- -------
Expenses:
Departmental........................ 108,653 114,006 102,780 95,495 45,047
General and administrative.......... 14,673 14,645 14,406 11,926 8,200
Depreciation and amortization....... 7,491 8,834 9,172 7,121 3,582
Amortization of preopening costs.... - - - 5,863 2,120
-------- -------- -------- -------- -------
Total expenses.................... 130,817 137,485 126,358 120,405 58,949
-------- -------- -------- -------- -------
Income from operations................. 29,490 25,906 26,150 27,595 12,679
-------- -------- -------- -------- -------
Non-operating income (expense):
Interest income..................... 156 205 306 458 432
Interest expense.................... (6,847) (6,704) (6,493) (6,654) (3,930)
Gain on disposal of assets.......... 134 - - - -
-------- -------- -------- -------- -------
Total non-operating expense, net.. (6,557) (6,499) (6,187) (6,196) (3,498)
-------- -------- -------- -------- -------
Income before income taxes and
extraordinary item................... 22,933 19,407 19,963 21,399 9,181
Income tax provision................... (8,419) (6,883) (7,554) (7,557) (3,567)
-------- -------- -------- -------- -------
Income before extraordinary item....... 14,514 12,524 12,409 13,842 5,614
Extraordinary item..................... - - (989) - -
-------- -------- -------- -------- -------
Net income............................. $ 14,514 $ 12,524 $ 11,420 $ 13,842 $ 5,614
======== ======== ======== ======== =======
<CAPTION>
BALANCE SHEET DATA:
DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Total assets........................... $104,071 $107,449 $ 93,196 $ 73,356 $77,113
Total debt, including capital lease
obligations.......................... 58,972 65,430 55,829 50,141 54,624
Shareholder's equity................... 28,948 28,033 25,549 14,071 10,659
</TABLE>
- ------------------
(1) The Aurora Casino commenced operations on June 17, 1993.
18
<PAGE>
HWCC-TUNICA, INC.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994(1)
------------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues.............................................. $107,263 $ 94,524 $ 94,416 $32,413
-------- -------- -------- -------
Expenses:
Departmental............................................ 77,058 72,602 63,842 22,623
General and administrative.............................. 5,769 5,962 5,711 2,425
Depreciation and amortization........................... 9,916 10,906 10,356 3,610
Amortization of preopening costs........................ - - - 5,939
-------- -------- -------- -------
Total expenses......................................... 92,743 89,470 79,909 34,597
-------- -------- -------- -------
Income (loss) from operations............................. 14,520 5,054 14,507 (2,184)
-------- -------- -------- -------
Non-operating income (expenses):..........................
Interest income......................................... 281 835 637 374
Interest expense........................................ (10,980) (10,060) (10,792) (4,454)
Gain (loss) on disposal of assets....................... 6 (45) (505) -
-------- -------- -------- -------
Total non-operating expenses, net...................... (10,693) (9,270) (10,660) (4,080)
-------- -------- -------- -------
Income (loss) before income taxes and extraordinary item.. 3,827 (4,216) 3,847 (6,264)
Income tax benefit........................................ 845 - 694 -
-------- -------- -------- -------
Income (loss) before extraordinary item................... 4,672 (4,216) 4,541 (6,264)
Extraordinary item........................................ - - (9,614) 126
-------- -------- -------- -------
Net income (loss)......................................... $ 4,672 $ (4,216) $ (5,073) $(6,138)
======== ======== ======== =======
<CAPTION>
BALANCE SHEET DATA:
DECEMBER 31,
----------------------------------------
1997 1996 1995 1994
-------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total assets.............................................. $118,727 $116,620 $122,240 $99,889
Total debt, including capital lease
obligations.............................................. 85,683 86,645 88,340 61,789
Shareholder's equity...................................... 23,882 19,210 23,426 28,499
</TABLE>
(1) The Tunica Casino commenced operations on August 8, 1994.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements about the
business, financial condition and prospects of the Company. The actual results
could differ materially from those indicated by the forward-looking statements
because of various competition, economic conditions, tax regulations, state
regulations applicable to the gaming industry in general or the Company in
particular, and other risks indicated in the Company's filings with the
Securities and Exchange Commission. Such risks and uncertainties are beyond
management's ability to control and, in many cases, can not be predicted by
management. When used in this Annual Report on Form 10-K, the words "believes",
"estimates", "anticipates" and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements.
RESULTS OF OPERATIONS
On December 31, 1996, HCC distributed to its shareholders the common stock of
GBCC owned by HCC. As a result of the dividend, GBCC is no longer a subsidiary
of HCC. For the years ended December 31, 1996 and 1995, however, the operations
of GBCC are included in the consolidated results of operations of HCC. The
following table sets forth the pro forma losses before income taxes of HCC and
its subsidiaries, exclusive of GBCC and its subsidiaries (the "HCC Group"), for
the years ended December 31, 1996 and 1995 as if the distribution of GBCC common
stock had occurred at December 31, 1994 and, as a result, the GBCC Group had not
been consolidated with HCC.
Effective on April 1, 1997, HCC acquired the general partnership interest in
the limited partnership that manages the Aurora Casino. Prior to that date, the
limited partnership was wholly owned by subsidiaries of GBCC. As a result of
the purchase, the limited partnership is now consolidated with HCC, and earnings
attributable to the limited partnership interest not owned by HCC are deducted
from HCC's are operating income as minority interest. The 1997 financial
information set forth below is adjusted from the consolidated financial
statements presented elsewhere to include only the earnings attributable to HCC
as general partner in income before taxes, nonrecurring, extraordinary and other
items.
As a result of these proforma adjustments, the following presentation
reflects all periods on a comparable basis. Except for this presentation, the
impact of GBCC's exclusion from the 1997 results of operations will not be
addressed in the discussion which follows.
20
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997(1) 1996(2) 1995(2)
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Casino revenues $251,471 $244,485 $234,570
Other departmental revenues 41,454 36,660 30,915
Less - promotional allowances (25,168) (22,658) (18,226)
-------- -------- --------
Net revenues 267,757 258,487 247,259
-------- -------- --------
Casino expenses 171,623 174,032 154,585
Other departmental expenses 14,130 12,716 11,906
General and administrative expenses 15,631 18,766 15,891
Management and consulting fees 10,809 10,560 10,632
Depreciation and amortization 18,901 21,006 20,432
Development expenses 1,480 1,065 6,765
-------- -------- --------
Total expenses 232,574 238,145 220,211
-------- -------- --------
Operating income before write down of assets 35,183 20,342 27,048
Write down of assets (19,678) (22,141) -
-------- -------- --------
Income (loss) from operations 15,505 (1,799) 27,048
Interest expense, net (28,321) (26,563) (23,217)
Gain (loss) on disposal of assets 552 (46) (570)
Equity in earnings of general partnership 800 - -
-------- -------- --------
(Loss) income before income taxes,
extraordinary and other items $(11,464) $(28,408) $ 3,261
======== ======== ========
</TABLE>
________________________________
(1) As presented in consolidated financial statements except for the general
partnership interest.
(2) Pro forma HCC Group.
Net revenues of the HCC Group for the year ended December 31, 1997 were
$267.8 million, an increase of 3.6% from net revenues of $258.5 million in 1996.
The 1997 increase is directly attributable to the $12.7 million (13.5%) increase
in net revenues at the Tunica Casino, offset by a $3.1 million (1.9%) decline in
net revenues at the Aurora Casino. Net revenues for 1996 reflect an increase of
$11.2 million (4.5%) from the $247.3 million earned during 1995. Most of the
1996 increase was realized by improved net revenues at the Aurora Casino; net
revenues at the Tunica Casino were virtually unchanged in 1996 compared to 1995.
As explained in greater detail below, HCC has incurred significant charges
for the write down of assets during 1997 and 1996. The 1997 increase in net
revenues over the prior year, coupled with a 2.3% decline in operating expenses,
exclusive of asset write downs, would result in the HCC Group's ongoing income
from operations improving by $14.8 million (73%) to $35.2 million in 1997 from
$20.3 million in 1996. The 1996 decline in income from ongoing operations of
$6.7 million (24.8%) compared to 1995 reflects the 4.5% increase in net revenues
offset by a $17.9 million (8.1%) increase in operating expenses other than asset
write downs. The increase in ongoing operating expenses primarily resulted from
higher marketing and promotional expenses in response to increased competition
at both the Aurora Casino and the Tunica Casino.
21
<PAGE>
AURORA CASINO
GENERAL
Income from operations at the Aurora Casino, adjusted to exclude management
fees, amounted to $39.1 million for the year ended December 31, 1997 compared to
$35.3 million and $35.6 million, respectively, during 1996 and 1995. The 10.9%
increase in 1997 compared to 1996 has resulted despite increased competition
from the opening in northern Indiana of three riverboat gaming operations during
June 1996 and two additional operations in April and August 1997 which more than
doubled gaming capacity in the Chicago area. The new facilities have added
approximately 9,100 gaming positions to the Chicago area; the four existing
Illinois riverboats in the Chicago area have less than 5,300 gaming positions.
The Chicago area riverboats in general, and the Aurora Casino in particular,
have continued to adjust and respond to this increased competition as
demonstrated by the Aurora Casino's increase in net revenue during both the
third and fourth quarters of 1997 compared to the same periods in 1996. The
second half 1996 period was also negatively impacted by severe local flooding in
July 1996 which caused the cancellation of several cruises and, as a result of
extensive damage in the surrounding area, reduced casino volume during the
remainder of the year. Income from operations before management fees declined
slightly in 1996 from 1995 despite the expansion of one of the Aurora Casino's
riverboats in the second quarter of 1995 which increased gaming capacity by
10,000 square feet and slot machine capacity by 34%. The decline is due to the
increased competition in the second half of 1996 mentioned above, coupled with
the severe local flooding.
Effective January 1, 1998, the state of Illinois increased the wagering tax
on riverboat operators in the state to a graduated tax rate system with rates
ranging from 15% to 35% based on total adjusted gross receipts. For the year
ended December 31, 1997, the Aurora Casino paid or accrued wagering taxes of
$30.7 million. Had the new rates been in effect during 1997, the wagering tax
for the Aurora Casino would have been $41.3 million. Management has reviewed
its operating strategy and is currently implementing changes to its cruising
schedule and curtailing marginally profitable operations in response to the
increased taxes.
GAMING OPERATIONS
The following table sets forth certain unaudited financial and operating data
for the Aurora Casino's operations for the years ended December 31, 1997, 1996
and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
REVENUES:
Table games $ 47,206 $ 51,230 $ 57,008
Slot machines 105,413 105,894 89,273
Poker revenues 1,346 - -
---------- ---------- ----------
Total $ 153,965 $ 157,124 $ 146,281
========== ========== ==========
TABLE GAMES:
Gross wagering (drop) (1) $ 273,689 $ 304,851 $ 320,822
Hold percentages (2) 17.3% 16.8% 17.8%
SLOT MACHINES:
Gross wagering (handle) (1) $1,866,687 $1,902,642 $1,499,768
Hold percentages (2) 5.7% 5.6% 6.0%
</TABLE>
- -----------------------
22
<PAGE>
(1) Gross wagering consists of the total value of chips purchased for table
games ("drop") and coins wagered in slot machines ("handle").
(2) Casino revenues consist of the portion of gross wagering that a casino
retains and, as a percentage of gross wagering, is referred to as the "hold
percentage".
Total gross wagering at the Aurora Casino as measured by table drop and slot
machine handle decreased by $67.1 million (3%) during 1997 compared to 1996.
The decrease is directly attributable to the competition from the five new
casinos mentioned above. The 1997 decline in total gross wagering reflects a
slot handle decline of $36 million (1.9%) and a table drop decrease of $31.1
million (10.2%). For the second half of 1997, total gross wagering was $34.1
million (3.3%) greater than the comparable period in 1996. The second half 1997
increase reflects the Aurora Casino's adjustment to the increased competition
(the comparable 1996 period includes operations subsequent to the opening of
three of the five new Indiana riverboat operations) as well as the impact of
local flooding in 1996. The 1997 annual period decrease in casino wagering
continues to reflect the significance of the additional gaming competition in
the Chicago market area from the Indiana gaming operations. However, the
Illinois-based riverboat operators located closer to the new Indiana facilities
and which drew a greater percentage of their customers from areas now more
conveniently served by the Indiana facilities suffered a greater loss of
patronage than the Aurora Casino. The Aurora Casino's 1997 decrease in gross
wagering compares favorably with the decrease in gross wagering for the two
Joliet, Illinois riverboat operators which, based on information published by
the Illinois Gaming Board, suffered a combined decrease in gross wagering of 15%
during the year ended December 31, 1997 compared to 1996. Accordingly, the
Aurora Casino's location and resulting customer base west of Chicago together
with the success of its facility improvements program, including the completion
of a new 500-space parking garage facility during September 1996, have helped
maintain patron volume.
Total gross wagering increased by $386.9 million during 1996 compared to 1995
primarily due to the expansion of gaming space in 1995 which increased slot
machine capacity by 34%. Slot machine handle during 1996 increased $402.9
million (26.9%) while table drop decreased slightly. The increase in slot
machine handle during the first four months of 1996 was 76.3% compared to the
pre-expansion and construction periods in 1995; however, as a result of flooding
and the competition from new boats in Indiana, slot machine handle during the
last six months of 1996 was only 2% above the 1995 comparable period.
The 26.9% increase in slot machine handle during 1996 compares favorably to
the 3.4% increase experienced by other Chicago-area riverboat operators. Other
Chicago-area operators also experienced a decrease in table game wagering of
10.8% compared to a 5% decrease at the Aurora Casino. Accordingly, the Aurora
Casino increased both its slot machine and table games market share during 1996
as the additional competition from Indiana riverboats had a greater negative
impact on Chicago-area operators closer to Indiana than on the Aurora Casino.
REVENUES
Casino revenues decreased $3.2 million (2%) during the year ended December
31, 1997 compared to 1996. The 1997 decrease reflects a decline in table game
revenues of $4 million (7.9%) resulting from the decrease in table drop
mentioned above, lessened somewhat by an increase in the hold percentage to
17.3% in 1997 from 16.8% in 1996. Slot machine revenue declined only slightly
(less than 1%) in 1997 compared to 1996 despite the $36 million decline in slot
machine handle as the slot machine hold percentage increased slightly to 5.7% in
1997 from 5.6% in 1996.
Casino revenues increased $10.8 million (7.4%) during the year ended December
31, 1996 compared to 1995. Such increase resulted from a $16.6 million increase
in slot machine revenues offset, in part, by
23
<PAGE>
a $5.8 million decline in table game revenues. The 26.9% increase in slot
machine handle during 1996 was partially offset by a decrease in the slot
machine hold percentage to 5.6% from 6%, resulting in a slot machine revenue
increase of $16.6 million (18.6%). The slight decline in table game wagering
discussed previously was further compounded by a decline in the table game hold
percentage to 16.8% in 1996 from 17.8% in 1995. These factors combined to bring
about a decrease in table game revenues of $5.8 million (10.1%).
Food and beverage revenues did not change significantly during 1997 as
compared to 1996. Food and beverage revenues increased $2.1 million (17.7%)
during 1996 compared to 1995 as a result of increased complimentaries resulting
from marketing programs.
Other revenues decreased $2 million (50.7%) during 1997 compared to 1996 and
decreased $1 million (21%) during 1996 compared to 1995. These declines are
primarily due to the elimination of garage and valet parking fees due to
competitive pressures.
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
These allowances, as a percentage of food and beverage and other revenues at the
Aurora Casino, were 60.7%, 64.5% and 62.6%, respectively, during the years ended
December 31, 1997, 1996 and 1995. The 1997 decrease represents the reduction of
promotional activity with respect to parking as mentioned above. The 1996
increase reflects the increase in dining promotional activities partially offset
by the decrease in complimentary parking fees.
DEPARTMENTAL EXPENSES
Casino expenses in 1997 decreased $5.9 million (5.5%) from the prior year
reflecting management's success at controlling personnel costs and improving
overall profitability. Casino expenses increased by $10.8 million (11.2%) in
1996 compared to 1995 primarily due to the increases in casino wagering noted
above together with increased promotional activity.
Food and beverage expenses did not change significantly during 1997 compared
to 1996. Food and beverage expenses increased slightly during 1996 as increases
in payroll and food costs were virtually offset by increased allocations to the
casino department as a result of promotional activities. Food and beverage
services to casino patrons are, for the most part, ancillary to the casino
operation. Accordingly, these departments are not expected to contribute
significantly to income from operations.
Other expenses increased $575,000 (53.9%) in 1997 compared to 1996 and
$324,000 (43.7%) in 1996 compared to 1995 as fewer expenses were allocated to
the casino department, primarily as a result of reduced parking costs.
TUNICA CASINO
GENERAL
The Tunica Casino earned income from operations, adjusted to exclude
consulting fees payable to a subsidiary of GBCC, of $15.7 million in 1997
compared to $6.3 million in 1996 and $15.7 million in 1995. The increase in
1997 is primarily due to the opening of the Tunica Casino's new 352-room hotel
tower in September 1996, which increased room capacity by over 225% and added
luxury suites, meeting spaces, and other amenities. The 1996 decrease results
primarily from increased competition in the Tunica market as evidenced by the
opening of new casinos in December 1995 and in April and July 1996. The
additional competition resulted in increased marketing and promotional
expenditures to protect market share.
24
<PAGE>
GAMING OPERATIONS
The following table sets forth certain unaudited financial and operating
data relating to the operations of the Tunica facility for the years ended
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(in thousands, except percentages)
<S> <C> <C> <C>
CASINO REVENUES:
Table games $ 15,083 $ 16,650 $ 17,782
Slot machines 81,404 69,644 69,256
Poker revenues 1,019 1,067 1,251
---------- ---------- ----------
Total $ 97,506 $ 87,361 $ 88,289
========== ========== ==========
TABLE GAMES:
Gross wagering (drop) (1) $ 78,115 $ 82,350 $ 80,348
Hold percentage (2) 19.3% 20.2% 22.1%
SLOT MACHINES:
Gross wagering (handle) (1) $1,595,645 $1,332,949 $1,345,983
Hold percentage (2) 5.1% 5.2% 5.1%
</TABLE>
- ------------------
(1)(2) See corresponding notes to the table at "Aurora Casino - Gaming
Operations" above.
Total gross wagering at the Tunica Casino as measured by table game drop
and slot machine handle increased $258.5 million (18.3%) during 1997 compared to
1996. The additional patron volume is directly attributable to the hotel
expansion mentioned above. This increase reflects an increase in slot machine
handle of $262.7 million (19.7%) offset by a decline in table game drop of $4.2
million (5.1%). Total gross wagering at the Tunica Casino decreased slightly
(less than 1%) during 1996 compared to 1995. Table game wagering increased $2
million (2.5%); however, slot machine handle decreased $13 million (1%), more
than offsetting the table game increase.
During the first quarter of 1996, the Tunica Casino opened its new
"Adventure Slots" attraction, a highly themed area of the casino floor which
features interactive memorabilia displays and entertainment. Increased patron
volume subsequent to the mid-February opening of this attraction resulted in an
overall increase in slot machine handle of 6% for the first quarter of 1996
compared to the same period of 1995. Such increase was offset during the
remainder of 1996 by the opening in April 1996 of a fourth casino in the Casino
Strip cluster and the opening in July 1996 of Grand Casino, the largest casino
in Tunica County, which is located north of the Casino Strip and closer to the
primary gaming market of Memphis, Tennessee.
REVENUES
Total casino revenues in 1997 increased $10.1 million (11.6%) compared to
1996. Slot machine revenues increased $11.8 million (16.9%) as a result of the
increase in slot handle described above. This increase in revenue was partially
offset by a 9.4% decrease in table game revenues, to $15.1 million in 1997 from
$16.7 million in 1996. The decrease in table game revenues is attributable to a
decline in table drop of $4.2 million, as discussed above, coupled with a drop
in the hold percentage to 19.3% in 1997
25
<PAGE>
from 20.2% in 1996. Total casino revenues decreased slightly by $928,000 (1.1%)
during 1996 compared to 1995. The increase in table game wagering was offset by
a decrease in the table hold percentage to 20.2% in 1996 from 22.1% in 1995,
resulting in a decrease in table game revenues of $1.1 million (6.4%). Although
slot machine wagering decreased by 1% in 1996 compared to 1995, the hold
percentage improved to 5.2% from 5.1%, resulting in a slight increase overall in
slot machine revenues of $388,000 (less than 1%).
Room revenues increased in 1997 by $4.3 million (81.1%) compared to 1996
and increased $2.1 million (67.2%) during 1996 compared to 1995. These
increases result from the opening of the Tunica Casino's new 352-room hotel
tower during the third quarter of 1996, increasing the number of guest rooms by
almost 130%. Hotel occupancy rates have decreased slightly as a result of the
additional room capacity, declining to an average of 92% for 1997 and 88% for
the period from August through December 1996, from an average of 99.7% from
January through July 1996 and an average of 96% in 1995. An additional 22
parking spaces for recreational vehicles were added to the RV Park at the Tunica
Casino in 1997 bringing the total number of parking spaces to 72.
Food and beverage revenues in 1997 increased $2.3 million (19.5%)
principally due to additional patron volume, increased marketing efforts and the
opening of a new casual dining outlet. Food and beverage revenues increased
$2.3 million (24.1%) during 1996 compared to 1995 as a result of increased
overnight patron volume from the newly completed hotel tower, the opening of a
new dining outlet and increased promotional activities. Other revenues
increased by 6.1% during 1997 compared to 1996 due to increased patron volume
with respect to such ancillary services as telephones, cable television and
vending machines. Such revenues did not change significantly in 1996 from 1995
levels.
Promotional allowances represent the estimated value of goods and services
provided free of charge to casino customers under various marketing programs.
These allowances, as a percentage of rooms, food and beverage and other
revenues, increased to 61.2% from 61.1% during 1996 and 56% in 1995. Although
the dollar amount of promotional allowances increased by $4.1 million (36.7%),
the stability of the percentage of promotional allowances in 1997 compared to
1996 indicates that management's efforts to increase revenues while controlling
the cost of promotional activities were successful. The 1996 increase results
from the increased use of hotel and food and beverage complimentaries as part of
the Tunica Casino's promotional programs.
DEPARTMENTAL EXPENSES
Casino expenses in 1997 increased $3.5 million (5.3%) due to additional
patron volume as evidenced by the 11.6% increase in casino revenues. Casino
expenses increased $8.6 million (15%) in 1996 compared to 1995 primarily due to
increases in advertising and marketing costs and other promotional activities.
Such costs increased in 1996 with the advent of additional competition as
discussed under "Gaming Operations" above and the opening of the new hotel tower
and the "Adventure Slots" attraction. Additional promotional activities also
resulted in increased allocations of rooms and food and beverage costs to the
casino department.
Rooms expenses in 1997 increased $262,000 (16.7%) in 1997 compared to the
prior year. This increase is primarily attributable to the additional patron
volume associated with the opening of the new hotel tower. Rooms expenses
decreased $314,000 (16.6%) in 1996 compared to 1995 in spite of the addition of
the new hotel tower. The decrease is primarily due to increases in promotional
activities resulting in increased allocations of room costs to the casino
department.
Food and beverage expense increased $573,000 (15.3%) and $395,000 (11.8%),
respectively, during 1997 and 1996 compared to the prior years primarily due to
increased patron volume associated with the opening of the new hotel tower and
additional dining outlets. Such increases were partially offset
26
<PAGE>
by increased promotional activity, the cost of which is allocated to the casino
department. The increases in other expenses of $143,000 (11.4%) during 1997 and
$72,000 (6.1%) during 1996 compared to the prior years reflect increased costs
associated with merchandise sales and lounge entertainment.
OTHER HCC GROUP ITEMS
- ---------------------
The operating expenses of HCC, exclusive of the Aurora Casino and the
Tunica Casino consist primarily of general and administrative expenses and
expenses incurred in connection with the pursuit of additional gaming venues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the HCC Group decreased $3.1
million (16.7%) in 1997 compared to the prior year. Such expenses decreased
4.2% at the Aurora Casino and 4.1% at the Tunica Casino due to management's cost
containment efforts. The remaining corporate decline in general and
administrative expense of $2.7 million is due to reductions in corporate
overhead costs, primarily in travel costs and professional fees. General and
administrative expenses increased $2.9 million (18.1%) during 1996 compared to
1995. Increases in such costs at the Aurora Casino of 6.3% and at the Tunica
Casino of 5.6% were not significant; the remaining increase of $2.3 million in
corporate overhead costs resulted primarily from increases in professional fees.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $2.1 million (10%) in 1997 compared to
1996 and did not change significantly in 1996 compared to 1995. Although
completion of a parking garage at the Aurora Casino and a new hotel tower at the
Tunica Casino during the third quarter of 1996 significantly increased the
amount of depreciable assets, the revision in estimated useful lives of
buildings, barges and certain operating equipment effective October 1, 1996
resulted in an overall decrease in depreciation and amortization during 1997 and
offset what would otherwise have been an increase during 1996.
DEVELOPMENT EXPENSES
Development expenses represent costs incurred in connection with HCC's
pursuit of potential gaming opportunities in jurisdictions where additional
gaming licenses may be available as well as those where gaming has not been
legalized. Such costs in 1997 increased $415,000 (39%) primarily as a result of
HCC's efforts in obtaining a gaming site in Louisiana. In October 1997, HCC
entered into a preliminary agreement with two partners to develop a hotel and
casino complex on the Red River in Shreveport, Louisiana subject to approval of
the Louisiana Gaming Control Board. Development expenses decreased $5.7 million
(84.3%) in 1996 compared to 1995 primarily as a result of an overall decrease in
prospective venues and projects.
WRITE DOWN OF ASSETS
In connection with a refinancing of its indebtedness in 1994, GBCC issued
$40.5 million discounted principal amount of deferred interest notes (the "PPI
Funding Notes") to HCC in exchange for $38.8 million principal amount of 15 1/2%
notes issued by another GBCC subsidiary and held by HCC. It was anticipated that
one of HCC's primary methods of realizing the carrying value of the new notes
would be through the utilization of existing tax net operating losses of the
GBCC Group. As a result of HCC's distribution of GBCC stock at December 31,
1996, GBCC's tax net operating losses are no longer available for utilization in
HCC's consolidated tax returns; accordingly, at December 31, 1996, HCC performed
an evaluation of the collectability of the PPI Funding Notes. Based on (i) the
planned utilization of $7.6 million of such notes in connection with the
acquisition from GBCC of the general partnership interest
27
<PAGE>
in the limited partnership which holds the Aurora Management contract (see
"Liquidity and Capital Resources - Financing Activities" below); (ii)
management's intention, subject to the approval of the independent directors of
GBCC, to utilize additional notes to acquire other assets from GBCC; and (iii)
an evaluation of the future prospects for repayment based on cash flow
projections and other available information, HCC established a valuation
allowance in the amount of $18.7 million at December 31, 1996 to adjust the
carrying amount of the PPI Funding Notes to their estimated realizable value at
that date. HCC again evaluated the collectability of the $28 million carrying
value of the PPI Funding Notes at December 31, 1997. Such evaluation was based,
in part, on HCC's determination of the potential for repayment of the PPI
Funding Notes by means of the available cash and noncash assets of PPI Funding
and its affiliates. Particular consideration was given to the filing for
protection under Chapter 11 of the United States Bankruptcy Code by GBCC's most
significant operating subsidiary on January 5, 1998. HCC concluded that an
additional write down of its receivable in the amount of $15.7 million at
December 31, 1997 was necessary to reduce the carrying amount of the PPI Funding
Notes to their estimated realizable value.
During November 1995, HCC loaned $10 million of the proceeds from the HCC
Refinancing (see "Liquidity and Capital Resources - Financing Activities" below)
to an unaffiliated gaming company in the form of two $5 million notes (Series A
and Series B). The loans were payable in quarterly installments of principal
and interest at the rate of prime plus one percent per annum commencing in
February 1998 with the final payment due in November 2000. On February 27,
1998, both parties agreed to settle the outstanding obligations with the payment
of $4.4 million and the issuance of two new, short-term obligations totaling
$1.6 million. The $4 million difference between the $10 million carrying amount
of the notes receivable and the agreed upon settlement has been reflected as a
write down of the notes receivable as of December 31, 1997.
During 1996, management determined that certain properties in Texas
acquired as potential sites for future development should be offered for sale.
An evaluation of net realizable value for such sites resulted in a write down
for the anticipated loss on disposal of the properties of $3.4 million for the
year ended December 31, 1996. No additional write downs were recorded in 1997.
NET INTEREST EXPENSE
Net interest expense of the HCC Group increased $1.8 million (6.6%) and
$3.3 million (14.4%), respectively, during 1997 and 1996 compared to the prior
years. The 1997 increase is primarily attributable to additional interest
incurred with respect to the new parking garage at the Aurora Casino which is
treated as a capital lease for financial reporting purposes and to the
capitalization of interest at the Tunica Casino with respect to construction of
its new hotel tower during 1996. The 1996 net interest expense increase is
attributable to interest incurred on $210 million of Senior Secured Notes issued
during October 1995, partially offset by the elimination of interest from the
retirement of previously outstanding debt. Such increases were partially offset
by the increased capitalization of interest on construction projects.
GAIN (LOSS) ON DISPOSAL OF ASSETS
The 1997 gain resulted primarily from the sale of a company-owned aircraft.
Loss on disposal of assets during 1995 includes the sale of excess barges by HCT
which were acquired in January 1994 together with other assets of the partially
completed Tunica project from the project's previous owner. The barges were
sold to third parties at a price below management's estimate of net realizable
value, resulting in a loss on the sale.
28
<PAGE>
HCC CONSOLIDATED ITEMS
- ----------------------
INCOME TAX (PROVISION) BENEFIT
HCC and its subsidiaries have tax net operating loss carryforwards
("NOL's") totaling approximately $27 million, none of which begin to expire
until the year 2010. Additionally, HCC and its subsidiaries have various tax
credits available totaling approximately $311,000 which do not begin to expire
until the year 2008.
Based on the operating results of the Aurora Casino and the Tunica Casino
since commencement of their operations, management believes that it is more
likely than not that future consolidated taxable income will be sufficient to
utilize at least a portion of the NOL's, tax credits and other deferred tax
assets resulting from temporary differences. Accordingly, under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", the consolidated balance sheet reflects the recording of a net deferred
tax asset of $3.4 million as of December 31, 1997. Subject to a "change of
control" as discussed below not occurring, the ultimate recognition of this
amount of deferred tax assets will be dependent on HCC and its subsidiaries'
ability to generate approximately $10 million of taxable income for federal tax
purposes prior to the expiration dates of the NOL's and tax credit carryforwards
and the reversal of other temporary differences.
NET OPERATING LOSS CARRYFORWARDS
Sales by HCC or existing stockholders of common stock by a five percent
stockholder, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), can cause a "change of control", as defined in Section 382 of the Code,
which would limit the ability of HCC or its subsidiaries to utilize these loss
carryforwards in later tax periods. Should such a change of control occur, the
amount of loss carryforwards available for use in any one year would most likely
be substantially reduced. Future treasury regulations, administrative rulings
or court decisions may also effect HCC's future utilization of its loss
carryforwards.
EXTRAORDINARY ITEM
HCC is required to make an offer to purchase not more than $2.5 million in
principal amount of its Senior Secured Notes at each semiannual interest payment
date. On November 1, 1997, HCC made such an offer and redeemed $2.5 million of
the Senior Secured Notes. This early redemption resulted in an extraordinary
loss of $326,000, reduced by an estimated income tax benefit of $111,000.
During October 1995, HCC completed the refinancing of $90 million of 14%
Senior Notes as well as other debt incurred in connection with the construction
of the Tunica Casino. As a result, costs and fees incurred, together with the
write off of unamortized transaction costs, resulted in the recording of an
extraordinary item in the amount of $23.8 million in 1995.
YEAR 2000 COMPLIANCE
Management believes that its information systems are Year 2000 compliant.
INFLATION
Management believes that in the near term, modest inflation, together with
increased competition within the gaming industry for qualified and experienced
personnel, will continue to cause increases in operating expenses, particularly
labor and employee benefits costs.
29
<PAGE>
SEASONALITY
Historically, the Aurora Casino's operations have experienced some
seasonality, with the peak activity occurring from May to September.
Consequently, the results of HCC's operations for the first and fourth quarters
have traditionally been less profitable than the other quarters of the fiscal
year. Furthermore, management believes that seasonality may also cause
fluctuations in reported results at the Tunica Casino. In addition, the
operations of the Aurora Casino and the Tunica Casino may fluctuate
significantly due to a number of factors, including chance. Such seasonality
and fluctuations may materially affect HCC's casino revenues and overall
profitability.
LIQUIDITY AND CAPITAL RESOURCES
Since their openings on June 17, 1993 and August 8, 1994, respectively, the
Aurora Casino and the Tunica Casino have become the principal sources of
liquidity and capital resources for HCC. Prior to the commencement of
operations of the Aurora facility, HCC's principal business activities were
limited to its approximate 80% ownership of GBCC. GBCC's principal sources of
liquidity and capital resources were cash flow from the Sands, proceeds from
debt financings and proceeds from asset sales.
OPERATING ACTIVITIES
The operations of the Aurora Casino continue to be the HCC Group's primary
source of liquidity and capital resources, having contributed approximately
$24.9 million of cash flow from operations during 1997 after deducting the
payment of $9.6 million of management fees. The Tunica Casino provided $12
million of cash from operations during 1997 after deducting the payment of $1.2
million of consulting fees to the GBCC Group. The HCC Group's other sources of
funds include the sale of real estate and other assets ($12.5 million) and
interest income earned on temporary investments. In addition to operating
expenses at the Aurora Casino and the Tunica Casino, uses of operating cash by
the HCC Group include interest payments on the Senior Secured Notes ($26.8
million), costs to pursue development opportunities ($1.5 million) and corporate
overhead costs ($6 million).
Subsequent to its distribution of GBCC common stock, the HCC Group has tax
net operating loss carryforwards totaling approximately $27 million and tax
credits available totaling approximately $311,000. Due to the availability of
such net operating loss and tax credit carryforwards, management presently does
not anticipate HCC and its subsidiaries being required to make significant tax
payments in the near future.
FINANCING ACTIVITIES
During October 1995, the HCC Group completed the refinancing of its 14%
Senior Notes and 13 1/2% First Mortgage Notes through a public offering of $210
million of 12 3/4% Senior Secured Notes due November 1, 2003, discounted to
yield 13 3/4% per annum (the "HCC Refinancing"). In addition to refinancing
existing debt, proceeds from the HCC Refinancing were used to finance
construction of a 352-room hotel tower and related amenities and to fund
development and construction of the "Adventure Slots" attraction, a themed
gaming area, at the Tunica Casino; to fund HCA's required contribution of $4
million for construction of a new 500-space parking garage; and, to the extent
available, for working capital purposes. Interest on the Senior Secured Notes
is payable semiannually on May 1 and November 1 of each year commencing on May
1, 1996. The Senior Secured Notes are unconditionally guaranteed on a senior
secured basis by HCT and by certain future subsidiaries of HCC. HCA is not a
guarantor. The Senior Secured Notes and related guarantees are secured by,
among other things, (i) substantially all of the assets of HCT and future
guarantors, (ii) a first mortgage limited to approximately $39 million on
substantially all of the assets of HCA, (iii) a pledge of the capital stock of
certain subsidiaries of HCC and (iv) the collateral assignment of any future
management contracts entered into by HCC. The limitation on
30
<PAGE>
the first mortgage described in (ii) above is subject to reduction for principal
payments on an intercompany note between HCC and HCA. The intercompany note
requires semiannual principal payments of $2.5 million commencing October 15,
1997 with the balance due November 1, 2003.
The Senior Secured Notes are redeemable at the option of HCC any time on or
after November 1, 1999 at 106.375% of the then outstanding principal amount,
decreasing to 103.1875% and 100%, respectively, on November 1, 2000 and 2001.
Commencing with the November 1, 1997 interest payment date and at each
subsequent interest payment date, HCC is required to make an offer to purchase
not more than $2.5 million in principal amount of the Senior Secured Notes at a
price of 106.375% of the principal amount tendered. HCC made such an offer and
redeemed $2.5 million principal amount of the Senior Secured Notes in December
1997.
The indenture to the Senior Secured Notes contains various provisions
limiting the ability of HCC and certain defined subsidiaries to, among other
things, pay dividends or make other restricted payments; incur additional
indebtedness or issue preferred stock; create liens; create dividend or other
payment restrictions affecting certain defined subsidiaries; enter into mergers
or consolidations or make sales of all or substantially all assets of HCC, HCT
or any future guarantor; and enter into transactions with certain affiliates.
During 1995, HCA obtained a $5 million unsecured bank promissory note with
respect to its riverboat expansion project. Principal payments are based on a
30-month amortization with the final payment due in February 1998.
HCT has a $1 million bank credit facility available through August 15, 1998.
Borrowings on the line of credit accrue interest at the rate of prime plus 1
1/2% per annum. At December 31, 1997 and 1996, no borrowings were outstanding
on the line of credit.
Effective as of April 1, 1997, HCC acquired from PPI Corporation, a GBCC
subsidiary, the general partnership interest in the limited partnership which
holds the Aurora management agreement. The acquisition price for the general
partnership interest included a note in the amount of $3.8 million and the
assignment of $13.75 million undiscounted principal amount of PPI Funding Notes
and $350,000 accrued interest due from GBCC to PPI Corporation. Annual
principal and interest payments by HCC on the $3.8 million note approximate the
general partner's share of partnership distributions now being made to HCC.
As of December 31, 1997, the HCC's scheduled maturities of long-term debt and
payments under capital leases during 1998 are approximately $6.8 million and
$2.5 million, respectively.
CAPITAL EXPENDITURES AND OTHER INVESTING ACTIVITIES
Capital expenditures at the Aurora Casino were $2.4 million during 1997.
Management anticipates spending $3.4 million during 1998 primarily for its
ongoing capital improvements program with no major projects currently scheduled.
Capital expenditures during 1997 at the Tunica Casino amounted to $2.6
million. Management anticipates spending $3.5 million in 1998 primarily for its
ongoing program of capital improvements.
HCT entered into an agreement with two other casino operators during 1996
providing for the joint construction and ownership of a golf course.
Contributions by HCT to the limited liability corporation formed to develop and
operate the golf course amounted to $2 million during the first quarter of 1997.
No significant additional contributions are currently anticipated.
31
<PAGE>
HCC is pursuing several potential gaming opportunities including the
aforementioned Shreveport, Louisiana joint venture project. As presently
contemplated, HCC would contribute its proportionate share of approximately $40
million as an equity investment in the venture with the remaining construction
and preopening costs (estimated at $120 million) to come from non-recourse
project financing.
HCC intends to finance any future ventures with cash flow from operations,
together with third party financing, including non-recourse project financing.
SUMMARY
Management anticipates that the HCC Group's funding requirements for the next
twelve months will be satisfied by existing cash and cash generated by the
Aurora and Tunica Casinos.
32
<PAGE>
ITEM 8. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES:
Report of Independent Public Accountants................... 34
Consolidated Balance Sheets as of December 31, 1997
and 1996................................................. 35
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995................... 37
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) for the Three Years Ended December 31,
1997..................................................... 38
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995................... 39
Notes to Consolidated Financial Statements................. 40
HOLLYWOOD CASINO-AURORA, INC.
Report of Independent Public Accountants................... 62
Balance Sheets as of December 31, 1997 and 1996............ 63
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.......................... 65
Statement of Changes in Shareholder's Equity for the Three
Years Ended December 31, 1997............................. 66
Statements of Cash Flows for the Years Ended December
31, 1997, 1996, and 1995.................................. 67
Notes to Financial Statements.............................. 68
HWCC-TUNICA, INC.
Report of Independent Public Accountants................... 79
Consolidated Balance Sheets as of December 31, 1997
and 1996.................................................. 80
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995.................... 82
Consolidated Statement of Changes in Shareholder's Equity
for the Three Years Ended December 31, 1997............... 83
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... 84
Notes to Consolidated Financial Statements................. 85
</TABLE>
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hollywood Casino Corporation:
We have audited the accompanying consolidated balance sheets of Hollywood
Casino Corporation (the Company and a Delaware corporation) and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Casino Corporation
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 9, 1998
34
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 38,156,000 $ 21,488,000
Short-term investments 5,979,000 -
Accounts receivable, net of allowances of
$1,188,000 and $1,693,000, respectively 2,747,000 3,140,000
Inventories 1,454,000 1,620,000
Deferred income taxes 2,273,000 4,271,000
Refundable deposits and other
current assets 2,274,000 1,835,000
Due from affiliates 7,811,000 7,641,000
------------ ------------
Total current assets 60,694,000 39,995,000
------------ ------------
Property and Equipment:
Land 6,621,000 5,846,000
Buildings and improvements 119,534,000 119,501,000
Riverboats and barges 39,494,000 39,494,000
Operating equipment 70,390,000 69,713,000
Construction in progress 1,222,000 686,000
------------ ------------
237,261,000 235,240,000
Less - accumulated depreciation
and amortization (66,099,000) (49,740,000)
------------ ------------
Net property and equipment 171,162,000 185,500,000
------------ ------------
Other Assets:
Deferred financing costs 5,558,000 6,565,000
Notes receivable, net of allowance 6,000,000 10,000,000
Land rights 7,454,000 7,658,000
Due from affiliate, net of valuation allowance 12,322,000 36,597,000
Land held for sale, net of valuation allowance 6,264,000 14,501,000
Other assets 8,148,000 7,413,000
------------ ------------
Total other assets 45,746,000 82,734,000
------------ ------------
$277,602,000 $308,229,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
35
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 7,661,000 $ 8,282,000
Accounts payable 3,596,000 5,407,000
Accrued liabilities -
Salaries and wages 4,916,000 3,531,000
Interest 4,660,000 4,734,000
Insurance 2,667,000 2,140,000
Other 5,217,000 5,101,000
Due to affiliates 128,000 2,534,000
Other current liabilities 2,549,000 2,089,000
------------- -------------
Total current liabilities 31,394,000 33,818,000
------------- -------------
Long-Term Debt 198,420,000 202,057,000
------------- -------------
Capital Lease Obligations 20,841,000 21,707,000
------------- -------------
Other Noncurrent Liabilities 7,064,000 5,503,000
------------- -------------
Commitments and Contingencies
Minority Interest in Limited Partnership 2,256,000 -
------------- -------------
Shareholders' Equity:
Common Stock -
Class A common stock, $.0001 par value per share;
50,000,000 shares authorized; 24,910,000 and
24,760,000 shares issued and outstanding, respectively 2,000 2,000
Class B, non-voting, $.01 par value per share;
10,000,000 shares authorized; no shares issued - -
Additional paid-in capital 223,234,000 235,606,000
Accumulated deficit (205,609,000) (190,464,000)
------------- -------------
Total shareholders' equity 17,627,000 45,144,000
------------- -------------
$ 277,602,000 $ 308,229,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
36
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $251,471,000 $487,374,000 $498,618,000
Rooms 9,651,000 18,834,000 17,950,000
Food and beverage 28,533,000 61,620,000 56,225,000
Other 3,270,000 13,339,000 12,459,000
------------ ------------ ------------
292,925,000 581,167,000 585,252,000
Less - promotional allowances (25,168,000) (50,587,000) (45,309,000)
------------ ------------ ------------
Net revenues 267,757.000 530,580,000 539,943,000
------------ ------------ ------------
Expenses:
Casino 171,623,000 393,022,000 363,867,000
Rooms 1,835,000 6,029,000 6,871,000
Food and beverage 9,210,000 20,708,000 19,884,000
Other 3,085,000 7,010,000 5,535,000
General and administrative 16,790,000 37,169,000 36,914,000
Management and consulting fees 3,927,000 - -
Depreciation and amortization 18,901,000 40,836,000 40,955,000
Development 1,480,000 1,065,000 6,765,000
------------ ------------ ------------
Total expenses 226,851,000 505,839,000 480,791,000
------------ ------------ ------------
Income from operations before write down of assets 40,906,000 24,741,000 59,152,000
Write down of assets (19,678,000) (22,141,000) -
------------ ------------ ------------
Income from operations 21,228,000 2,600,000 59,152,000
------------ ------------ ------------
Non-operating income (expenses):
Interest income 1,896,000 3,101,000 3,708,000
Interest expense, net of capitalized interest
of $1,006,000 in 1996 and $354,000 in 1995 (30,305,000) (59,090,000) (55,558,000)
Gain (loss) on disposal of assets 552,000 (1,841,000) (514,000)
------------ ------------ ------------
Total non-operating expenses, net (27,857,000) (57,830,000) (52,364,000)
------------ ------------ ------------
(Loss) income before income taxes, extraordinary
and other items (6,629,000) (55,230,000) 6,788,000
Income tax provision (3,289,000) (63,000) (268,000)
------------ ------------ ------------
(Loss) income before extraordinary and other items (9,918,000) (55,293,000) 6,520,000
Minority interest in earnings of Limited Partnership (Note 1) (5,012,000) - -
------------ ------------ ------------
(Loss) income before extraordinary item (14,930,000) (55,293,000) 6,520,000
Extraordinary item:
Loss on early extinguishment of debt, net of
related tax benefit (215,000) - (23,808,000)
------------ ------------ ------------
Net loss $(15,145,000) $(55,293,000) $(17,288,000)
============ ============ ============
Basic net loss per common share:
(Loss) income before extraordinary item $ (.60) $(2.24) $ .27
Extraordinary item (.01) - (.97)
------------ ------------ ------------
Net loss $ (.61) $(2.24) $ (.70)
============ ============ ============
Diluted net loss per common share:
(Loss) income before extraordinary item $ (.60) $(2.24) $ .26
Extraordinary item (.01) - (.96)
------------ ------------ ------------
Net loss $ (.61) $(2.24) $ (.70)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
37
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 24,392,000 $2,000 $ 77,934,000 $(117,883,000)
Exercise of stock options 328,000 - 2,000 -
Net loss - - - (17,288,000)
---------- ------ ------------ -------------
BALANCE, DECEMBER 31, 1995 24,720,000 2,000 77,936,000 (135,171,000)
Distribution of Greate Bay Casino
Corporation common stock - - 157,670,000 -
Exercise of stock options 40,000 - - -
Net loss - - - (55,293,000)
---------- ------ ------------ -------------
BALANCE, DECEMBER 31, 1996 24,760,000 2,000 235,606,000 (190,464,000)
Stock issued for loan commitment 100,000 - 375,000 -
Acquisition of general partnership
interest - - (12,747,000) -
Exercise of stock options 50,000 - - -
Net loss - - - (15,145,000)
---------- ------ ------------ -------------
BALANCE, DECEMBER 31, 1997 24,910,000 $2,000 $223,234,000 $(205,609,000)
========== ====== ============ =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of this consolidated statement.
38
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(15,145,000) $(55,293,000) $ (17,288,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item 215,000 - 23,808,000
Depreciation and amortization, including accretion of debt discount 19,801,000 41,621,000 41,477,000
Write down of assets 19,678,000 22,141,000 -
(Gain) loss on disposal of assets (552,000) 1,841,000 514,000
Minority interest in earnings of Limited Partnership 5,012,000 - -
Provision for doubtful accounts 698,000 3,031,000 3,774,000
Deferred income tax provision (benefit) 3,200,000 46,000 (419,000)
Increase in accounts receivable (305,000) (769,000) (3,890,000)
(Decrease) increase in accounts payable and accrued expenses (16,000) 649,000 3,008,000
Net change in other current assets and liabilities (1,107,000) (677,000) 2,754,000
Net change in other noncurrent assets and liabilities 134,000 (281,000) (211,000)
------------ ------------ -------------
Net cash provided by operating activities 31,613,000 12,309,000 53,527,000
------------ ------------ -------------
INVESTING ACTIVITIES:
Purchases of property and equipment (5,101,000) (53,078,000) (55,009,000)
Collections on notes receivable - 9,361,000 103,000
Issuance of notes receivable - - (10,000,000)
Proceeds from dispositions of assets 12,487,000 2,699,000 236,000
Obligatory investments - (3,062,000) (2,967,000)
Short-term investments (5,979,000) (2,000,000) -
Investments in unconsolidated affiliates (2,000,000) (2,946,000) (1,675,000)
Increase in cash from purchase of limited partnership interest 451,000 - -
Distribution of GBCC cash and cash equivalents - (22,991,000) -
Decrease (increase) in cash restricted for construction projects - 29,874,000 (29,874,000)
------------ ------------ -------------
Net cash used in investing activities (142,000) (42,143,000) (99,186,000)
------------ ------------ -------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 601,000 2,203,000 204,939,000
Net borrowings on short-term credit facilities - 2,000,000 -
Cost of early retirement of debt - - (16,635,000)
Deferred financing costs (24,000) (126,000) (7,634,000)
Repayments of long-term debt (8,548,000) (6,840,000) (142,554,000)
Payments on capital lease obligations (1,976,000) (2,453,000) (2,412,000)
Limited partnership distributions (4,856,000) - -
Issuance of common stock - - 2,000
------------ ------------ -------------
Net cash (used in) provided by financing activities (14,803,000) (5,216,000) 35,706,000
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents 16,668,000 (35,050,000) (9,953,000)
Cash and cash equivalents at beginning of year 21,488,000 56,538,000 66,491,000
------------ ------------ -------------
Cash and cash equivalents at end of year $ 38,156,000 $ 21,488,000 $ 56,538,000
============ ============ =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
39
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Hollywood Casino Corporation ("HCC" or the "Company"), is a Delaware
corporation which was organized and incorporated on November 5, 1990.
Approximately 53% of the currently issued and outstanding stock of HCC is owned
by certain general partnerships and trusts controlled by Jack E. Pratt, Edward
T. Pratt, Jr. and William D. Pratt and by other family members (collectively,
the "Pratt Family").
HCC owns all of the outstanding common stock of both Hollywood Casino -
Aurora, Inc. ("HCA") and HWCC - Tunica, Inc. ("HCT"). HCA is an Illinois
corporation organized during 1990 which owns and operates a 32,100 square foot
riverboat gaming operation together with docking and other entertainment
facilities under the service mark Hollywood Casino(R) located in Aurora,
Illinois (the "Aurora Casino"). HCT is a Texas corporation formed by HCC during
1993 which owns and operates a 54,000 square foot gaming facility, adjacent
support facilities and a 506-room hotel complex under the service mark Hollywood
Casino(R) in northern Tunica County, Mississippi (the "Tunica Casino"). The
Aurora Casino and the Tunica Casino commenced operations in June 1993 and August
1994, respectively.
Prior to December 31, 1996, HCC also owned approximately 80% of the common
stock of Greate Bay Casino Corporation ("GBCC"), also a Delaware corporation.
On December 31, 1996, HCC distributed to its shareholders the common stock of
GBCC owned by HCC. As a result of the dividend, GBCC is no longer a subsidiary
of HCC. While owned by HCC, GBCC's principal asset was the Sands Hotel and
Casino in Atlantic City, New Jersey (the "Sands"). GBCC also has management and
consulting contracts with the Aurora Casino and the Tunica Casino, respectively.
Effective as of April 1, 1997, HCC acquired the general partnership interest
in Pratt Management, L.P. ("PML"), the limited partnership which holds the
management contract on the Aurora Casino, from PPI Corporation, a wholly owned
subsidiary of GBCC (see Note 8). For all periods subsequent to the acquisition
date (April 1, 1997), PML is reflected as a consolidated subsidiary of HCC. The
assets and liabilities of PML were recorded at historical cost at the date of
acquisition with the difference between acquisition cost and the historical net
book value ($12,747,000) recorded as a charge to paid-in capital (see Note 15).
PML earns management fees from the Aurora Casino and incurs operating and other
expenses with respect to its management of the property. As general partner,
HCC receives 99% of the first $84,000 of net income earned by PML each month
together with 1% of any income earned above such amount. The remaining limited
partnership interest continues to be held by a subsidiary of GBCC and is
reflected in the accompanying consolidated financial statements as a minority
interest.
The accompanying consolidated financial statements also reflect HCT's
initial one-third investment in Tunica Golf Course LLC under the equity method
of accounting. This limited liability company was organized in 1996 to develop
and operate a golf course to be used by patrons of the Tunica Casino and other
participating casino/hotel properties. The golf course is presently scheduled
for completion in 1998. The $2,000,000 investment is included in other
noncurrent assets.
The Company estimates that its two gaming operations derive a significant
amount of their gaming revenues from patrons living in areas surrounding the
sites where the Company's gaming operations are located. Competition within the
Company's gaming markets is intense and management believes that this
competition will continue in the future.
40
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Board of Directors approved the adoption in May 1993 of a Rights
Agreement, which provides that stockholders of HCC receive rights to acquire
Series A Junior Participating Preferred Stock of HCC at an initial price of $60
per one one-hundredth of a share, subject to adjustment, for each share of HCC
Common Stock owned. The rights become exercisable if a person (other than the
Pratt Family) acquires 20% or more, or announces a tender offer for 20% or more,
of the Company's Common Stock. If the Company is acquired in a merger or other
business combination, each right will enable the holder to exercise such right
for Common Stock of the acquiring company at a 50% discount. The rights, which
expire on May 7, 2003, may be redeemed by the Company at its option at a price
of $.0001 per right at any time prior to the earlier of 10 days following the
date after which a person has acquired at least 20% of the Company's outstanding
shares or May 7, 2003. Until such time as it becomes likely that the rights
will be exercised, they are not included as common stock equivalents in the
computation of net income (loss) per common share.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are discussed below. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements include the accounts of HCC and its
wholly owned subsidiaries and, prior to December 31, 1996, the accounts of GBCC
(which was majority owned) and GBCC's wholly owned subsidiaries. The
accompanying consolidated financial statements include GBCC's operations and
cash flows through the date of disposition (December 31, 1996). However, the
accompanying consolidated balance sheet at December 31, 1996 does not include
GBCC on a consolidated basis and reflects the dividend of GBCC's common stock to
HCC's shareholders (adjusted for related transactions) as an adjustment to
additional paid-in capital. All significant intercompany balances and
transactions have been eliminated. Investments in unconsolidated affiliates
including joint ventures that were 50% or less owned are accounted for by the
equity method. To the extent that losses incurred in prior years by GBCC have
exceeded the minority shareholders' interest associated with such shares, such
losses have been allocated to HCC.
CASINO REVENUES, PROMOTIONAL ALLOWANCES AND DEPARTMENTAL EXPENSES -
HCC recognizes the net win from gaming activities (the difference between
gaming wins and losses) as casino revenues. Casino revenues are net of accruals
for anticipated payouts of progressive and certain other slot machine jackpots
and certain progressive table game payouts. Such anticipated jackpots and
payouts are reflected as other accrued liabilities on the accompanying
consolidated balance sheets.
The estimated value of rooms, food and beverage and other items which were
provided to customers without charge has been included in revenues and a
corresponding amount has been deducted as
41
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
promotional allowances. The costs of such complimentaries have been included as
casino expenses on the accompanying consolidated statements of operations. Costs
of complimentaries allocated from the rooms, food and beverage and other
operating departments to the casino department during the years ended December
31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Rooms $ 1,870,000 $ 7,332,000 $ 6,677,000
Food and beverage 19,894,000 49,860,000 45,639,000
Other 1,061,000 5,956,000 6,309,000
----------- ----------- -----------
$22,825,000 $63,148,000 $58,625,000
=========== =========== ===========
</TABLE>
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents are generally comprised of cash and investments
with original maturities of three months or less, such as commercial paper,
certificates of deposit and fixed repurchase agreements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
The allowance for doubtful accounts is maintained at a level considered
adequate to provide for possible future losses. Provisions for doubtful
accounts amounting to $698,000, $3,031,000 and $3,774,000 were made during the
years ended December 31, 1997, 1996 and 1995, respectively.
INVENTORIES -
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market.
PROPERTY AND EQUIPMENT -
Property and equipment have been recorded at cost and are being depreciated
utilizing the straight-line method over their estimated useful lives as follows:
Buildings and improvements 10-40 years
Riverboats and barges 25-40 years
Operating equipment 3-15 years
On October 1, 1996, HCC revised the estimated useful lives of its buildings,
barges and related land rights (see below) from 25 years to 40 years; of certain
parking facilities under a capital lease from 25 years to 30 years; and of
certain operating equipment from three years to five years. Management believes
the changes in estimated lives more appropriately reflect the timing of the
economic benefits to be received from these assets. For the years ended
December 31, 1997 and 1996, the effect of these changes reduced depreciation and
amortization expense by $3,340,000 and $1,893,000, respectively, and net loss by
approximately $2,182,000 and $1,893,000, respectively. Both basic and diluted
net loss per share were reduced by $.09 and $.08, respectively, for the 1997 and
1996 periods.
42
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Interest costs related to property and equipment acquisitions were
capitalized during the acquisition period and are being amortized over the
useful lives of the related assets.
DEFERRED FINANCING COSTS -
The costs of issuing long-term debt, including all underwriting, licensing,
legal and accounting fees, have been capitalized and are being amortized over
the term of the related debt issue. Amortization of such costs was $963,000,
$2,044,000 and $3,016,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Deferred financing costs, net of accumulated amortization,
amounting to $68,000 and $5,853,000, respectively were written off during 1997
and 1995, with respect to the reacquisition of outstanding debt.
LONG-LIVED ASSETS -
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires, among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
During 1996, certain real property held as potential gaming development sites in
Texas was offered for sale; consequently management conducted a review to
determine the estimated net realizable value of these properties. As a result
of the review, HCC recorded an anticipated loss from the disposition of assets
held for sale of $3,400,000 during 1996. During 1997, a parcel of the real
property was sold at a price approximating its net book value; accordingly, no
gain or loss was recognized on the sale. Management has concluded that the
existing valuation allowance continues to approximate the anticipated loss to be
incurred on the sale of the remaining properties. Land held for sale is shown
net of such valuation allowance on the accompanying consolidated balance sheets
at December 31, 1997 and 1996.
ACCRUED INSURANCE -
HCC is self insured for a portion of its general liability, certain health
care and other liability exposures. Accrued insurance includes estimates of
such accrued liabilities based on an evaluation of the merits of individual
claims and historical claims experience; accordingly, HCC's ultimate liability
may differ from the amounts accrued.
INCOME TAXES -
HCC complies with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which utilizes
the liability method and results in the determination of deferred taxes based on
the estimated future tax effects of differences between the financial statement
and tax bases of assets and liabilities.
INTEREST EXPENSE -
Interest expense includes the accretion of debt discount amounting to
$900,000, $785,000 and $522,000 during the years ended December 31, 1997, 1996
and 1995, respectively.
43
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LAND RIGHTS -
Land rights are being amortized on a straight-line basis over the estimated
useful life of the Tunica facility, which is less than the term of the ground
lease including renewals (see Note 13); such amortization commenced with the
opening of the Tunica Casino. The estimated economic benefit of the land rights
was increased from 25 years to 40 years effective on October 1, 1996 consistent
with the change in estimated useful life of the Tunica facility as discussed
under "Property and Equipment" above. Management presently intends to renew the
ground lease at least through its currently estimated 40-year useful life of the
facility. Accumulated amortization of such land rights amounted to $991,000 and
$787,000, respectively, at December 31, 1997 and 1996.
EMPLOYEE STOCK OPTIONS -
During 1996, HCC adopted the provisions of statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 requires that an entity account for employee stock compensation under a fair
value based method. However, SFAS 123 also allows an entity to continue to
measure compensation cost for employee stock-based compensation plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25").
Entities electing to remain with the accounting under Opinion 25 are required to
make pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting under SFAS 123 had been applied. HCC has
elected to continue to account for employee stock-based compensation under
Opinion 25 with the requisite additional disclosures included in Note 7.
NET (LOSS) INCOME PER COMMON SHARE -
During 1997, HCC adopted the provisions of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires the calculation and
disclosure of earnings per common share assuming no dilution (basic earnings per
share) and earnings per common share assuming full dilution (diluted earnings
per share). SFAS 128 became effective on December 15, 1997 and requires the
restatement of earnings per share for all prior years presented.
Under SFAS 128, basic earnings per common share is calculated by dividing the
net (loss) income by the weighted average number of shares of common stock
outstanding. Diluted earnings per common share is calculated for periods in
which income from continuing operations was earned by dividing the components of
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding. All common stock equivalents are excluded from
the calculation of diluted net loss per share for periods during which a loss
was incurred because the effect of their inclusion would be antidilutive.
44
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average number of shares of common stock and common stock
equivalents outstanding used for the calculation of income (loss) per share is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Shares used in the calculation of:
-----------------------------------
Basic (loss) income per share before
extraordinary item and basic net
loss per share 24,833,393 24,721,279 24,601,713
Diluted (loss) income per share before
extraordinary item and diluted net
loss per share 24,833,393 24,721,279 24,849,945
</TABLE>
The number of shares used in the calculation of diluted earnings per share
for the year ended December 31, 1995 has been adjusted to include common stock
equivalents arising from stock options held by certain employees and directors.
No common stock equivalents were included in the calculation of diluted earnings
per share for the years ended December 31, 1997 and 1996 as the inclusion of
such equivalents would have been antidilutive due to the net losses incurred in
those years.
The calculation of diluted earnings per share excludes certain options to
purchase common stock. These options have been excluded as they would be
antidilutive to the diluted earnings per share calculation. The weighted
average number of options excluded were 535,296, 161,319 and 20,000,
respectively, for the years ended December 31, 1997, 1996 and 1995.
RECLASSIFICATIONS -
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1997 consolidated financial statement
presentation.
(3) SHORT-TERM CREDIT FACILITIES
HCT has a $1,000,000 bank credit facility available through August 15, 1998.
No borrowings were outstanding under the credit facility at either December 31,
1997 or 1996. Borrowings under the line of credit accrue interest at the rate
of the bank's prime lending rate plus 1 1/2% per annum. The line of credit
agreement requires the maintenance of certain financial ratios and balances in
addition to the provision of certain financial reports.
45
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM DEBT AND PLEDGE OF ASSETS
Substantially all of HCC's assets are pledged in connection with HCC's long-
term indebtedness.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Indebtedness of HCC:
12 3/4% Senior Secured Notes, due 2003, net of discount
of $8,128,000 and $9,127,000, respectively (a) $199,372,000 $200,873,000
Promissory note due to affiliate (Note 8) 3,447,000 -
Term note, due 1999 - 2,150,000
------------ ------------
202,819,000 203,023,000
------------ ------------
Indebtedness of HCA:
Promissory note to bank (b) 350,000 2,472,000
Equipment loans 413,000 1,472,000
------------ ------------
763,000 3,944,000
------------ ------------
Indebtedness of HCT :
Equipment loans 1,638,000 1,401,000
------------ ------------
Total indebtedness 205,220,000 208,368,000
Less - current maturities (6,800,000) (6,311,000)
------------ ------------
Total long-term debt $198,420,000 $202,057,000
============ ============
</TABLE>
- -----------------
(a) During October 1995, HCC completed the refinancing of certain outstanding
indebtedness through a public offering of $210,000,000 of 12 3/4% Senior
Secured Notes (the "Senior Secured Notes") due November 1, 2003, discounted
to yield 13 3/4% per annum (the "HCC Refinancing"). In addition to
refinancing existing debt, proceeds from the HCC Refinancing were used to
finance construction of a 352-room hotel tower and related amenities and to
fund development and construction of a themed gaming area at the Tunica
Casino; to fund HCA's required contribution of $4,000,000 for construction
of a new 500-space parking garage (see Note 5); and, to the extent
available, for working capital purposes. Interest on the Senior Secured
Notes is payable semiannually on May 1 and November 1 of each year.
The Senior Secured Notes are unconditionally guaranteed on a senior secured
basis by HCT and may be guaranteed by certain future subsidiaries of HCC.
HCA is not a guarantor. The Senior Secured Notes and related guarantees
are secured by, among other things, (i) substantially all of the assets of
HCT and future guarantors, (ii) a first mortgage limited to approximately
$39 million on substantially all of the assets of HCA, (iii) a pledge of
the capital stock of certain subsidiaries of HCC and (iv) the collateral
assignment of any future management contracts entered into by HCC. The
limitation on the first mortgage described in (ii) above is subject to
reduction for principal payments on an intercompany note between HCC and
HCA. The intercompany note requires semiannual principal payments of
$2,500,000 commencing October 15, 1997 with the balance due November 1,
2003.
46
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Senior Secured Notes are redeemable at the option of HCC any time on or
after November 1, 1999 at 106.375% of the then outstanding principal
amount, decreasing to 103.1875% and 100%, respectively, on November 1, 2000
and 2001. Commencing with the November 1, 1997 interest payment date and
at each subsequent interest payment date, HCC is required to make an offer
to purchase not more than $2,500,000 in principal amount of the Senior
Secured Notes at a price of 106.375% of the principal amount tendered. On
November 1, 1997, HCC made such an offer resulting in the redemption of
$2,500,000 principal amount of the Senior Secured Notes. The redemption of
the Senior Secured Notes resulted in an extraordinary loss of $215,000, net
of a related income tax benefit of $111,000, and consisting of the premium
paid ($159,000) together with the write off of associated deferred finance
costs ($68,000) and discount on the notes ($99,000).
The indenture to the Senior Secured Notes contains various provisions
limiting the ability of HCC and certain defined subsidiaries to, among
other things, pay dividends or make other restricted payments; incur
additional indebtedness or issue preferred stock; create liens; create
dividend or other payment restrictions affecting certain defined
subsidiaries; enter into mergers or consolidations or make sales of all or
substantially all assets of HCC, HCT or any future guarantor; and enter
into transactions with certain affiliates.
(b) During February 1995, HCA entered into a $5,000,000 bank promissory note
agreement. The note accrues interest at the bank's prime lending rate plus
1% per annum. Interest only was payable during the first six months.
Commencing September 1, 1995, principal and interest are payable monthly
based on a 30-month amortization schedule with the final payment due on
February 1, 1998.
Scheduled payments of long-term debt as of December 31, 1997 are set forth
below:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 6,800,000
1999 6,181,000
2000 6,219,000
2001 5,953,000
2002 5,695,000
Thereafter 182,500,000
------------
Total $213,348,000
============
</TABLE>
Interest paid, net of capitalized interest and commitment fees, amounted to
$29,479,000, $59,404,000 and $58,401,000, respectively, during the years ended
December 31, 1997, 1996 and 1995.
(5) CAPITAL LEASES
HCA leases two parking garages under capital lease agreements. The first
such lease has an initial term of 30 years commencing in June 1993 with the
right to extend the term to a maximum of 99 years. Rental payments during the
first 20 years equal the City of Aurora's financing costs related to its
$10,000,000 general obligation bond issue used to finance the construction of
the parking garage. The
47
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
general obligation bond issue includes interest at rates between 7% and 7 5/8%
per annum. In September 1996, HCA and the Aurora Metropolitan Exposition,
Auditorium and Office Building Authority ("ACCA") completed the joint
construction of a new five-story, approximately 500-space parking garage
directly across the street from, and connected by a climate-controlled tunnel
to, the Aurora Casino's Pavilion. The garage provides additional parking for
patrons of the Aurora Casino and contains approximately 1,500 square feet of
retail space. ACCA financed a portion of the construction costs through an
$11,500,000, 7.5% industrial revenue bond issue which yielded proceeds of
approximately $10,500,000. HCA funded all remaining construction costs and
escrowed a total of $3,500,000 at the rate of $400,000 per month beginning in
September 1995 towards satisfaction of its obligations under the agreement. HCA
additionally agreed to make payments to ACCA during construction equal to the
financing costs due in July 1996 relating to the ACCA industrial revenue bond
issue. The facility is owned by ACCA and operated by HCA pursuant to a 30-year
lease with the right to extend the lease for up to 20 additional years. Rental
payments during the first 15 years equal ACCA's debt service costs related to
the industrial revenue bond issue. In addition, HCA pays ACCA base rent equal to
$15,000 per month, subject to a credit of $615,000 at the rate of $10,000 per
month for improvements made to ACCA's North Island Center banquet and meeting
facilities. HCA is also responsible for additional rent, consisting of costs
such as real estate taxes, maintenance costs, insurance premiums and utilities,
arising out of its operation of both parking garages.
HCA also leases certain equipment under capital lease agreements which
provide for interest at the rate of 11.2% and expire at various dates through
1998. HCT leased certain gaming and other equipment under capital lease
agreements which provided for interest at rates ranging up to 13 1/4% per annum
and which expired during 1997.
The original cost of HCA's parking garages is included in buildings in the
accompanying consolidated balance sheets at both December 31, 1997 and 1996 in
the amount of $27,358,000. Assets under capital leases with an original cost of
$7,260,000, are included in operating equipment in the accompanying consolidated
balance sheets at both December 31, 1997 and 1996. Amortization expense with
respect to assets under capital leases amounted to $2,042,000, $2,723,000 and
$2,725,000 during the years ended December 31, 1997, 1996 and 1995,
respectively.
48
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under capital lease obligations as of December
31, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 2,494,000
1999 2,457,000
2000 2,483,000
2001 2,532,000
2002 2,643,000
Thereafter 24,076,000
-----------
Total minimum lease payments 36,685,000
Less amount representing interest (14,983,000)
-----------
Present value of future
minimum lease payments 21,702,000
Current capital lease obligation (861,000)
-----------
Long-term capital lease obligation $ 20,841,000
============
</TABLE>
(6) INCOME TAXES
Components of HCC's provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 2,480,000 $ 8,385,000 $ 5,283,000
State (200,000) 55,000 (687,000)
Deferred:
Federal 3,991,000 (249,000) 92,000
State (205,000) (46,000) 419,000
Valuation allowance (9,355,000) (8,208,000) (5,375,000)
----------- ----------- -----------
$(3,289,000) $ (63,000) $ (268,000)
=========== =========== ===========
</TABLE>
Total state and federal income taxes paid by HCC for the years ended December
31, 1997, 1996 and 1995 amounted to $683,000, $223,000 and $522,000,
respectively.
49
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation between the calculated tax benefit on income based on the
statutory rates in effect and the effective tax rates follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Calculated income tax benefit at 34% $ 3,958,000 $18,778,000 $ 5,787,000
Purchase of limited partnership interest 2,890,000 - -
Valuation allowance change (9,355,000) (8,208,000) (5,375,000)
Deconsolidation of GBCC - (7,370,000) -
Amortization of excess purchase
price - (601,000) (803,000)
Lobbying costs (168,000) (306,000) (227,000)
Disallowance of meals and
entertainment (76,000) (404,000) (410,000)
State income taxes (267,000) 6,000 (177,000)
Other (271,000) (1,958,000) 937,000
----------- ----------- -----------
Tax provision as shown on
consolidated statements of operations $(3,289,000) $ (63,000) $ (268,000)
=========== =========== ===========
</TABLE>
At December 31, 1997, HCC and its subsidiaries had tax net operating loss
carryforwards ("NOL's") totaling approximately $27,000,000, none of which begin
to expire until the year 2010. Additionally, HCC and its subsidiaries have
various tax credits available totaling approximately $311,000, which do not
begin to expire until the year 2008. The provisions of SFAS 109 require that
the tax benefit of such NOL's and credit carryforwards be recorded as an asset
and, to the extent that management can not assess that the utilization of all or
a portion of such deferred tax assets is more likely than not, a valuation
allowance should be recorded. Management believes that it is more likely than
not that future consolidated taxable income of HCC (primarily from the Aurora
Casino and Tunica Casino) will be sufficient to utilize a portion of the
remaining net deferred tax assets of $19,151,000. Accordingly, a valuation
allowance has been established at December 31, 1997 reducing the net deferred
tax asset to $3,424,000. The ultimate recognition of this amount of NOL's and
tax credits is dependent on HCC and its subsidiaries' ability to generate
approximately $10,000,000 of taxable income for federal tax purposes prior to
the expiration dates of the NOL's and tax credit carryforwards. At December 31,
1996, the net deferred tax asset was revalued as a result of the distribution of
GBCC stock. Such revaluation amounted to $1,537,000 and was reflected in the
accompanying consolidated financial statements at December 31, 1996 as an
adjustment to additional paid-in capital.
Sales by HCC or existing shareholders of common stock can cause a "change of
control", as defined in Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), which would limit the ability of HCC or its subsidiaries
to utilize these loss carryforwards in later tax periods. Should such a change
of control occur, the amount of loss carryforwards available for use in any one
year would most likely be substantially reduced. Future treasury regulations,
administrative rulings or court decisions may also effect HCC's future
utilization of its loss carryforwards.
50
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Internal Revenue Service is currently examining the consolidated Federal
income tax returns of HCC for the years 1993 and 1994. Management believes that
the results of such examination will not have a material adverse effect on the
consolidated financial position of HCC.
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 9,226,000 $ 6,746,000
Allowance for doubtful accounts 8,575,000 7,316,000
Investment and jobs tax credits 311,000 213,000
Basis in limited partnership 2,890,000 -
Other liabilities and accruals 2,749,000 3,179,000
Benefits accrual 1,710,000 1,704,000
Other 733,000 750,000
------------ -----------
Total deferred tax assets 26,194,000 19,908,000
------------ -----------
Deferred tax liabilities:
Depreciation and amortization (6,422,000) (4,395,000)
Amortization of note discount (621,000) (2,628,000)
------------ -----------
Total deferred tax liabilities (7,043,000) (7,023,000)
------------ -----------
Net deferred tax asset 19,151,000 12,885,000
Valuation allowance (15,727,000) (6,372,000)
------------ -----------
$ 3,424,000 $ 6,513,000
============ ===========
</TABLE>
The deferred tax benefit related to the extraordinary loss on early
extinguishment of debt was $111,000 in 1997.
(7) STOCK OPTIONS AND COMPENSATION PLANS
HOLLYWOOD CASINO CORPORATION STOCK OPTION PLANS -
HCC currently has two employee stock option plans in effect: the Hollywood
Casino Corporation 1996 Long-Term Incentive Plan (the "1996 Plan") and the
Hollywood Casino Corporation 1992 Stock Option Plan (the "1992 Plan"). The
1996 Plan and the 1992 Plan provide for the granting of nonqualified stock
options and incentive stock options that are intended to qualify for the special
tax treatment under the Internal Revenue Code; the 1996 Plan also provides for
the granting of restricted stock. The shares to be offered under the 1996 Plan
and the 1992 Plan consist of shares of Class A Common Stock. The 1996 Plan and
the 1992 Plan provide for the granting of 3,000,000 and 1,197,000 shares,
respectively, of Class
51
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A Common Stock of which 2,380,000 and 147,006, respectively, remain available
for future grant as of December 31, 1997.
The 1996 Plan and the 1992 Plan are administered by committees of HCC's Board
of Directors. Options granted under the 1996 Plan become vested at the
discretion of the Committee of the Board of Directors (however, vesting for
certain officers, directors and shareholders may not be less than six months)
and may be exercised for a period of not more than ten years (five years in the
case of incentive stock options) from the date of grant. No more than 150,000
shares may be awarded to any individual during any fiscal year and incentive
stock options are subject to a $100,000 calendar year limitation. Options
granted under the 1992 Plan become vested over a three year period, are
exercisable for a term ending not more than seven years (five years in the case
of incentive stock options) from the date of the grant and incentive stock
options are subject to limitations on the quantity exercised in a calendar year.
As of December 31, 1997, options to purchase 620,000 shares remain outstanding
at exercise prices ranging from $2.81 per share to $5.25 per share under the
1996 Plan. Such options have a weighted average exercise price of $3.04 and a
weighted average remaining contractual life of 52 months; 320,000 options are
currently exercisable. As of December 31, 1997, options to purchase 40,008
shares remain outstanding at an exercise price of $.0006 per share under the
1992 Plan, all of which are currently exercisable and have a remaining
contractual life of 13 months.
The following table lists the combined activity of the 1996 Plan and the 1992
Plan:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995
------------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options at
beginning of year 410,008 $ 2.54 150,008 $ .80 478,340 $ .25
Options cancelled - - (20,000) 6.00 - -
Options granted 300,000 2.81 320,000 3.26 - -
Options exercised (50,000) .0006 (40,000) .0006 (328,332) .0006
------- ------- --------
Outstanding options
at end of year 660,008 $ 2.86 410,008 $ 2.54 150,008 $ .80
======= ======= ========
</TABLE>
During 1996, HCC also adopted the Hollywood Casino Corporation 1996 Non-
Employee Director Stock Plan (the "Directors' Plan") providing for the grant of
non-qualified stock options of Class A common stock of HCC. The Directors' Plan
provides for the granting of 150,000 shares of Class A common stock of which
115,000 remain available for future grant as of December 31, 1997. An initial
option grant of 10,000 shares was made to the two non-employee directors upon
adoption of the plan; future outside directors receive an option grant of 10,000
shares upon election to the Board of Directors. In addition, each outside
director receives a grant of 2,500 shares on January 15 of each year. All such
grants are at an exercise price equal to the fair market value as of the date of
the grant, vest after six months and expire no later than ten years from the
date of grant. The Directors' Plan is administered by
52
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
a Committee of the Board of Directors. As of December 31, 1997, 35,000 shares
remain outstanding at a weighted average exercise price of $4.93 per share, of
which 25,000 are currently exercisable.
The following table lists the activity of the Directors' Plan:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996
----------------- ---------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- -------- ------- -----
<S> <C> <C> <C> <C>
Outstanding options at beginning of year 20,000 $6.25 - $ -
Options granted 15,000 3.17 20,000 6.25
Options exercised - - - -
------ -------
Outstanding options at end of year 35,000 $4.93 20,000 $6.25
====== =======
</TABLE>
The Company has elected to apply Opinion 25 with respect to accounting for
options. Based on such election, no compensation expense has been recognized in
the accompanying consolidated financial statements as a result of the granting
of stock options. Had compensation expense been determined consistent with SFAS
123, the net loss (net of income taxes) for the year ended December 31, 1997
would have increased by approximately $252,000, increasing both basic and
diluted net loss per common share by $.01. For the year ended December 31,
1996, the net loss would have increased by approximately $41,000, with no effect
on either basic or diluted net loss per common share.
The fair value of each option grant was estimated on the date of grant
using a method approximating the Black-Scholes option pricing model. For
options granted in 1997, the following assumptions were applied: risk free
interest rate of 5.3%; no dividend yield; expected life of one year and
volatility ranging from 57.6% to 74.7%. For options granted in 1996, the
following assumptions were applied: risk free interest rate of 5.54%; no
dividend yield; expected life of one year and volatility of 62.1%. The weighted
average fair value of options granted in 1997 and 1996 was $.71 and $.91,
respectively.
COMPENSATION PLAN -
HCC has agreements with certain of its principal shareholders and key
executive officers providing for (1) lifetime pension benefits upon the
expiration of existing employment contracts and subsequent consulting agreements
and (2) death benefits to be paid for a period of ten years. The obligations
under these agreements, which are not funded, are being charged to operations
over the remaining terms of the employment agreements. Amounts charged to
expense under the agreements for the years ended December 31, 1997, 1996 and
1995 were $18,000, $660,000 and $315,000, respectively. Obligations accrued
under the agreements at December 31, 1997 and 1996 amounted to $5,029,000 and
$5,011,000,
53
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
respectively, and are included in other noncurrent liabilities on the
accompanying consolidated balance sheets.
(8) TRANSACTIONS WITH RELATED PARTIES
As a result of the distribution by HCC of the GBCC common stock it owned,
GBCC is no longer a consolidated subsidiary. Accordingly, intercompany
receivables and payables between HCC and GBCC and its subsidiaries which
previously eliminated in consolidation are now considered balances outstanding
with affiliates.
HCC advanced funds to GBCC totaling $6,750,000 and $7,750,000 as of
December 31, 1997 and 1996, respectively. Included in the balance at December
31, 1996 was a $1,000,000 14% note receivable from PML which, together with the
related interest, is now eliminated in consolidation as a result of HCC's
acquisition of the general partnership interest in PML. During the third
quarter of 1996, GBCC borrowed $6,500,000 from HCC on a demand basis with
interest at the rate of 13 3/4% per annum payable quarterly commencing October
1, 1996. An additional $250,000 note is due on demand, or if no demand is made,
on April 1, 1998 and bears interest at the rate of 14% per annum, payable
semiannually. Interest receivable amounting to $839,000 and $323,000 is
included in due from affiliates in the accompanying consolidated balance sheets
at December 31, 1997 and 1996, respectively. The payment of principal and
interest to HCC on such borrowings is subject to the approval of the New Jersey
Casino Control Commission. Interest income earned on loans and advances to GBCC
amounted to $977,000 during the year ended December 31, 1997.
In connection with its acquisition of the general partnership interest in
PML (see Note 1), HCC issued a five-year note in the original amount of
$3,800,000 and assigned $13,750,000 undiscounted principal amount ($7,597,000
discounted value) of PPI Funding Notes (see below) and $350,000 accrued interest
due from GBCC to PPI Corporation. The $3,800,000 note is payable in monthly
installments of $83,000, including interest at the rate of 14% per annum,
commencing on May 1, 1997, with additional quarterly variable principal payments
commencing on July 1, 1997 in an amount equal to the general partner's share of
quarterly cash distributions, as defined, from PML. HCC incurred interest
expense with respect to the note amounting to $383,000 during the year ended
December 31, 1997. Interest payable of $41,000 to GBCC is included in interest
payable on the accompanying consolidated balance sheet at December 31, 1997.
On February 17, 1994, PPI Funding Corp., a subsidiary of GBCC, issued
$40,524,000 discounted principal amount of new deferred interest notes (the "PPI
Funding Notes") to HCC in exchange for $38,779,000 principal amount of 15 1/2%
unsecured notes (the "PCPI Notes") held by HCC and issued by PCPI Funding Corp.,
another subsidiary of GBCC. The PPI Funding Notes were discounted to yield
interest at the rate of 14 7/8% per annum and had an original face value of
$110,636,000. Subsequent principal payments by PPI Funding Corp. reduced the
maturity value of the notes to $98,353,000 at December 31, 1996. During the
second quarter of 1997, HCC assigned $13,750,000 undiscounted principal amount
of the PPI Funding Notes to PPI Corporation as consideration, in part, for HCC's
acquisition of the general partnership interest in PML which reduced the
maturity value of the notes to $84,603,000. On January 5, 1998, GBCC's most
significant subsidiary, Greate Bay Hotel and Casino, Inc. ("GBHC"),filed for
protection under Chapter 11 of the United States Bankruptcy Code. It is
anticipated that GBCC's equity ownership of GBHC will be significantly reduced
in the reorganization under Chapter 11 and, as a consequence, HCC wrote off
54
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$37,000,000 undiscounted principal amount of the PPI Funding Notes at December
31, 1997, further reducing the maturity value to $47,603,000. Payment of
interest is deferred through February 17, 2001 at which time interest will
become payable semiannually, with the unpaid principal balance due on February
17, 2006. The PPI Funding Notes are collateralized by a pledge of all of the
common stock of a subsidiary of GBCC.
Prior to December 31, 1996, when GBCC and its subsidiaries were members of
the HCC consolidated group, it was anticipated that one of HCC's primary methods
of realizing the carrying value of the PPI Funding Notes would be through the
utilization of NOL's of GBCC. As a result of HCC's distribution of GBCC stock at
December 31, 1996, GBCC's NOL's are no longer available for utilization in HCC's
consolidated federal income tax returns; accordingly, HCC provided a valuation
allowance in the amount of $18,741,000 at December 31, 1996 which reduced the
carrying amount of the PPI Funding Notes to their estimated realizable value of
$35,597,000 at that date. As a result of GBHC's Chapter 11 filing discussed
above, HCC took an additional write down during 1997, further reducing the
carring amount of the PPI Funding Notes at December 31, 1997 to an estimated
realizable value of $12,322,000. Management anticipates that this balance will
be realized through a combination of additional asset acquisitions from GBCC and
its subsidiaries and repayments from GBCC.
Pursuant to a management services contract, HCA pays PML a base management
fee equal to 5% of the Aurora Casino's operating revenues (as defined in the
contract) subject to a maximum of $5,500,000 annually, and an incentive fee
equal to 10% of gross operating profit (as defined in the contract to generally
include all revenues, less expenses other than depreciation, interest,
amortization and taxes). HCA incurred such fees totaling $2,727,000 during the
three month period ended March 31, 1997 while PML was wholly-owned by
subsidiaries of GBCC. Unpaid fees amounting to $2,096,000 were included in
amounts due to affiliates in the accompanying consolidated balance sheet at
December 31, 1996. Subsequent to March 31, 1997, PML is included in the
consolidated financial statements of HCC; accordingly, both HCA's management fee
expense and fees payable to PML are eliminated in consolidation.
HCT incurs a monthly consulting fee of $100,000 pursuant to a ten-year
consulting agreement with a GBCC subsidiary. Such fees amounted to $1,200,000
for the year ended December 31, 1997.
Various subsidiaries of GBCC provide services to HCA, HCT and, since April
1, 1997, to PML including certain administrative and marketing services. Total
charges during the year ended December 31, 1997 amounted to $827,000. Unpaid
fees amounting to $5,000 and $128,000 are included in due to affiliates on the
accompanying consolidated balance sheets at December 31, 1997 and 1996,
respectively.
HCT and Advanced Casino Systems Corporation ("ACSC"), a subsidiary of GBCC,
entered into a Computer Services Agreement dated as of January 1, 1994 and
renewed through December 31, 1999. The agreement provides, among other things,
that ACSC will sell HCT computer hardware and information systems equipment and
will license or sublicense to HCT computer software necessary to operate HCT's
casino, hotel and related facilities and business operations. HCT pays ACSC for
such equipment and licenses such software at amounts and on terms and conditions
that ACSC provides to unrelated third
55
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
parties. HCT also pays ACSC a fixed license fee of $33,600 per month ($30,000
prior to January 1, 1997). In addition, HCT reimburses ACSC for its direct costs
and expenses incurred under this agreement. Total charges during the year ended
December 31, 1997 amounted to $547,000. At December 31, 1997 and 1996, HCT had
payables of $44,000 and $30,000, respectively, included in accounts payable with
respect to such charges.
HCA also receives certain computer-related services from ACSC including
hardware, software and operator support. HCA reimburses ACSC for its direct
costs and any expenses incurred. Total charges during the year ended December
31, 1997 amounted to $117,000. Unpaid charges amounting to $11,000 and $51,000
are included in due to affiliates on the accompanying consolidated balance
sheets at December 31, 1997 and 1996, respectively.
GBCC and its subsidiaries share certain general and administrative costs
with HCC and its subsidiaries. Net allocated costs and fees charged to GBCC and
its subsidiaries by HCC and its subsidiaries amounted to $1,843,000 for the year
ended December 31, 1997. In connection with such allocated costs and fees,
receivables in the amount of $156,000 and $203,000 are included in due from
affiliates in the accompanying consolidated balance sheets at December 31, 1997
and 1996, respectively.
Prior to sale of the property in September 1996, GBCC operated a hotel
which was owned by Metroplex Hotel Limited ("Metroplex"), a partnership
controlled by certain members of the Pratt Family. During 1996 and 1995, GBCC
made capital expenditures under the hotel operating agreement totaling
approximately $2,581,000 toward property improvements. GBCC was also obligated
by the hotel operating agreement to make minimum rental payments equal to
Metroplex's principal and interest payments on the hotel's the underlying
indebtedness; such indebtedness was purchased by GBCC in February 1994. The
required minimum rental payments (net of debt service receipts since the
February 1994 note acquisition date) amounted to $397,000 and $530,000,
respectively, during the years ended December 31, 1996 and 1995. Upon the sale
of the hotel by Metroplex, GBCC received proceeds sufficient to repay the third
party indebtedness of $1,873,000, recover its $6,750,000 acquisition cost of the
underlying indebtedness, recover $2,581,000 of its total investment in property
improvements and receive additional cash of approximately $770,000.
In September 1994, a subsidiary of HCC entered into an agreement with an
entity owned by a member of the Pratt Family to manage the operation and
maintenance of a Company-owned aircraft and to make such aircraft available for
charter by third parties. The aircraft was sold during the first quarter of
1997. Subsequent to the sale, HCC has occasionally chartered aircraft from the
maintenance company. Charter fees, expenses and commissions totaled $268,000,
$499,000 and $462,000, respectively, during the years ended December 31, 1997,
1996 and 1995.
(9) STATE GAMING REGULATIONS
Riverboat gaming operations in Illinois are subject to regulatory control
by the Illinois Gaming Board. Under the provisions of the Illinois gaming
regulations, HCA is required to maintain its ownership license. Such license
was renewed in July 1997 for a period of one year. Gaming operations in
Mississippi are subject to regulatory control by the Mississippi Gaming
Commission. Under the provisions of the
56
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mississippi gaming regulations, HCT is required to maintain all necessary
licenses. The ownership license for the Tunica Casino has been renewed until
October 18, 1999.
If it were determined that gaming laws were violated by a licensee, the
gaming licenses held by each licensee could be limited, conditioned, suspended
or revoked. In addition, the licensees and other persons involved could be
subject to substantial fines.
(10) OBLIGATORY INVESTMENTS
The New Jersey Casino Control Act requires casino licensees to make certain
approved investments in New Jersey or to pay an investment alternative tax.
Casino licensees may obtain investment credits, which amount to 1.25% of casino
revenues, by purchasing bonds at below-market interest rates from the Casino
Reinvestment Development Authority (the "CRDA") or by making qualified
investments approved by the CRDA. This governmental agency administers the
statutorily mandated investments made by casino licensees and is required to
expend the monies received by it for the eligible projects defined in the
statute. The investment alternative tax amounts to 2.5% of casino revenues.
Payments of the investment obligations must be made quarterly. The Sands, while
an indirect subsidiary of HCC, elected to comply with the requirements by
obtaining investment credits or by making qualified investments. Due to the
spin-off of GBCC stock previously mentioned, no CRDA investments are included on
the accompanying consolidated balance sheet at December 31, 1996. However,
provisions for valuation allowances during the years ended December 31, 1996 and
1995 amounted to $1,344,000 and $1,457,000, respectively.
(11) SUMMARIZED COMBINED FINANCIAL INFORMATION OF AND TRANSACTIONS WITH
UNCONSOLIDATED AFFILIATES
Summarized combined financial information with respect to GBCC's
unconsolidated affiliates, which included joint ventures, is presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net revenues $ 39,314,000 $ 40,005,000
Expenses (41,524,000) (43,144,000)
------------ ------------
Net loss $ (2,210,000) $ (3,139,000)
============ ============
</TABLE>
Income and losses of GBCC's unconsolidated affiliates have not been
reflected on the accompanying consolidated statements of operations for the
years ended December 31, 1996 or 1995 as GBCC's investments in such affiliates
were previously eliminated through the recognition of prior years' losses.
Prior to sale of the property in November 1996, GBCC had an ongoing
commitment to fund its proportionate share of operating cash deficits with
respect to its 50% ownership interest in the Sheraton Plaza located in Orlando,
Florida; GBCC was not required to make any such payments during 1996 or
57
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995. GBCC also agreed to contribute up to $3,900,000 as an additional
investment in the Sheraton Plaza hotel partnership to refurbish the hotel
facility. No such commitments were required during 1996; GBCC contributed
$1,675,000 during 1995 toward such commitment. Such contribution was in
recognition of GBCC's partner having agreed to make $5,000,000 in principal
reductions on the underlying mortgage note on the facility. GBCC was required to
pay approximately $2,946,000 during 1996 to retire its share of the underlying
indebtedness on the property in connection with the sale.
(12) LITIGATION
PLANET HOLLYWOOD LITIGATION -
Planet Hollywood International, Inc., a Delaware corporation, and Planet
Hollywood (Region IV), Inc., a Minnesota corporation (collectively, "PHII"),
filed a complaint in the United States District Court for the Northern District
of Illinois, Eastern Division on July 29, 1996 against HCC, HCA and a member of
the Pratt Family (collectively, the "Original Hollywood Defendants"). The
Original Hollywood Defendants filed with the Court on September 18, 1996 an
answer to PHII's lawsuit, along with numerous counterclaims against PHII, Robert
Earl and Keith Barish (collectively, the "PHII Defendants"). PHII filed with
the Court on January 31, 1997, an amendment to their complaint which, among
other things, added HCT (together with the Original Hollywood Defendants, the
"Hollywood Defendants") and GBCC as defendants. The Original Hollywood
Defendants filed with the Court on February 4, 1997, and GBCC and HCT filed with
the Court on February 20, 1997, answers and counterclaims to such amended
complaint.
In its lawsuit, PHII alleges, among other things, that the Hollywood
Defendants and GBCC have, in opening and operating the Hollywood Casino concept,
infringed on PHII's trademark, service mark and trade dress and have engaged in
unfair competition and deceptive trade practices. In their counterclaims, the
Hollywood Defendants and GBCC allege, among other things, that the PHII
Defendants have, through their planned use of their mark in connection with
casino services, infringed on certain of HCC's service marks and trade dress and
have engaged in unfair competition.
Given the uncertainties inherent in litigation, no assurance can be given
that the Hollywood Defendants will prevail in this litigation; however, the
Hollywood Defendants believe that PHII's claims are without merit and intend to
defend their position and pursue their counterclaims vigorously. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainties described above.
OTHER LITIGATION -
HCC and its subsidiaries are also parties in various other legal proceedings
with respect to the conduct of casino and hotel operations. Although a possible
range of loss cannot be estimated, in the opinion of management, based upon the
advice of counsel, settlement or resolution of these proceedings should not have
a material adverse impact on the consolidated financial position or results of
operations of HCC and its subsidiaries.
58
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES
HCT entered into a ground lease covering 70 acres of land on which the Tunica
Casino was constructed. The ground lease is for an initial term of five years
from the opening date of the facility and, at the option of HCT, may be renewed
for nine additional five-year periods. Obligations under the ground lease
during the initial term include both minimum monthly fixed payments and
percentage rent, which in the aggregate will be the greater of 4% of Gross
Revenues, as defined, or $1,100,000 per year. HCT is responsible for all
operating and other expenses of the property in accordance with the lease terms.
During 1997, 1996 and 1995, HCT expensed $3,935,000, $3,486,000 and $3,608,000,
respectively, in connection with the ground lease.
(14) THIRD PARTY NOTES RECEIVABLE
During November 1995, HCC loaned $10,000,000 of the proceeds from the HCC
Refinancing to an unaffiliated gaming company in the form of two $5,000,000
notes (Series A and Series B). The loans are payable in quarterly installments
of principal and interest at the rate of prime plus one percent per annum
commencing in February 1998 with the final payment due in November 2000. On
February 27, 1998, both parties agreed to settle the outstanding obligations
with the payment of $4,400,000 and the issuance of two new, short-term
obligations totaling $1,600,000. The $4,000,000 difference between the
$10,000,000 carrying amount of the notes receivable and the agreed upon
settlement has been reflected as a write down of the notes receivable as of
December 31, 1997.
(15) SUPPLEMENTAL CASH FLOW INFORMATION
During the second quarter of 1997, HCC issued 100,000 shares of its common
stock in exchange for a $10,000,000 loan commitment from unrelated third
parties. The commitment fee was valued at $375,000, the fair market value of
the stock on the date of its issuance, and has been fully amortized as of
December 31, 1997.
Also during the second quarter of 1997, HCC acquired the general partnership
interest in PML (see Notes 1 and 8). The purchase price included the assignment
of certain receivables from GBCC and the issuance of a note to GBCC. In
connection with the acquisition, certain liabilities were assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Assignment of PPI Funding Notes $(7,597,000)
Assignment of interest receivable (350,000)
Note issued (3,800,000)
Charge to paid-in capital (Note 1) 12,747,000
-----------
Net liabilities assumed $ 1,000,000
===========
</TABLE>
During 1996, HCA entered into a capital lease obligation in the original
amount of $13,195,000 with respect to a new parking garage (see Note 5).
Additional escrowed construction and financing costs totaling $4,163,000 were
capitalized as part of the cost of the facility.
59
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1996, HCC contributed certain receivables from GBCC and its
subsidiaries to GBCC. Notes receivable amounting to $8,738,000 together with
accrued interest thereon totaling $1,753,000 and other receivables of $4,283,000
with respect to pension obligations assumed during 1995 were contributed to
GBCC.
At December 31, 1996, HCC distributed the common stock of GBCC it owned to
its shareholders. The following net liabilities were distributed to HCC's
shareholders in the form of a dividend:
<TABLE>
<CAPTION>
<S> <C>
Long-term debt $ 326,024,000
Short-term borrowings 8,750,000
Other current liabilities 41,186,000
Other noncurrent liabilities 4,592,000
Net property and equipment (156,887,000)
Accounts receivable, net of allowance (10,656,000)
Net book value of other assets distributed (excluding cash) (30,811,000)
-------------
Net liabilities distributed $ 182,198,000
=============
</TABLE>
During 1995, HCA acquired certain equipment at a cost of $2,985,000 under
financing agreements with a third party vendor.
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS - The carrying amounts approximate fair value
-------------------------
because of the short maturity of these instruments.
SHORT-TERM INVESTMENTS - The carrying amounts approximate fair value because
----------------------
of the short maturity of these instruments.
NOTES RECEIVABLE - The fair value of notes receivable is calculated based on
----------------
the estimated realizable value.
INTEREST PAYABLE - The carrying amount of interest payable approximates fair
----------------
value because of the short maturity of the obligation.
LONG-TERM DEBT - The fair value of HCC's long-term debt is estimated based
--------------
on either the quoted market price of the underlying debt issue or on the
discounted cash flow of future payments utilizing current rates available to HCC
for debt of similar remaining maturities. Debt obligations with a short
remaining maturity are valued at the carrying amount.
60
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated carrying amounts and fair values of HCC's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- -------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 38,156,000 $ 38,156,000 $ 21,488,000 $ 21,488,000
Short-term investments 5,979,000 5,979,000 - -
Notes receivable 6,000,000 6,000,000 10,000,000 10,000,000
Notes receivable - affiliates 6,750,000 6,750,000 7,750,000 7,750,000
PPI Funding Notes 12,322,000 12,322,000 35,597,000 35,597,000
Financial Liabilities
Interest payable $ 4,660,000 $ 4,660,000 $ 4,734,000 $ 4,734,000
12 3/4% Senior Secured Notes 207,500,000 223,063,000 210,000,000 201,600,000
Equipment loans 2,051,000 2,063,000 2,873,000 2,879,000
Note payable - - 2,150,000 2,150,000
Note payable - affiliate 3,447,000 3,597,000 - -
Bank debt 350,000 350,000 2,472,000 2,472,000
</TABLE>
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------------------
FIRST SECOND THIRD FOURTH
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Net revenues $ 67,470,000 $ 66,301,000 $ 69,839,000 $ 64,147,000
============ ============ ============ ============
Net income (loss) $ 1,491,000 $ 1,193,000 $ 1,701,000 $(19,530,000)
============ ============ ============ ============
Basic and diluted net income
(loss) per common share (1) $ .06 $ .05 $ .07 $ (.79)
============ ============ ============ ============
YEAR ENDED DECEMBER 31, 1996:
Net revenues $133,115,000 $138,261,000 $136,244,000 $122,960,000
============ ============ ============ ============
Net loss $ (6,660,000) $ (8,250,000) $ (8,421,000) $(31,962,000)
============ ============ ============ ============
Basic and diluted net loss per
common share (1) $ (.27) $ (.33) $ (.34) $ (1.29)
============ ============ ============ ============
</TABLE>
(1) In accordance with the provisions of SFAS 128, earnings per share are
calculated separately for each quarter and the full year. Accordingly,
annual earnings per share will not necessarily equal the total of the
interim periods.
61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Hollywood Casino - Aurora, Inc.:
We have audited the accompanying balance sheets of Hollywood Casino - Aurora,
Inc. (the Company and an Illinois corporation) as of December 31, 1997 and 1996,
and the related statements of operations, changes in shareholder's equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Casino - Aurora, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 9, 1998
62
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,491,000 $ 9,034,000
Short-term investments 2,103,000 -
Accounts receivable, net of allowances
of $483,000 and $1,071,000, respectively 1,603,000 1,895,000
Inventories 794,000 948,000
Deferred income taxes 1,336,000 1,421,000
Due from affiliates 558,000 1,046,000
Prepaid expenses and other current assets 932,000 854,000
------------ ------------
Total current assets 16,817,000 15,198,000
------------ ------------
Property and Equipment:
Land improvements 3,165,000 2,786,000
Buildings and improvements 46,205,000 46,247,000
Riverboats 36,970,000 36,970,000
Operating equipment 32,159,000 30,766,000
Construction in progress 534,000 276,000
------------ ------------
119,033,000 117,045,000
Less - accumulated depreciation and amortization (33,919,000) (26,814,000)
------------ ------------
Net property and equipment 85,114,000 90,231,000
------------ ------------
Other Assets 2,140,000 2,020,000
------------ ------------
$104,071,000 $107,449,000
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
.
63
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 6,624,000 $ 6,456,000
Accounts payable 2,023,000 2,131,000
Accrued liabilities -
Salaries and wages 2,228,000 2,117,000
Interest 1,192,000 1,315,000
Gaming and other taxes 938,000 497,000
Insurance 1,115,000 1,054,000
Other 1,120,000 1,351,000
Due to affiliates 2,185,000 2,278,000
Other current liabilities 1,209,000 1,200,000
------------ ------------
Total current liabilities 18,634,000 18,399,000
------------ ------------
Long-Term Debt 31,507,000 37,267,000
------------ ------------
Capital Lease Obligations 20,841,000 21,707,000
------------ ------------
Deferred Income Taxes 4,141,000 2,043,000
------------ ------------
Commitments and Contingencies
Shareholder's Equity:
Common stock, $.01 par value per share;
2,000,000 shares authorized; 1,501,000
shares issued and outstanding 15,000 15,000
Additional paid-in capital 24,541,000 24,541,000
Retained earnings 4,392,000 3,477,000
------------ ------------
Total shareholder's equity 28,948,000 28,033,000
------------ ------------
$104,071,000 $107,449,000
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
64
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $153,965,000 $157,124,000 $146,281,000
Food and beverage 14,213,000 13,780,000 11,712,000
Other 1,919,000 3,895,000 4,933,000
------------ ------------ ------------
170,097,000 174,799,000 162,926,000
Less - promotional allowances (9,790,000) (11,408,000) (10,418,000)
------------ ------------ ------------
Net revenues 160,307,000 163,391,000 152,508,000
------------ ------------ ------------
Expenses:
Casino 102,127,000 108,014,000 97,173,000
Food and beverage 4,885,000 4,926,000 4,865,000
Other 1,641,000 1,066,000 742,000
General and administrative 14,673,000 14,645,000 14,406,000
Depreciation and amortization 7,491,000 8,834,000 9,172,000
------------ ------------ ------------
Total expenses 130,817,000 137,485,000 126,358,000
------------ ------------ ------------
Income from operations 29,490,000 25,906,000 26,150,000
------------ ------------ ------------
Non-operating income (expense):
Interest income 156,000 205,000 306,000
Interest expense, net of capitalized
interest of $354,000 in 1995 (6,847,000) (6,704,000) (6,493,000)
Gain on disposal of assets 134,000 - -
------------ ------------ ------------
Total non-operating expenses, net (6,557,000) (6,499,000) (6,187,000)
------------ ------------ ------------
Income before income taxes and
extraordinary item 22,933,000 19,407,000 19,963,000
Income tax provision (8,419,000) (6,883,000) (7,554,000)
------------ ------------ ------------
Income before extraordinary item 14,514,000 12,524,000 12,409,000
Extraordinary item:
Loss on early extinguishment of debt, net
of related tax benefit - - (989,000)
------------ ------------ ------------
Net income $ 14,514,000 $ 12,524,000 $ 11,420,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
65
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
(ACCUMULATED)
COMMON STOCK ADDITIONAL DEFICIT
---------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------------ -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 1,501,000 $15,000 $14,541,000 $ (485,000)
Capital contributions - - 10,000,000 -
Net income - - - 11,420,000
Dividends - - - (9,942,000)
------------ ------- ----------- ------------
BALANCE, DECEMBER 31, 1995 1,501,000 15,000 24,541,000 993,000
Net income - - - 12,524,000
Dividends - - - (10,040,000)
------------ ------- ----------- ------------
BALANCE, DECEMBER 31, 1996 1,501,000 15,000 24,541,000 3,477,000
Net income - - - 14,514,000
Dividends - - - (13,599,000)
------------ ------- ----------- ------------
BALANCE, DECEMBER 31, 1997 1,501,000 $15,000 $24,541,000 $ 4,392,000
============ ======= =========== ============
</TABLE>
The accompanying notes to financial statements are an
integral part of this financial statement.
66
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 14,514,000 $ 12,524,000 $ 11,420,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary item - - 989,000
Depreciation and amortization 7,491,000 8,834,000 9,172,000
Provision for doubtful accounts 200,000 325,000 337,000
Gain on disposal of assets (134,000) - -
Deferred income tax provision 2,183,000 1,119,000 1,095,000
Decrease (increase) in receivables 92,000 393,000 (1,309,000)
Increase in accounts payable and accrued liabilities 151,000 954,000 2,537,000
Increase (decrease) in due to affiliates 395,000 (770,000) (47,000)
Net change in other current assets and liabilities 85,000 (1,116,000) 1,426,000
Net change in other assets and liabilities (120,000) (442,000) (784,000)
------------ ------------ ------------
Net cash provided by operating activities 24,857,000 21,821,000 24,836,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (2,413,000) (10,104,000) (27,633,000)
Proceeds from sale of assets 173,000 - -
Short-term investments (2,103,000) - -
Decrease (increase) in cash restricted for construction projects - 1,955,000 (1,955,000)
------------ ------------ ------------
Net cash used in investing activities (4,343,000) (8,149,000) (29,588,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of debt - - 5,000,000
Repayments of debt (5,681,000) (2,870,000) (1,287,000)
Payments on capital lease obligations (777,000) (724,000) (1,010,000)
Capital contributions - - 10,000,000
Dividends (13,599,000) (10,040,000) (9,942,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities (20,057,000) (13,634,000) 2,761,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 457,000 38,000 (1,991,000)
Cash and cash equivalents at beginning of year 9,034,000 8,996,000 10,987,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 9,491,000 $ 9,034,000 $ 8,996,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these financial statements.
67
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Hollywood Casino - Aurora, Inc. ("HCA") is an Illinois corporation and a
wholly owned subsidiary of Hollywood Casino Corporation ("HCC"), a Delaware
corporation. HCA was organized and incorporated during December 1990 by certain
relatives of Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt
(collectively, the "Pratt Family") for the purpose of developing and holding the
ownership interest in a riverboat gaming operation located in Aurora, Illinois
(the "Aurora Casino"). In May 1992, HCC, which was then wholly owned by
members of the Pratt Family or by certain general partnerships and trusts
controlled by the Pratt Family, acquired all of the outstanding stock of HCA
through the issuance of HCC stock. Prior to December 31, 1996, HCC also owned
approximately 80% of Greate Bay Casino Corporation ("GBCC"), a Delaware
corporation. Prior to April 1, 1997, subsidiaries of GBCC held the management
services contract for the Aurora Casino (see Note 6). A GBCC subsidiary
continues to have a limited ownership interest in such management contract.
Under the provisions of an agreement between the city of Aurora, Illinois and
HCA dated June 4, 1991, HCA was granted the exclusive right to develop the
Aurora Casino on the Fox River. The Aurora Casino consists of two, four-level
riverboats having a combined casino space of approximately 32,000 square feet
and a four-level pavilion and docking facility which houses ticketing, food
service, passenger waiting, and various administrative functions. The Aurora
Casino also includes two parking structures with approximately 1,350 parking
spaces. HCA was responsible for the design and construction of the parking
garages; however, it leases the facilities under long-term lease agreements.
The leases are treated as capital leases for financial reporting purposes (see
Note 4).
HCA estimates that a significant amount of the Aurora Casino's revenues are
derived from patrons living in the Chicago area and surrounding northern and
western suburbs. The Aurora Casino faces intense competition from other
riverboat gaming operations in Illinois and northern Indiana and management
believes that this competition will continue in the future.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying financial statements are discussed below. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASINO REVENUES, PROMOTIONAL ALLOWANCES AND DEPARTMENTAL EXPENSES -
HCA recognizes the net win from gaming activities (the difference between
gaming wins and losses) as casino revenues. Casino revenues are net of accruals
for anticipated payouts of progressive jackpots. Such anticipated jackpot
payouts are reflected as current liabilities on the accompanying balance sheets.
The estimated value of food and beverage, admissions and other items which
were provided to customers without charge has been included in revenues and a
corresponding amount has been deducted as promotional allowances. The costs of
such complimentaries have been included as casino expenses on
68
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
the accompanying statements of operations. Costs of complimentaries allocated
from the food and beverage, admissions and other operating departments to the
casino department during the years ended December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Food and beverage $9,057,000 $10,280,000 $ 8,777,000
Admissions - - 5,446,000
Other 921,000 1,318,000 2,569,000
---------- ----------- -----------
$9,978,000 $11,598,000 $16,792,000
========== =========== ===========
</TABLE>
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents are generally comprised of cash and investments
with original maturities of three months or less, such as treasury bills and
fixed repurchase agreements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
The allowance for doubtful accounts is maintained at a level considered
adequate to provide for possible future losses. Provisions for doubtful
accounts amounting to $200,000, $325,000 and $337,000, respectively, were made
during the years ended December 31, 1997, 1996 and 1995.
INVENTORIES -
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market.
PROPERTY AND EQUIPMENT -
Property and equipment have been recorded at cost and are being depreciated
over their estimated useful lives utilizing the straight-line method based on
the following lives:
Land improvements 20 years
Buildings, riverboats and improvements 25-40 years
Operating equipment 3-7 years
On October 1, 1996, HCA revised the estimated useful life of its pavilion
from 25 years to 40 years, the estimated life of one of its parking garages
under a capital lease from 25 years to 30 years and the estimated life of its
slot machines from three years to five years. Management believes the changes
in estimated lives more appropriately reflect the timing of the economic
benefits to be received from these assets. For the years ended December 31,
1997 and 1996, the effect of these changes reduced depreciation and amortization
expense and increased net income by approximately $850,000 and $274,000,
respectively.
69
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
DEFERRED FINANCING COSTS -
The costs of issuing long-term debt, including all underwriting, licensing,
legal and accounting fees, are capitalized and are amortized over the term of
the related debt issue. Amortization of such costs was $509,000 for the year
ended December 31, 1995.
LONG-LIVED ASSETS -
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires, among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. HCA
does not believe that any such changes have occurred.
ACCRUED INSURANCE -
HCA is self insured for a portion of its general liability, certain health
care and other liability exposures. Accrued insurance includes estimates of
such accrued liabilities based on an evaluation of the merits of individual
claims and historical claims experience; accordingly, HCA's ultimate liability
may differ from the amounts accrued.
INTEREST EXPENSE -
Interest costs totaling $354,000 were capitalized during 1995 with respect to
the expansion of one of the Aurora Casino's riverboats. Such capitalized
interest costs are amortized over the useful lives of the related assets.
INCOME TAXES -
HCA is included in HCC's consolidated federal income tax return. Pursuant to
agreements between HCC and HCA, HCA's provision for federal income taxes is
based on the amount of tax which would be provided if a separate federal income
tax return were filed. HCA paid $5,394,000, $6,774,000 and $5,726,000 to HCC in
connection with its current federal tax provisions for the years ended December
31, 1997, 1996 and 1995, respectively. For the years ended December 31, 1997,
1996 and 1995, HCA paid state income taxes of $682,000, $28,000 and $100,000,
respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform such statements to the 1997 financial statement
presentation.
70
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
(3) LONG-TERM DEBT AND PLEDGE OF ASSETS
HCA's long-term indebtedness consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
12 3/4% Promissory Note to HCC, due on
November 1, 2003 (a) $36,507,000 $39,007,000
Promissory note to bank (b) 350,000 2,472,000
Equipment loans (c) 413,000 1,472,000
----------- -----------
Total indebtedness 37,270,000 42,951,000
Less - current maturities (5,763,000) (5,684,000)
----------- -----------
Total long-term debt $31,507,000 $37,267,000
=========== ===========
</TABLE>
- ------------------
(a) The intercompany note accrues interest at the rate of 12 3/4% per annum
payable semiannually on October 15 and April 15 of each year and requires
semiannual principal repayments of $2,500,000 commencing October 15, 1997
with the balance of the note due November 1, 2003. The note is pledged as
security with respect to HCC's 12 3/4% Senior Secured Notes due in 2003.
HCA is not a guarantor of HCC's indebtedness; however, the indebtedness is
secured, in part, by a first mortgage limited to approximately $39 million
on substantially all of the assets of HCA and by a pledge of the capital
stock of HCA.
(b) During February 1995, HCA entered into a $5,000,000 bank promissory note
agreement. The note accrues interest at the bank's prime lending rate plus
1% per annum. Interest only was payable during the first six months.
Commencing September 1, 1995, principal and interest are payable monthly
based on a 30-month amortization schedule with the final payment due on
February 1, 1998.
(c) HCA financed the purchase of certain equipment from vendors through the
issuance of promissory notes totaling $2,985,000. The promissory notes are
payable in monthly installments, including interest at the approximate rate
of 12 1/4% per annum, and mature at various dates in 1998.
71
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
As of December 31, 1997, future maturities of long-term debt are as follows:
1998 $ 5,763,000
1999 5,000,000
2000 5,000,000
2001 5,000,000
2002 5,000,000
Thereafter 11,507,000
-----------
$37,270,000
===========
Interest paid, net of amounts capitalized, for the years ended December 31,
1997, 1996 and 1995 amounted to $6,970,000, $6,509,000 and $5,578,000,
respectively.
(4) CAPITAL LEASES
HCA leases two parking garages under capital lease agreements. The first
such lease has an initial term of 30 years commencing in June 1993 with the
right to extend the term to a maximum of 99 years. Rental payments during the
first 20 years equal the City of Aurora's financing costs related to its
$10,000,000 general obligation bond issue used to finance the construction of
the parking garage. The general obligation bond issue includes interest at
rates between 7% and 7 5/8% per annum. In September 1996, HCA and the Aurora
Metropolitan Exposition, Auditorium and Office Building Authority ("ACCA")
completed the joint construction of a new five-story, approximately 500-space
parking garage directly across the street from, and connected by a climate-
controlled tunnel to, the Aurora Casino's Pavilion. The garage provides
additional parking for patrons of the Aurora Casino and contains approximately
1,500 square feet of retail space. ACCA financed a portion of the construction
costs through an $11,500,000, 7.5% industrial revenue bond issue which yielded
proceeds of approximately $10,500,000. HCA funded all remaining construction
costs and escrowed $3,500,000 at the rate of $400,000 per month beginning in
September 1995 towards satisfaction of its obligations under the agreement. HCA
additionally agreed to make payments to ACCA during construction equal to the
financing costs due in July 1996 relating to the ACCA industrial revenue bond
issue. The facility is owned by ACCA and operated by HCA pursuant to a 30-year
lease with the right to extend the lease for up to 20 additional years. Rental
payments during the first 15 years equal ACCA's debt service costs related to
the industrial revenue bond issue. In addition, HCA pays ACCA base rent equal
to $15,000 per month, subject to a credit of $615,000 at the rate of $10,000 per
month for improvements made to ACCA's North Island Center banquet and meeting
facilities. HCA is also responsible for additional rent, consisting of costs
such as real estate taxes, maintenance costs, insurance premiums and utilities,
arising out of its operation of both parking garages.
HCA also leases certain equipment under capital lease agreements which
provide for interest at the rate of 11.2% and expire at various dates through
1998. The original cost of HCA's parking garages is included in buildings and
improvements on the accompanying balance sheets at both December 31, 1997 and
1996 in the amount of $27,358,000. Assets under capital leases with an original
cost of $2,446,000 are included in operating equipment on the accompanying
balance sheets at both December 31, 1997 and 1996. Amortization expense with
respect to assets under capital leases amounted to $1,097,000,
72
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
$1,223,000 and $1,051,000, respectively, during each of the years ended December
31, 1997, 1996 and 1995.
Future minimum lease payments under capital lease obligations as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 2,494,000
1999 2,457,000
2000 2,483,000
2001 2,532,000
2002 2,643,000
Thereafter 24,076,000
-----------
Total minimum lease payments 36,685,000
Less - amount representing interest (14,983,000)
-----------
Present value of future minimum lease
payments 21,702,000
Current capital lease obligation (861,000)
-----------
Long-term capital lease obligation $20,841,000
===========
</TABLE>
(5) INCOME TAXES
Components of HCA's provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current (provision) benefit:
Federal $(5,859,000) $(5,927,000) $(6,121,000)
State (377,000) 163,000 (338,000)
Deferred (provision) benefit:
Federal (1,978,000) (1,125,000) (1,034,000)
State (205,000) 6,000 (61,000)
----------- ----------- -----------
$(8,419,000) $(6,883,000) $(7,554,000)
=========== =========== ===========
</TABLE>
The tax benefit related to the extraordinary loss on early extinguishment of
debt was $564,000 in 1995.
73
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
A reconciliation between the calculated tax provision on income before
extraordinary item based on the statutory rates in effect and the effective tax
rates for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Calculated income tax provision
at statutory rate $(8,027,000) $(6,792,000) $(6,987,000)
State income taxes (378,000) 110,000 (259,000)
Political contributions and lobbying costs (67,000) (89,000) (65,000)
Other 53,000 (112,000) (243,000)
----------- ----------- -----------
Tax provision as shown on statements
of operations $(8,419,000) $(6,883,000) $(7,554,000)
=========== =========== ===========
</TABLE>
Deferred taxes are computed based on the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, using enacted tax rates. Deferred income taxes result primarily
from the use of the allowance method rather than the direct write-off method for
doubtful accounts, the use of accelerated methods of depreciation for federal
income tax purposes and differences in the timing of deductions taken between
tax and financial reporting purposes for the amortization of preopening costs
and other accruals.
The Internal Revenue Service is currently examining the consolidated Federal
income tax returns of HCC for the years 1993 and 1994. Management believes that
the results of such examination will not have a material adverse effect on the
financial position of HCA.
The components of HCA's net deferred tax liability at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 182,000 $ 375,000
Other liabilities and reserves 1,271,000 1,130,000
----------- -----------
Total deferred tax assets 1,453,000 1,505,000
----------- -----------
Deferred tax liabilities:
Depreciation and amortization (4,258,000) (2,127,000)
----------- -----------
Net deferred tax liability $(2,805,000) $ (622,000)
=========== ===========
</TABLE>
74
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
Receivables and payables in connection with the aforementioned tax allocation
agreements at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets $ 1,194,000 $ 1,421,000
Due from affiliates 538,000 1,002,000
Deferred tax liabilities (3,700,000) (2,043,000)
</TABLE>
(6) TRANSACTIONS WITH RELATED PARTIES
Pursuant to a management services contract, HCA pays base management and
incentive fees to Pratt Management, L.P. ("PML"), a limited partnership which,
prior to April 1, 1997, was wholly owned by GBCC. Effective as of April 1,
1997, HCC acquired the general partnership interest in PML. The base management
fee is equal to 5% of operating revenues (as defined in the management services
contract) subject to a maximum of $5,500,000 in any consecutive twelve month
period. The incentive fee is equal to 10% of gross operating profit (as defined
in the management services contract to generally include all revenues less
expenses other than depreciation, interest, amortization and taxes). HCA
incurred such fees totaling $9,609,000, $9,360,000 and $9,432,000,
respectively, during the years ended December 31, 1997, 1996 and 1995.
Management and incentive fees payable at December 31, 1997 and 1996 amounting to
$2,130,000 and $2,096,000, respectively, are included in due to affiliates on
the accompanying consolidated balance sheets.
HCA incurred interest with respect to its promissory note payable to HCC (see
Note 3). Such interest amounted to $4,906,000, $4,973,000 and $5,406,000,
respectively, for the years ended December 31, 1997, 1996 and 1995. Interest
payable to HCC on such note amounted to $983,000 and $1,050,000, respectively,
at December 31, 1997 and 1996 and is included in accrued interest payable in the
accompanying balance sheets.
HCA has acquired computer software and hardware from GBCC and has been
allocated certain other expenses from HCC and GBCC. During the years ended
December 31, 1997, 1996 and 1995, such transactions totaled $427,000, $720,000
and $1,562,000, respectively. At December 31, 1997 and 1996, HCA had net
payables amounting to $36,000 and $138,000, respectively, in connection with
such charges included in due to affiliates on the accompanying consolidated
balance sheets.
(7) ILLINOIS REGULATORY MATTERS
Riverboat gaming operations in Illinois are subject to regulatory control by
the Illinois Gaming Board (the "IGB"). Under the provisions of the Illinois
gaming regulations, HCA and PML are required to maintain their respective
owner's and supplier's licenses. HCA's owner's license expires in July 1998 and
PML's supplier's license expires in December 1998. Management intends to file
for renewal of HCA's owner's license and PML's supplier's license and
anticipates that such renewals will be approved by the IGB during 1998. If it
were determined that gaming laws were violated by a licensee, the gaming
licenses held by each licensee could be limited, conditioned, suspended, or
revoked. In addition, the licensees and
75
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
other persons involved could be subject to substantial fines. Limitation or
conditioning or suspension of any gaming license could, and revocation would,
have a materially adverse affect on the operations of HCA.
(8) COMMITMENTS AND CONTINGENCIES
PLANET HOLLYWOOD LITIGATION -
Planet Hollywood International, Inc., a Delaware corporation, and Planet
Hollywood (Region IV), Inc., a Minnesota corporation (collectively, "PHII"),
filed a complaint in the United States District Court for the Northern District
of Illinois, Eastern Division on July 29, 1996 against HCC, HCA and a member of
the Pratt Family (collectively, the "Original Hollywood Defendants"). The
Original Hollywood Defendants filed with the Court on September 18, 1996 an
answer to PHII's lawsuit, along with numerous counterclaims against PHII, Robert
Earl and Keith Barish (collectively, the "PHII Defendants"). PHII filed with
the Court on January 21, 1997, an amendment to their complaint which, among
other things, added the HCC subsidiary which owns and operates a casino in
Tunica, Mississippi, HWCC-Tunica, Inc. ("HCT", together with the Original
Hollywood Defendants, the "Hollywood Defendants"), and GBCC as defendants. The
Original Hollywood Defendants filed with the Court on February 4, 1997, and GBCC
and HCT filed with the Court on February 20, 1997, answers and counterclaims to
such amended complaint.
In its lawsuit, PHII alleges, among other things, that the Hollywood
Defendants and GBCC have, in opening and operating the Hollywood Casino concept,
infringed on PHII's trademark, service mark and trade dress and have engaged in
unfair competition and deceptive trade practices. In their counterclaims, the
Hollywood Defendants allege, among other things, that the PHII Defendants have,
through their planned use of their mark in connection with casino services,
infringed on certain of HCC's service marks and trade dress and have engaged in
unfair competition.
Given the uncertainties inherent in litigation, no assurance can be given
that the Hollywood Defendants will prevail in this litigation; however, the
Hollywood Defendants believe that PHII's claims are without merit and intend to
defend their position and pursue their counterclaims vigorously. The
accompanying financial statements do not include any adjustments that might
result from the outcome of the uncertainties described above.
OTHER LITIGATION -
HCA is a party in various legal proceedings with respect to the conduct of
casino operations. Although a possible range of loss can not be estimated, in
the opinion of management, based upon the advice of counsel, settlement or
resolution of the proceedings should not have a material adverse impact on the
financial position or results of operations of HCA.
76
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
(9) SUPPLEMENTAL CASH FLOW INFORMATION
During 1996, HCA entered into a capital lease obligation in the original
amount of $13,195,000 with respect to a new parking garage (see Note 4).
Additional escrowed construction and financing costs totaling $4,163,000 were
capitalized as part of the cost of the facility.
During 1995, HCA acquired certain equipment at a cost of $2,985,000 under
financing agreements with a third party vendor (see Note 3).
(10) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS - The carrying amounts approximate fair value
-------------------------
because of the short maturity of these instruments.
SHORT-TERM INVESTMENTS - The carrying amount approximates fair value due to
----------------------
the short maturity of these investments.
INTEREST PAYABLE - The carrying amount of interest payable approximates fair
----------------
value because of the short maturity of the obligation.
LONG-TERM DEBT - The fair value of HCA's long-term debt is estimated based on
--------------
the quoted market price of the underlying debt issue. Debt obligations with a
short remaining maturity are valued at the carrying amount.
The estimated carrying amounts and fair values of HCA's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash
equivalents $ 9,491,000 $ 9,491,000 $ 9,034,000 $ 9,034,000
Short-term investments 2,103,000 2,103,000 - -
Financial Liabilities:
Interest payable $ 1,192,000 $ 1,192,000 $ 1,315,000 $ 1,315,000
12 3/4% promissory note 36,507,000 39,245,000 39,007,000 37,447,000
Promissory note to bank 350,000 350,000 2,472,000 2,472,000
Equipment loans 413,000 413,000 1,472,000 1,472,000
</TABLE>
77
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
(11) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997
Net revenues $40,350,000 $38,931,000 $41,741,000 $39,285,000
=========== =========== =========== ===========
Net income $ 3,431,000 $ 3,852,000 $ 3,894,000 $ 3,337,000
=========== =========== =========== ===========
Year Ended December 31, 1996
Net revenues $43,715,000 $43,039,000 $39,332,000 $37,305,000
=========== =========== =========== ===========
Net income $ 4,436,000 $ 4,138,000 $ 1,908,000 $ 2,042,000
=========== =========== =========== ===========
</TABLE>
78
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To HWCC - Tunica, Inc.:
We have audited the accompanying consolidated balance sheets of HWCC - Tunica,
Inc. (the Company and a Texas Corporation) and subsidiary as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HWCC - Tunica, Inc. and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 9, 1998
79
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,851,000 $ 9,321,000
Short-term investments 3,876,000 -
Accounts receivable, net of allowances of
$705,000 and $622,000, respectively 1,510,000 1,363,000
Inventories 660,000 672,000
Deferred income taxes 1,632,000 953,000
Prepaid expenses and other current assets 1,129,000 854,000
------------ ------------
Total current assets 20,658,000 13,163,000
------------ ------------
Property and Equipment:
Land and improvements 3,456,000 3,060,000
Buildings 73,422,000 73,348,000
Barges 2,524,000 2,524,000
Operating equipment 37,588,000 35,724,000
Construction in progress 688,000 412,000
------------ ------------
117,678,000 115,068,000
Less - accumulated depreciation and amortization (31,760,000) (22,275,000)
------------ ------------
Net property and equipment 85,918,000 92,793,000
------------ ------------
Other Assets:
Land rights 7,454,000 7,658,000
Other assets 4,697,000 3,006,000
------------ ------------
Total other assets 12,151,000 10,664,000
------------ ------------
$118,727,000 $116,620,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
80
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 485,000 $ 1,511,000
Accounts payable 1,372,000 2,797,000
Accrued liabilities -
Salaries and wages 1,579,000 1,254,000
Interest 476,000 2,262,000
Gaming and other taxes 1,230,000 813,000
Insurance 1,553,000 1,063,000
Other 1,627,000 1,745,000
Other current liabilities 1,325,000 831,000
------------ ------------
Total current liabilities 9,647,000 12,276,000
------------ ------------
Long-Term Debt 85,198,000 85,134,000
------------ ------------
Commitments and Contingencies
Shareholder's Equity:
Common stock, $.01 par value
per share; 100,000 shares authorized;
1,000 shares issued and outstanding - -
Additional paid-in capital 34,637,000 34,637,000
Accumulated deficit (10,755,000) (15,427,000)
------------ ------------
Total shareholder's equity 23,882,000 19,210,000
------------ ------------
$118,727,000 $116,620,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
81
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $ 97,506,000 $ 87,361,000 $ 88,289,000
Rooms 9,651,000 5,329,000 3,187,000
Food and beverage 14,320,000 11,987,000 9,657,000
Other 1,164,000 1,097,000 1,091,000
------------ ------------ ------------
122,641,000 105,774,000 102,224,000
Less - promotional allowances (15,378,000) (11,250,000) (7,808,000)
------------ ------------ ------------
Net revenues 107,263,000 94,524,000 94,416,000
------------ ------------ ------------
Expenses:
Casino 69,496,000 66,018,000 57,411,000
Rooms 1,835,000 1,573,000 1,887,000
Food and beverage 4,325,000 3,752,000 3,357,000
Other 1,402,000 1,259,000 1,187,000
General and administrative 5,769,000 5,962,000 5,711,000
Depreciation and amortization 9,916,000 10,906,000 10,356,000
------------ ------------ ------------
Total expenses 92,743,000 89,470,000 79,909,000
------------ ------------ ------------
Income from operations 14,520,000 5,054,000 14,507,000
------------ ------------ ------------
Non-operating income (expenses):
Interest income 281,000 835,000 637,000
Interest expense, net of capitalized
interest of $1,006,000 in 1996 (10,980,000) (10,060,000) (10,792,000)
Gain (loss) on disposal of assets 6,000 (45,000) (505,000)
------------ ------------ ------------
Total non-operating expenses, net (10,693,000) (9,270,000) (10,660,000)
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item 3,827,000 (4,216,000) 3,847,000
Income tax benefit 845,000 - 694,000
------------ ------------ ------------
Income (loss) before extraordinary item 4,672,000 (4,216,000) 4,541,000
Extraordinary item:
Loss on early extinguishment
of debt, net of taxes - - (9,614,000)
------------ ------------ ------------
Net income (loss) $ 4,672,000 $ (4,216,000) $ (5,073,000)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
82
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 1,000 $- $34,637,000 $ (6,138,000)
Net loss - - - (5,073,000)
----- -- ----------- ------------
BALANCE, DECEMBER 31, 1995 1,000 - 34,637,000 (11,211,000)
Net loss - - - (4,216,000)
----- -- ----------- ------------
BALANCE, DECEMBER 31, 1996 1,000 - 34,637,000 (15,427,000)
Net income - - - 4,672,000
----- -- ----------- ------------
BALANCE, DECEMBER 31, 1997 1,000 $- $34,637,000 $(10,755,000)
===== == =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this consolidated statement.
83
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,672,000 $ (4,216,000) $ (5,073,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item - - 9,614,000
Depreciation and amortization 9,916,000 10,906,000 10,356,000
(Gain) loss on disposal of assets (6,000) 45,000 505,000
Provision for doubtful accounts 498,000 539,000 449,000
Deferred income tax benefit (1,070,000) - (626,000)
Increase in accounts receivable (645,000) (474,000) (1,159,000)
(Decrease) increase in accounts payable and accrued
expenses (2,097,000) 721,000 1,469,000
Net change in other current assets and
liabilities 231,000 (280,000) (127,000)
Net change in other noncurrent assets
and liabilities 488,000 (740,000) (939,000)
----------- ------------ ------------
Net cash provided by operating
activities 11,987,000 6,501,000 14,469,000
----------- ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (2,635,000) (35,038,000) (7,228,000)
Short-term investments (3,876,000) - -
Investment in unconsolidated affiliate (2,000,000) - -
Proceeds from sale of assets 16,000 105,000 180,000
Decrease (increase) in cash restricted for
construction projects - 27,919,000 (27,919,000)
----------- ------------ ------------
Net cash used in investing activities (8,495,000) (7,014,000) (34,967,000)
----------- ------------ ------------
FINANCING ACTIVITIES:
Issuance of long-term debt 601,000 1,503,000 84,045,000
Repayments of long-term debt (364,000) (1,469,000) (55,862,000)
Payments on capital lease obligations (1,199,000) (1,729,000) (1,402,000)
Costs of early retirement of debt - - (7,414,000)
----------- ------------ ------------
Net cash (used in) provided by
financing activities (962,000) (1,695,000) 19,367,000
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,530,000 (2,208,000) (1,131,000)
Cash and cash equivalents at
beginning of year 9,321,000 11,529,000 12,660,000
----------- ------------ ------------
Cash and cash equivalents at
end of year $11,851,000 $ 9,321,000 $ 11,529,000
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
84
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
HWCC - Tunica, Inc. ("HCT") is a Texas corporation and a wholly owned
subsidiary of Hollywood Casino Corporation ("HCC"), a Delaware corporation. HCT
was incorporated in December 1993 to purchase a partially completed gaming
facility in northern Tunica County, Mississippi approximately 27 miles southwest
of Memphis, Tennessee (the "Tunica Casino"). In January 1994, HCT acquired from
unrelated third parties all of the common stock of Summit Riverboat Casinos -
Tunica, Inc. ("SRCT") and all of the limited partnership interests of Summit
Tunica Partnership ("STP"), a Mississippi limited partnership. STP completed
construction of the Tunica Casino at a cost of approximately $92.6 million.
Capital contributions from HCC totaling approximately $33 million provided the
initial funding for the project. On June 3, 1994, HCT issued $55 million of
first mortgage notes, the net proceeds of which (approximately $51.3 million),
together with equipment financing, were used to complete construction of the
facility. The Tunica Casino, which currently includes a casino with 54,000
square feet of gaming space, 506 hotel rooms and suites and related amenities,
commenced operations on August 8, 1994 under the service mark Hollywood
Casino(R).
On October 17, 1995, in connection with the HCC Refinancing (see Note 3),
STP was dissolved and distributed all of its assets and liabilities to SRCT, the
general partner, and HCT, the sole limited partner. In addition, SRCT merged
with and into HCT, which now owns and operates the Tunica Casino. As the above
entities were under common control, the merger was accounted for similar to a
pooling of interests; accordingly, the accompanying 1995 consolidated statements
of operations and cash flows have been presented as if the companies had always
been combined.
The accompanying consolidated financial statements include the accounts of
HCT and its wholly owned subsidiary, HWCC-Golf Course Partners, Inc. ("Golf").
All significant intercompany balances have been eliminated in consolidation.
Golf, a Delaware corporation, was formed in 1996 to own an interest in a golf
course currently under construction which will be used by patrons of the Tunica
Casino and other participating casino/hotel properties. The golf course is
presently scheduled for completion in 1998. Golf's investment in Tunica Golf
Course, LLC is accounted for under the equity method of accounting and is
included in other noncurrent assets on the accompanying consolidated balance
sheet at December 31, 1997.
HCT estimates that a significant amount of the Tunica Casino's revenues are
derived from patrons living in the Memphis, Tennessee area, northern Mississippi
and Arkansas. The Tunica Casino faces intense competition from other casinos
operating in northern Tunica County and management believes that this
competition will continue in the future.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are discussed below. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
85
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CASINO REVENUES, PROMOTIONAL ALLOWANCES AND DEPARTMENTAL EXPENSES -
The Tunica Casino recognizes the net win from gaming activities (the
difference between gaming wins and losses) as casino revenues. Casino revenues
are net of accruals for anticipated payouts of progressive slot machine jackpots
and certain progressive table game payouts. Such anticipated jackpots and
payouts are included in other accrued liabilities on the accompanying
consolidated balance sheets at December 31, 1997 and 1996.
The estimated value of rooms, food and beverage and other items which are
provided to customers without charge has been included in revenues and a
corresponding amount has been deducted as promotional allowances. The costs of
such complimentaries have been included as casino expenses on the accompanying
consolidated statements of operations.
Costs of complimentaries allocated from the rooms, food and beverage and
other operating departments to the casino department during the years ended
December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Rooms $ 1,870,000 $ 1,162,000 $ 654,000
Food and beverage 10,837,000 10,223,000 8,603,000
Other 140,000 203,000 109,000
----------- ----------- ----------
$12,847,000 $11,588,000 $9,366,000
=========== =========== ==========
</TABLE>
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents are generally comprised of cash and investments
with original maturities of three months or less, such as commercial paper,
certificates of deposit and fixed repurchase agreements.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
The allowance for doubtful accounts is maintained at a level considered
adequate to provide for possible future losses. Provisions for doubtful
accounts amounting to $498,000, $539,000 and $449,000, respectively, were made
during the years ended December 31, 1997, 1996 and 1995.
INVENTORIES -
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market.
86
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PROPERTY AND EQUIPMENT -
Property and equipment have been recorded at cost and are being depreciated
utilizing the straight-line method over the estimated useful lives of the assets
as follows:
Hotel, dockside facilities and
improvements 25-40 years
Barges 25-40 years
Operating equipment 3- 7 years
On October 1, 1996, HCT revised the estimated useful lives of its
buildings, barges and related land rights (see below) from 25 years to 40 years
and the estimated useful life of its slot machines from three years to five
years. Management believes the changes in estimated lives more appropriately
reflect the timing of the economic benefits to be received from these assets.
For the year ended December 31, 1997, the effect of these changes reduced
depreciation and amortization expense and increased net income by approximately
$2,490,000. For the year ended December 31, 1996, such changes reduced
depreciation and amortization expense and net loss by approximately $858,000.
Interest incurred in connection with property and equipment acquisitions
totalling $1,006,000 in 1996 has been capitalized during the acquisition period
and is being amortized over the useful lives of the related assets.
DEFERRED FINANCING COSTS -
Costs associated with issuing long-term debt, including all underwriting,
legal and accounting fees, are capitalized and are amortized over the term of
the related debt issue. Deferred financing costs, net of accumulated
amortization, amounting to $2,954,000 were written off during 1995 with respect
to the early extinguishment of debt (see Note 3).
LAND RIGHTS -
Land rights are being amortized on a straight-line basis over the estimated
useful life of the facility, which is less than the term of the ground lease
including renewals (see Note 8); such amortization commenced with the opening of
the Tunica Casino. The estimated economic benefit of the land rights was
increased from 25 years to 40 years effective on October 1, 1996 consistent with
the change in estimated useful life of the Tunica facility as discussed under
"Property and Equipment" above. Management presently intends to renew the
ground lease at least through its currently estimated 40-year useful life of the
facility. Accumulated amortization of such land rights amounted to $991,000 and
$787,000, respectively, at December 31, 1997 and 1996.
LONG-LIVED ASSETS -
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires, among other things, that an entity
87
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. As a result of its review, HCT does not believe
that any such changes have occurred.
ACCRUED INSURANCE -
HCT is self insured for a portion of its general liability, certain health
care and other liability exposures. Accrued insurance includes estimates of
such accrued liabilities based on an evaluation of the merits of individual
claims and historical claims experience; accordingly, HCT's ultimate liability
may differ from the amounts accrued.
INCOME TAXES -
HCT is included in HCC's consolidated federal income tax return. HCT's
provision for federal income taxes is based on the amount of tax which would be
provided if a separate federal income tax return were filed. HCT made payments
to HCC in lieu of federal income taxes amounting to $494,000 during the year
ended December 31, 1997; no such payments were made during either of the years
ended December 31, 1996 or 1995. HCT paid no state income taxes during 1997,
1996 or 1995.
RECLASSIFICATIONS -
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1997 consolidated financial statement
presentation.
(3) LONG-TERM DEBT AND PLEDGE OF ASSETS
Substantially all of HCT's assets are pledged in connection with its long-
term indebtedness. Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Promissory notes to HCC due November 1, 2003 (a) $84,045,000 $84,045,000
Equipment loans (b) 1,638,000 1,401,000
----------- -----------
Total indebtedness 85,683,000 85,446,000
Less - current maturities (485,000) (312,000)
----------- -----------
Total long-term debt $85,198,000 $85,134,000
=========== ===========
- --------------------
</TABLE>
88
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a) During October 1995, HCC loaned $54,045,000 to HCT to repay its outstanding
mortgage indebtedness, together with the associated call premium and
certain accrued interest thereon, and loaned an additional $30,000,000 to
HCT to be used to finance construction of a 352-room hotel tower and
related amenities and to fund development and construction of a themed
gaming area. Such intercompany loans were made with a portion of the note
proceeds from HCC's issue of $210,000,000 of 12 3/4% Senior Secured Notes
(the "Senior Secured Notes") due November 1, 2003, discounted to yield 13
3/4% per annum. Interest on the loans from HCC accrues at the rate of 12
3/4% per annum and is payable semiannually on April 15 and October 15 of
each year. The Senior Secured Notes are unconditionally guaranteed on a
senior secured basis by HCT and by certain future subsidiaries of HCC. The
Senior Secured Notes and related guarantees are secured by, among other
things, (i) substantially all of the assets of HCT and other future
guarantors, (ii) a first mortgage limited to approximately $39 million on
substantially all of the assets of another gaming facility operated by a
wholly owned subsidiary of HCC, (iii) a pledge of the capital stock of HCT
and certain other subsidiaries of HCC and (iv) the collateral assignment of
any future management contracts entered into by HCC.
The indenture to the Senior Secured Notes contains various provisions
limiting the ability of HCC, HCT and certain defined subsidiaries to, among
other things, pay dividends or make other restricted payments; incur
additional indebtedness or issue preferred stock; create liens; create
dividend or other payment restrictions affecting certain defined
subsidiaries; enter into mergers or consolidations or make sales of all or
substantially all assets of HCC, HCT or any future guarantor; and enter
into transactions with certain affiliates.
(b) The loans outstanding at December 31, 1997 are payable monthly including
interest at rates ranging from 7.8% to 12.9% per annum and mature at
various dates between 1999 and 2001.
Scheduled payments of long-term debt as of December 31, 1997 are set forth
below:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 485,000
1999 547,000
2000 491,000
2001 115,000
2002 -
Thereafter 84,045,000
-----------
Total $85,683,000
===========
</TABLE>
Interest paid, net of amounts capitalized, amounted to $12,766,000,
$10,000,000 and $11,344,000, respectively, during the years ended December 31,
1997, 1996 and 1995.
89
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) CAPITAL LEASES
HCT leased certain gaming and other equipment under capital lease
agreements which provided for interest at rates ranging up to 13 1/4% per annum
and which expired during 1997. Assets under capital leases with an original
cost of $4,814,000 are included in operating equipment in the accompanying
consolidated balance sheets at both December 31, 1997 and 1996. Amortization
expense for the years ended December 31, 1997, 1996 and 1995 was $945,000,
$1,500,000 and $1,674,000, respectively. Accumulated amortization at December
31, 1997 and 1996 with respect to these assets amounted to $4,516,000 and
$3,571,000, respectively. No future payment obligations exist with respect to
such capital leases.
(5) INCOME TAXES
Components of HCT's benefit for income taxes for the years ended December
31, 1997, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
(Provision for) benefit in lieu of federal
income taxes:
Current $ (938,000) $ 2,254,000 $ 3,952,000
Deferred (100,000) (801,000) (2,292,000)
Valuation allowance 1,883,000 (1,453,000) (966,000)
---------- ----------- -----------
$ 845,000 $ - $ 694,000
========== =========== ===========
</TABLE>
The deferred tax benefit related to the extraordinary loss on early
extinguishment of debt was $343,000 in 1995.
State income taxes have not been provided for since a credit for state
gaming taxes based on gross revenues is allowed to offset income taxes incurred.
The credit is the lesser of total gaming taxes paid or the state income tax,
with no credit carryforward permitted.
90
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation between the calculated tax benefit on income (loss) before
extraordinary item based on the statutory rates in effect and the effective tax
rates for the years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Calculated income tax (provision) benefit at 34% $(1,301,000) $ 1,433,000 $(1,308,000)
Utilization of operating loss carryforward - - 2,028,000
Adjustment to valuation allowance 1,883,000 - -
Adjustment to prior year taxes 328,000 - -
Tax benefit of operating loss not utilized - (1,400,000) -
Disallowance of meals and entertainment (43,000) (25,000) (20,000)
Other (22,000) (8,000) (6,000)
----------- ----------- -----------
Tax benefit as shown on statement of operations $ 845,000 $ - $ 694,000
=========== =========== ===========
</TABLE>
Deferred income taxes result primarily from the use of the allowance method
rather than the direct write-off method for doubtful accounts, the use of
accelerated methods of depreciation for federal income tax purposes and
differences in the timing of deductions taken between tax and financial
reporting purposes for the amortization of preopening costs and other accruals.
At December 31, 1997, HCT had net operating loss carryforwards ("NOL's")
totaling approximately $15,000,000, which do not begin to expire until the year
2010. Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", requires that the tax benefit of such NOL's, together with the
tax benefit of deferred tax assets resulting from temporary differences be
recorded as an asset and, to the extent that management can not assess that the
utilization of all or a portion of such deferred tax assets is more likely than
not, a valuation allowance should be recorded. Based on the taxable income
earned during 1997 and the anticipation of continued taxable income in the near
future, management believes that it is more likely than not that future taxable
income will be sufficient to utilize at least a portion of the NOL's and
deferred tax assets. Accordingly, a valuation allowance has been established
which has resulted in the recording of net deferred tax assets of $2,107,000 and
$1,037,000, respectively, at December 31, 1997 and 1996. The ultimate
recognition of the current amount of deferred tax assets is dependent on HCT's
ability to generate approximately $6,200,000 of taxable income for federal
income tax purposes prior to the expiration dates of the NOL's and the reversal
of other temporary differences.
The Internal Revenue Service is currently examining the consolidated
Federal income tax returns of HCC for the years 1993 and 1994. Management
believes that the results of such examination will not have a material adverse
effect on the financial position of HCT.
91
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the deferred tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 5,200,000 $ 6,138,000
Alternative minimum tax credit carryforward 226,000 -
Allowance for doubtful accounts 240,000 211,000
Other liabilities and accruals 1,108,000 809,000
----------- -----------
Total deferred tax assets 6,774,000 7,158,000
Deferred tax liabilities:
Depreciation and amortization (2,097,000) (1,668,000)
----------- -----------
Net deferred tax asset 4,677,000 5,490,000
Valuation allowance (2,570,000) (4,453,000)
----------- -----------
$ 2,107,000 $ 1,037,000
=========== ===========
</TABLE>
Receivables and payables in connection with HCT's federal income taxes are
included in the accompanying consolidated financial statements as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---------- --------
<S> <C> <C>
Accounts receivable $ 268,000 $ -
Deferred income taxes 1,632,000 953,000
Other noncurrent assets 475,000 84,000
</TABLE>
(6) TRANSACTIONS WITH RELATED PARTIES
Pursuant to a ten-year consulting agreement with Pratt Casino Corporation, an
affiliated company, HCT incurs a monthly consulting fee of $100,000. Such fees
amounted to $1,200,000 during each of the years ended December 31, 1997, 1996
and 1995.
HCT and Advanced Casino Systems Corporation ("ACSC"), an affiliated company,
entered into a Computer Services Agreement dated as of January 1, 1994. The term
of the agreement was three years with an automatic renewal for an additional
three years becoming effective on January 1, 1997. The agreement provides,
among other things, that ACSC will sell HCT computer hardware and information
systems equipment and will license or sublicense to HCT computer software
necessary to operate HCT's casino, hotel and related facilities and business
operations. HCT pays ACSC for such equipment and licenses such software at
amounts and on terms and conditions that ACSC provides to unrelated third
92
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
parties. HCT also pays ACSC a fixed license fee of $33,600 per month ($30,000
prior to January 1, 1997). In addition, HCT reimburses ACSC for its direct
costs and expenses incurred under this agreement. Total charges incurred under
such agreement amounted to $547,000, $511,000 and $532,000, respectively, for
the years ended December 31, 1997, 1996 and 1995. At December 31, 1997 and
1996, HCT had payables of $44,000 and $30,000, respectively, included in
accounts payable with respect to such charges.
Greate Bay Hotel and Casino, Inc. ("GBHC"), an affiliated company which owns
and operates the Sands Hotel and Casino in Atlantic City, New Jersey, performs
certain marketing and other services on behalf of HCT. During the years ended
December 31, 1997, 1996 and 1995, fees charged to HCT by GBHC totaled $428,000,
$653,000 and $298,000, respectively. At December 31, 1997 and 1996, HCT had
payables of $4,000 and $99,000, respectively, included in accounts payable with
respect to such charges.
HCT is charged for certain legal, accounting, and other expenses incurred by
HCC and its subsidiaries that relate to HCT's business. For the years ended
December 31, 1997, 1996 and 1995, such charges amounted to $390,000, $509,000
and $241,000, respectively. At December 31, 1997 and 1996, HCT had payables of
$43,000 and $226,000, respectively, included in accounts payable with respect to
such charges.
(7) MISSISSIPPI REGULATORY MATTERS
Gaming operations in Mississippi are subject to regulatory control by the
Mississippi Gaming Commission. Under the provisions of the Mississippi gaming
regulations, HCT is required to maintain all necessary licenses. The ownership
license for the Tunica Casino has been renewed through October 18, 1999. If it
were determined that gaming laws were violated by a licensee, the gaming
licenses held by each licensee could be limited, conditioned, suspended or
revoked. In addition, the licensees and other persons involved could be subject
to substantial fines.
(8) COMMITMENTS AND CONTINGENCIES
GROUND LEASE -
HCT entered into a ground lease covering 70 acres of land on which the Tunica
Casino was constructed. The ground lease is for an initial term of five years
from the opening date of the facility and, at HCT's option, may be renewed for
nine additional five-year periods. Obligations under the ground lease during
the initial term include both minimum monthly fixed payments and percentage
rent, which in the aggregate will be the greater of 4% of Gross Revenues, as
defined, or $1,100,000 per year. HCT is responsible for all operating and other
expenses of the property in accordance with the lease terms. For the years ended
December 31, 1997, 1996 and 1995, HCT expensed $3,935,000, $3,486,000 and
$3,608,000, respectively, in connection with the ground lease.
93
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CREDIT FACILITY -
HCT has a $1,000,000 bank credit facility available through August 15, 1998.
No borrowings were outstanding under the credit facility at either December 31,
1997 or 1996. Borrowings under the line of credit accrue interest at the rate
of the bank's prime lending rate plus 1 1/2% per annum. The line of credit
agreement requires the maintenance of certain financial ratios and balances in
addition to the provision of certain financial reports.
PLANET HOLLYWOOD LITIGATION -
Planet Hollywood International, Inc., a Delaware corporation, and Planet
Hollywood (Region IV), Inc., a Minnesota corporation (collectively, "PHII"),
filed a complaint in the United States District Court for the Northern District
of Illinois, Eastern Division on July 29, 1996 against HCC, the wholly owned
subsidiary of HCC which owns and operates a casino in Aurora, Illinois and a
member of the Pratt Family (collectively, the "Original Hollywood Defendants").
The Original Hollywood Defendants filed with the Court on September 18, 1996 an
answer to PHII's lawsuit, along with numerous counterclaims against PHII, Robert
Earl and Keith Barish (collectively, the "PHII Defendants"). PHII filed with
the Court on January 21, 1997, an amendment to their complaint which, among
other things, added HCT (together with the Original Hollywood Defendants, the
"Hollywood Defendants") and Greate Bay Casino Corporation ("GBCC"), an
affiliated company, as defendants. The Original Hollywood Defendants filed with
the Court on February 4, 1997, and GBCC and HCT filed with the Court on February
20, 1997, answers and counterclaims to such amended complaint.
In its lawsuit, PHII alleges, among other things, that the Hollywood
Defendants and GBCC have, in opening and operating the Hollywood Casino concept,
infringed on PHII's trademark, service mark and trade dress and have engaged in
unfair competition and deceptive trade practices. In their counterclaims, the
Hollywood Defendants and GBCC allege, among other things, that the PHII
Defendants have, through their planned use of their mark in connection with
casino services, infringed on certain of HCC's service marks and trade dress and
have engaged in unfair competition.
Given the uncertainties inherent in litigation, no assurance can be given
that the Hollywood Defendants will prevail in this litigation; however, the
Hollywood Defendants believe that PHII's claims are without merit and intend to
defend their position and pursue their counterclaims vigorously. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainties described above.
OTHER -
HCT is a party in various legal proceedings with respect to the conduct of
casino and hotel operations. Although a possible range of loss can not be
estimated, in the opinion of management, based upon the advice of counsel,
settlement or resolution of the proceedings should not have a material adverse
impact on the consolidated financial position or results of operations of HCT.
94
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS - The carrying amounts approximate fair value
-------------------------
because of the short maturity of these instruments.
SHORT-TERM INVESTMENTS - The carrying amounts approximate fair value because
----------------------
of the short maturity of these instruments.
INTEREST PAYABLE - The carrying amount of interest payable approximates fair
----------------
value because of the short maturity of the obligation.
LONG-TERM DEBT - The fair value of HCT's long-term debt is estimated based
--------------
on either the quoted market price of the underlying debt issue or on the
discounted cash flow of future payments utilizing current rates available to HCT
for debt of similar remaining maturities. Debt obligations with a short
remaining maturity are valued at the carrying amount.
The estimated carrying amounts and fair values of HCT's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $11,851,000 $11,851,000 $ 9,321,000 $ 9,321,000
Short-term investments 3,876,000 3,876,000 - -
Financial Liabilities
Interest payable $ 476,000 $ 476,000 $ 2,262,000 $ 2,262,000
Promissory notes to HCC 84,045,000 90,348,000 84,045,000 80,683,000
Equipment loans 1,638,000 1,649,000 1,401,000 1,401,000
</TABLE>
95
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Net revenues $26,979,000 $27,354,000 $28,084,000 $24,846,000
=========== =========== =========== ===========
Net income $ 1,431,000 $ 1,781,000 $ 1,442,000 $ 18,000
=========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1996:
Net revenues $24,230,000 $21,907,000 $23,209,000 $25,178,000
=========== =========== =========== ===========
Net (loss) income $ (417,000) $(3,158,000) $ (769,000) $ 128,000
=========== =========== =========== ===========
</TABLE>
96
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
HCC and HCT had no disagreements with their independent accountants to report
under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by reference
from HCC's definitive proxy statement filed with the Securities and Exchange
Commission relating to its Annual Meeting of Shareholders to be held on May 28,
1998 (the "Definitive Proxy Statement") under the captions "Election of
Directors" and "Management."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by reference
from HCC's Definitive Proxy Statement under the caption "Remuneration of
Directors and Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference
from the HCC's Definitive Proxy Statement under the caption "Voting Rights and
Principal Stockholders".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference
from HCC's Definitive Proxy Statement under the caption "Transactions with
Management."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the
Index to Financial Statements on page 33.
2. FINANCIAL STATEMENT SCHEDULES
Hollywood Casino Corporation and Subsidiaries
---------------------------------------------
-- Report of Independent Public Accountants
-- Schedule I; Condensed Financial Information of Registrant, Hollywood
Casino Corporation (Parent Company):
-- Balance Sheets
-- Statements of Operations
-- Statements of Cash Flows
-- Notes to Parent Company Financial Statements
-- Schedule II; Valuation and Qualifying Accounts
97
<PAGE>
Hollywood Casino - Aurora, Inc.
-------------------------------
-- Report of Independent Public Accountants
-- Schedule II; Valuation and Qualifying Accounts
HWCC-Tunica, Inc.
-----------------
-- Report of Independent Public Accountants
-- Schedule II; Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been
omitted.
3. EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
**2.1 -- Agreement of Merger dated as of May 15, 1992, between PBC, Inc.and HCC and Certificate of
Correction of Agreement of Merger dated as of June 16, 1992. (Exhibit 2.1)
+3.1 -- Certificate of Incorporation of HCC, as amended. (Exhibit 3.1)
+3.2 -- Amended Bylaws of HCC. (Exhibit 3.2)
@@3.3 -- Articles of Incorporation of HCT. (Exhibit 3.1).
@@3.4 -- Bylaws of HCT. (Exhibit 3.2)
++4.1 -- Indenture among the Company as Issuer, HCT as Guarantor and Shawmut Bank, National Association,
as Trustee (including form of Note) dated as of October 17, 1995. (Exhibit 4.1)
++4.2 -- Mortgage, Leasehold Mortgage, Security Agreement, Fixture Filing and Financing Statement made by
HCA, as Mortgagor, for the benefit of the Company, as assigned to Shawmut Bank, National
Association, as Trustee and Mortgagee. (Exhibit 4.2)
++4.3 -- Leasehold Deed of Trust, Security Agreement, Fixture Filing and Financing Statement made by HCT,
as Grantor, to Jim B. Tohill, as Deed Trustee, for the benefit of Shawmut Bank, National
Association, as Trustee and Beneficiary (relating to a first-lien Deed of Trust securing the
Indenture). (Exhibit 4.3)
++4.4 -- Leasehold Deed of Trust, Security Agreement, Fixture Filing and Financing Statement made by HCT,
as Grantor, to Jim B. Tohill, as Deed Trustee, for the benefit of the Company, as assigned to
Shawmut Bank, National Association, as Trustee and Beneficiary (relating to a second-lien
Leasehold Deed of Trust securing the Intercompany Notes executed by HCT). (Exhibit 4.4)
++4.5 -- First Preferred Fleet Mortgage made and given by HCA, as Mortgagor, to the Company, as assigned
to Shawmut Bank, National Association, as Trustee and Mortgagee (relating to Vessel Nos. 993836,
993837, and 1029229) dated as of October 17, 1995.(Exhibit 4.5)
++4.6 -- First Preferred Ship Mortgage made and given by HCT, as Mortgagor, to Shawmut Bank, National
Association, as Trustee and Mortgagee (relating to Vessel No. 534006) dated as of October 17,
1995. (Exhibit 4.6)
++4.7 -- Second Preferred Ship Mortgage made and given by HCT, as Mortgagor, to the Company, as assigned
to Shawmut Bank, National Association, as Trustee and Mortgagee (relating to Vessel No. 534006)
dated as of October 17, 1995. (Exhibit 4.7)
++4.8 -- Security Agreement (Stock Pledge) made by the Company, as Pledgor, in favor of Shawmut Bank,
National Association, as Trustee and Secured Party dated October 17, 1995. (Exhibit 4.8)
++4.9 -- Security Agreement between the Company, as Debtor, and Shawmut Bank, National Association,
as Trustee and Secured Party dated October 17, 1995. (Exhibit 4.9)
++4.10 -- First Amendment and Supplement to Security Agreement between the Company, as debtor, and
Shawmut Bank, National Association, as Trustee, dated as of November 15, 1995. (Exhibit 4.10)
++4.11 -- Security Agreement between HCT, as Debtor, and Shawmut Bank, National Association, as Trustee
and Secured Party dated October 17, 1995. (Exhibit 4.11)
++4.12 -- Intercompany Security Agreement between HCT, as Debtor, and the Company, as assigned to Shawmut
Bank, National Association, as Trustee and Secured Party (relating to a second-lien
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
security agreement for HCT securing the Intercompany Note executed by it) dated October 17, 1995.
(Exhibit 4.12)
++4.13 -- Intercompany Security Agreement between HCA, as Debtor, and the Company, as assigned to Shawmut
Bank, National Association, as Trustee and Secured Party (relating to a first-lien security
agreement for HCA securing the Intercompany Note executed by it) dated October 17, 1995.
(Exhibit 4.13)
++4.14 -- Assignment made and given by the Company, as Assignor, of First Preferred Fleet Mortgage made
and given by HCA, as Mortgagor, to the Company, in favor of Shawmut Bank, National Association,
as Trustee and Mortgagee (relating to Vessel Nos. 993836, 993837, and 1029229), dated October 17,
1995. (Exhibit 4.14).
++4.15 -- Assignment made and given by the Company, as Assignor, of Second Preferred Ship Mortgage made and
given by HCT, as Mortgagor, to the Company, in favor of Shawmut Bank, National Association, as
Trustee and Mortgagee (relating to Vessel No. 534006), dated October 17, 1995. (Exhibit 4.15)
++4.16 -- Promissory Note in the aggregate principal amount of $54,045,000 issued by HCT to the Company,
endorsed by the Company, dated October 17, 1995. (Exhibit 4.16)
++4.17 -- Promissory Note in the aggregate principal amount of $30 million issued by HCT to the Company,
endorsed by the Company, dated October 17, 1995. (Exhibit 4.17)
++4.18 -- Amended and Restated Promissory Note in the aggregate principal amount of $39,006,818 issued
by HCA to the Company, endorsed by the Company, dated October 17, 1995. (Exhibit 4.18)
++4.19 -- Assignment of Mortgage, Leasehold Mortgage, Security Agreement, Fixture Filing and Financing
Statement made and given by the Company, as Assignor, in favor of Shawmut Bank, National
Association, as Trustee and Assignee, dated October 17, 1995. (Exhibit 4.19)
++4.20 -- Assignment of Second Leasehold Deed of Trust, Security Agreement, Fixture Filing and Financing
Statement made and given by the Company, as Assignor, in favor of Shawmut Bank, National
Association, as Trustee and Assignee, dated October 17, 1995. (Exhibit 4.20)
10.1 -- Sixth Amendment to Employment Agreement dated January 1, 1998, between HCC and Jack E. Pratt.
10.2 -- Sixth Amendment to Employment Agreement dated January 1, 1998, between HCC and Edward T.
Pratt, Jr.
10.3 -- Sixth Amendment to Employment Agreement dated January 1, 1998, between HCC and William D. Pratt.
#10.4 -- Employment Agreement dated May 1, 1996, between HCC and Edward T. Pratt III. (Exhibit 10.4)
10.5 -- Amended and Restated Employment Agreement dated as of December 31, 1997, between HCC and
Richard D. Knight.
*10.6 -- Development Agreement dated as of June 4, 1991, between the City of Aurora, Illinois and
HCA. (Exhibit 10.33)
*10.7 -- Management Services Agreement dated as of June 21, 1991, between HCA and Greate Bay Casino
Corporation (the "Management Services Agreement"). (Exhibit 10.34)
*10.8 -- First Amendment to the Management Services Agreement dated as of May 14, 1992.
(Exhibit 10.35)
*10.9 -- Tax Sharing Agreement dated May 13, 1992, by and among HCC, HCA and Pratt Hotel Corporation
("PHC", now known as GBCC). (Exhibit 10.36)
*10.10 -- Parking lease Agreement June 4, 1991, between the City of Aurora, Illinois and HCA.
(Exhibit 10.39)
*10.11 -- Purchase and Sale Agreement dated June 4, 1991, between the City of Aurora, Illinois and HCA.
(Exhibit 10.40)
*10.12 -- Technical Services Agreement dated February 21, 1992, between HCA and PHC (the "Technical
Services Agreement"). (Exhibit 10.42)
*10.13 -- First Amendment to the Technical Services Agreement dated May 14, 1992. (Exhibit 10.43)
@10.14 -- Rights Agreement, dated as of May 7, 1993 between HCC and Continental Stock Transfer & Trust
Company, as Rights Agent. (Exhibit 10.45)
+10.15 -- Hollywood Casino Corporation Stock Option Plan. (Exhibit 10.46)
@10.16 -- Agreement of Limited Partnership of Pratt Management, L.P. (Exhibit 10.55)
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
@@10.17 -- Ground Lease dated as of October 11, 1993 between R.M. Leatherman and Hugh M. Mageveney, III, as
Landlord, and SRCT, as Tenant. (Exhibit 10.4)
@@10.18 -- Letter Agreement dated as of October 11, 1993 between R.M. Leatherman and Hugh M. Mageveney, III,
as Landlord, and SRCT, as Tenant (relating to Ground Lease). (Exhibit 10.5)
@@10.19 -- Blanket Conveyance, Bill of Sale and Assignment and Assumption Agreement dated as of May 31, 1994
between SRCT and STP. (Exhibit 10.6)
@@10.20 -- Assignment of Lease and Assumption Agreement dated as of May 31, 1994 between SRCT and STP
(relating to Ground Lease). (Exhibit 10.7)
@@10.21 -- Consulting Agreement dated as of January 1, 1994 between PCC, as the Consultant, and HCT
(Exhibit 10.8)
@@10.22 -- Computer Services Agreement dated as of January 1, 1994 between STP and Advanced Casino Systems
Corporation. (Exhibit 10.11)
++10.23 -- North Island Center Expansion and Redevelopment Agreement dated June 12, 1995 between HCA, the
Aurora Metropolitan Exposition, Auditorium and Office Building Authority and the City of Aurora.
(Exhibit 10.36)
++10.24 -- Note and Warrant Purchase Agreement dated November 16, 1995 between Golden Gate Gaming, L.L.C.,
Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and HCC. (Exhibit 10.37)
++10.25 -- Promissory Notes (Series A and Series B), each in the aggregate amount of $5,000,000, issued
by Golden Gate Gaming, LLC to the Company, dated November 16, 1995. (Exhibit 10.38)
++10.26 -- Warrant Certificates (Series A and Series B) by Gate Gaming, LLC, Edward J. DeBartolo, Jr.,
Cynthia R. DeBartolo and the Company, dated November 16, 1995. (Exhibit 10.39)
10.27 -- Amendment dated October 16, 1997 to the Note and Warrant Purchase Agreement dated November 16,
1995 between Golden Gate Gaming, L.L.C., Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and HCC.
10.28 -- Amendment dated February 27, 1998 to the Note and Warrant Purchase Agreement dated November 16,
1995 between Golden Gate Gaming, L.L.C., Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and HCC.
#10.29 -- Hollywood Casino Corporation 1996 Long-Term Incentive Plan, as amended. (Exhibit 10.28)
#10.30 -- Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan. (Exhibit 10.29)
##10.31 -- General Partnership Interest Purchase Agreement dated as of April 1, 1997 by and between HWCC-Aurora
Management, Inc. and PPICorporation. (Exhibit 10.30)
10.32 -- Master Agreement dated October 16, 1997 between HWCC-Louisiana, Inc., New Orleans Paddlewheels,
Paddlewheels, L.L.C. and Sodak Louisiana, L.L.C. Inc., Shreveport
11.1 -- Computation regarding Per Share Losses.
21.1 -- Subsidiaries of HCC.
23.1 -- Consent of Arthur Andersen LLP
- -----------------------
</TABLE>
+ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-58732) for Hollywood Casino
Corporation as filed with the SEC on May 27, 1993.
++ Incorporated by reference from the exhibit shown in parenthesis filed in
HCC's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
* Incorporated by reference from the exhibit shown in parenthesis to that
Registration Statement on Form 10 filed with the SEC on May 28, 1992 by PRT
Corporation (now know as HCC).
** Incorporated by reference from the exhibit shown in parenthesis to that
Registration Statement on Form 10, as amended, filed with the SEC on August
13, 1992 by HCC.
@ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-77502) for Hollywood Casino
Corporation as filed with the SEC on April 8, 1994.
100
<PAGE>
@@ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-82182) for HWCC - Tunica, Inc.
as filed with the SEC on September 29, 1994.
# Incorporated by reference from the exhibit shown in parenthesis filed in
HCC's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
## Incorporated by reference from the exhibit shown in parentheses filed in
HCC's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 as
filed with the SEC on August 12, 1997.
(B) REPORTS ON FORM 8-K.
Neither HCC nor HCT filed any reports on Form 8-K during the quarter ended
December 31, 1997.
101
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas on April 13, 1998.
HOLLYWOOD CASINO CORPORATION
By: /s/ Jack E. Pratt
-------------------------------
Jack E. Pratt
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack E. Pratt Chief Executive April 13, 1998
- --------------------------------- Officer and Director
Jack E. Pratt
/s/ Edward T. Pratt, Jr. Vice President, Treasurer April 13, 1998
- --------------------------------- and Director
Edward T. Pratt, Jr.
/s/ William D. Pratt Executive Vice President, April 13, 1998
- --------------------------------- Secretary, General Counsel
William D. Pratt and Director
/s/ Edward T. Pratt III President, Chief Operating April 13, 1998
- --------------------------------- Officer and Director
Edward T. Pratt III
/s/ Richard D. Knight Executive Vice President - April 13, 1998
- --------------------------------- Operations
Richard D. Knight
/s/ Charles F. LaFrano III Vice President - Finance and April 13, 1998
- --------------------------------- Principal Accounting Officer
Charles F. LaFrano III
/s/ James A. Colquitt Director April 13, 1998
- ---------------------------------
James A. Colquitt
/s/ Theodore H. Strauss Director April 13, 1998
- ---------------------------------
Theodore H. Strauss
/s/ Oliver B. Revell III Director April 13, 1998
- ---------------------------------
Oliver B. Revell III
</TABLE>
102
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas on April 13, 1998.
HWCC - TUNICA, INC.
By: /s/ Jack E. Pratt
-------------------------------
Jack E. Pratt
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jack E. Pratt Chief Executive April 13, 1998
- --------------------------------- Officer and Director
Jack E. Pratt
/s/ Edward T. Pratt, Jr. Director April 13, 1998
- ---------------------------------
Edward T. Pratt, Jr.
/s/ William D. Pratt Executive Vice President, April 13, 1998
- --------------------------------- Secretary, General Counsel
William D. Pratt and Director
/s/ Edward T. Pratt III President and Director April 13, 1998
- ---------------------------------
Edward T. Pratt III
/s/ Richard D. Knight Executive Vice President April 13, 1998
- ---------------------------------
Richard D. Knight
/s/ John R. Osborne Vice President - Finance April 13, 1998
- ---------------------------------
John R. Osborne
/s/ Charles F. LaFrano III Vice President, Assistant April 13, 1998
- --------------------------------- Secretary and Principal
Charles F. LaFrano III Accounting Officer
</TABLE>
103
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
-- Report of Independent Public Accountants
-- Schedule I; Condensed Financial Information of Registrant:
-- Balance Sheets
-- Statements of Operations
-- Statements of Cash Flows
-- Notes to Parent Company Financial Statements
-- Schedule II; Valuation and Qualifying Accounts
HOLLYWOOD CASINO-AURORA, INC.
-- Report of Independent Public Accountants
-- Schedule II; Valuation and Qualifying Accounts
HWCC-TUNICA, INC.
-- Report of Independent Public Accountants
-- Schedule II; Valuation and Qualifying Accounts
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Hollywood Casino Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Hollywood Casino Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon dated
March 9, 1998. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the index
to financial statement schedules are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 9, 1998
<PAGE>
SCHEDULE I
PAGE 1
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HOLLYWOOD CASINO CORPORATION
(PARENT COMPANY)
BALANCE SHEETS (NOTE 1)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 15,696,000 $ 2,897,000
Accounts receivable 29,000 17,000
Due from affiliates 16,136,000 14,079,000
Deferred federal income taxes 2,045,000 4,271,000
Other current assets 108,000 101,000
------------ ------------
Total current assets 34,014,000 21,365,000
------------ ------------
Investment in and advances to affiliates 48,138,000 46,633,000
Property and equipment, net 191,000 335,000
Due from affiliates, net of valuation allowance 127,874,000 158,984,000
Notes receivable 6,000,000 10,000,000
Land held for sale, net of allowance 6,264,000 14,501,000
Other assets 7,266,000 8,836,000
------------ ------------
$229,747,000 $260,654,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ 5,000,000 $ 2,815,000
Accounts payable and accrued liabilities 1,613,000 2,370,000
Accrued interest payable 4,409,000 4,469,000
------------ ------------
Total current liabilities 11,022,000 9,654,000
------------ ------------
Long-term debt, net of discount 194,372,000 200,208,000
------------ ------------
Other noncurrent liabilities 6,623,000 5,503,000
------------ ------------
Shareholders' equity:
Class A common stock, $.0001 par
value per share, 50,000,000
shares authorized, 24,910,000 and
24,760,000 shares issued and outstanding,
respectively 2,000 2,000
Class B common stock, non-voting, $.01
par value per share; 10,000,000 authorized;
no shares issued - -
Additional paid-in capital 49,253,000 61,625,000
Retained earnings (31,525,000) (16,338,000)
------------ ------------
Total shareholders' equity 17,730,000 45,289,000
------------ ------------
$229,747,000 $260,654,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE I
PAGE 2
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HOLLYWOOD CASINO CORPORATION
(PARENT COMPANY)
STATEMENTS OF OPERATIONS (NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Interest income $ 17,189,000 $ 25,725,000 $ 17,015,000
Other income 60,000 60,000 66,000
------------ ------------ ------------
17,249,000 25,785,000 17,081,000
------------ ------------ ------------
EXPENSES:
General and administrative 5,021,000 7,376,000 5,063,000
Interest 27,719,000 27,786,000 15,704,000
Depreciation and amortization 1,447,000 1,106,000 743,000
Write down of assets 19,678,000 22,141,000 -
Other - - 541,000
------------ ------------ ------------
Total expenses 53,865,000 58,409,000 22,051,000
------------ ------------ ------------
Loss before income taxes, extraordinary
and other items (36,616,000) (32,624,000) (4,970,000)
Income tax provision (2,884,000) (72,000) -
------------ ------------ ------------
Loss before extraordinary
and other items (39,500,000) (32,696,000) (4,970,000)
Extraordinary item:
Loss on early extinguishment of debt (215,000) - (12,298,000)
------------ ------------ ------------
Loss before other item (39,715,000) (32,696,000) (17,268,000)
Equity in income of consolidated
subsidiaries 24,570,000 12,958,000 4,353,000
------------ ------------ ------------
Net loss $(15,145,000) $(19,738,000) $(12,915,000)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE I
PAGE 3
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HOLLYWOOD CASINO CORPORATION
(PARENT COMPANY)
STATEMENTS OF CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $(1,479,000) $ (150,000) $ (4,234,000)
----------- ----------- ------------
INVESTING ACTIVITIES:
Net property and equipment additions (7,000) (91,000) (161,000)
Proceeds from sale of assets 9,643,000 142,000 -
Issuance of notes receivable - - (10,000,000)
Investments in consolidated affiliates 4,666,000 (2,621,000) (16,974,000)
Net repayments from (advances to) affiliates 4,650,000 (1,600,000) (72,647,000)
----------- ----------- ------------
Net cash provided by (used in) investing activities 18,952,000 (4,170,000) (99,782,000)
----------- ----------- ------------
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt - - 199,939,000
Repayments of long-term debt (4,650,000) (150,000) (84,907,000)
Cost of early retirement of debt - - (9,221,000)
Issuance of common stock - - 2,000
Deferred financing costs (24,000) (116,000) (7,602,000)
----------- ----------- ------------
Net cash (used in) provided by financing activities (4,674,000) (266,000) 98,211,000
----------- ----------- ------------
Net increase (decrease)in cash and cash equivalents 12,799,000 (4,586,000) (5,805,000)
Cash and cash equivalents at beginning of year 2,897,000 7,483,000 13,288,000
----------- ----------- ------------
Cash and cash equivalents at end of year $15,696,000 $ 2,897,000 $ 7,483,000
=========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE I
PAGE 4
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HOLLYWOOD CASINO CORPORATION
(PARENT COMPANY)
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
During October 1995, HWCC - Lake Houston, Inc., HWCC - Clearklake, Inc. and
HWCC -Farmer's Branch, Inc., all wholly owned subsidiaries of Hollywood Casino
Corporation ("HCC"), merged with and into the parent company. Such transaction
was reflected in the accompanying parent company financial statements as a
combination of entities under common control, a method of accounting similar to
a pooling of interests. Accordingly, the parent company 1995 statements of
operations and statements of cash flows have been adjusted to reflect the
accounts and operations of these entities as if they had always been combined.
(2) GUARANTEES OF REGISTRANT
As of December 31, 1997, HCC had not guaranteed any obligations of its
subsidiaries or unconsolidated affiliates.
(3) SCHEDULED PAYMENTS OF LONG-TERM DEBT OF THE REGISTRANT
Scheduled payments of long-term debt outstanding at December 31, 1997 are set
forth below:
1998 $ 5,000,000
1999 5,000,000
2000 5,000,000
2001 5,000,000
2002 5,000,000
Thereafter 182,500,000
------------
Total $207,500,000
============
(4) DIVIDENDS AND DISTRIBUTIONS
HCC received dividends from its consolidated subsidiaries amounting to
$13,599,000, $10,040,000 and $9,942,000, respectively, during the years ended
December 31, 1997, 1996 and 1995.
On December 31, 1996, HCC distributed to its shareholders the common stock of
Greate Bay Casino Corporation ("GBCC") owned by HCC. Prior to the distribution,
HCC owned approximately 80% of GBCC's outstanding common stock.
<PAGE>
SCHEDULE I
PAGE 5
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HOLLYWOOD CASINO CORPORATION
(PARENT COMPANY)
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS (Continued)
(5) SUPPLEMENTAL CASH FLOW INFORMATION
During 1997, HCC issued 100,000 shares of common stock in exchange for a
$10,000,000 loan commitment from unrelated third parties. The commitment fee
was valued at $375,000, the fair market value of the stock on the date of its
issuance, and was fully amortized during 1997.
Also during 1997, HCC made non-cash capital contributions consisting of notes
receivable with a net book value of $7,597,000 and accrued interest receivable
of $350,000 to a newly formed, wholly-owned subsidiary. The subsidiary acquired
a general partnership interest from an affiliated entity using, in part, the
contributed note and interest receivable. Because the historical net book value
of the partnership interest acquired was less than the consideration paid, the
subsidiary recorded a $12,747,000 change to paid-in capital. HCC recorded a
like charge to paid-in capital to reflect the reduction in equity value of its
investment in the subsidiary.
At December 31, 1996, HCC contributed certain receivables from GBCC and its
subsidiaries to GBCC. Notes receivable amounting to $8,738,000 together with
accrued interest thereon totaling $1,753,000 and other receivables of $4,283,000
with respect to pension obligations assumed during 1995 were contributed to
GBCC.
(6) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' parent company
financial statements to conform to the 1997 financial statement presentation.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
SCHEDULE II
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
AMOUNTS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSES DEDUCTIONS CHARGES OF PERIOD
- --------------------------------- ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful
accounts receivable $ 1,693,000 $ 698,000 $(1,203,000)(1) $ - $ 1,188,000
Allowance for affiliate
receivable 18,741,000 7,488,000 (7,953,000)(1) (276,000) 18,000,000
Allowance for notes receivable - 4,000,000 - - 4,000,000
Allowance for properties held
for sale 3,400,000 - - - 3,400,000
----------- ----------- ----------- ------------ -----------
$23,834,000 $12,186,000 $(9,156,000) $ (276,000) $26,588,000
=========== =========== =========== ============ ===========
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts receivable $17,675,000 $ 3,031,000 $(3,489,000)(1) $(15,524,000)(3) $ 1,693,000
Allowance for affiliate
receivables - 18,741,000 - - 18,741,000
Allowance for properties held
for sale - 3,400,000 - - 3,400,000
Allowance for obligatory
investments 3,792,000 1,344,000 (735,000)(2) (4,401,000)(3) -
----------- ----------- ----------- ------------ -----------
$21,467,000 $26,516,000 $(4,224,000) $(19,925,000) $23,834,000
=========== =========== =========== ============ ===========
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts receivable $16,119,000 $ 3,774,000 $(2,218,000)(1) $ - $17,675,000
Allowance for obligatory
investments 2,458,000 1,457,000 (123,000)(2) - 3,792,000
----------- ----------- ----------- ------------ -----------
$18,577,000 $ 5,231,000 $(2,341,000) $ - $21,467,000
=========== =========== =========== ============ ===========
</TABLE>
________________________
(1) Represents net write-offs of uncollectible accounts.
(2) Represents write-offs of obligatory investments in connection with the
contribution of certain obligatory investments to the Casino Reinvestment
Development Authority for the Sands Hotel and Casino.
(3) Related asset, net of valuation allowance set forth above, was distributed
to shareholders in connection with Hollywood Casino Corporation's
distribution of its ownership of the common stock of Greate Bay Casino
Corporation on December 31, 1996.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Hollywood Casino - Aurora, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Hollywood Casino - Aurora, Inc. included in this Form
10-K and have issued our report thereon dated March 9, 1998. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedule listed in the index to financial statement schedules is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 9, 1998
<PAGE>
SCHEDULE II
HOLLYWOOD CASINO-AURORA, INC.
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
AMOUNTS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful
accounts receivable $1,071,000 $200,000 $(788,000) (1) $ 483,000
========== ========== ============= ==========
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts receivable $ 866,000 $325,000 $(120,000) (1) $1,071,000
========== ========== ============= ==========
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts receivable $ 715,000 $337,000 $(186,000) (1) $ 866,000
========== ========== ============= ==========
</TABLE>
________________________
(1) Represents net write-offs of uncollectible accounts.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To HWCC - Tunica, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of HWCC - Tunica, Inc. and subsidiary included
in this Form 10-K and have issued our report thereon dated March 9, 1998. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statement schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 9, 1998
<PAGE>
SCHEDULE II
HWCC-TUNICA, INC. AND SUBSIDIARY
(WHOLLY OWNED BY HOLLYWOOD CASINO CORPORATION)
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
AMOUNTS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
---------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful
accounts receivable $622,000 $498,000 $(415,000) (1) $705,000
========== ========== ============= =========
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts receivable $313,000 $539,000 $(230,000) (1) $622,000
========== ========== ============= =========
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts receivable $106,000 $449,000 $(242,000) (1) $313,000
========== ========== ============= =========
</TABLE>
________________________________
(1) Represents net write-offs of uncollectible accounts.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------ ------------
<C> <S>
**2.1 -- Agreement of Merger dated as of May 15, 1992, between PBC, Inc.and HCC and Certificate of
Correction of Agreement of Merger dated as of June 16, 1992. (Exhibit 2.1)
+3.1 -- Certificate of Incorporation of HCC, as amended. (Exhibit 3.1)
+3.2 -- Amended Bylaws of HCC. (Exhibit 3.2)
@@3.3 -- Articles of Incorporation of HCT. (Exhibit 3.1).
@@3.4 -- Bylaws of HCT. (Exhibit 3.2)
++4.1 -- Indenture among the Company as Issuer, HCT as Guarantor and Shawmut Bank, National Association,
as Trustee (including form of Note) dated as of October 17, 1995. (Exhibit 4.1)
++4.2 -- Mortgage, Leasehold Mortgage, Security Agreement, Fixture Filing and Financing Statement made by
HCA, as Mortgagor, for the benefit of the Company, as assigned to Shawmut Bank, National
Association, as Trustee and Mortgagee. (Exhibit 4.2)
++4.3 -- Leasehold Deed of Trust, Security Agreement, Fixture Filing and Financing Statement made by HCT,
as Grantor, to Jim B. Tohill, as Deed Trustee, for the benefit of Shawmut Bank, National
Association, as Trustee and Beneficiary (relating to a first-lien Deed of Trust securing the
Indenture). (Exhibit 4.3)
++4.4 -- Leasehold Deed of Trust, Security Agreement, Fixture Filing and Financing Statement made by HCT,
as Grantor, to Jim B. Tohill, as Deed Trustee, for the benefit of the Company, as assigned to
Shawmut Bank, National Association, as Trustee and Beneficiary (relating to a second-lien
Leasehold Deed of Trust securing the Intercompany Notes executed by HCT). (Exhibit 4.4)
++4.5 -- First Preferred Fleet Mortgage made and given by HCA, as Mortgagor, to the Company, as assigned
to Shawmut Bank, National Association, as Trustee and Mortgagee (relating to Vessel Nos. 993836,
993837, and 1029229) dated as of October 17, 1995.(Exhibit 4.5)
++4.6 -- First Preferred Ship Mortgage made and given by HCT, as Mortgagor, to Shawmut Bank, National
Association, as Trustee and Mortgagee (relating to Vessel No. 534006) dated as of October 17,
1995. (Exhibit 4.6)
++4.7 -- Second Preferred Ship Mortgage made and given by HCT, as Mortgagor, to the Company, as assigned
to Shawmut Bank, National Association, as Trustee and Mortgagee (relating to Vessel No. 534006)
dated as of October 17, 1995. (Exhibit 4.7)
++4.8 -- Security Agreement (Stock Pledge) made by the Company, as Pledgor, in favor of Shawmut Bank,
National Association, as Trustee and Secured Party dated October 17, 1995. (Exhibit 4.8)
++4.9 -- Security Agreement between the Company, as Debtor, and Shawmut Bank, National Association,
as Trustee and Secured Party dated October 17, 1995. (Exhibit 4.9)
++4.10 -- First Amendment and Supplement to Security Agreement between the Company, as debtor, and
Shawmut Bank, National Association, as Trustee, dated as of November 15, 1995. (Exhibit 4.10)
</TABLE>
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<TABLE>
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++4.11 -- Security Agreement between HCT, as Debtor, and Shawmut Bank, National Association, as Trustee
and Secured Party dated October 17, 1995. (Exhibit 4.11)
++4.12 -- Intercompany Security Agreement between HCT, as Debtor, and the Company, as assigned to Shawmut
Bank, National Association, as Trustee and Secured Party (relating to a second-lien security
agreement for HCT securing the Intercompany Note executed by it) dated October 17, 1995.
(Exhibit 4.12)
++4.13 -- Intercompany Security Agreement between HCA, as Debtor, and the Company, as assigned to Shawmut
Bank, National Association, as Trustee and Secured Party (relating to a first-lien security
agreement for HCA securing the Intercompany Note executed by it) dated October 17, 1995.
(Exhibit 4.13)
++4.14 -- Assignment made and given by the Company, as Assignor, of First Preferred Fleet Mortgage made
and given by HCA, as Mortgagor, to the Company, in favor of Shawmut Bank, National Association,
as Trustee and Mortgagee (relating to Vessel Nos. 993836, 993837, and 1029229), dated October 17,
1995. (Exhibit 4.14).
++4.15 -- Assignment made and given by the Company, as Assignor, of Second Preferred Ship Mortgage made and
given by HCT, as Mortgagor, to the Company, in favor of Shawmut Bank, National Association, as
Trustee and Mortgagee (relating to Vessel No. 534006), dated October 17, 1995. (Exhibit 4.15)
++4.16 -- Promissory Note in the aggregate principal amount of $54,045,000 issued by HCT to the Company,
endorsed by the Company, dated October 17, 1995. (Exhibit 4.16)
++4.17 -- Promissory Note in the aggregate principal amount of $30 million issued by HCT to the Company,
endorsed by the Company, dated October 17, 1995. (Exhibit 4.17)
++4.18 -- Amended and Restated Promissory Note in the aggregate principal amount of $39,006,818 issued
by HCA to the Company, endorsed by the Company, dated October 17, 1995. (Exhibit 4.18)
++4.19 -- Assignment of Mortgage, Leasehold Mortgage, Security Agreement, Fixture Filing and Financing
Statement made and given by the Company, as Assignor, in favor of Shawmut Bank, National
Association, as Trustee and Assignee, dated October 17, 1995. (Exhibit 4.19)
++4.20 -- Assignment of Second Leasehold Deed of Trust, Security Agreement, Fixture Filing and Financing
Statement made and given by the Company, as Assignor, in favor of Shawmut Bank, National
Association, as Trustee and Assignee, dated October 17, 1995. (Exhibit 4.20)
10.1 -- Sixth Amendment to Employment Agreement dated January 1, 1998, between HCC and Jack E. Pratt.
10.2 -- Sixth Amendment to Employment Agreement dated January 1, 1998, between HCC and Edward T.
Pratt, Jr.
10.3 -- Sixth Amendment to Employment Agreement dated January 1, 1998, between HCC and William D. Pratt.
#10.4 -- Employment Agreement dated May 1, 1996, between HCC and Edward T. Pratt III. (Exhibit 10.4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<C> <S>
10.5 -- Amended and Restated Employment Agreement dated as of December 31, 1997, between HCC and
Richard D. Knight.
*10.6 -- Development Agreement dated as of June 4, 1991, between the City of Aurora, Illinois and
HCA. (Exhibit 10.33)
*10.7 -- Management Services Agreement dated as of June 21, 1991, between HCA and Greate Bay Casino
Corporation (the "Management Services Agreement"). (Exhibit 10.34)
*10.8 -- First Amendment to the Management Services Agreement dated as of May 14, 1992.
(Exhibit 10.35)
*10.9 -- Tax Sharing Agreement dated May 13, 1992, by and among HCC, HCA and Pratt Hotel Corporation
("PHC", now known as GBCC). (Exhibit 10.36)
*10.10 -- Parking lease Agreement June 4, 1991, between the City of Aurora, Illinois and HCA.
(Exhibit 10.39)
*10.11 -- Purchase and Sale Agreement dated June 4, 1991, between the City of Aurora, Illinois and HCA.
(Exhibit 10.40)
*10.12 -- Technical Services Agreement dated February 21, 1992, between HCA and PHC (the "Technical
Services Agreement"). (Exhibit 10.42)
*10.13 -- First Amendment to the Technical Services Agreement dated May 14, 1992. (Exhibit 10.43)
@10.14 -- Rights Agreement, dated as of May 7, 1993 between HCC and Continental Stock Transfer & Trust
Company, as Rights Agent. (Exhibit 10.45)
+10.15 -- Hollywood Casino Corporation Stock Option Plan. (Exhibit 10.46)
@10.16 -- Agreement of Limited Partnership of Pratt Management, L.P. (Exhibit 10.55)
@@10.17 -- Ground Lease dated as of October 11, 1993 between R.M. Leatherman and Hugh M. Mageveney, III, as
Landlord, and SRCT, as Tenant. (Exhibit 10.4)
@@10.18 -- Letter Agreement dated as of October 11, 1993 between R.M. Leatherman and Hugh M. Mageveney, III,
as Landlord, and SRCT, as Tenant (relating to Ground Lease). (Exhibit 10.5)
@@10.19 -- Blanket Conveyance, Bill of Sale and Assignment and Assumption Agreement dated as of May 31, 1994
between SRCT and STP. (Exhibit 10.6)
@@10.20 -- Assignment of Lease and Assumption Agreement dated as of May 31, 1994 between SRCT and STP
(relating to Ground Lease). (Exhibit 10.7)
@@10.21 -- Consulting Agreement dated as of January 1, 1994 between PCC, as the Consultant, and HCT
(Exhibit 10.8)
@@10.22 -- Computer Services Agreement dated as of January 1, 1994 between STP and Advanced Casino Systems
Corporation. (Exhibit 10.11)
++10.23 -- North Island Center Expansion and Redevelopment Agreement dated June 12, 1995 between HCA, the
Aurora Metropolitan Exposition, Auditorium and Office Building Authority and the City of Aurora.
(Exhibit 10.36)
++10.24 -- Note and Warrant Purchase Agreement dated November 16, 1995 between Golden Gate Gaming, L.L.C.,
Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and HCC. (Exhibit 10.37)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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EXHIBIT NUMBERED
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- ------ ------------
<C> <S>
++10.25 -- Promissory Notes (Series A and Series B), each in the aggregate amount of $5,000,000, issued
by Golden Gate Gaming, LLC to the Company, dated November 16, 1995. (Exhibit 10.38)
++10.26 -- Warrant Certificates (Series A and Series B) by Gate Gaming, LLC, Edward J. DeBartolo, Jr.,
Cynthia R. DeBartolo and the Company, dated November 16, 1995. (Exhibit 10.39)
10.27 -- Amendment dated October 16, 1997 to the Note and Warrant Purchase Agreement dated November 16,
1995 between Golden Gate Gaming, L.L.C., Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and HCC.
10.28 -- Amendment dated February 27, 1998 to the Note and Warrant Purchase Agreement dated November 16,
1995 between Golden Gate Gaming, L.L.C., Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and HCC.
#10.29 -- Hollywood Casino Corporation 1996 Long-Term Incentive Plan, as amended. (Exhibit 10.28)
#10.30 -- Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan. (Exhibit 10.29)
##10.31 -- General Partnership Interest Purchase Agreement dated as of April 1, 1997 by and between HWCC-Aurora
Management, Inc. and PPICorporation. (Exhibit 10.30)
10.32 -- Master Agreement dated October 16, 1997 between HWCC-Louisiana, Inc., New Orleans Paddlewheels,
Paddlewheels, L.L.C. and Sodak Louisiana, L.L.C. Inc., Shreveport
11.1 -- Computation regarding Per Share Losses.
21.1 -- Subsidiaries of HCC.
23.1 -- Consent of Arthur Andersen LLP
- -----------------------
</TABLE>
+ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-58732) for Hollywood Casino
Corporation as filed with the SEC on May 27, 1993.
++ Incorporated by reference from the exhibit shown in parenthesis filed in
HCC's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
* Incorporated by reference from the exhibit shown in parenthesis to that
Registration Statement on Form 10 filed with the SEC on May 28, 1992 by PRT
Corporation (now know as HCC).
** Incorporated by reference from the exhibit shown in parenthesis to that
Registration Statement on Form 10, as amended, filed with the SEC on August
13, 1992 by HCC.
@ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-77502) for Hollywood Casino
Corporation as filed with the SEC on April 8, 1994.
<PAGE>
@@ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-82182) for HWCC - Tunica, Inc.
as filed with the SEC on September 29, 1994.
# Incorporated by reference from the exhibit shown in parenthesis filed in
HCC's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
## Incorporated by reference from the exhibit shown in parentheses filed in
HCC's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 as
filed with the SEC on August 12, 1997.
<PAGE>
EXHIBIT 10.1
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Sixth
Amendment") is made and entered into to be effective as of the 1st day of
January, 1998 between HOLLYWOOD CASINO CORPORATION, a Delaware corporation (the
"Employer"), and JACK E. PRATT (the "Employee") with reference to the foregoing.
RECITALS
A. Pratt Hotel Corporation (nka Greate Bay Casino Corporation), a Delaware
corporation ("PHC") which was a direct approximately 80% owned subsidiary of
Employer prior to December 31, 1996, and Employee entered into that certain
Employment Agreement dated as of September 21, 1989;
B. PHC and Employee subsequently entered into that certain First Amendment
to Employment Agreement dated as of January 1, 1991;
C. PHC and Employee subsequently entered into that certain Second
Amendment to Employment Agreement dated as of September 30, 1992;
D. PHC and Employee subsequently entered into that certain Third Amendment
to Employment Agreement dated as of January 1, 1994;
E. PHC assigned to Employer the right, title and interest of PHC in, to
and under, and Employer assumed the obligations of PHC under, the Employment
Agreement, as amended by the First Amendment to Employment Agreement, the Second
Amendment to Employment Agreement and the Third Amendment to Employment
Agreement, pursuant to that certain Assignment of Pratt Brother Employment
Contracts and Assumption Agreement dated as of October 16, 1995;
F. Employer and Employee subsequently entered into that certain Fourth
Amendment to Employment Agreement dated as of January 1, 1996;
G. Employer and Employee subsequently entered into that certain Fifth
Amendment to Employment Agreement dated as of January 1, 1997;
H. The Employment Agreement, as amended by the First Amendment to
Employment Agreement, the Second Amendment to Employment Agreement, the Third
Amendment to Employment Agreement, the Fourth Amendment to Employment Agreement
and the Fifth Amendment to Employment Agreement, are hereinafter collectively
called the "Existing Employment Agreement"; and
I. Employer and Employee now desire to further amend the Existing
Employment Agreement as provided below.
<PAGE>
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Paragraph 2 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
"2. Term of Employment. The term of employment of the Executive under this
Agreement shall expire on December 31, 2001; subject, however, to the
provisions of Section 5 of this Agreement."
2. This Sixth Amendment may be executed in multiple counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
3. If any provision of this Sixth Amendment or the application hereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Sixth Amendment or the application of such
provision to persons or circumstances other than those as to which it is held
void, unenforceable or invalid shall not be affected thereby, and each provision
of this Sixth Amendment shall be valid and enforced to the fullest extent
permitted by law.
4. THIS SIXTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OF
SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS.
5. Except as amended hereby, the Existing Employment Agreement shall continue in
full force and effect without any further action by the parties thereto. On or
after the effective date of this Sixth Amendment, references to the "Employment
Agreement" in the Existing Employment Agreement, as amended hereby, shall be
deemed to mean, for purposes of determining the rights, remedies, obligations
and liabilities of the parties thereto and all other purposes, the Existing
Employment Agreement, as amended by this Sixth Amendment.
* * *
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties to this Sixth Amendment have executed such
Sixth Amendment effective as of the date first set forth above.
/s/ Jack E. Pratt
-------------------------------------------
Jack E. Pratt
HOLLYWOOD CASINO CORPORATION
By: /s/ Charles F. LaFrano III
-------------------------------------------
Name: Charles F. LaFrano III
Title: Vice President of Finance
- 3 -
<PAGE>
EXHIBIT 10.2
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Sixth Amendment") is
made and entered into to be effective as of the 1st day of January, 1998,
between HOLLYWOOD CASINO CORPORATION, a Delaware corporation (the "Employer"),
and EDWARD T. PRATT, JR. (the "Employee") with reference to the foregoing.
RECITALS
A. Pratt Hotel Corporation (nka Greate Bay Casino Corporation), a Delaware
corporation ("PHC") which was a direct approximately 80% owned subsidiary of
Employer prior to December 31, 1996, and Employee entered into that certain
Employment Agreement dated as of September 21, 1989;
B. PHC and Employee subsequently entered into that certain First Amendment
to Employment Agreement dated as of January 1, 1991;
C. PHC and Employee subsequently entered into that certain Second
Amendment to Employment Agreement dated as of September 30, 1992;
D. PHC and Employee subsequently entered into that certain Third Amendment
to Employment Agreement dated as of February 23, 1995;
E. PHC assigned to Employer the right, title and interest of PHC in, to
and under, and Employer assumed the obligations of PHC under, the Employment
Agreement, as amended by the First Amendment to Employment Agreement, the Second
Amendment to Employment Agreement and the Third Amendment to Employment
Agreement, pursuant to that certain Assignment of Pratt Brother Employment
Contracts and Assumption Agreement dated as of October 16, 1995;
F. Employer and Employee subsequently entered into that certain Fourth
Amendment to Employment Agreement dated as of January 1, 1996;
G. Employer and Employee subsequently entered into that certain Fifth
Amendment to Employment Agreement dated as of January 1, 1997;.
H. The Employment Agreement, as amended by the First Amendment to
Employment Agreement, the Second Amendment to Employment Agreement, the Third
Amendment to Employment Agreement, the Fourth Amendment to Employment Agreement
and the Fifth Amendment to Employment Agreement, are hereinafter collectively
called the "Existing Employment Agreement"; and
I. Employer and Employee now desire to further amend the Existing
Employment Agreement as provided below.
<PAGE>
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Paragraph 2 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
"2. Term of Employment. The term of employment of the Executive under this
Agreement shall expire on December 31, 2000; subject, however, to the
provisions of Section 5 of this Agreement."
2. This Sixth Amendment may be executed in multiple counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
3. If any provision of this Sixth Amendment or the application hereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Sixth Amendment or the application of such
provision to persons or circumstances other than those as to which it is held
void, unenforceable or invalid shall not be affected thereby, and each provision
of this Sixth Amendment shall be valid and enforced to the fullest extent
permitted by law.
4. THIS SIXTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OF
SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS.
5. Except as amended hereby, the Existing Employment Agreement shall continue in
full force and effect without any further action by the parties thereto. On or
after the effective date of this Sixth Amendment, references to the "Employment
Agreement" in the Existing Employment Agreement, as amended hereby, shall be
deemed to mean, for purposes of determining the rights, remedies, obligations
and liabilities of the parties thereto and all other purposes, the Existing
Employment Agreement, as amended by this Sixth Amendment.
* * *
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties to this Sixth Amendment have executed such
Sixth Amendment effective as of the date first set forth above.
/s/ Edward T. Pratt, Jr.
-------------------------------------------
Edward T. Pratt, Jr.
HOLLYWOOD CASINO CORPORATION
By: /s/ Charles F. LaFrano III
-------------------------------------------
Name: Charles F. LaFrano III
Title: Vice President of Finance
- 3 -
<PAGE>
EXHIBIT 10.3
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT (the "Sixth
Amendment") is made and entered into to be effective as of the 1st day of
January, 1998, between HOLLYWOOD CASINO CORPORATION, a Delaware corporation (the
"Employer"), and WILLIAM D. PRATT (the "Employee") with reference to the
foregoing.
RECITALS
A. Pratt Hotel Corporation (nka Greate Bay Casino Corporation), a Delaware
corporation ("PHC") which was a direct approximately 80% owned subsidiary of
Employer prior to December 31, 1996, and Employee entered into that certain
Employment Agreement dated as of September 21, 1989;
B. PHC and Employee subsequently entered into that certain First Amendment
to Employment Agreement dated as of January 1, 1991;
C. PHC and Employee subsequently entered into that certain Second
Amendment to Employment Agreement dated as of September 30, 1992;
D. PHC and Employee subsequently entered into that certain Third Amendment
to Employment Agreement dated as of February 23, 1995;
E. PHC assigned to Employer the right, title and interest of PHC in, to
and under, and Employer assumed the obligations of PHC under, the Employment
Agreement, as amended by the First Amendment to Employment Agreement, the Second
Amendment to Employment Agreement and the Third Amendment to Employment
Agreement, pursuant to that certain Assignment of Pratt Brother Employment
Contracts and Assumption Agreement dated as of October 16, 1995;
F. Employer and Employee subsequently entered into that certain Fourth
Amendment to Employment Agreement dated as of January 1, 1996;
G. Employer and Employee subsequently entered into that certain Fifth
Amendment to Employment Agreement dated as of January 1, 1997;
H. The Employment Agreement, as amended by the First Amendment to
Employment Agreement, the Second Amendment to Employment Agreement, the Third
Amendment to Employment Agreement, the Fourth Amendment to Employment Agreement
and the Fifth Amendment to Employment Agreement, are hereinafter collectively
called the "Existing Employment Agreement"; and
I. Employer and Employee now desire to further amend the Existing
Employment Agreement as provided below.
<PAGE>
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Paragraph 2 of the Existing Employment Agreement is hereby amended in its
entirety to read as follows:
"2. Term of Employment. The term of employment of the Executive under this
Agreement shall expire on December 31, 2000; subject, however, to the
provisions of Section 5 of this Agreement."
2. This Sixth Amendment may be executed in multiple counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
3. If any provision of this Sixth Amendment or the application hereof to any
person or circumstances shall to any extent be held void, unenforceable or
invalid, then the remainder of this Sixth Amendment or the application of such
provision to persons or circumstances other than those as to which it is held
void, unenforceable or invalid shall not be affected thereby, and each provision
of this Sixth Amendment shall be valid and enforced to the fullest extent
permitted by law.
4. THIS SIXTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ANY OF
SUCH STATE'S DOCTRINES REGARD CONFLICTS OF LAWS.
5. Except as amended hereby, the Existing Employment Agreement shall continue in
full force and effect without any further action by the parties thereto. On or
after the effective date of this Sixth Amendment, references to the "Employment
Agreement" in the Existing Employment Agreement, as amended hereby, shall be
deemed to mean, for purposes of determining the rights, remedies, obligations
and liabilities of the parties thereto and all other purposes, the Existing
Employment Agreement, as amended by this Sixth Amendment.
* * *
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties to this Sixth Amendment have executed such
Sixth Amendment effective as of the date first set forth above.
/s/ William D. Pratt
-------------------------------------------
William D. Pratt
HOLLYWOOD CASINO CORPORATION
By: /s/ Charles F. LaFrano III
-------------------------------------------
Name: Charles F. LaFrano III
Title: Vice President of Finance
- 3 -
<PAGE>
EXHIBIT 10.5
--------------------------------------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and
entered into as of this 31st day of December, 1997, by and between HOLLYWOOD
CASINO CORPORATION ("Employer") and RICHARD D. KNIGHT ("Employee").
W I T N E S S E T E T H:
WHEREAS, Employer is a corporation, duly organized and existing under the
laws of the State of Delaware, which owns and operates various casino properties
throughout the United States and which has a need for qualified, experienced
personnel;
WHEREAS, Employee is an adult individual currently residing at c/o Sands
Hotel and Casino, Indiana Avenue and Brighton Park, Atlantic City, New Jersey
08401; and
WHEREAS, Employer and Employee are parties to that certain Employment
Agreement, dated June 1, 1992, and mutually desire to amend and restate such
Employment Agreement in its entirety as set forth hereinbelow.
NOW, THEREFORE, for and in consideration of the foregoing recitals, and in
consideration of the mutual covenants, agreements, understandings, undertakings,
representations, warranties and promises hereinafter set forth, and intending to
be legally bound thereby, Employer and Employee do hereby covenant and agree as
follows:
1. DEFINITIONS. As used in this Agreement, the words and terms hereinafter
defined have the respective meanings ascribed to them herein, unless a different
meaning clearly appears from the context:
<PAGE>
(a) "Cause" means any of the following: (i) Employee's failure (for
any reason other than as the result of a Complete Disability) to
perform Employee's duties under this Agreement with a reasonable
degree of diligence, competence and effectiveness; (ii) Employee's
engagement in any personal misconduct involving dishonesty,
illegality, or moral turpitude which is detrimental or injurious to
the business interests, reputation or goodwill of Employer or
Employer's Affiliates; (iii) Employee's engagement in any act of
dishonesty, disloyalty, or infidelity against Employer or Employer's
Affiliates; (iv) Employee's breach of or other failure to perform
under any of the material terms and covenants of this Agreement; (v)
Employee's willful violation of any material policy established by
Employer with respect to the operation of Employer's business and
affairs, or the conduct of Employer's employees; (vi) Employee's
insubordination with respect to, or willful failure, in any material
respect, to carry out all reasonable and lawful instructions issued
by, the President or Chief Executive Officer of Employer; and (vii)
Employee's failure to maintain in force and in good standing any and
all licenses, permits and/or approvals required of Employee by the
relevant governmental authorities for the discharge of the
obligations of Employee under this Agreement. All determinations of
the existence of "Cause," including without limitation any
determination with respect to performance, reasonableness,
effectiveness, materiality and injury, shall be made in good faith
by the Employer's Board of Directors and shall be conclusive as to
all parties.
(b) "Complete Disability" means the inability of Employee, due to
illness or accident or other mental or physical incapacity, to
perform his obligations under this Agreement for a period of one
hundred eighty (180) calendar days in the aggregate over a period of
five hundred (500) consecutive calendar days, such "Complete
Disability" to become effective upon the expiration of such one
hundred eightieth (180th) day.
(c) "Effective Date" means the date first above written.
(d) "Employee" means Employee as earlier defined in this Agreement.
(e) "Employer" means Employer as earlier defined in this Agreement.
(f) "Employer's Affiliates" means any parent, subsidiary or
affiliated corporation or other legal entity of Employer.
(g) "Prior Employment" means any prior employment Employee has had
with either Employer or Employer's Affiliates.
2. PRIOR EMPLOYMENT. This Agreement supersedes and replaces any and all
prior employment agreements, whether written or oral, by and between Employee,
on the one side, and Employer or Employer's Affiliates, on the other side. From
and after the Effective Date, Employee
2
<PAGE>
shall be the employee of Employer under the terms and pursuant to the conditions
set forth in this Agreement.
3. BASIC EMPLOYMENT AGREEMENT. Subject to the terms and pursuant to the
conditions hereinafter set forth, Employer hereby employs Employee during the
Term hereinafter specified to serve in a managerial or executive capacity, under
a title and with such duties not inconsistent with those set forth in Paragraph
4 of this Agreement, as the same may be modified and/or assigned to Employee by
Employer from time to time.
4. DUTIES OF EMPLOYEE. Employee shall perform such duties assigned to
Employee by Employer as are generally associated with the duties of Executive
Vice President-Operations of Employer, or such similar duties as may be assigned
to Employee by the President or Chairman of the Board of Employer, including but
not limited to (i) the efficient and continuous operation of Employer and
Employer's Affiliates; (ii) the preparation of relevant budgets and allocation
of relevant funds; (iii) the selection and delegation of duties and
responsibilities of subordinates; (iv) the direction, review and oversight of
all operations and programs under Employee's supervision; and (v) such other and
further duties specifically related to such duties as assigned by Employer to
Employee. The foregoing notwithstanding, Employee shall devote such time to
Employer's Affiliates as required by Employer, provided such duties are not
inconsistent with Employee's primary duties to Employer hereunder.
5. ACCEPTANCE OF EMPLOYMENT. Employee hereby unconditionally accepts the
employment set forth hereunder, under the terms and pursuant to the conditions
set forth in this Agreement. Employee hereby covenants and agrees that, during
the Term of this Agreement, Employee will devote the whole of his normal and
customary working time and best efforts solely
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to the performance of Employee's duties under this Agreement.
6. TERM. The term of this Agreement shall commence on the Effective Date
and expire on December 31, 2000 (the "Term"), unless sooner terminated as
provided herein.
7. SPECIAL TERMINATION PROVISIONS. Notwithstanding the provisions of
Paragraph 6 above, this Agreement and all parties' rights and obligations
hereunder shall terminate upon the occurrence of any of the following events:
(a) the death of Employee;
(b) the giving of written notice from Employer to Employee of the
termination of this Agreement upon the Complete Disability of
Employee;
(c) the giving of written notice by Employer to Employee of the
termination of this Agreement upon the discharge of Employee for
Cause;
(d) the giving of written notice by Employee to Employer upon a
material breach of this Agreement by Employer, which material breach
remains uncured for a period of thirty (30) days after the giving of
such notice;
(e) the giving of written notice by Employer or Employee of the
termination of this Agreement without Cause; provided, however, that
such notice must be accompanied by Employer's written tender to
Employee of Employer's unconditional commitment to continue to pay
to Employee the compensation set forth in Paragraph 8(a) of this
Agreement, under the terms and pursuant to the conditions of this
Agreement; and/or
(f) cause beyond the control of Employer and without its fault or
negligence. Such causes may include, but are not limited to, acts of
god or a public enemy, acts of government in either its sovereign or
contractual capacity, fires, floods, epidemics, quarantine
restrictions, strikes, riots, freight embargoes, power outages or
unusually severe weather conditions.
8. COMPENSATION TO EMPLOYER. For and in complete consideration of
Employee's full and faithful performance of his duties under this Agreement,
Employer hereby covenants and agrees to pay to Employee, and Employee hereby
covenants and agrees to accept from Employer, the following items of
compensation:
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(a) Base Salary. Employer hereby covenants and agrees to pay to Employee,
and Employee hereby covenants and agrees to accept from Employer, an annual base
salary of Four Hundred Fifty-Six Thousand Five Hundred and No/100 Dollars
($456,500), effective on the Effective Date, payable in such equal regular
installments as is Employer's custom and usage. Such base salary shall be
exclusive of and in addition to any other benefits which Employer, in its sole
discretion, may make available to Employee, including, but not limited to, any
pension plans, bonus plans, retirement plans, company life insurance plan,
medical and/or hospitalization plans, or any and all other benefit plans which
may from time to time be in available to executive officers of Employer
generally during the Term of this Agreement.
(b) Base Salary Adjustment. The base salary prescribed in Paragraph 8(a)
above shall be reviewed for an adjustment in January of each calendar year
during the Term of this Agreement commencing on January 1, 1999. Any adjustment
shall be based upon Employee's performance and such other criteria as Employer
shall determine at its sole discretion.
(c) Incentive Compensation Plan. In addition to receiving the base salary
prescribed under Paragraph 8(a) above, Employee shall also be entitled to
participate in the Hollywood Casino Corporation Group incentive compensation
plan as and when implemented. Employee will participate on the same terms as
senior executive officers of Employer generally. The incentive compensation will
be payable by Employer to Employee in accordance with the terms of such
incentive compensation plan, and, where applicable, shall be prorated based upon
the number of weeks Employee was employed by Employer during such calendar year.
Any incentive compensation shall be in addition to Employee's participation in
any and all profit sharing plans, bonus participation plans, stock options or
other incentive compensation and profit sharing plans
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which are from time to time, made generally available by Employer or Employer's
Affiliates to senior executive officers.
(d) Transportation Allowance. Employer shall furnish to Employee, for
Employee's exclusive use for business purposes only, an automobile, which shall
be replaced, at Employer's sole cost, every January 1 beginning January 1, 1998
and every other anniversary date thereof during the Term of this Agreement. Such
automobile shall be either leased or purchased by Employer and Employer shall
pay all expenses incident to such automobile, including but not limited to
insurance costs, fuel and oil costs, and repair and maintenance costs.
(e) Employee Benefit Plans. Employer hereby covenants and agrees that it
shall include Employee, if otherwise eligible, in any pension plans, retirement
plans, company life insurance plans, medical and/or hospitalization plans,
and/or any and all other benefit plans which may be placed in effect by Employer
during the Term of this Agreement.
(f) Expense Reimbursement. During the Term of this Agreement, Employer
shall either pay directly or reimburse Employee for Employee's reasonable
expenses incurred for the benefit of Employer in accordance with Employer's
general policy regarding reimbursement, as the same may be amended, modified or
changed from time to time. Such reimbursable expenses shall include, but are not
limited to, reasonable entertainment and promotional expenses, gift and travel
expenses, dues and expenses of membership in clubs, professional societies and
fraternal organizations, and the like. Prior to reimbursement, Employee shall
provide Employer with sufficient detailed invoices of such expenses in
accordance with the then applicable guidelines of the Internal Revenue Service
so as to permit Employer to claim a deduction of such expenses.
6
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(g) Licensing Expenses. Employer hereby covenants and agrees that Employer
shall pay all licensing fees and expenses incurred by Employee in securing and
maintaining such licenses and permits required of Employee in order to perform
his duties under this Agreement.
(h) Vacations and Holidays. Commencing as of the Effective Date of this
Agreement, Employee shall be entitled to (i) annual paid vacation leave in
accordance with Employer's standard policy therefor, to be taken at such times
as selected by Employee and approved by Employer, and (ii) the following paid
holidays (or, at Employer's option, an equivalent number of paid days off): New
Year's Day, Dr. Martin Luther King, Jr.'s Birthday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
(i) Relocation. Employer may relocate Employee (i) to Dallas, Texas at
Employer's sole discretion so long as the remaining Term at the time of such
request to relocate is no less than twelve (12) months and (ii) to any other
location so long as Employee agrees.
9. LICENSING REQUIREMENTS.
(a) Employer and Employee hereby covenant and agree that this Agreement
may be subject to the approval of the Illinois Gaming Board, the Mississippi
Gaming Commission, the New Jersey Casino Control Commission and any other
jurisdiction in which Employer or Employer's Affiliates conducts business (the
"Gaming Authorities") pursuant to the provisions of the Illinois Riverboat
Gambling Act, the Mississippi Gaming Control Act, the New Jersey Casino Control
Act and any other applicable law and the regulations promulgated thereunder (the
"Gaming Acts"). In the event this Agreement is required to be approved by the
Gaming Authorities and is not so approved by the Gaming Authorities, this
Agreement shall immediately terminate and shall be null and void and of no
further force or effect; provided, however, should this Agreement not be
approved by the Gaming
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Authorities, Employer and Employee shall hereby covenant and agree that, with
the exception of the provisions of Paragraph 8 of this Agreement, this Agreement
shall be deemed modified and amended so as to receive the appropriate approval
from the Gaming Authorities.
(b) Employer and Employee hereby covenant and agree that, in order for
Employee to discharge the duties required under this Agreement, Employee must
continue to hold casino key employee licenses (the "Licenses") as issued by the
Gaming Authorities pursuant to the terms of the Gaming Acts and as otherwise
required by this Agreement. In the event that any of the Gaming Authorities
objects to the renewal of Employee's License, or either of the Gaming
Authorities refuses to renew Employee's applicable License, Employer, at
Employer's sole cost and expense, shall promptly defend such action and shall
take such reasonable steps as may be required to secure such Gaming Authority's
approval. The foregoing notwithstanding, if such Gaming Authority's refusal to
renew Employee's License arises as a result of any of the events described in
Paragraph 1(a) of this Agreement, Employer's obligations under this Paragraph 9
shall not be operative and Employee shall promptly reimburse Employer upon
demand for any expenses incurred by Employer pursuant to this Paragraph 9.
10. CONFIDENTIALITY. Employee hereby warrants, covenants and agrees that,
without the prior express written approval of Employer, Employee shall hold in
the strictest confidence and shall not disclose to any person, firm, corporation
or other entity, any and all of Employer's confidential data, including, but not
limited to (i) information or other documents concerning Employer's business,
customers or suppliers; (ii) Employer's marketing methods, files and credit and
collection techniques and files; or (iii) Employer's trade secrets and other
"know-how" or information not of a public nature, regardless of how such
information came into the custody of
8
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Employee. The warranty, covenant and agreement set forth in this Paragraph 10
shall not expire, shall survive this Agreement and shall be binding upon
Employee without regard to the passage of time or other events.
11. RESTRICTIVE COVENANT. Employee hereby covenants and agrees that,
during the Term of this Agreement, Employee shall not directly or indirectly,
either as a principal, agent, employee, employer, consultant, partner,
shareholder of a closely held corporation or shareholder in excess of five
percent (5%) of a publicly traded corporation, corporate officer or director, or
in any other individual or representative capacity, engage or otherwise
participate in any manner or fashion in any business that is in competition in
any manner whatsoever with the principal business activity of Employer or
Employer's Affiliates, in or about any state in which Employer or Employer's
Affiliates are licensed to conduct casino operations (the "Operating States"),
including any navigable waterways which are wholly within the Operating States,
which are partly within the Operating States and partly without the Operating
States, or which form a boundary between the Operating States and any other
state or body public. Employee hereby further acknowledges and agrees that the
restrictive covenant contained in this Paragraph 11 is reasonable as to
duration, terms and geographical area and that the same protects the legitimate
interests of Employer and Employer's Affiliates, imposes no undue hardship on
Employee and is not injurious to the public.
12. BEST EVIDENCE. This Agreement shall be executed in original and
"Xerox" or photostatic copies and each copy bearing original signatures in ink
shall be deemed an original.
13. SUCCESSION. This Agreement shall be binding upon and inure to the
benefit of Employer and Employee and their respective successors and assigns;
provided, however, in the event of a Change of Control (as defined in that
certain Indenture dated as of October 17, 1995, among
9
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Employer, HWCC-Tunica, Inc. and Shawmut Bank, National Association,
predecessor-in-interest to State Street Bank and Trust Company, as Trustee),
Employer shall have the option, in its sole discretion, to either (a) retain
Employee for a minimum of two years for the services set forth in Paragraph 4
and otherwise abide by the terms and conditions of this Agreement or (b)
terminate Employee's employment and pay to Employee an amount (the "Severance
Amount") equal to the greater of (i) the aggregate compensation which would have
been paid by Employer to Employee under Paragraph 8(a) during the period (the
"Severance Period") from the date of termination to the expiration date of this
Agreement and (ii) the product of two (2) multiplied by Employee's annual base
salary at the time of such termination under Paragraph 8(a). Employer shall have
the right, exercisable by written notice to Employee, to elect to pay the
Severance Amount to Employee in (x) a lump sum payment not later than the date
of occurrence of the Change of Control or (y) equal monthly installments during
the Severance Period.
14. ASSIGNMENT. Employee shall not assign this Agreement or delegate his
duties hereunder without the express written prior consent of Employer thereto.
Any purported assignment by Employee in violation of this Paragraph 14 shall be
null and void and of no force or effect. Employer shall have the right to assign
this Agreement freely; provided, however, that in the event of such an
assignment by Employer and the assignee subsequently defaults under the terms of
this Agreement, Employer shall remain liable for compliance with the terms of
Paragraph 8 of this Agreement.
15. AMENDMENT OR MODIFICATION. This Agreement may not be amended,
modified, changed or altered except by a writing signed by both Employer and
Employee.
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16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas in effect on the Effective Date
of this Agreement.
17. NOTICES. Any and all notices required under this Agreement shall be in
writing and shall either hand-delivered; mailed by certified mail, return
receipt requested; or sent via telecopier addressed to:
TO EMPLOYER: Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Attention: General Counsel
TO EMPLOYEE: Richard D. Knight
c/o Sands Hotel and Casino
Indiana Avenue and Brighton Avenue
Atlantic City, New Jersey 08401
and
3204 Plantation Court
Naperville, Illinois 60564
All notices hand-delivered shall be deemed delivered as of the date
actually delivered. All notices mailed shall be deemed delivered as of three (3)
business days after the date postmarked. All notices sent via telecopier shall
be deemed delivered as of the next business day following the date of the
confirmation of delivery. Any changes in any of the addresses listed herein
shall be made by notice as provided in this Paragraph 17.
18. INTERPRETATION. The preamble recitals to this Agreement are
incorporated into and made a part of this Agreement. Titles of paragraphs are
for convenience only and are not to be considered a part of this Agreement.
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19. SEVERABILITY. In the event any one or more provisions of this
Agreement is declared judicially void or otherwise unenforceable, the remainder
of this Agreement shall survive and such provisions shall be deemed modified or
amended so as to fulfill the intent of the parties hereto.
20. DISPUTE RESOLUTION. Except for equitable actions seeking to enforce
the provisions of Paragraphs 10 and 11 of this Agreement, jurisdiction and venue
for which is hereby granted to the District Court of Dallas County, Texas, any
and all claims, disputes or controversies arising between the parties hereto
regarding any of the terms of this Agreement or the breach thereof, on the
written demand of either of the parties hereto, shall be submitted to and be
determined by final and binding arbitration held in Dallas, Texas in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association. This Agreement to arbitrate shall be specifically enforceable in
any court of competent jurisdiction.
21. WAIVER. None of the terms of this Agreement, including this Paragraph
21, or any term, right or remedy hereunder shall be deemed waived unless such
waiver is in writing and signed by the party to be charged therewith and in no
event by reason of any failure to assert or delay in asserting any such term,
right or remedy or similar term, right or remedy hereunder.
22. PAROL. This Agreement constitutes the entire agreement between
Employer and Employee with respect to the subject matter hereto and this
Agreement supersedes any prior understandings, agreements or undertakings by and
between Employer and Employee with respect to the subject matter hereof.
23. EMPLOYEE'S DUTIES, ETC. Each of the parties hereto agrees and
acknowledges that (a) Employee has previously been elected President of Greate
Bay Hotel and Casino, Inc., a New Jersey corporation ("GBH&C") which owns the
Sands Hotel and Casino in Atlantic City, New
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Jersey (the "Sands"), and will remain President of GBH&C for a period of time
mutually agreeable to Employer, GBH&C and Employee, (b) so long as Employee is
President of GBH&C during the Term, Employee will devote substantially all of
his time, energy and efforts to the performance of his duties as President of
GBH&C, which include, without limitation, (i) the efficient and continuous
operation of the Sands, (ii) the preparation of relevant budgets and allocation
of relevant funds, (iii) the selection and delegation of duties and
responsibilities of subordinates, (iv) the direction, review and oversight of
all programs under Employee's supervision, and (v) such other and further
related duties and (c) so long as Employee is President of GBH&C during the
Term, Employer is obligated to compensate Employee under Section 8(a) of this
Agreement only to the extent that GBH&C fails to pay such amounts to Employee.
IN WITNESS WHEREOF AND INTENDING TO BE LEGALLY BOUND THEREBY,
the parties hereto have executed and delivered this Agreement as of the year and
date first above written.
ATTEST: HOLLYWOOD CASINO CORPORATION
/s/ William D. Pratt By: /s/ Edward T. Pratt III
- --------------------------- ----------------------------------
Secretary Name: Edward T. Pratt III
Title: President
WITNESS:
/s/ Diane Renzetti /s/ Richard D. Knight
- --------------------------- ----------------------------------
RICHARD D. KNIGHT
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EXHIBIT 10.27
October 12, 1997
Redwood Gaming Limited Liability Company
DeBartolo Entertainment Louisiana Gaming, Inc.
999 Baker Way, Suite 420
San Mateo, California 94404
Attention: Mr. Edward J. DeBartolo, Jr.
Re: Amendment to Note and Warrant Purchase Agreement dated November 16,
1997 by and among Redwood Gaming Limited Liability Company (formerly
known as Golden Gate Gaming, limited liability company) ("Redwood"),
Edward J. DeBartolo, Jr,, Cynthia R. DeBartolo, and Hollywood Casino
Corporation ("Hollywood") (as amended, the "Note and Warrant
Purchase Agreement") and Waiver and Release by DeBartolo
Entertainment Louisiana Gaming, Inc. ("DELG") and HWCC-Louisiana,
Inc. ("HWCC") of Section 8.01 of the Agreement dated August 1, 1996,
by and between HWCC and DELG (the "Louisiana JV Agreement")
Dear Mr. DeBartolo:
Contingent upon receipt by no later than 7:00 p.m. Central Standard Time
today of a copy of this letter countersigned by (i) HWCC agreeing and
acknowledging that as of the date of this letter, HWCC waives all of its rights
under, and releases DELG and its owners, members, officers, agents, family
members and affiliates from any and all obligations arising under, Section 8.01
of the Louisiana JV Agreement, (ii) DELG agreeing and acknowledging that as of
the date of this letter, DELG waives all of its rights under, and releases HWCC
and its owners, officers, agents, family members and affiliates from any and all
obligations arising under, Section 8.01 of the Louisiana JV Agreement, and (iii)
Redwood agreeing to the Note and Warrant Purchase Agreement Amendments (as
hereafter defined), Hollywood agrees and acknowledges that the Note and Warrant
Purchase Agreement is hereby amended as follows (collectively, the "Note and
Warrant Purchase Agreement Amendments"):
(i) Sections 2.2(i), (ii) and (iii) of the Note and Warrant Purchase
Agreement are amended and restated to read in their entirety as follows:
"(i) No payments of principal or interest shall be payable prior to
February 1, 1998, except as provided in Section 2.5.1. The unpaid
principal of and accrued unpaid interest on the Notes (the "Unpaid
Balance") as of February 1, 1998 shall be due and payable in eleven (11)
equal quarterly installments, each in an amount equal to (i) the Unpaid
Balance as of February 1, 1998 divided by twelve (12), commencing on
February 1, 1998, and thereafter, on the first (1st) day of each
succeeding May, August, November and February, through and including
August, 2000;
<PAGE>
Redwood Gaming Limited Liability Company
October 12, 1997
Page 2
(ii) Interest, computed as aforesaid, on the Unpaid Balance and all other
amounts outstanding under the Notes shall be due and payable quarterly as
it accrues, commencing on May 1, 1998, and thereafter, on the first (1st)
day of each succeeding August, November, February and May, until all
outstanding payments are paid in full;
(iii) The entire unpaid principal balance of and interest on the Notes
shall be finally due and payable in one (1) final installment, on November
15, 2000."
(ii) The reference in Section 3.1 to the date "November 15, 1998" is
hereby deleted and replaced with a reference to the date "February 1, 1999".
(iii) The reference in Section 3.2.1 to the date "November 15, 1998" is
hereby deleted and replaced with a reference to the date "February 1, 1999".
(iv) All references in Section 3.3 to the dates "September 15, 1998" and
"November 15, 1998" are hereby deleted and replaced with references to the dates
"December 15, 1998" and February 1, 1999", respectively.
(v) All references in the Warrant Certificates (as defined in the Note and
Warrant Purchase Agreement) to the date "November 15, 1998" are hereby deleted
and replaced with references to the date "February 1, 1999".
Very truly yours,
HOLLYWOOD CASINO CORPORATION
By:/s/ Jack E. Pratt
--------------------------------------------
Jack E. Pratt, Chairman of the Board and CEO
<PAGE>
Redwood Gaming Limited Liability Company
October 12, 1997
Page 3
AGREED TO AND ACKNOWLEDGED BY:
HWCC-LOUISIANA, INC.
By: /s/ Jack E. Pratt
--------------------------------------------------
Jack E. Pratt, Chairman of the Board and President
DEBARTOLO ENTERTAINMENT
LOUISIANA GAMING, INC.
By: /s/ Edward J. DeBartolo, Jr.
--------------------------------------------------
Edward J. DeBartolo, Jr., President
REDWOOD GAMING LIMITED LIABILITY COMPANY
By: DeMur, Inc., its Manager
By: /s/ Edward J.DeBartolo, Jr.
--------------------------------------------------
Edward J. DeBartolo, Jr., Manager
<PAGE>
EXHIBIT 10.28
MASTER AGREEMENT
P A R T I E S :
This Master Agreement (this "Agreement") is entered into effective as of
the 27th day of February, 1998, by and among the following parties:
a. Redwood Gaming Limited Liability Company (formerly known as Golden
Gate Gaming, limited liability company) ("Redwood");
b. Edward J. DeBartolo, Jr. ("EJD");
c. Cynthia R. DeBartolo ("CRD"); and
d. Hollywood Casino Corporation ("Hollywood").
R E F E R E N C E S :
Reference is made to the following:
a. Note and Warrant Purchase Agreement (including any and all further
amendments thereto, the "Warrant Agreement"), dated as of November
16, 1995, executed by and among Redwood, EJD, CRD and Hollywood;
b. Promissory Note (Series A) (the "Series A Note"), dated November 16,
1995, in the original principal sum of $5,000,000, executed by
Redwood, payable to the order of Hollywood;
c. Promissory Note (Series B-Subject to Mandatory Exercise Right) (the
"Series B Note"), dated November 16, 1995, in the original principal
sum of $5,000,000, executed by Redwood, payable to the order of
Hollywood;
d. Letter (the "Default Notice") dated February 2, 1998, from Hollywood
to Redwood, EJD, CRD, and others, giving notice of the Event of
Default referenced below;
e. Letter (the "Acceleration Notice") dated February 14, 1998, from
Hollywood to Redwood, EJD, CRD, and others, giving notice of the
acceleration of the maturities of the Series A Note and the Series B
Note (the "Notes"); and
f. All other documents executed in connection with or as security for
the Warrant Agreement, the Series A Note and the Series B Note
(together, and including any and all further renewals, extensions,
amendments and modifications thereto, the "Loan Documents").
MASTER AGREEMENT - Page 1
<PAGE>
Capitalized terms used in this Agreement and not defined in this Agreement
shall have the meanings given such terms in the Warrant Agreement.
R E C I T A L S :
a. Default has occurred under the Warrant Agreement by reason of the
failure by Redwood to pay the portion of the Unpaid Balance under the Notes, as
it became due and payable on February 1, 1998, and the continuation of such
failure for a period of ten (10) days following the notice thereof, as given by
the Default Notice, which constitutes an Event of Default under Section 2.4(i)
of the Warrant Agreement.
b. As of the date hereof, the Event of Default identified in Recital a
remains uncured; and Hollywood has accelerated the maturities of the Notes, as
evidenced by the Acceleration Notice.
c. Redwood has requested that Hollywood forbear from demanding immediate
payment in full of the Notes, that Hollywood forbear from exercising Hollywood's
rights under the Warrant Agreement, and that Hollywood rearrange and restructure
the indebtedness evidenced by the Notes, under certain terms and conditions,
which are set forth in this Agreement.
d. Hollywood has agreed to forebear and to restructure the Notes, as
requested above by Redwood, subject to the terms and conditions of this
Agreement.
A G R E E M E N T S :
Now, therefore, in consideration of the premises stated above and other
good and valuable consideration, the receipt and adequacy of which are
acknowledged and confessed hereby, the parties agree as follows:
1. Present Balance. As of the 27th day of February, 1998, the outstanding
principal balance of the Series A Note (exclusive of interest, costs, fees, and
expenses of Hollywood) is $5,000,000, and the outstanding principal balance of
the Series B Note (exclusive of interest, costs, fees, and expenses of
Hollywood) is $5,000,000.
2. Exchange of Series A Note. Subject to the terms and conditions set
forth in this Agreement and expressly conditioned upon satisfaction and
fulfillment of each of the conditions precedent set forth in Sections 3 and 6
below, Hollywood agrees to surrender the Series A Note to Redwood in exchange
for the payments and documents described in Section 3 below.
3. Specific Conditions Precedent to Exchange of Series A Note. The
following are conditions precedent to Hollywood's agreement as set forth in
Section 2, above, each of which must be satisfied not later than 5:00 p.m.,
Dallas, Texas time, February 27, 1998, unless a different time is specified
below for a particular condition precedent:
MASTER AGREEMENT - Page 2
<PAGE>
a. Cash Payment. Redwood shall have paid to Hollywood, in
immediately available funds, by wire transfer, not later than 12:00 Noon,
Dallas, Texas time, February 27, 1998, the sum of Four Million Four
Hundred Thousand and No/100 Dollars ($4,400,000.00), in accordance with
the following wiring instructions:
Wells Fargo Bank
ABA #121000248
to credit:
Hollywood Casino Corporation
Account #4159754662.
b. $600,000 Note. Redwood shall have executed and delivered to
Hollywood a Promissory Note (the "$600,000 Note") in the principal amount
of Six Hundred Thousand and No/100 Dollars, which $600,000 Note shall be
in the form attached to this Agreement as Exhibit A, and shall bear
interest and be payable as provided for therein.
c. Shearwater Obligation. As security for the $600,000 Note,
DeBartolo Entertainment, Limited Liability Company shall have executed and
delivered to Hollywood a Security Agreement (the "Shearwater Security
Agreement") granting to Hollywood a security interest in and to that
certain reimbursement obligation of BPMP Family Partners, Ltd. ("BPMP") to
DeBartolo Entertainment, Limited Liability Company (the "Shearwater
Obligation"). The Shearwater Security Agreement shall be in the form
attached to this Agreement as Exhibit B. Redwood shall have delivered to
Hollywood true and complete copies of the documentation evidencing
Shearwater Obligation.
d. EJD Guaranty. EJD shall have executed and delivered to Hollywood
a personal guaranty of payment (the "$600,000 Springing Guaranty") of the
$600,000 Note. The $600,000 Springing Guaranty shall be in the form
attached to this Agreement as Exhibit C and automatically will take
effect, without the necessity of any further action by Hollywood, Redwood
or EJD, upon the consummation of the refinancing, repayment or
restructuring (the "Existing Bank Debt Restructure") of certain
obligations of DeBartolo, Inc. and The Edward J. DeBartolo Corporation, as
borrowers (the "Borrowers"), under the following:
(i) Second Amended and Restated Restructuring Facility
Agreement dated as of March 31, 1994, among the Borrowers, Wells
Fargo Realty Advisors Funding, Incorporated, as the Administrative
Agent, and certain Co-Lenders; and
(ii) Second Amended and Restated New Facility Credit Agreement
dated as of March 31, 1994, among the Borrowers, Wells Fargo Bank,
N.A., as the Issuing Bank, certain Co-Lenders, and Wells Fargo
Realty Advisors Funding, Incorporated, as the Administrative Agent.
e. Muransky Guaranty. Edward Muransky, Jr. shall have executed and
delivered to Hollywood a personal guaranty of payment (the "$600,000
Muransky Guaranty") of the
MASTER AGREEMENT - Page 3
<PAGE>
$600,000 Note. The $600,000 Muransky Guaranty shall be in the form
attached to this Agreement as Exhibit D.
If all of the terms of this Section 3 are not satisfied and fulfilled in a
timely manner, then the surrender of the Series A Note referred to in Section 2
is void ab initio and shall be of no force or effect; and the parties shall be
relegated to their respective positions they occupied prior to the execution of
this Agreement; EXCEPT THAT the $4,400,000 cash payment described in Section 3a
above shall be retained by Hollywood and re-characterized as a voluntary partial
payment of the Unpaid Balance.
4. Exchange of Series B Note. Subject to the terms and conditions set
forth in this Agreement and expressly conditioned upon satisfaction and
fulfillment of each of the conditions precedent set forth in Sections 5 and 6
below, Hollywood agrees to surrender the Series B Note to Redwood in exchange
for a five percent (5%) membership interest in Redwood (the "Redwood Interest")
and the payments and documents described in Section 5 below.
5. Conditions Precedent to Exchange of Series B Note. The following are
conditions precedent to Hollywood's agreement as set forth in Section 5, above,
each of which must be satisfied not later than 5:00 p.m., Dallas, Texas time,
February 27, 1998, unless a different time is specified below for a particular
condition precedent:
a. Membership Interest. Redwood shall have delivered to Hollywood a
certificate representing the Redwood Interest, as having been registered
in the name of Hollywood.
b. Put Agreement. Redwood shall have executed and delivered to
Hollywood an option agreement (the "Put Option") granting Hollywood the
right, at Hollywood's option, commencing 3 days after Hollywood's receipt
of the Redwood Interest and at any time thereafter so long as Hollywood,
its successors and assigns holds the Redwood Interest, to "put" the
Redwood Interest in exchange for a promissory note in the principal amount
of $ 1,000,000 executed by Redwood and payable to the order of Hollywood
(the "$1,000,000 A Note"), which $1,000,000 A Note will accrue interest
from the date of issuance at an annual rate of 13% and will be due and
payable one year after its execution. The Put Option shall be in the form
attached to this Agreement as Exhibit E. The $1,000,000 A Note shall be in
the form attached to this Agreement as Exhibit F. The $1,000,000 A Note
shall be supported by EJD's personal guaranty of payment (the "$1,000,000
Springing A Guaranty"). The $1,000,000 Springing A Guaranty shall be in
the form attached to this Agreement as Exhibit G and automatically will
take effect, without the necessity of any further action by Hollywood,
Redwood, or EJD, upon the consummation of the Existing Bank Debt
Restructure.
c. Additional Note and Guaranty. Redwood shall have executed and
delivered to Hollywood, subject to the provisions of Section 5e below, an
additional promissory note in the principal amount of $ 1,000,000 payable
to the order of Hollywood (the "$1,000,000 B Note"), which $1,000,000 B
Note will accrue interest from the date of issuance at an
MASTER AGREEMENT - Page 4
<PAGE>
annual rate of 13% and will be due and payable one year after its
execution. The $1,000,000 B Note shall be in the form attached to this
Agreement as Exhibit H. The $1,000,000 B Note shall be supported by EJD's
personal guaranty of payment (the "$1,000,000 Springing B Guaranty"). The
$1,000,000 Springing B Guaranty shall be in the form attached to this
Agreement as Exhibit I and automatically will take effect, without the
necessity of any further action by Hollywood, Redwood, or EJD, upon the
consummation of the Existing Bank Debt Restructure.
d. Escrow Agreement. Redwood and EJD shall have executed and
delivered to Hollywood an escrow agreement (the "Escrow Agreement"),
placing the $1,000,000 A Note and the $1,000,000 Springing A Guaranty in
escrow pending exercise of the Put Option, and placing the $1,000,000 B
Note and the $1,000,000 Springing B Guaranty in escrow pending the earlier
of (i) delivery to Hollywood of the $600,000 Letter of Credit and the
$1,000,000 Letter of Credit (as such terms are defined in Section 6,
below, and together, the "Letters of Credit"), if the Letters of Credit
are not delivered to Hollywood at the Closing, or (ii) sixty (60) days
from the date of the Closing. The Escrow Agreement shall be in the form
attached to this Agreement as Exhibit H.
e. Additional Escrow Provisions. In the event that both of the
Letters of Credit are delivered to Hollywood at the Closing, then the
$1,000,000 B Note and the $1,000,000 Springing B Guaranty shall be
returned to Redwood. In the event that either of the Letters of Credit is
not delivered to Hollywood at the Closing, then the $1,000,000 B Note and
the $1,000,000 Springing B Guaranty shall be placed in escrow, under the
Escrow Agreement, pending the earlier to occur of (i) delivery of both of
the Letters of Credit, or (ii) sixty (60) days from the Closing. If the
Letters of Credit are not delivered to Hollywood as provided in this
Agreement or in the Escrow Agreement within sixty (60) days after the
Closing, then the $1,000,000 B Note and the $1,000,000 Springing B
Guaranty described in Section 5c above shall be released from the escrow
and delivered to Hollywood.
6. General Conditions Precedent to Exchange of Notes. The following are
conditions precedent to Hollywood's agreements as set forth in Sections 2 and 4
above, each of which must be satisfied not later than 5:00 p.m., Dallas, Texas
time, February 27, 1998, unless a different time is specified below for a
particular condition precedent:
a. Master Agreement. Redwood, EJD and CRD shall have executed and
delivered this Agreement to Hollywood not later than 12:00 Noon, Dallas,
Texas time, February 27, 1998.
b. Resolutions of Redwood. Redwood shall deliver to Hollywood
appropriate resolutions or consents in connection with the execution and
delivery of this Agreement.
c. Resolutions of DeBartolo Entertainment, Limited Liability
Company. DeBartolo Entertainment, Limited Liability Company shall deliver
to Hollywood appropriate resolutions or consents in connection with the
execution and delivery of this Agreement.
MASTER AGREEMENT - Page 5
<PAGE>
d. No Breach. Redwood shall not have breached any of the terms,
conditions, representations, warranties, or agreements of Redwood under
this Agreement.
e. No Default. Other than the default described in the Default
Notice and Acceleration Notice, no default under the Warrant Agreement
shall have occurred and be continuing, unless such default has been waived
expressly by this Agreement.
f. Attorneys' Fees. Redwood shall have reimbursed Hollywood for
Hollywood's attorneys' fees incurred in connection with preparing this
Agreement and other documents contemplated by this Agreement, not to
exceed $20,000.
g. $600,000 Letter of Credit. Edward Muransky, Jr. shall provide
Hollywood with a letter of credit (the "$600,000 Letter of Credit"),
issued by a reputable financial institution reasonably satisfactory to
Hollywood securing payment of the $600,000 Note. The $600,000 Letter of
Credit shall be in the form attached to this Agreement as Exhibit K, and
shall be drawable if the Existing Bank Debt Restructure fails to occur by
June 30, 1998.
h. $1,000,000 Letter of Credit. CRD shall provide Hollywood with a
letter of credit (the "$1,000,000 Letter of Credit"), issued by a
reputable financial institution reasonably satisfactory to Hollywood
securing payment of the $1,000,000 Note. The $1,000,000 Letter of Credit
shall be in the form attached to this Agreement as Exhibit L, and shall be
drawable if the Existing Bank Debt Restructure fails to occur by June 30,
1998.
7. Covenant Regarding Existing Bank Debt Restructure. Redwood and EJD
agree to promptly notify Hollywood of the completion of the Existing Bank Debt
Restructure, and, prior to completion of the Existing Bank Debt Restructure, to
provide Hollywood such information as Hollywood reasonably may request from time
to time regarding the status of the negotiations and documentation pertaining to
the Existing Bank Debt Restructure.
8. Representations and Warranties. Redwood, CRD and EJD hereby represent
and warrant to Hollywood as follows:
a. Each of Redwood, CRD and EJD has the power and authority to
execute and deliver this Agreement and each of the other documents and
instruments to which each is a party and to consummate the transactions
and perform its obligations contemplated hereby and thereby.
b. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary actions of Redwood. This Agreement constitutes the legal, valid
and binding obligation of Redwood, CRD and EJD, enforceable against each
of them in accordance with its terms.
c. The consummation of the transactions contemplated hereby will not
(i) violate any provision of the organizational documents or governing
instruments of Redwood, (ii) violate any judgment, order, ruling,
injunction, degree or award of any court, administrative
MASTER AGREEMENT - Page 6
<PAGE>
agency or governmental body against, or binding upon, Redwood, CRD or EJD,
or (iii) constitute a violation by Redwood, CRD or EJD of any law or
regulation of any jurisdiction applicable to Redwood, CRD or EJD.
d. This Agreement was reviewed by EJD, CRD and Redwood (or its
authorized officer), each of whom acknowledges and agrees that he or she,
as the case may be, (i) understands fully the terms of this Agreement and
the consequences of the issuance hereof, (ii) has been afforded an
opportunity to have this Agreement reviewed by, and to discuss this
Agreement with, such attorneys and other persons as he or she, as the case
may be, may wish, and (iii) has entered into this Agreement of his or her
own free will and accord and without threat or duress.
e. This Agreement and all information furnished to Hollywood is made
and furnished in good faith, for value and valuable consideration, and has
not been made or induced by any fraud, duress or undue influence exercised
by Hollywood or any other person.
9. Misrepresentation. Redwood, CRD and EJD shall jointly and severally
indemnify and hold Hollywood harmless from and against any losses, damages,
costs and expenses (including attorneys' fees) incurred by Hollywood as a direct
or indirect result of (i) breach of any representation or warranty contained in
this Agreement, or (ii) any breach or default under any of the covenants or
agreements contained in this Agreement.
10. Subordination and Waiver of Subrogation. Notwithstanding any payment
or payments made by EJD on behalf of or for the account of Redwood, EJD shall
not be subrogated to any rights of Hollywood until all of the indebtedness of
Redwood to Hollywood shall have been paid and performed in full. Any claim of
EJD against Redwood arising from any payment or payments made by EJD by reason
of this Agreement or otherwise shall be in all respects subordinated to the full
and complete payment and discharge of the indebtedness of Redwood to Hollywood;
and no payment by EJD by reason of this Agreement or otherwise shall give rise
to any claim of EJD against Hollywood. Unless and until the indebtedness shall
have been paid and discharged in full, EJD will not assign or otherwise transfer
any such claim against Redwood to any other person or entity.
11. No Counterclaims.
a. Redwood Counterclaims. Each of Redwood, CRD and EJD declares that
neither Redwood, CRD nor EJD has any set-off, counterclaim, defense or
other causes of action (together, the "Redwood Counterclaims") against
Hollywood arising out of the transactions evidenced by the Notes, the
Warrant Agreement and the Loan Documents, and any transactions that were
renewed or extended by the Loan Documents. To the extent any Redwood
Counterclaims may exist, whether known or unknown, such are waived and
released hereby by Redwood, CRD and EJD.
MASTER AGREEMENT - Page 7
<PAGE>
b. Hollywood Counterclaims. Hollywood declares that Hollywood does
not have any set-off, counterclaim, defense or other causes of action
(together, the "Hollywood Counterclaims") against Redwood, CRD or EJD
arising out of the transactions evidenced by the Notes, the Warrant
Agreement and the Loan Documents, and any transactions that were renewed
or extended by the Loan Documents, EXCEPT FOR claims existing under the
Notes, the Warrant Agreement and the Loan Documents pursuant to the terms
thereof. To the extent any Hollywood Counterclaims may exist, whether
known or unknown, such are waived and released hereby by Hollywood.
Notwithstanding the foregoing, this waiver and release shall not be
construed to waive or release any rights of Hollywood existing or arising
under the Notes, the Warrant Agreement and the Loan Documents pursuant to
the terms thereof or under this Agreement or the documents executed in
connection with or as security for this Agreement.
12. Hold Harmless. Redwood, CRD and EJD agree to indemnify and hold
Hollywood harmless from any and all Redwood Counterclaims that Redwood, CRD, EJD
or any other person or entity claiming by, through, or under Redwood, CRD or EJD
may at any time assert against Hollywood. Likewise, Hollywood agrees to
indemnify and hold Redwood, CRD and EJD harmless from any and all Hollywood
Counterclaims that Hollywood or any other person or entity claiming by, through,
or under Hollywood may at any time assert against Redwood, CRD and EJD.
Notwithstanding the foregoing, Hollywood's indemnification and agreement to hold
harmless shall not be construed to indemnify against or hold harmless from
Hollywood Counterclaims existing or arising under the Notes, the Warrant
Agreement and the Loan Documents pursuant to the terms thereof or under this
Agreement or the documents executed in connection with or as security for this
Agreement.
13. Costs and Expenses. Redwood agrees to pay to Hollywood the reasonable
attorneys' fees and expenses of Hollywood's counsel, filing and recording fees
and other reasonable expenses incurred by Hollywood in connection with this
Agreement and the transactions contemplated hereby, up to a maximum amount of
$20,000.
14. No Commitment. Redwood, CRD and EJD agree that Hollywood has made no
commitment or other agreement regarding the Notes, the Warrant Agreement, or the
Loan Documents, except as expressly set forth in this Agreement. Redwood, CRD
and EJD warrant and represent that neither Redwood, CRD nor EJD will rely on any
commitment, further agreement to forbear or other agreement on the part of
Hollywood unless such commitment or agreement is in writing and signed by
Hollywood.
15. Survival. All representations, warranties, covenants and agreements of
the parties made in this Agreement shall survive the execution and delivery
hereof, until such time as all of the obligations of the parties hereto shall
have lapsed in accordance with their respective terms or shall have been
discharged in full.
16. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
MASTER AGREEMENT - Page 8
<PAGE>
17. Modifications and Waivers. No delay on the part of Hollywood in
exercising any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof, or the exercise of any other right, power
or privilege hereunder. All rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which the parties hereto may
otherwise have at law or in equity. No waiver or modification, discharge or
amendment of this Agreement will be valid in the absence of the written and
signed consent of the party against which enforcement of such is sought.
18. Entire Agreement. This Agreement, together with the other documents
and instruments referenced herein, contains the entire agreement between the
parties relating to the transaction contemplated hereby. All prior agreements,
understandings, representations and statements, whether written or oral
(including specifically, but without limitation, the letter from Hollywood to
Redwood, dated February 12, 1998), are merged herein.
19. Governing Law. This Agreement shall be construed in accordance with
the applicable laws of the State of Texas and applicable federal law. In the
event of a dispute involving this Agreement or any other instruments executed in
connection herewith, the undersigned irrevocably agrees that venue for such
dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas.
20. Counterparts. This Agreement may be executed in one or more
counterparts, all of which when taken together shall be deemed to be one
original.
21. Time of Essence. The parties to this Agreement have agreed
specifically with regard to the times for performance set forth in this
Agreement. Further, the parties to this Agreement acknowledge that the
agreements with regard to the times for performance are material to this
Agreement. Therefore, the parties agree and acknowledge that time is of the
essence to this Agreement.
MASTER AGREEMENT - Page 9
<PAGE>
Executed effective the 27th day of February, 1998.
REDWOOD:
REDWOOD GAMING LIMITED LIABILITY COMPANY
(formerly known as Golden Gate Gaming,
limited liability company)
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
---------------------------------
Name: Edward W. Muransky
Title:
EJD:
/s/ Edward J. DeBartolo, Jr.
---------------------------------
Edward J. DeBartolo, Jr.
CRD:
/s/ Cynthia R. DeBartolo
---------------------------------
Cynthia R. DeBartolo
HOLLYWOOD CASINO CORPORATION
By: /s/ Jack E. Pratt
---------------------------------
Name: Jack E. Pratt
Title: Chairman of the Board
MASTER AGREEMENT - Page 10
<PAGE>
Exhibits:
A - $600,000 Note
B - Shearwater Security Agreement
C - $600,000 Springing Guaranty
D - $600,000 Muransky Guaranty
E - Put Option
F - $1,000,000 A Note
G - $1,000,000 Springing A Guaranty
H - $1,000,000 B Note
I - $1,000,000 Springing B Guaranty
J - Escrow Agreement
K - $600,000 Letter of Credit
L - $1,000,000 Letter of Credit
MASTER AGREEMENT - Page 11
<PAGE>
EXHIBIT A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITY UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER (AND ANY
PERSON THAT SUCCEEDS TO OR ASSUMES ITS OBLIGATIONS UNDER THIS SECURITY)
THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUIT TO RULE 144
OF SUCH ACT.
PROMISSORY NOTE
$600,000.00 Dallas, Texas February 27, 1998
FOR VALUE RECEIVED, the undersigned, Redwood Gaming Limited Liability
Company, an Ohio limited liability company (formerly known as Golden Gate
Gaming, limited liability company) ("Maker"), hereby unconditionally promises to
pay to the order of Hollywood Casino Corporation, a Delaware corporation
("Payee"), the principal sum of Six Hundred Thousand and No/100 Dollars
($600,000.00), in lawful money of the United States of America, together with
interest (calculated on the basis of a 365 or 366-day year, as appropriate), on
the unpaid principal balance from day-to-day remaining, computed from the date
hereof until maturity at the rate per annum which shall from day-to-day be equal
to thirteen percent (13%); provided, however, all past due principal of and, to
the extent permitted by applicable law, interest on this Note shall bear
interest at the rate per annum which shall from day-to-day be equal to the
lesser of (a) the Maximum Rate, or (b) eighteen percent (18%).
The term "Maximum Rate," as used herein, shall mean, with respect to the
holder hereof, the maximum nonusurious interest rate, if any, that at any time,
or from time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note. To the extent that Chapter
303 of the Texas Finance Code, as amended, is relevant to any holder of this
Note for the purposes of determining the Maximum Rate, the Payee hereby notifies
Maker that the "applicable ceiling" shall be the "weekly ceiling" referred to in
Chapter 303 of the Texas Finance Code from time to time in effect, as limited
therein; provided, however, that to the extent permitted by applicable law,
Payee reserves the right to change the "applicable ceiling" from time to time by
further notice and disclosure to Maker; and, provided further, that the "Maximum
Rate" for purposes of this Note shall not be limited to the applicable ceiling
under Chapter 303 of the Texas Finance Code if federal laws or other state laws
now or hereafter in effect and applicable to this Note (and the interest
contracted for, charged and collected hereunder) shall permit a higher rate of
interest.
This Note has been executed and delivered pursuant to, and is subject to
certain terms and conditions set forth in, that certain Master Agreement (the
"Agreement") among Maker, Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and
Payee, executed as of the date hereof, and is the "600,000 Note" referred to
therein.
PROMISSORY NOTE ($600,000) - Page 1
<PAGE>
Payment for all amounts due hereunder shall be made by wire transfer of
federal funds to Payee to the account designated by Payee from time to time so
that such funds are available to Payee on or before the date such funds are due
hereunder or by any other means agreed to, in writing, by Payee.
The principal of and interest upon the Note shall be due and payable on
August 31, 1998.
Maker and each surety, endorser, guarantor and other party ever liable for
payment of any sums of money payable on this Note, jointly and severally waive
presentment, protest, notice of protest and non-payment, or other notice of
default, notice of acceleration and intention to accelerate, and agree that
their liability under this Note shall not be affected by any renewal or
extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes,
regardless of the number of such renewals, extensions, indulgences, releases or
changes.
No waiver by Payee of any of its rights or remedies hereunder or under any
other document evidencing or securing this Note or otherwise shall be considered
a waiver of any other subsequent right or remedy of Payee; no delay or omission
in the exercise or enforcement by Payee of any rights or remedies shall ever be
construed as a waiver of any right or remedy of Payee; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust any
right or remedy of Payee.
Regardless of any provisions contained in this Note, the Agreement or any
other document executed or delivered in connection therewith, Payee shall never
be deemed to have contracted for or be entitled to receive, collect or apply as
interest on this Note, any amount in excess of the Maximum Rate, and, in the
event that Payee ever receives, collects or applies as interest any such excess,
such amount which would be excessive interest shall be applied to the reduction
of the unpaid principal balance of this Note, and, if the principal balance of
this Note is paid in full, any remaining excess shall forthwith be paid to
Maker. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest,
(ii) exclude voluntary pre-payments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note so
that the interest rate is uniform throughout such term; provided, that if this
Note is paid and performed in full prior to the end of the full contemplated
term hereof, and if the interest received for the actual period of existence
thereof exceeds the Maximum Rate, if any, Payee or any holder hereof shall
refund to Maker the amount of such excess.
This Note is being executed and delivered, and is intended to be performed
in the State of Texas. Except to the extent that the laws of the United States
may apply to the terms hereof, the substantive laws of the State of Texas shall
govern the validity, construction, enforcement and interpretation of this Note.
In the event of a dispute involving this Note or any other instruments executed
in connection herewith, the undersigned irrevocably agrees that venue for such
dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas.
PROMISSORY NOTE ($600,000) - Page 2
<PAGE>
This Note is given in renewal, extension, modification and amendment (and
not in novation or extinguishment), in part, of that certain Promissory Note
(Series A) in the stated principal amount of $5,000,000.00, dated November 16,
1995, executed by Maker and payable to the order of Payee.
MAKER:
REDWOOD GAMING LIMITED LIABILITY
COMPANY
(formerly known as Golden Gate Gaming,
limited liability company)
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
-----------------------------
Name: Edward W. Muransky
Title:
Address:
999 Baker Way, Suite 420
San Mateo, California 94404
PROMISSORY NOTE ($600,000) - Page 3
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
Collateral Assignment of
Reimbursement Obligation
This Security Agreement (Collateral Assignment of Reimbursement
Obligation) (this "Agreement") is entered into effective the 27th day of
February, 1998.
I. Parties, Collateral and Obligations.
DeBartolo Entertainment, Limited Liability Company, a Ohio limited
liability company (the "Debtor"), whose address is 7620 Market Street, P.O. Box
3287, Youngstown, Ohio 44513-3287, for valuable consideration, receipt of which
is hereby acknowledged, hereby grants to Hollywood Casino Corporation (the
"Secured Party"), whose address is Two Galleria Tower, LB48, 13455 Noel Road,
Suite 2200, Dallas, Texas 75240, a security interest in the following described
reimbursement obligation (the "Reimbursement Obligation"):
that certain Reimbursement Obligation of BPMP Family Partners, Ltd.
("BPMP") pursuant to Section 5.2 of that certain Contribution & Assignment
Agreement, dated July 28, 1995, by and between BPMP and Debtor;
and together with all proceeds, moneys, payments, income, collections and
benefits attributable or accruing to the Reimbursement Obligation; and in the
event that Debtor shall receive any such, Debtor will hold same in trust for
Secured Party and will not commingle same with other moneys or property of
Debtor and will deliver promptly same to Secured Party to be held by Secured
Party hereunder in the same manner as the Reimbursement Obligation is held
hereunder. The Reimbursement Obligation and all other collateral of all kinds in
which Secured Party is herein granted a security interest or acquires a security
interest hereunder shall hereinafter be called the "Collateral."
The security interest granted herein secures the payment of all
liabilities of Redwood Gaming Limited Liability Company (formerly known as
Golden Gate Gaming, limited liability company) ("Redwood") to Secured Party
pursuant to that certain Promissory Note (the "Principal Note"), dated February
27, 1998, in the original principal amount of Six Hundred Thousand and No/100
Dollars ($600,000.00), executed by Redwood and payable to the order of Secured
Party, and including costs and expenses and attorneys' fees and legal expenses,
all in accordance with the terms of the Principal Note and this Agreement
(collectively, the "Obligations") and all renewals, extensions and
rearrangements of the Obligations. Unless otherwise agreed, all of the
Obligations shall be payable at the offices of Secured Party in the City of
Dallas, Dallas County, Texas.
Debtor hereby assigns, transfers, delivers and grants a security interest
in the Collateral to Secured Party to secure payment of all of the Obligations.
<PAGE>
II. Warranties, Covenants and Agreements of Debtor.
Debtor hereby warrants, covenants and agrees as follows.
(1) Except for the security interest granted by this Agreement, Debtor is
the owner and holder of the Collateral free of any adverse claim, security
interest or encumbrance and has full power and lawful authority to sell and
assign the same; and Debtor will defend the Collateral against all claims and
demands of all persons at any time claiming the Collateral or any interest in
the Collateral.
(2) The Reimbursement Obligation is not subject to any set-offs,
counterclaims or credit.
(3) Debtor has not heretofore signed any financing statement, and no
financing statement is now on file in any public office covering any property of
Debtor of any kind, real or personal, tangible or intangible, or in which Debtor
is named as or has signed as "debtor," (other than such financing statements, if
any, of which written notice, together with true and correct copies thereof,
have heretofore been given by Debtor to Secured Party), and so long as any
amount remains unpaid on any indebtedness or liabilities of Redwood to Secured
Party or any credit from Secured Party to Redwood is in use by or available to
Redwood, Debtor will not execute and there will not be on file in any public
office any such financing statement or statements other than financing
statements in favor of Secured Party hereunder, unless the prior written
specific consent and approval of Secured Party shall have first been obtained.
Debtor authorizes Secured Party to file, in jurisdictions where this
authorization will be given effect, a financing statement signed only by Secured
Party covering the Collateral. At the request of Secured Party, Debtor will join
Secured Party in executing one or more financing statements, pursuant to the
Uniform Commercial Code, in form satisfactory to Secured Party, and will pay the
cost of filing the same of filing or recording this Agreement in all public
offices at anytime and from time to time whenever filing or recording of any
such financing statement or of this Security Agreement is deemed by Secured
Party to be necessary or desirable, it being further stipulated in this regard
that Secured Party may also at any time or times sign any counterpart of this
Agreement singed by Debtor and file this Agreement as a financing statement if
Secured Party shall elect so to do.
(4) Debtor will not sell or offer to sell or otherwise transfer or
encumber of dispose of the Collateral or any interest therein without the
written consent of Secured Party.
(5) Debtor will keep the Collateral free from any adverse lien, security
interest or encumbrance.
III. Further Agreements Between Debtor and Secured Party.
(1) Secured Party shall never be under any obligation to collect, attempt
to collect, protect or enforce the Reimbursement Obligation, which Debtor agrees
and undertakes to do at Debtor's expense; but Secured Party may do so in its
discretion at any time or times. Secured Party shall have the right to take any
steps by judicial process or otherwise it may deem proper from time to time to
effect the collection of all or any portion of the Reimbursement Obligation. All
expenses (including, without limitation, attorneys' fees and legal expenses)
actually incurred or paid by Secured Party in connection with or incident to any
such collection or attempt to collect the
<PAGE>
Reimbursement Obligation shall be borne by Debtor or reimbursed by Debtor to
Secured Party upon demand. The proceeds of collection of the Reimbursement
Obligation shall be held by Secured Party without liability for interest thereon
and may be applied by Secured Party as Secured Party may deem appropriate toward
payment of the Principal Note or any other of the Obligations secured hereby,
whether or not then due, in such order or manner as Secured Party may elect.
(2) If any taxes or governmental assessments of any kind or character
shall be levied upon or against the Reimbursement Obligation, the same shall be
promptly paid before delinquency by Debtor. If any of such taxes or governmental
assessments are not paid by Debtor prior to delinquency thereof, Secured Party
may, at its option, pay and discharge such taxes or assessments and any
interest, costs or penalties in connection therewith, or any part thereof, and
shall be the sole judge as to the validity and effect thereof and as to the
amount necessary to pay and discharge same.
(3) In the event Secured Party shall pay any such taxes, assessments,
interest, costs, penalties or expenses incident to or in connection with the
collection of the Reimbursement Obligation, Debtor, upon demand of Secured
Party, shall pay to Secured Party the full amount thereof with interest at the
maximum rate permitted by law from their respective dates of payment by Secured
Party until repaid to Secured Party in full. So long as Secured Party shall be
entitled to any such payment, this Security Agreement shall operate as security
therefor as fully and to the same extent as it operates as security for payment
of the Principal Note; and for the enforcement of such repayment, Secured Party
shall have every right and remedy provided for enforcement of payment of the
Principal Note.
(4) When the Principal Note and all other of the Obligations shall have
been paid in full, if this Security Agreement has not theretofore been
foreclosed, Secured Party or other holder of the Obligations shall reassign to
Debtor, without recourse or warranty, express or implied, the then existing
rights, titles and interests of Secured Party in and to the Reimbursement
Obligation, the costs of such reassignment to be borne by Debtor. Secured Party
shall pay to Debtor the surplus money, if any, then in the possession of Secured
Party representing collections on or proceeds of the Reimbursement Obligation
not theretofore applied toward payment of the Obligations.
IV. Default.
Debtor shall be in default under this Agreement upon the happening of any
of the following events or conditions:
(1) Default in the payment when due of the principal of or interest on the
Principal Note or on any other of the Obligations;
(2) Failure or refusal of Debtor to perform or observe any of the
covenants, duties or agreements herein imposed upon or agreed to be performed or
observed by Debtor;
(3) Default in the performance of any agreement or obligation of Debtor or
of Redwood, any maker, endorser, guarantor or surety of any liability or
obligation of Debtor to the holder of the Obligations;
<PAGE>
(4) Default in the payment of the Reimbursement Obligation or any part
thereof, when due;
(5) The levy of any attachment, execution or other process against Debtor
or any of the Collateral;
(6) Dissolution, termination of existence, insolvency or business failure
of Debtor or any endorser, guarantor or surety of any of the Obligations,
commission of an act of bankruptcy by, or appointment of receiver or other legal
representative for any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceedings under any bankruptcy or
insolvency law by or against, Debtor or any endorser, guarantor or surety for
any of the Obligations;
(7) Any warranty, representation or statement made in this Agreement or
made or furnished to Secured Party by or on behalf of Redwood in connection with
this Agreement or to induce Secured Party to make any loan to Redwood proves to
have been false in any material respect when made or furnished, or any financial
statement of Redwood or of any endorser, guarantor or surety on any of the
Obligations which has been or may be furnished to Secured Party by or on behalf
of Redwood or such guarantor, endorser or surety shall prove to be false in any
materially detrimental respect.
V. Remedies.
In the event of default in the payment of any of the Obligations or any
principal, interest or other amount payable thereunder when due, or upon the
happening of any default specified above, and at any time thereafter, at the
option of the holder thereof, any or all of the Obligations shall become
immediately due and payable without presentment or demand or any notice to
Debtor or any other person obligated thereon. Secured Party shall have and may
exercise with reference to the Collateral and Obligations any or all of the
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of Texas, and as otherwise granted herein or under any
other applicable law or under any other agreement executed by Debtor or Redwood,
including, without limitation, the right and power to sell, at public or private
sale or sales, or otherwise dispose of, lease or utilize the Collateral and any
part or parts thereof in any manner authorized or permitted under said Uniform
Commercial Code after default by a debtor, and to apply the proceeds thereof
toward payment of any costs and expenses and attorneys' fees and legal expenses
thereby incurred by Secured Party and toward payment of the Obligations in such
order or manner as Secured Party may elect. To the extent permitted by law,
Debtor expressly waives any notice of sale or other disposition of the
Collateral and any other rights or remedies of Debtor or formalities prescribed
by law relative to sale or disposition of the Collateral or exercise of any
other right or remedy of Secured Party existing after default hereunder. To the
extent any such notice is required and cannot be waived, Debtor agrees that if
such notice is mailed postage prepaid, to Debtor at the address shown herein at
least five (5) days before the time of the sale or disposition, such notice
shall be deemed reasonable and shall fully satisfy any requirement for giving of
said notice.
Secured Party is expressly granted the right, at its option, to transfer
at any time to itself or to its nominee the Collateral, or any part thereof, and
to receive the proceeds, payments, collections, moneys, income or benefits
attributable or accruing thereto and to hold the same as security for the
<PAGE>
Obligations or to apply it to the principal and interest or other amounts owing
on any of the Obligations, whether or not then due, in such order or manner as
Secured Party may elect.
All rights to marshaling of assets of Debtor, including any such right
with respect to the Reimbursement Obligation, are waived hereby.
All recitals in any instrument of assignment or any other instrument
executed by Secured Party incident to sale, transfer, assignment or other
disposition or utilization of the Collateral or any part thereof hereunder shall
be full proof of the matters stated therein. No other proof shall be requisite
to establish full legal propriety of the sale or other action taken by Secured
Party or of any fact, condition or thing incident thereto. All prerequisites of
such sale or other action or of any fact, condition or thing incident thereto
shall be presumed conclusively to have been performed or to have occurred.
VI. General.
The execution and delivery of this Agreement in no manner shall impair or
affect any other security (by endorsement or otherwise) for the payment of the
Principal Note or any other of the Obligations. No security taken hereafter as
security for payment of the Principal Note or any other of the Obligations shall
impair in any manner or affect this Agreement, all such present and future
additional security to be considered as cumulative security. Any of the
Reimbursement Obligation or Collateral may be released from this Agreement
without altering, varying of diminishing in any way the force, effect, lien,
security interest or charge of this Agreement as to Reimbursement Obligation and
Collateral not expressly released. This Agreement shall continue as a first
lien, security interest and charge on all of the Reimbursement Obligation and
Collateral not expressly released until all sums and indebtedness secured hereby
have been paid in full. Any future assignment of the interest of Debtor in and
to any of the Reimbursement Obligation shall not deprive Secured Party of the
right to sell or otherwise dispose of or use all of the Reimbursement Obligation
as above provided or necessitate the sale or disposition thereof in parcels or
in severalty.
If maturity of the Obligations shall be accelerated for any reason, the
Obligations thereupon shall be credited for the full amount of any interest then
unearned which has been collected theretofore by Secured Party. Notwithstanding
any other provision in this Security Agreement or in the Obligations, Debtor
shall never be liable for unearned interest on the Obligations and shall never
be required to pay interest thereon at a rate in excess of the maximum rate
permitted by law.
Any deposit or other sums at any time credited by or due from the holder
of the Obligations to Debtor or any endorser, guarantor or surety of any of the
Obligations and any securities or other property of Debtor or any endorser,
guarantor or surety of any of the Obligations in the possession of the holder of
the Obligations may at all times be held and treated as additional and
cumulative collateral security for the payment of the Obligations. Debtor grants
Secured Party a security interest in all such deposits, sums, securities and
other property as additional and cumulative security for payment of the
Obligations. The holder of the Obligations may apply or set-off such deposits or
other sums against the Obligations at any time in the case of Debtor but only
with respect to matured liabilities in the case of the endorsers, guarantors or
sureties of any of the Obligations.
<PAGE>
Secured Party may, at its option, whether or not Obligations are due,
demand, sue for, collect or make any compromise or settlement it deems desirable
with reference to the Collateral. Secured Party shall not be obligated to take
any steps necessary to preserve any rights in the Collateral against other
parties, which Debtor hereby assumes to do.
No delay or omission on the part of Secured Party in exercising any right
hereunder shall operate as a waiver of any such right or any other right. A
waiver on anyone or more occasions shall not be construed as a bar to or waiver
of any right or remedy on any future occasion.
Any notice or demand to Debtor hereunder or in connection herewith may be
given and shall conclusively be deemed and considered to have been given and
received upon the deposit thereof, in writing, duly stamped and addressed to
Debtor at the address first shown hereinabove, in the U.S. Mails; but actual
notice, however given or received, shall always be effective.
All rights of Secured Party hereunder shall inure to the benefit of its
successors and assigns. All obligations of Debtor shall bind its successors or
assigns.
As used in this Agreement and when required by the context, each number
(singular and plural) shall include all numbers. Each gender shall include all
genders. Unless the context otherwise requires, the word "person" shall include
"corporation, firm or association."
SIGNED and delivered on the day and year first above written.
DEBARTOLO ENTERTAINMENT, LIMITED
LIABILITY COMPANY
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
---------------------------------
Name: Edward W. Muransky
Title:
<PAGE>
EXHIBIT C
SPRINGING GUARANTY
($600,000 Note)
This Springing Guaranty (the "Guaranty"), effective as of February 27,
1998, is made by Edward J. DeBartolo, Jr. (the "Guarantor"), in favor of
Hollywood Casino Corporation (the "Lender").
WHEREAS, the Lender has entered into a Master Agreement dated as of
February 27, 1998 (said Agreement, as it may hereafter be amended or otherwise
modified from time to time being the "Master Agreement") with Redwood Gaming
Limited Liability Company (formerly known as Golden Gate Gaming, limited
liability company) (the "Borrower") and the Guarantor. It is a condition
precedent to the effectiveness of the Master Agreement that the Guarantor shall
have entered into this Guaranty;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to extend certain financial accommodations to Borrower pursuant to
the Master Agreement, and recognizing that Guarantor has benefited or shall
benefit directly or indirectly from such financial accommodations, and that but
for this Guaranty, Lender would not make such financial accommodations available
to Borrower, the Guarantor hereby agrees with the Lender as follows:
1. Guaranty. (a) Subject to the provisions of Section 2, below, the
Guarantor hereby, unconditionally and irrevocably, guarantees to the Lender the
prompt and complete payment and performance by the Borrower when due of its
obligations to the Lender under that certain Promissory Note (the "Note"), dated
February 27, 1998, in the original principal amount of Six Hundred Thousand and
No/100 Dollars ($600,000.00) (including, without limitation, all interest
thereon, whether accruing prior or subsequent to the commencement of a
bankruptcy or similar proceeding involving the Borrower as a debtor)
(collectively, the "Obligations"), and the Guarantor further agrees to pay any
and all expenses (including, without limitation, all reasonable fees and
disbursements of counsel) which may be paid or incurred by the Lender in
enforcing, or obtaining advice of counsel in respect of, any rights with respect
to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, the Guarantor under this Guaranty.
(b) No payment or payments made by the Borrower, the Guarantor, any
other guarantor or any other person or received or collected by the Lender from
the Borrower, the Guarantor, any other guarantor or any other person by virtue
of any action or proceeding or any setoff or appropriation or application at any
time or from time to time in reduction of or in payment of the Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by the Guarantor in respect of the Obligations or
payments received or collected from the Guarantor in respect of the Obligations,
remain liable for the Obligations, subject to the conditions under Section 2(a)
above, until the Obligations are paid in full.
(c) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Lender on account of its liability
hereunder, it will notify the Lender in writing that such payment is made under
this Guaranty for such purpose.
<PAGE>
2. Springing Nature of Guaranty. Notwithstanding anything herein to the
contrary, the Guarantor shall have no liability under this Guaranty unless and
until the Existing Bank Debt Restructure (as defined in the Master Agreement) is
consummated, at which time this Guaranty will automatically become valid,
binding and enforceable, in accordance with its terms, without any further
action by either the Lender, the Borrower or the Guarantor.
3. No Subrogation. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any application of funds of the Guarantor by the Lender,
the Guarantor shall not be entitled to be subrogated to any of the rights of the
Lender against the Borrower nor shall the Guarantor have any rights of
reimbursement, assignment, indemnification or implied contract or any similar
rights against the Borrower or against any endorser or other guarantor of all or
any part of the Obligations, until all amounts owing to the Lender by the
Borrower for or on account of the Obligations or otherwise under this Guaranty
are paid in full. If, notwithstanding the foregoing, any amount shall be paid to
the Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by the
Guarantor in trust for the Lender, segregated from other funds of the Guarantor,
and shall, forthwith upon (and in any event within two (2) Business Days of)
receipt by the Guarantor, be turned over to the Lender, if required, in the
exact form received by the Guarantor (duly endorsed by the Guarantor to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Lender may determine.
4. Amendments, etc., With Respect to the Obligations. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Lender
may be rescinded by the Lender, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Lender, and the Note, and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Lender may deem advisable from time to time, and any guaranty at any time held
by the Lender for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. When making any demand hereunder against the Guarantor,
the Lender may, but shall be under no obligation to, make a similar demand on
the Borrower or the Guarantor or any other guarantor, and any failure by the
Lender to make any such demand or to collect any payments from the Borrower or
the Guarantor or any such other guarantor or any release of the Borrower or the
Guarantor or guarantor shall not relieve the Guarantor in respect of which a
demand or collection is not made or the Guarantor not so released of their
several obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Lender
against the Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
5. Guaranty Absolute and Unconditional; Termination. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Lender upon this Guaranty
or acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in
<PAGE>
reliance upon this Guaranty; and all dealings between the Borrower or the
Guarantor, on the one hand, and the Lender, on the other, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guaranty. The Guarantor waives diligence, presentment, protest, demand for
payment, notice of intent to accelerate, notice of acceleration, and notice of
default or nonpayment to or upon the Borrower or itself with respect to the
Obligations. This Guaranty shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Note, any of the Obligations or guaranty, or (b) any
defense, setoff or counterclaim (other than a defense of payment or performance)
which may at any time be available to or be asserted by the Borrower against the
Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of the Guarantor under this Guaranty, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against the
Guarantor, the Lender may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the Borrower or any other person or
guaranty for the Obligations or any right of offset with respect thereto, and
any failure by the Lender to pursue such other rights or remedies or to collect
any payments from the Borrower or any such other person or to realize upon any
such guarantee or to exercise any such right of offset, or any release of the
Borrower or any sch other person or any guaranty or right of offset, shall not
relieve the Guarantor of any liability hereunder, and shall not impair or affect
the rights and remedies, whether express, implied or available as a matter of
law, of the Lender against the Guarantor. This Guaranty shall remain in full
force and effect and be binding in accordance with and to the extent of its
terms upon the Guarantor and the successors and assigns thereof, and shall inure
to the benefit of the Lender, and its successors, endorsees, transferees and
assigns, until all the Obligations and the obligations of the Guarantor under
this Guaranty shall have been satisfied by payment in full, upon the occurrence
of all of which this Guaranty shall, subject to Section 5 hereof, terminate.
6. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or the Guarantor or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or the Guarantor or any substantial part of their
respective property, or otherwise, all as though such payments had not been
made.
7. Payments. The Guarantor hereby agrees that the Obligations will be paid
to the Lender without setoff or counterclaim in U.S. dollars at the office of
the Lender located at Two Galleria Tower, Suite 2200, 13455 Noel Road, LB48,
Dallas, Texas 75240.
8. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
<PAGE>
9. Interest. All amounts payable from time to time by the Guarantor
hereunder shall bear interest at the per annum rate which shall from day-to-day
be equal to the lesser of (a) the Maximum Rate (as defined in the Note), or
(b) eighteen percent (18%).
10. Paragraph Headings. The paragraph headings used in this Guaranty are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
11. No Waiver; Cumulative Remedies. The Lender shall not by an act (except
by a written instrument pursuant to Paragraph 11 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
12. Waivers and Amendments; Successors and Assigns; Governing Law. None of
the terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Lender, provided that any provision of this Guaranty may be waived by the
Lender in a letter or agreement executed by the Lender or by telex or facsimile
transmission from the Lender. This Guaranty shall be binding upon the heirs,
executors, administrators and personal representatives of the Guarantor and
shall inure to the benefit of the Lender and its successors and assigns. THIS
GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS.
13. Notices. Notices by the Lender to the Guarantor may be given by mail,
by telex or by facsimile transmission, addressed to the Guarantor at its address
or transmission number set forth under its signature below and shall be
effective (a) if by registered or certified mail, return receipt requested,
three (3) Business Days following the date when sent, (b) if by telex, when sent
and answerback received, (c) if by overnight courier, when received, (d) if by
telecopier, when sent, or (e) if personally delivered or delivered by messenger,
when receipted for. The Guarantor may change its address and transmission
numbers by written notice to the Lender.
14. Submission to Jurisdiction; Waivers. (a) THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR HIMSELF AND HIS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH
HE IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE
<PAGE>
OF TEXAS, THE COURTS OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF
TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT HE MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO HIM HIS ADDRESS SET FORTH UNDER HIS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT
HERETO; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a)
ABOVE.
(c) THE GUARANTOR HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE, IRRESPECTIVE OF THE NATURE OF
SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE
FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER
ACTION.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered as of the date first above written.
/s/ Edward J. DeBartolo, Jr.
----------------------------
Edward J. DeBartolo, Jr.
Address for Notices:
c/o Edward J. DeBartolo Corporation
999 Baker Way, Suite 420
San Mateo, California 94404
<PAGE>
EXHIBIT D
GUARANTY
($600,000 Note)
This Guaranty (the "Guaranty"), effective as of February 27, 1998, is made
by Edward W. Muransky (the "Guarantor"), in favor of Hollywood Casino
Corporation (the "Lender").
WHEREAS, the Lender has entered into a Master Agreement dated as of
February 27, 1998 (said Agreement, as it may hereafter be amended or otherwise
modified from time to time being the "Master Agreement") with Redwood Gaming
Limited Liability Company (formerly known as Golden Gate Gaming, limited
liability company) (the "Borrower"). It is a condition precedent to the
effectiveness of the Master Agreement that the Guarantor shall have entered into
this Guaranty;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to extend certain financial accommodations to Borrower pursuant to
the Master Agreement, and recognizing that Guarantor has benefited or shall
benefit directly or indirectly from such financial accommodations, and that but
for this Guaranty, Lender would not make such financial accommodations available
to Borrower, the Guarantor hereby agrees with the Lender as follows:
1. Guaranty. (a) The Guarantor hereby, unconditionally and irrevocably,
guarantees to the Lender the prompt and complete payment and performance by the
Borrower when due of its obligations to the Lender under that certain Promissory
Note (the "Note"), dated February 27, 1998, in the original principal amount of
Six Hundred Thousand and No/100 Dollars ($600,000.00) (including, without
limitation, all interest thereon, whether accruing prior or subsequent to the
commencement of a bankruptcy or similar proceeding involving the Borrower as a
debtor) (collectively, the "Obligations"), and the Guarantor further agrees to
pay any and all expenses (including, without limitation, all reasonable fees and
disbursements of counsel) which may be paid or incurred by the Lender in
enforcing, or obtaining advice of counsel in respect of, any rights with respect
to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, the Guarantor under this Guaranty.
(b) No payment or payments made by the Borrower, the Guarantor, any
other guarantor or any other person or received or collected by the Lender from
the Borrower, the Guarantor, any other guarantor or any other person by virtue
of any action or proceeding or any setoff or appropriation or application at any
time or from time to time in reduction of or in payment of the Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by the Guarantor in respect of the Obligations or
payments received or collected from the Guarantor in respect of the Obligations,
remain liable for the Obligations, subject to the conditions under Section 2(a)
above, until the Obligations are paid in full.
(c) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Lender on account of its liability
hereunder, it will notify the Lender in writing that such payment is made under
this Guaranty for such purpose.
<PAGE>
2. No Subrogation. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any application of funds of the Guarantor by the Lender,
the Guarantor shall not be entitled to be subrogated to any of the rights of the
Lender against the Borrower nor shall the Guarantor have any rights of
reimbursement, assignment, indemnification or implied contract or any similar
rights against the Borrower or against any endorser or other guarantor of all or
any part of the Obligations, until all amounts owing to the Lender by the
Borrower for or on account of the Obligations or otherwise under this Guaranty
are paid in full. If, notwithstanding the foregoing, any amount shall be paid to
the Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by the
Guarantor in trust for the Lender, segregated from other funds of the Guarantor,
and shall, forthwith upon (and in any event within two (2) Business Days of)
receipt by the Guarantor, be turned over to the Lender, if required, in the
exact form received by the Guarantor (duly endorsed by the Guarantor to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Lender may determine.
3. Amendments, etc., With Respect to the Obligations. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Lender
may be rescinded by the Lender, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Lender, and the Note, and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Lender may deem advisable from time to time, and any guaranty at any time held
by the Lender for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. When making any demand hereunder against the Guarantor,
the Lender may, but shall be under no obligation to, make a similar demand on
the Borrower or the Guarantor or any other guarantor, and any failure by the
Lender to make any such demand or to collect any payments from the Borrower or
the Guarantor or any such other guarantor or any release of the Borrower or the
Guarantor or guarantor shall not relieve the Guarantor in respect of which a
demand or collection is not made or the Guarantor not so released of their
several obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Lender
against the Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
4. Guaranty Absolute and Unconditional; Termination. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Lender upon this Guaranty
or acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guaranty; and all dealings between the Borrower or the Guarantor, on
the one hand, and the Lender, on the other, shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guaranty. The
Guarantor waives diligence, presentment, protest, demand for payment, notice of
intent to accelerate, notice of acceleration, and notice of default or
nonpayment to or upon the Borrower or itself with respect to the Obligations.
This Guaranty shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity or enforceability of the
Note, any of the Obligations or guaranty, or (b) any defense,
<PAGE>
setoff or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by the Borrower against the
Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of the Guarantor under this Guaranty, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against the
Guarantor, the Lender may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the Borrower or any other person or
guaranty for the Obligations or any right of offset with respect thereto, and
any failure by the Lender to pursue such other rights or remedies or to collect
any payments from the Borrower or any such other person or to realize upon any
such guarantee or to exercise any such right of offset, or any release of the
Borrower or any sch other person or any guaranty or right of offset, shall not
relieve the Guarantor of any liability hereunder, and shall not impair or affect
the rights and remedies, whether express, implied or available as a matter of
law, of the Lender against the Guarantor. This Guaranty shall remain in full
force and effect and be binding in accordance with and to the extent of its
terms upon the Guarantor and the successors and assigns thereof, and shall inure
to the benefit of the Lender, and its successors, endorsees, transferees and
assigns, until all the Obligations and the obligations of the Guarantor under
this Guaranty shall have been satisfied by payment in full, upon the occurrence
of all of which this Guaranty shall, subject to Section 5 hereof, terminate.
5. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or the Guarantor or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or the Guarantor or any substantial part of their
respective property, or otherwise, all as though such payments had not been
made.
6. Payments. The Guarantor hereby agrees that the Obligations will be paid
to the Lender without setoff or counterclaim in U.S. dollars at the office of
the Lender located at Two Galleria Tower, Suite 2200, 13455 Noel Road, LB48,
Dallas, Texas 75240.
7. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8. Interest. All amounts payable from time to time by the Guarantor
hereunder shall bear interest at the per annum rate which shall from day-to-day
be equal to the lesser of (a) the Maximum Rate (as defined in the Note), or
(b) eighteen percent (18%).
9. Paragraph Headings. The paragraph headings used in this Guaranty are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
<PAGE>
10. No Waiver; Cumulative Remedies. The Lender shall not by an act (except
by a written instrument pursuant to Paragraph 11 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
11. Waivers and Amendments; Successors and Assigns; Governing Law. None of
the terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Lender, provided that any provision of this Guaranty may be waived by the
Lender in a letter or agreement executed by the Lender or by telex or facsimile
transmission from the Lender. This Guaranty shall be binding upon the heirs,
executors, administrators and personal representatives of the Guarantor and
shall inure to the benefit of the Lender and its successors and assigns. THIS
GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS.
12. Notices. Notices by the Lender to the Guarantor may be given by mail,
by telex or by facsimile transmission, addressed to the Guarantor at its address
or transmission number set forth under its signature below and shall be
effective (a) if by registered or certified mail, return receipt requested,
three (3) Business Days following the date when sent, (b) if by telex, when sent
and answerback received, (c) if by overnight courier, when received, (d) if by
telecopier, when sent, or (e) if personally delivered or delivered by messenger,
when receipted for. The Guarantor may change its address and transmission
numbers by written notice to the Lender.
13. Submission to Jurisdiction; Waivers. (a) THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR HIMSELF AND HIS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH
HE IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE OF TEXAS, THE COURTS OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT HE MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
<PAGE>
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO HIM HIS ADDRESS SET FORTH UNDER HIS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT
HERETO; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a)
ABOVE.
(c) THE GUARANTOR HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE, IRRESPECTIVE OF THE NATURE OF
SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE
FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER
ACTION.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered as of the date first above written.
/s/ Edward W. Muransky
----------------------
Edward W. Muransky
Address for Notices:
c/o DeBartolo Entertainment, Limited
Liability Company
999 Baker Way, Suite 420
San Mateo, California 94404
<PAGE>
EXHIBIT E
PUT OPTION AGREEMENT
PUT OPTION AGREEMENT dated as of February 27, 1998 (the "Agreement") by
and between Hollywood Casino Corporation, a Delaware corporation ("Hollywood"),
and Redwood Gaming Limited Liability Company, an Ohio limited liability company
("Redwood").
RECITALS:
A. Hollywood has been issued a 5% membership interest in Redwood (the
"Redwood Interest"), and all members of Redwood have consented to the admission
of Hollywood as a Member in Redwood within the meaning of the Operating
Agreement of Redwood.
B. Redwood desires to grant to Hollywood the right to require Redwood to
purchase Redwood Interest on the terms set forth in this Agreement.
AGREEMENT:
1. Grant of Option. The Company hereby grants to Hollywood and each holder
of the Redwood Interest (the "Holder") an option to sell to Redwood, and Redwood
is obligated to purchase from the Holder under such option (the "Put Option"),
all of the Redwood Interest. The Put Option may be exercised at any time or
times after the third (3rd) full day after the date of this Agreement through
the first (1st) anniversary of this Agreement (the "Put Option Period").
2. Put Price. In the event that the Holder exercises the Put Option, the
price to be paid to the Holder pursuant to this Agreement will be a promissory
note in the form attached to this Agreement as Exhibit A in the original
principal amount of $1,000,000.00 (the "Note") and the springing guaranty of
Edward J. DeBartolo, Jr. with respect thereto attached to this Agreement as
Exhibit B (the "Springing Guaranty").
3. Exercise of Put Option. The Put Option may be exercised during the Put
Option Period with respect to all, but not less than all, of the Redwood
Interest, by the Holder giving notice to Redwood during the Put Option Period
stating the Holder's election to exercise the Put Option and the date of the Put
Option Closing, which will be not sooner than the next business day after the
Put Option Notice is delivered to Redwood nor more than thirty (30) days after
the date of such notice.
4. Put Option Closing. The closing for the purchase and sale of the
Redwood Interest on exercise of the Put Option will be held at the office of
Hollywood on the date specified in such notice of exercise (a "Put Option
Closing"). At the Put Option Closing, the Holder will deliver documentation
sufficient to transfer the Redwood Interest to Redwood against payment therefor
by Redwood by issuance of the duly executed Note, which will be payable in the
manner designated by the Holder and the delivery of the duly executed Guaranty.
PUT OPTION AGREEMENT - Page 1
<PAGE>
5. Representations and Covenants. Redwood represents and warrants to, and
covenants with, with Hollywood as follows:
a. Redwood has the power and authority to execute and deliver this
Agreement and to consummate the transactions and perform its obligations
contemplated by this Agreement.
b. The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly
authorized by all necessary actions of Redwood. This Agreement constitutes
the legal, valid, and binding obligation of Redwood enforceable against it
in accordance with its terms.
c. The consummation of the transactions contemplated by this
Agreement will not (i) violate any provision of the organizational
documents or governing instruments of Redwood, (ii) violate any judgment,
order, ruling, injunction, degree, or award of any court, administrative
agency or governmental body against, or binding upon, Redwood or its
assets, or (iii) constitute a violation by Redwood of any law or
regulation of any jurisdiction applicable to Redwood.
d. This Agreement was reviewed by Redwood (or its authorized
representatives), and Redwood acknowledges that it (i) understands fully
the terms of this Agreement and the consequences of the execution of this
Agreement, (ii) has been afforded an opportunity to have this Agreement
reviewed by, and to discuss this Agreement with, such attorneys and other
persons Redwood may wish, and (iii) has entered into this Agreement of its
own free will and accord and with out threat or duress.
e. This Agreement and all information furnished to Hollywood is made
and furnished in good faith, for value and valuable consideration, and has
not been made or induced by any fraud, duress, or undue influence
exercised by Hollywood or any other person.
f. Redwood will not take, omit to take, or allow any person or
entity to take or omit to take any action that would impair in any respect
its ability to issue the Note on exercise of the Put Option or to make
payment thereon in accordance with its terms.
6. Survival. All representations, warranties, covenants, and agreements of
the parties made in this Agreement will survive the execution and delivery of
this Agreement, until such time as all of the obligations of the parties to this
Agreement have lapsed in accordance with their respective terms or have been
discharged in full.
7. Successors and Assigns. This Agreement will be binding upon and will
inure to the benefit of the parties to this Agreement and their respective
heirs, successors, and assigns.
8. Modifications and Waivers. No delay on the part of Hollywood in
exercising any right, power, or privilege under this Agreement will operate as a
waiver thereof, nor will any waiver
PUT OPTION AGREEMENT - Page 2
<PAGE>
of any right, power, or privilege under this Agreement operate as a waiver of
any other right, power, or privilege under this Agreement, nor will any single
or partial exercise of any right, power, or privilege under this Agreement
preclude any other or further exercise thereof, or the exercise of any other
right, power, or privilege under this Agreement. All rights and remedies
provided in this Agreement are cumulative and are not exclusive of any rights or
remedies that the parties to this Agreement may otherwise have at law or in
equity. No waiver or modification, discharge, or amendment of this Agreement
will be valid in the absence of the written and signed consent of the party
against which enforcement of such is sought.
9. Governing Law. This Agreement will be construed in accordance with the
applicable substantive laws of the State of Texas and applicable federal law. In
the event of a dispute involving this Agreement or any other instruments
executed in connection with this Agreement, the undersigned irrevocably agrees
that venue for such dispute shall lie in any court of competent jurisdiction in
Dallas County, Texas.
10. Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together will be deemed to be one
original.
11. Time of Essence. The parties to this Agreement have agreed
specifically with regard to the times for performance set forth in this
Agreement. Further, the parties to this Agreement acknowledge that the
agreements with regard to the times for performance are material to this
Agreement. Therefore, the parties agree and acknowledge that time is of the
essence to this Agreement.
PUT OPTION AGREEMENT - Page 3
<PAGE>
Executed effective the 27th day of February, 1998.
REDWOOD:
REDWOOD GAMING LIMITED LIABILITY COMPANY
(formerly known as Golden Gate Gaming,
limited liability company)
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
-------------------
Name: Edward W. Muransky
Title:
HOLLYWOOD CASINO CORPORATION
By: /s/ Jack E. Pratt
---------------------
Name: Jack E. Pratt
Title: Chairman of the Board
Exhibits:
A Form of Note
B Form of Guaranty
PUT OPTION AGREEMENT - Page 4
<PAGE>
EXHIBIT A
FORM OF NOTE
[SEE EXHIBIT F]
PUT OPTION AGREEMENT - Page 5
<PAGE>
EXHIBIT B
FORM OF NOTE
[SEE EXHIBIT G]
PUT OPTION AGREEMENT - Page 6
<PAGE>
EXHIBIT F
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITY UNDER SUCH ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER (AND ANY PERSON THAT SUCCEEDS TO
OR ASSUMES ITS OBLIGATIONS UNDER THIS SECURITY) THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUIT TO RULE 144 OF SUCH ACT.
A-PROMISSORY NOTE
$1,000,000.00 Dallas, Texas February 27, 1998
FOR VALUE RECEIVED, the undersigned, Redwood Gaming Limited Liability
Company, an Ohio limited liability company (formerly known as Golden Gate
Gaming, limited liability company) ("Maker"), hereby unconditionally promises to
pay to the order of Hollywood Casino Corporation, a Delaware corporation
("Payee"), the principal sum of One Million and No/100 Dollars ($1,000,000.00),
in lawful money of the United States of America, together with interest
(calculated on the basis of a 365 or 366-day year, as appropriate), on the
unpaid principal balance from day-to-day remaining, computed from the date
hereof until maturity at the rate per annum which shall from day-to-day be equal
to thirteen percent (13%); provided, however, all past due principal of and, to
the extent permitted by applicable law, interest on this Note shall bear
interest at the rate per annum which shall from day-to-day be equal to the
lesser of (a) the Maximum Rate, or (b) eighteen percent (18%).
The term "Maximum Rate," as used herein, shall mean, with respect to the
holder hereof, the maximum nonusurious interest rate, if any, that at any time,
or from time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note. To the extent that Chapter
303 of the Texas Finance Code, as amended, is relevant to any holder of this
Note for the purposes of determining the Maximum Rate, the Payee hereby notifies
Maker that the "applicable ceiling" shall be the "weekly ceiling" referred to in
Chapter 303 of the Texas Finance Code from time to time in effect, as limited
therein; provided, however, that to the extent permitted by applicable law,
Payee reserves the right to change the "applicable ceiling" from time to time by
further notice and disclosure to Maker; and, provided further, that the "Maximum
Rate" for purposes of this Note shall not be limited to the applicable ceiling
under Chapter 303 of the Texas Finance Code if federal laws or other state laws
now or hereafter in effect and applicable to this Note (and the interest
contracted for, charged and collected hereunder) shall permit a higher rate of
interest.
This Note has been executed and delivered pursuant to, and is subject to
certain terms and conditions set forth in, that certain Master Agreement (the
"Agreement") among Maker, Edward J.
A-PROMISSORY NOTE ($1,000,000) - Page 1
<PAGE>
DeBartolo, Jr., Cynthia R. DeBartolo and Payee, executed as of the date hereof,
and is the "1,000,000 A Note" referred to therein.
Payment for all amounts due hereunder shall be made by wire transfer of
federal funds to Payee to the account designated by Payee from time to time so
that such funds are available to Payee on or before the date such funds are due
hereunder or by any other means agreed to, in writing, by Payee.
The principal of and interest upon the Note shall be due and payable on
February 27, 1999.
Maker and each surety, endorser, guarantor and other party ever liable for
payment of any sums of money payable on this Note, jointly and severally waive
presentment, protest, notice of protest and non-payment, or other notice of
default, notice of acceleration and intention to accelerate, and agree that
their liability under this Note shall not be affected by any renewal or
extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes,
regardless of the number of such renewals, extensions, indulgences, releases or
changes.
No waiver by Payee of any of its rights or remedies hereunder or under any
other document evidencing or securing this Note or otherwise shall be considered
a waiver of any other subsequent right or remedy of Payee; no delay or omission
in the exercise or enforcement by Payee of any rights or remedies shall ever be
construed as a waiver of any right or remedy of Payee; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust any
right or remedy of Payee.
Regardless of any provisions contained in this Note, the Agreement or any
other document executed or delivered in connection therewith, Payee shall never
be deemed to have contracted for or be entitled to receive, collect or apply as
interest on this Note, any amount in excess of the Maximum Rate, and, in the
event that Payee ever receives, collects or applies as interest any such excess,
such amount which would be excessive interest shall be applied to the reduction
of the unpaid principal balance of this Note, and, if the principal balance of
this Note is paid in full, any remaining excess shall forthwith be paid to
Maker. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest, (ii)
exclude voluntary pre-payments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note so
that the interest rate is uniform throughout such term; provided, that if this
Note is paid and performed in full prior to the end of the full contemplated
term hereof, and if the interest received for the actual period of existence
thereof exceeds the Maximum Rate, if any, Payee or any holder hereof shall
refund to Maker the amount of such excess.
A-PROMISSORY NOTE ($1,000,000) - Page 2
<PAGE>
This Note is being executed and delivered, and is intended to be performed
in the State of Texas. Except to the extent that the laws of the United States
may apply to the terms hereof, the substantive laws of the State of Texas shall
govern the validity, construction, enforcement and interpretation of this Note.
In the event of a dispute involving this Note or any other instruments executed
in connection herewith, the undersigned irrevocably agrees that venue for such
dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas.
This Note is given in renewal, extension, modification and amendment (and
not in novation or extinguishment) of that certain Promissory Note (Series
B-Subject to Mandatory Exercise Right) in the stated principal amount of
$5,000,000.00, dated November 16, 1995, executed by Maker and payable to the
order of Payee.
MAKER:
REDWOOD GAMING LIMITED LIABILITY
COMPANY
(formerly known as Golden Gate Gaming,
limited liability company)
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
---------------------
Name: Edward W. Muransky
Title:
Address:
999 Baker Way, Suite 420
San Mateo, California 94404
A-PROMISSORY NOTE ($1,000,000) - Page 3
<PAGE>
EXHIBIT G
SPRINGING A GUARANTY
($1,000,000 A Note)
This Springing Guaranty (this "Guaranty"), effective as of February 27,
1998, is made by Edward J. DeBartolo, Jr. (the "Guarantor"), in favor of
Hollywood Casino Corporation (the "Lender").
WHEREAS, the Lender has entered into a Master Agreement dated as of
February 27, 1998 (said Agreement, as it may hereafter be amended or otherwise
modified from time to time being the "Master Agreement") with Redwood Gaming
Limited Liability Company (formerly known as Golden Gate Gaming, limited
liability company) (the "Borrower") and the Guarantor. It is a condition
precedent to the effectiveness of the Master Agreement that the Guarantor shall
have entered into this Guaranty;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to extend certain financial accommodations to Borrower pursuant to
the Master Agreement, and recognizing that Guarantor has benefited or shall
benefit directly or indirectly from such financial accommodations, and that but
for this Guaranty, Lender would not make such financial accommodations available
to Borrower, the Guarantor hereby agrees with the Lender as follows:
1. Guaranty. (a) Subject to the provisions of Section 2, below, the
Guarantor hereby, unconditionally and irrevocably, guarantees to the Lender the
prompt and complete payment and performance by the Borrower when due of its
obligations to the Lender under that certain A-Promissory Note (the "Note"),
dated February 27, 1998, in the original principal amount of One Million and
No/100 Dollars ($1,000,000.00) (including, without limitation, all interest
thereon, whether accruing prior or subsequent to the commencement of a
bankruptcy or similar proceeding involving the Borrower as a debtor)
(collectively, the "Obligations"), and the Guarantor further agrees to pay any
and all expenses (including, without limitation, all reasonable fees and
disbursements of counsel) which may be paid or incurred by the Lender in
enforcing, or obtaining advice of counsel in respect of, any rights with respect
to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, the Guarantor under this Guaranty.
(b) No payment or payments made by the Borrower, the Guarantor, any
other guarantor or any other person or received or collected by the Lender from
the Borrower, the Guarantor, any other guarantor or any other person by virtue
of any action or proceeding or any setoff or appropriation or application at any
time or from time to time in reduction of or in payment of the Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by the Guarantor in respect of the Obligations or
payments received or collected from the Guarantor in respect of the Obligations,
remain liable for the Obligations, subject to the conditions under Section 2(a)
above, until the Obligations are paid in full.
(c) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Lender on account of its liability
hereunder, it will notify the Lender in writing that such payment is made under
this Guaranty for such purpose.
<PAGE>
2. Springing Nature of Guaranty. Notwithstanding anything herein to the
contrary, the Guarantor shall have no liability under this Guaranty unless and
until the Existing Bank Restructure (as defined in the Master Agreement) is
consummated, at which time this Guaranty will automatically become valid,
binding and enforceable, in accordance with its terms, without any further
action by either the Lender, the Borrower or the Guarantor.
3. No Subrogation. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any application of funds of the Guarantor by the Lender,
the Guarantor shall not be entitled to be subrogated to any of the rights of the
Lender against the Borrower nor shall the Guarantor have any rights of
reimbursement, assignment, indemnification or implied contract or any similar
rights against the Borrower or against any endorser or other guarantor of all or
any part of the Obligations, until all amounts owing to the Lender by the
Borrower for or on account of the Obligations or otherwise under this Guaranty
are paid in full. If, notwithstanding the foregoing, any amount shall be paid to
the Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by the
Guarantor in trust for the Lender, segregated from other funds of the Guarantor,
and shall, forthwith upon (and in any event within two (2) Business Days of)
receipt by the Guarantor, be turned over to the Lender, if required, in the
exact form received by the Guarantor (duly endorsed by the Guarantor to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Lender may determine.
4. Amendments, etc., With Respect to the Obligations. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Lender
may be rescinded by the Lender, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Lender, and the Note, and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Lender may deem advisable from time to time, and any guaranty at any time held
by the Lender for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. When making any demand hereunder against the Guarantor,
the Lender may, but shall be under no obligation to, make a similar demand on
the Borrower or the Guarantor or any other guarantor, and any failure by the
Lender to make any such demand or to collect any payments from the Borrower or
the Guarantor or any such other guarantor or any release of the Borrower or the
Guarantor or guarantor shall not relieve the Guarantor in respect of which a
demand or collection is not made or the Guarantor not so released of their
several obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Lender
against the Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
5. Guaranty Absolute and Unconditional; Termination. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Lender upon this Guaranty
or acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guaranty; and all dealings between the Borrower or the Guarantor, on
the one
<PAGE>
hand, and the Lender, on the other, shall likewise be conclusively presumed to
have been had or consummated in reliance upon this Guaranty. The Guarantor
waives diligence, presentment, protest, demand for payment, notice of intent to
accelerate, notice of acceleration, and notice of default or nonpayment to or
upon the Borrower or itself with respect to the Obligations. This Guaranty shall
be construed as a waiver of intent to accelerate continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Note, any of the Obligations or guaranty, or (b) any
defense, setoff or counterclaim (other than a defense of payment or performance)
which may at any time be available to or be asserted by the Borrower against the
Lender, or (c) any other circumstance whatsoever (with or without notice to or
knowledge of the Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of the Guarantor under this Guaranty, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against the
Guarantor, the Lender may, but shall be under no obligation to, pursue such
rights and remedies as it may have against the Borrower or any other person or
guaranty for the Obligations or any right of offset with respect thereto, and
any failure by the Lender to pursue such other rights or remedies or to collect
any payments from the Borrower or any such other person or to realize upon any
such guarantee or to exercise any such right of offset, or any rlease of the
Borrower or any such other person or any guaranty or right of offset, shall not
relieve the Guarantor of any liability hereunder, and shall not impair or affect
the rights and remedies, whether express, implied or available as a matter of
law, of the Lender against the Guarantor. This Guaranty shall remain in full
force and effect and be binding in accordance with and to the extent of its
terms upon the Guarantor and the successors and assigns thereof, and shall inure
to the benefit of the Lender, and its successors, endorsees, transferees and
assigns, until all the Obligations and the obligations of the Guarantor under
this Guaranty shall have been satisfied by payment in full, upon the occurrence
of all of which this Guaranty shall, subject to Section 5 hereof, terminate.
6. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or the Guarantor or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or the Guarantor or any substantial part of their
respective property, or otherwise, all as though such payments had not been
made.
7. Payments. The Guarantor hereby agrees that the Obligations will be paid
to the Lender without setoff or counterclaim in U.S. dollars at the office of
the Lender located at Two Galleria Tower, Suite 2200, 13455 Noel Road, LB48,
Dallas, Texas 75240.
8. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9. Interest. All amounts payable from time to time by the Guarantor
hereunder shall bear interest at the per annum rate which shall from day-to-day
be equal to the lesser of (a) the Maximum Rate (as defined in the Note), or
(b) eighteen percent (18%).
<PAGE>
10. Paragraph Headings. The paragraph headings used in this Guaranty are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
11. No Waiver; Cumulative Remedies. The Lender shall not by an act (except
by a written instrument pursuant to Paragraph 11 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
12. Waivers and Amendments; Successors and Assigns; Governing Law. None of
the terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Lender, provided that any provision of this Guaranty may be waived by the
Lender in a letter or agreement executed by the Lender or by telex or facsimile
transmission from the Lender. This Guaranty shall be binding upon the heirs,
executors, administrators and personal representatives of the Guarantor and
shall inure to the benefit of the Lender and its successors and assigns. THIS
GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS.
13. Notices. Notices by the Lender to the Guarantor may be given by mail,
by telex or by facsimile transmission, addressed to the Guarantor at its address
or transmission number set forth under its signature below and shall be
effective (a) if by registered or certified mail, return receipt requested,
three (3) Business Days following the date when sent, (b) if by telex, when sent
and answerback received, (c) if by overnight courier, when received, (d) if by
telecopier, when sent, or (e) if personally delivered or delivered by messenger,
when receipted for. The Guarantor may change its address and transmission
numbers by written notice to the Lender.
14. Submission to Jurisdiction; Waivers. (a) THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR HIMSELF AND HIS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH
HE IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE OF TEXAS, THE COURTS OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY
<PAGE>
OBJECTION THAT HE MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING
WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE
SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO HIM HIS ADDRESS SET FORTH UNDER HIS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT
HERETO; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a)
ABOVE.
(c) THE GUARANTOR HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE, IRRESPECTIVE OF THE NATURE OF
SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE
FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER
ACTION.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered as of the date first above written.
/s/ Edward J. DeBartolo, Jr.
----------------------------
Edward J. DeBartolo, Jr.
Address for Notices:
c/o Edward J. DeBartolo Corporation
999 Baker Way, Suite 420
San Mateo, California 94404
<PAGE>
EXHIBIT H
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITY UNDER SUCH ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER (AND ANY PERSON THAT SUCCEEDS TO
OR ASSUMES ITS OBLIGATIONS UNDER THIS SECURITY) THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUIT TO RULE 144 OF SUCH ACT.
B-PROMISSORY NOTE
$1,000,000.00 Dallas, Texas February 27, 1998
FOR VALUE RECEIVED, the undersigned, Redwood Gaming Limited Liability
Company, an Ohio limited liability company (formerly known as Golden Gate
Gaming, limited liability company) ("Maker"), hereby unconditionally promises to
pay to the order of Hollywood Casino Corporation, a Delaware corporation
("Payee"), the principal sum of One Million and No/100 Dollars ($1,000,000.00),
in lawful money of the United States of America, together with interest
(calculated on the basis of a 365 or 366-day year, as appropriate), on the
unpaid principal balance from day-to-day remaining, computed from the date
hereof until maturity at the rate per annum which shall from day-to-day be equal
to thirteen percent (13%); provided, however, all past due principal of and, to
the extent permitted by applicable law, interest on this Note shall bear
interest at the rate per annum which shall from day-to-day be equal to the
lesser of (a) the Maximum Rate, or (b) eighteen percent (18%).
The term "Maximum Rate," as used herein, shall mean, with respect to the
holder hereof, the maximum nonusurious interest rate, if any, that at any time,
or from time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note. To the extent that Chapter
303 of the Texas Finance Code, as amended, is relevant to any holder of this
Note for the purposes of determining the Maximum Rate, the Payee hereby notifies
Maker that the "applicable ceiling" shall be the "weekly ceiling" referred to in
Chapter 303 of the Texas Finance Code from time to time in effect, as limited
therein; provided, however, that to the extent permitted by applicable law,
Payee reserves the right to change the "applicable ceiling" from time to time by
further notice and disclosure to Maker; and, provided further, that the "Maximum
Rate" for purposes of this Note shall not be limited to the applicable ceiling
under Chapter 303 of the Texas Finance Code if federal laws or other state laws
now or hereafter in effect and applicable to this Note (and the interest
contracted for, charged and collected hereunder) shall permit a higher rate of
interest.
This Note has been executed and delivered pursuant to, and is subject to
certain terms and conditions set forth in, that certain Master Agreement (the
"Agreement") among Maker, Edward J. DeBartolo, Jr., Cynthia R. DeBartolo and
Payee, executed as of the date hereof, and is the "1,000,000 B Note" referred to
therein.
<PAGE>
Payment for all amounts due hereunder shall be made by wire transfer of
federal funds to Payee to the account designated by Payee from time to time so
that such funds are available to Payee on or before the date such funds are due
hereunder or by any other means agreed to, in writing, by Payee.
The principal of and interest upon the Note shall be due and payable on
February 27, 1999.
Maker and each surety, endorser, guarantor and other party ever liable for
payment of any sums of money payable on this Note, jointly and severally waive
presentment, protest, notice of protest and non-payment, or other notice of
default, notice of acceleration and intention to accelerate, and agree that
their liability under this Note shall not be affected by any renewal or
extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes,
regardless of the number of such renewals, extensions, indulgences, releases or
changes.
No waiver by Payee of any of its rights or remedies hereunder or under any
other document evidencing or securing this Note or otherwise shall be considered
a waiver of any other subsequent right or remedy of Payee; no delay or omission
in the exercise or enforcement by Payee of any rights or remedies shall ever be
construed as a waiver of any right or remedy of Payee; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust any
right or remedy of Payee.
Regardless of any provisions contained in this Note, the Agreement or any
other document executed or delivered in connection therewith, Payee shall never
be deemed to have contracted for or be entitled to receive, collect or apply as
interest on this Note, any amount in excess of the Maximum Rate, and, in the
event that Payee ever receives, collects or applies as interest any such excess,
such amount which would be excessive interest shall be applied to the reduction
of the unpaid principal balance of this Note, and, if the principal balance of
this Note is paid in full, any remaining excess shall forthwith be paid to
Maker. In determining whether or not the interest paid or payable under any
specific contingency exceeds the Maximum Rate, Maker and Payee shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest, (ii)
exclude voluntary pre-payments and the effect thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this Note so
that the interest rate is uniform throughout such term; provided, that if this
Note is paid and performed in full prior to the end of the full contemplated
term hereof, and if the interest received for the actual period of existence
thereof exceeds the Maximum Rate, if any, Payee or any holder hereof shall
refund to Maker the amount of such excess.
This Note is being executed and delivered, and is intended to be performed
in the State of Texas. Except to the extent that the laws of the United States
may apply to the terms hereof, the substantive laws of the State of Texas shall
govern the validity, construction, enforcement and interpretation of this Note.
In the event of a dispute involving this Note or any other instruments
<PAGE>
executed in connection herewith, the undersigned irrevocably agrees that venue
for such dispute shall lie in any court of competent jurisdiction in Dallas
County, Texas.
This Note is given in renewal, extension, modification and amendment (and
not in novation or extinguishment) of that certain Promissory Note (Series
B-Subject to Mandatory Exercise Right) in the stated principal amount of
$5,000,000.00, dated November 16, 1995, executed by Maker and payable to the
order of Payee.
MAKER:
REDWOOD GAMING LIMITED LIABILITY
COMPANY
(formerly known as Golden Gate Gaming,
limited liability company)
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
--------------------
Name: Edward W. Muransky
Title:
Address:
999 Baker Way, Suite 420
San Mateo, California 94404
<PAGE>
EXHIBIT I
SPRINGING B GUARANTY
($1,000,000 B Note)
This Springing Guaranty (this "Guaranty"), effective as of February 27,
1998, is made by Edward J. DeBartolo, Jr. (the "Guarantor"), in favor of
Hollywood Casino Corporation (the "Lender").
WHEREAS, the Lender has entered into a Master Agreement dated as of
February 27, 1998 (said Agreement, as it may hereafter be amended or otherwise
modified from time to time being the "Master Agreement") with Redwood Gaming
Limited Liability Company (formerly known as Golden Gate Gaming, limited
liability company) (the "Borrower") and the Guarantor. It is a condition
precedent to the effectiveness of the Master Agreement that the Guarantor shall
have entered into this Guaranty;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lender to extend certain financial accommodations to Borrower pursuant to
the Master Agreement, and recognizing that Guarantor has benefited or shall
benefit directly or indirectly from such financial accommodations, and that but
for this Guaranty, Lender would not make such financial accommodations available
to Borrower, the Guarantor hereby agrees with the Lender as follows:
1. Guaranty. (a) Subject to the provisions of Section 2, below, the
Guarantor hereby, unconditionally and irrevocably, guarantees to the Lender the
prompt and complete payment and performance by the Borrower when due of its
obligations to the Lender under that certain B-Promissory Note (the "Note"),
dated February 27, 1998, in the original principal amount of One Million and
No/100 Dollars ($1,000,000.00) (including, without limitation, all interest
thereon, whether accruing prior or subsequent to the commencement of a
bankruptcy or similar proceeding involving the Borrower as a debtor)
(collectively, the "Obligations"), and the Guarantor further agrees to pay any
and all expenses (including, without limitation, all reasonable fees and
disbursements of counsel) which may be paid or incurred by the Lender in
enforcing, or obtaining advice of counsel in respect of, any rights with respect
to, or collecting, any or all of the Obligations and/or enforcing any rights
with respect to, or collecting against, the Guarantor under this Guaranty.
(b) No payment or payments made by the Borrower, the Guarantor, any
other guarantor or any other person or received or collected by the Lender from
the Borrower, the Guarantor, any other guarantor or any other person by virtue
of any action or proceeding or any setoff or appropriation or application at any
time or from time to time in reduction of or in payment of the Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by the Guarantor in respect of the Obligations or
payments received or collected from the Guarantor in respect of the Obligations,
remain liable for the Obligations, subject to the conditions under Section 2(a)
above, until the Obligations are paid in full.
<PAGE>
(c) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Lender on account of its liability
hereunder, it will notify the Lender in writing that such payment is made under
this Guaranty for such purpose.
2. Springing Nature of Guaranty. Notwithstanding anything herein to the
contrary, the Guarantor shall have no liability under this Guaranty unless and
until the Existing Bank Restructure (as defined in the Master Agreement) is
consummated, at which time this Guaranty will automatically become valid,
binding and enforceable, in accordance with its terms, without any further
action by either the Lender, the Borrower or the Guarantor.
3. No Subrogation. Notwithstanding any payment or payments made by the
Guarantor hereunder, or any application of funds of the Guarantor by the Lender,
the Guarantor shall not be entitled to be subrogated to any of the rights of the
Lender against the Borrower nor shall the Guarantor have any rights of
reimbursement, assignment, indemnification or implied contract or any similar
rights against the Borrower or against any endorser or other guarantor of all or
any part of the Obligations, until all amounts owing to the Lender by the
Borrower for or on account of the Obligations or otherwise under this Guaranty
are paid in full. If, notwithstanding the foregoing, any amount shall be paid to
the Guarantor on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount shall be held by the
Guarantor in trust for the Lender, segregated from other funds of the Guarantor,
and shall, forthwith upon (and in any event within two (2) Business Days of)
receipt by the Guarantor, be turned over to the Lender, if required, in the
exact form received by the Guarantor (duly endorsed by the Guarantor to the
Lender, if required), to be applied against the Obligations, whether matured or
unmatured, in such order as the Lender may determine.
4. Amendments, etc., With Respect to the Obligations. The Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of
rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Lender
may be rescinded by the Lender, and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Lender, and the Note, and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Lender may deem advisable from time to time, and any guaranty at any time held
by the Lender for the payment of the Obligations may be sold, exchanged, waived,
surrendered or released. When making any demand hereunder against the Guarantor,
the Lender may, but shall be under no obligation to, make a similar demand on
the Borrower or the Guarantor or any other guarantor, and any failure by the
Lender to make any such demand or to collect any payments from the Borrower or
the Guarantor or any such other guarantor or any release of the Borrower or the
Guarantor or guarantor shall not relieve the Guarantor in respect of which a
demand or collection is not made or the Guarantor not so released of their
several obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Lender
against the Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
<PAGE>
5. Guaranty Absolute and Unconditional; Termination. The Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Lender upon this Guaranty
or acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guaranty; and all dealings between the Borrower or the Guarantor, on
the one hand, and the Lender, on the other, shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guaranty. The
Guarantor waives diligence, presentment, protest, demand for payment, notice of
intent to accelerate, notice of acceleration, and notice of default or
nonpayment to or upon the Borrower or itself with respect to the Obligations.
This Guaranty shall be construed as a waiver of intent to accelerate continuing,
absolute and unconditional guarantee of payment without regard to (a) the
validity or enforceability of the Note, any of the Obligations or guaranty, or
(b) any defense, setoff or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower against the Lender, or (c) any other circumstance whatsoever (with or
without notice to or knowledge of the Borrower or the Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Obligations, or of the Guarantor under this
Guaranty, in bankruptcy or in any other instance. When pursuing its rights and
remedies hereunder against the Guarantor, the Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrower or any other person or guaranty for the Obligations or any right of
offset with respect thereto, and any failure by the Lender to pursue such other
rights or remedies or to collect any payments from the Borrower or any such
other person or to realize upon any such guarantee or to exercise any such right
of offset, or any rlease of the Borrower or any such other person or any
guaranty or right of offset, shall not relieve the Guarantor of any liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Lender against the
Guarantor. This Guaranty shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the Guarantor and the
successors and assigns thereof, and shall inure to the benefit of the Lender,
and its successors, endorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this Guaranty shall have
been satisfied by payment in full, upon the occurrence of all of which this
Guaranty shall, subject to Section 5 hereof, terminate.
6. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or the Guarantor or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or the Guarantor or any substantial part of their
respective property, or otherwise, all as though such payments had not been
made.
7. Payments. The Guarantor hereby agrees that the Obligations will be paid
to the Lender without setoff or counterclaim in U.S. dollars at the office of
the Lender located at Two Galleria Tower, Suite 2200, 13455 Noel Road, LB48,
Dallas, Texas 75240.
8. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or
<PAGE>
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9. Interest. All amounts payable from time to time by the Guarantor
hereunder shall bear interest at the per annum rate which shall from day-to-day
be equal to the lesser of (a) the Maximum Rate (as defined in the Note), or
(b) eighteen percent (18%).
10. Paragraph Headings. The paragraph headings used in this Guaranty are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
11. No Waiver; Cumulative Remedies. The Lender shall not by an act (except
by a written instrument pursuant to Paragraph 11 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of the Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
12. Waivers and Amendments; Successors and Assigns; Governing Law. None of
the terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Lender, provided that any provision of this Guaranty may be waived by the
Lender in a letter or agreement executed by the Lender or by telex or facsimile
transmission from the Lender. This Guaranty shall be binding upon the heirs,
executors, administrators and personal representatives of the Guarantor and
shall inure to the benefit of the Lender and its successors and assigns. THIS
GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS.
13. Notices. Notices by the Lender to the Guarantor may be given by mail,
by telex or by facsimile transmission, addressed to the Guarantor at its address
or transmission number set forth under its signature below and shall be
effective (a) if by registered or certified mail, return receipt requested,
three (3) Business Days following the date when sent, (b) if by telex, when sent
and answerback received, (c) if by overnight courier, when received, (d) if by
telecopier, when sent, or (e) if personally delivered or delivered by messenger,
when receipted for. The Guarantor may change its address and transmission
numbers by written notice to the Lender.
14. Submission to Jurisdiction; Waivers. (a) THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
<PAGE>
(i) SUBMITS FOR HIMSELF AND HIS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH
HE IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS
OF THE STATE OF TEXAS, THE COURTS OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF TEXAS, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION THAT HE MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO HIM HIS ADDRESS SET FORTH UNDER HIS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED PURSUANT
HERETO; AND
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (a)
ABOVE.
(c) THE GUARANTOR HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN PARAGRAPH (a) ABOVE, IRRESPECTIVE OF THE NATURE OF
SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF
<PAGE>
ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR
ALLEGED IN ANY OTHER ACTION.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered as of the date first above written.
/s/ Edward J. DeBartolo, Jr.
----------------------------
Edward J. DeBartolo, Jr.
Address for Notices:
c/o Edward J. DeBartolo Corporation
999 Baker Way, Suite 420
San Mateo, California 94404
<PAGE>
EXHIBIT J
ESCROW AGREEMENT
The undersigned have deposited in escrow with Hughes & Luce, L.L.P., as
escrow agent (the "Escrow Agent"), the following (referred to as the "Subject
Matter of the Escrow"):
(a) that certain A-Promissory Note (the "$1,000,000 A Note"), dated
February 27, 1998, in the original principal sum of One Million and No/100
Dollars ($1,000,000.00) executed by Redwood Gaming Limited Liability
Company (formerly known as Golden Gate Gaming, limited liability company)
("Redwood") and payable to the order of Hollywood Casino Corporation
("Hollywood");
(b) that certain Springing A Guaranty (the "Springing A Guaranty"),
dated as of February 27, 1998, executed by Edward J. DeBartolo, Jr.
("EJD") for the benefit of Hollywood, which guaranties Redwood's
indebtedness under the $1,000,000 A Note to Hollywood;
(c) that certain B-Promissory Note (the "$1,000,000 B Note"), dated
February 27, 1998, in the original principal sum of One Million and No/100
Dollars ($1,000,000.00) executed by Redwood and payable to the order of
Hollywood; and
(d) that certain Springing B Guaranty (the "Springing B Guaranty"),
dated as of February 27, 1998, executed by EJD for the benefit of
Hollywood, which guaranties Redwood's indebtedness under the $1,000,000 B
Note to Hollywood.
Escrow Agent is authorized and directed hereby to deliver the $1,000,000 A
Note and the Springing A Guaranty to Hollywood upon presentation by Hollywood to
Escrow Agent of an affidavit from a purported officer of Hollywood stating:
(a) that three (3) days have passed since Hollywood received the
Redwood Interest (as defined in that certain Master Agreement (the "Master
Agreement "), of even date herewith, among Redwood, Hollywood, EJD and
Cynthia R. DeBartolo ("CRD")); and
(b) that Hollywood has exercised its rights under the Put Option (as
defined in the Master Agreement) to "put" the Redwood Interest.
Escrow Agent is authorized and directed hereby to deliver the $1,000,000 B
Note and the Springing B Guaranty to Hollywood upon presentation by Hollywood to
Escrow Agent of an affidavit from a purported officer of Hollywood stating
either:
(a) that Redwood and Edward W. Muransky ("EM") failed to deliver the
$600,000 Letter of Credit (as defined in the Master Agreement) to
Hollywood on or before April 28, 1998; or
<PAGE>
(b) that Redwood and CRD failed to deliver the $1,000,000 Letter of
Credit (as defined in the Master Agreement) to Hollywood on or before
April 28, 1998.
Escrow Agent is authorized and directed hereby to deliver the $1,000,000 B
Note and the Springing B Guaranty to Redwood upon presentation by Redwood to
Escrow Agent of an affidavit from the purported manager of Redwood stating:
(a) that Redwood and EM delivered the $600,000 Letter of Credit to
Hollywood on or before April 28, 1998; and
(b) that Redwood and CRD delivered the $1,000,000 Letter of Credit
to Hollywood on or before April 28, 1998.
The undersigned agree that the following provisions shall control with
respect to the rights, duties, liabilities, privileges and immunities of the
Escrow Agent:
(a) Escrow Agent is not a party to, and is not bound by or charged
with notice of, any agreement out of which this escrow may arise.
(b) Escrow Agent acts hereunder as a depository only, and is not
responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness, or validity of the Subject Matter of the Escrow,
or any part thereof, or for the identity or authority of any person
executing or depositing it.
(c) In the event Escrow Agent becomes involved in litigation in
connection with this escrow, the undersigned jointly and severally agree
to indemnify and save Escrow Agent harmless from all loss, cost, damages,
expenses and attorneys' fees suffered or incurred by Escrow Agent as a
result thereof. The obligations of the undersigned under this subparagraph
shall be performable at the office of Escrow Agent in Dallas, Dallas
County, Texas.
(d) Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, certificate, receipt, authorization,
power of attorney or other paper or document that Escrow Agent in good
faith believes to be genuine and what it purports to be.
(e) Escrow Agent shall not be liable for anything that it may do or
refrain from doing in connection herewith, except its own gross negligence
or willful misconduct.
(f) Escrow Agent may advise with legal counsel in the event of any
dispute or question as to the construction of any of the provisions hereof
or its duties hereunder; and Escrow Agent shall incur no liability and
shall be fully protected in acting in accordance with the opinion and
instructions of such counsel.
(g) In the event of disagreement between any of the parties to this
Agreement, or between them or either or any of them and any other person,
resulting in adverse claims or
<PAGE>
demands being made in connection with the Subject Matter of the Escrow, or
in the event that Escrow Agent, in good faith, be in doubt as to what
action it should take hereunder, Escrow Agent may, at its option, refuse
to comply with any claims or demands on it, or refuse to take any other
action hereunder, so long as such disagreement continues or such doubt
exists. In any such event, Escrow Agent shall not be or become liable in
any way or to any person for its failure or refusal to act. Escrow Agent
shall be entitled to continue to refrain from acting until (a) the rights
of all parties shall have been adjudicated fully and finally by a court of
competent jurisdiction, or (b) all differences shall have been adjusted
and all doubt resolved by agreement among all of the interested persons,
and Escrow Agent shall have been notified thereof in writing signed by all
such persons. The rights of Escrow Agent under this paragraph are
cumulative of all other rights that Escrow Agent may have by law or
otherwise.
(h) For normal services, a minimum escrow fee of $1.00 per year or
part of a year shall be payable to Escrow Agent. For services in addition
to normal services, a reasonable fee based upon the time spent by Escrow
Agent's officers, employees or agents in performing such additional
services shall be payable to Escrow Agent. Reimbursement to Escrow Agent
for all legal fees, expenses, disbursements and advances incurred or made
by Escrow Agent in the performance of its services shall be payable to
Escrow Agent. All such fees and reimbursements shall be paid by Redwood.
Upon satisfaction of the conditions for delivery of any document(s)
constituting a portion of the Subject Matter of the Escrow, the party receiving
such document(s) will execute and deliver to Escrow Agent, a Release of Escrow
in the form attached hereto as Exhibit A.
Upon the request of Escrow Agent, the other party, Hollywood or Redwood,
as the case may be, will execute and deliver to Escrow Agent, a Release of
Escrow in the form attached hereto as Exhibit B; provided, however, such party's
failure to execute and deliver such release shall in no way indicate that Escrow
Agent has failed to act strictly in accordance with this Escrow Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Executed as of the 27th day of February, 1998.
REDWOOD GAMING LIMITED LIABILITY
COMPANY
(formerly known as Golden Gate
Gaming, limited liability company)
By: DEMUR, INC., its Manager
By: /s/ Ed Muransky
---------------------------
Name: Edward W. Muransky
Title:
HOLLYWOOD CASINO CORPORATION
By: /s/ Jack E. Pratt
----------------------
Name: Jack E. Pratt
Title: Chairman of the Board
HUGHES & LUCE, L.L.P.
By: /s/ James W. Sargent
-------------------------
<PAGE>
EXHIBIT A
FORM OF RELEASE OF ESCROW
Reference is made to that certain Escrow Agreement (the "Escrow
Agreement"), dated as of February 27, 1998, executed by and among Redwood Gaming
Limited Liability Company (formerly known as Golden Gate Gaming, limited
liability company), Hollywood Casino Corporation and Hughes & Luce, L.L.P., as
Escrow Agent (the "Escrow Agent").
The undersigned hereby acknowledges receipt from Escrow Agent under the
Escrow Agreement of the following item(s) of the Subject Matter of the Escrow as
described in the Escrow Agreement:____________________________________________.
The undersigned acknowledges a faithful and proper performance by Escrow
Agent of its duties under the Escrow Agreement; and in consideration of such
delivery, hereby releases and discharges Escrow Agent from all further
responsibility and liability as Escrow Agent under the Escrow Agreement with
regard to the Subject Matter of the Escrow so delivered.
Executed this ___ day of _____, 1998.
_______________________________________
By:____________________________________
<PAGE>
EXHIBIT B
FORM OF RELEASE OF ESCROW
Reference is made to that certain Escrow Agreement (the "Escrow
Agreement"), dated as of February 27, 1998, executed by and among Redwood Gaming
Limited Liability Company (formerly known as Golden Gate Gaming, limited
liability company), Hollywood Casino Corporation and Hughes & Luce, L.L.P., as
Escrow Agent (the "Escrow Agent").
The undersigned hereby acknowledges delivery by Escrow Agent under the
Escrow Agreement to _______________________ of the following item(s) of the
Subject Matter of the Escrow as described in the Escrow Agreement:
_________________________________________.
The undersigned acknowledges a faithful and proper performance by Escrow
Agent of its duties under the Escrow Agreement; and in consideration of such
delivery, hereby releases and discharges Escrow Agent from all further
responsibility and liability as Escrow Agent under the Escrow Agreement with
regard to the Subject Matter of the Escrow so delivered.
Executed this ___ day of _____, 1998.
_______________________________________
By:____________________________________
<PAGE>
ACKNOWLEDGMENT OF RECEIPT
Reference is made to the Escrow Agreement (the "Escrow Agreement"), dated
as of February 27, 1998, executed by and among Redwood Gaming Limited Liability
Company (formerly known as Golden Gate Gaming, limited liability company),
Hollywood Casino Corporation and Hughes & Luce, L.L.P., as Escrow Agent (the
"Escrow Agent").
Escrow Agent hereby acknowledges receipt of the Subject Matter of the
Escrow, as described in the Escrow Agreement, and hereby accepts the Subject
Matter of the Escrow as Escrow Agent thereunder, subject to the terms and
conditions therein set forth.
Executed as of the 27th day of February, 1998.
HUGHES & LUCE, L.L.P.
By: /s/ James W. Sargent
-------------------------
<PAGE>
EXHIBIT K
IRREVOCABLE STANDBY LETTER OF CREDIT NO. ______
ISSUE DATE: ______________, 1998
BENEFICIARY
Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit No. ______ in your
favor, up to the aggregate amount of USD SIX HUNDRED THOUSAND AND NO/100 U.S.
DOLLARS ($600,000.00) for the account of Redwood Gaming Limited Liability
Company (formerly known as Golden Gate Gaming, limited liability company)
("Redwood") and Edward W. Muransky, available by your draft drawn on us at sight
and accompanied by an affidavit from a purported officer of Hollywood Casino
Corporation ("Hollywood") stating:
(a) that Redwood has failed to pay, on or before August 31, 1998, the
principal of or interest upon that certain Promissory Note (the
"Note"), dated February 27, 1998, in the original principal amount
of Six Hundred Thousand and No/100 Dollars ($600,000.00), executed
by Redwood and payable to the order of Hollywood;
(b) that the amount of the draft presented is equal to the lesser of
$600,000.00 or the outstanding balance due, as of the date of
presentation to Canadian Imperial Bank, on the loan evidenced by the
Note; and
(c) that Hollywood has not received evidence in the form of copies of
signed loan documentation that the obligations of DeBartolo, Inc.
and The Edward J. DeBartolo Corporation, as borrowers (the
"Borrowers") to existing bank lenders under that certain (i) Second
Amended and Restated Restructuring Facility Agreement dated as of
March 31, 1994, among the Borrowers, Wells Fargo Realty Advisors
Funding, Incorporated, as the Administrative Agent, and certain
Co-Lenders; and (ii) Second Amended and Restated New Facility Credit
Agreement dated as of March 31, 1994, among the Borrowers, Wells
Fargo Bank, N.A., as the Issuing Bank, certain Co-Lenders, and Wells
Fargo Realty Advisors Funding, Incorporated, as the Administrative
Agent, have been refinanced, repaid or restructured, so as to permit
the guaranty of the Note by Edward J. DeBartolo, Jr.
The original of this Letter of Credit and any amendments should be returned with
any drawing for endorsement purposes and upon letter of credit expiration and/or
cancellation.
LETTER OF CREDIT ($600,000) - Page 1
<PAGE>
IRREVOCABLE STANDBY LETTER OF CREDIT NO. ______
ISSUE DATE: ______________, 1998
Any draft drawn under this credit must be marked "Drawn under Canadian Imperial
Bank, Irrevocable Standby Letter of Credit No. ___________ dated ____________,
1998".
We hereby engage with you that any draft drawn under and in compliance with the
terms of this Letter of Credit shall be duly honored upon presentation at our
office located at ____________, Attn: _______________ if presented after June
30, 1998 and by _______________, _______, the expiration date of this Letter of
Credit, or any subsequent extension of the expiration date by endorsement to
this Letter of Credit.
This credit is subject to the Uniform Customs and Practice for Documentary
Credits (1993) Revision, International Chamber of Commerce Brochure No. 500.
CANADIAN IMPERIAL BANK
By: ____________________________________
Authorized Signature and Title
LETTER OF CREDIT ($600,000) - Page 2
<PAGE>
EXHIBIT L
IRREVOCABLE STANDBY LETTER OF CREDIT NO. _________
ISSUE DATE: ____________, 1998
BENEFICIARY
Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit No. ______ in your
favor, up to the aggregate amount of USD ONE MILLION AND NO/100 U.S. DOLLARS
($1,000,000.00) for the account of Redwood Gaming Limited Liability Company
(formerly known as Golden Gate Gaming, limited liability company) ("Redwood")
and Cynthia R. DeBartolo, available by your draft drawn on us at sight and
accompanied by an affidavit from a purported officer of Hollywood Casino
Corporation ("Hollywood") stating:
(a) that Redwood has failed to pay, on or before February 27, 1999, the
principal of or interest upon that certain A-Promissory Note (the
"Note"), dated February 27, 1998, in the original principal amount
of One Million and No/100 Dollars ($1,000,000.00), executed by
Redwood and payable to the order of Hollywood;
(b) that the amount of the draft presented is equal to the lesser of
$1,000,000.00 or the outstanding balance due, as of the date of
presentation to Canadian Imperial Bank, on the loans evidenced by
the Note; and
(c) that Hollywood has not received evidence in the form of copies of
signed loan documentation that the obligations of DeBartolo, Inc.
and The Edward J. DeBartolo Corporation, as borrowers (the
"Borrowers") to existing bank lenders under that certain (i) Second
Amended and Restated Restructuring Facility Agreement dated as of
March 31, 1994, among the Borrowers, Wells Fargo Realty Advisors
Funding, Incorporated, as the Administrative Agent, and certain
Co-Lenders; and (ii) Second Amended and Restated New Facility Credit
Agreement dated as of March 31, 1994, among the Borrowers, Wells
Fargo Bank, N.A., as the Issuing Bank, certain Co-Lenders, and Wells
Fargo Realty Advisors Funding, Incorporated, as the Administrative
Agent, have been refinanced, repaid or restructured, so as to permit
the guaranty of the Note by Edward J. DeBartolo, Jr.
<PAGE>
The original of this Letter of Credit and any amendments should be returned with
any drawing for endorsement purposes and upon letter of credit expiration and/or
cancellation.
Any draft drawn under this credit must be marked "Drawn under Canadian Imperial
Bank, Irrevocable Standby Letter of Credit No. ___________ dated ____________,
1998".
We hereby engage with you that any draft drawn under and in compliance with the
terms of this
Letter of Credit shall be duly honored upon presentation at our office located
at ____________, Attn: _______________ if presented after June 30, 1998 and by
_______________, _______, the expiration date of this Letter of Credit, or any
subsequent extension of the expiration date by endorsement to this Letter of
Credit.
This credit is subject to the Uniform Customs and Practice for Documentary
Credits (1993) Revision, International Chamber of Commerce Brochure No. 500.
CANADIAN IMPERIAL BANK
By:_____________________________________
Authorized Signature and Title
LETTER OF CREDIT ($1,000,000) - Page 2
<PAGE>
EXHIBIT 10.32
MASTER AGREEMENT
This Master Agreement (this "Agreement") is dated as of the 16th day of
October, 1997, and is between and among New Orleans Paddlewheels, Inc. ("NOP"),
Shreveport Paddlewheels, L.L.C. ("SPL"), Sodak Louisiana, L.L.C. ("Sodak"), and
HWCC-Louisiana, Inc. ("HWCC").
RECITALS
A. Pursuant to an agreement dated August 29, 1997 among Hilton New Orleans
Corporation ("HNOC") and NOP (the "HNOC Exit Agreement"), upon "LGCB Approval"
of the Louisiana State Gaming Control Board ("LGCB"), as described in said
agreement, NOP and SPL will own 100% of the ownership interest in the Queen of
New Orleans at the Hilton Joint Venture ("QNOV").
B. QNOV has been granted a license to conduct riverboat gaming in Louisiana
pursuant to La. R.S. 27:1, et. seq. (the "Act").
C. The parties hereto desire to provide for the amendment of the Joint
Venture Agreement of QNOV to provide for ownership in QNOV by NOP and/or SPL,
Sodak or an affiliate of Sodak, and HWCC upon satisfaction of the conditions set
forth herein, including, without limitation, approval by the LGCB.
D. The purpose of QNOV shall be to plan, construct and operate pursuant to
the Act and any Rules or Orders of the LGCB: (i) a riverboat gaming vessel of
approximately 30,000 square feet of net gaming space, (ii) landside improvements
to facilitate the operation of the riverboat including a terminal/boarding
facility, various restaurants, and parking areas, and (iii) a first class hotel
of at least 300 rooms (collectively, the "Project"). The berth for the riverboat
shall be located at the area known to the parties as the "Harrah's valet parking
site" in Shreveport, Louisiana.
E. NOP, SPL, Sodak, and HWCC further desire to execute a Management Services
Agreement (the "Management Agreement") for the operation of the Project by
Hollywood Casino Corporation, or its affiliate ("Operator").
F. This Agreement sets forth the terms and provisions under which the parties
have agreed to proceed with the development and operation of the Project.
SECTION 1
DEFINITIONS
Capitalized terms in this Agreement, unless otherwise defined, shall have the
following meanings set forth below.
- 1 -
<PAGE>
"Act" - shall mean, La. R.S. 27.1 et. seq. and any amendments thereto.
"Amended and Restated Joint Venture Agreement" - shall mean the Form of
Amended and Restated Joint Venture Agreement to be entered into on the
Closing Date in substantially the form attached hereto as Exhibit "A".
"Approval" - shall mean (i) LGCB Approval as defined and described under the
HNOC Exit Agreement; and (ii) the approval by the LGCB of the Petition
substantially in the form attached hereto as Exhibit "B", without condition,
or with conditions and terms approved by all of the Pre-Closing Parties;
provided that each of the Pre-Closing Parties agrees that such approval will
be given if the granting of such approval would not and could not impose any
material financial burden or any regulatory burden upon such Pre-Closing
Party or its affiliates or otherwise diminish any economic or other benefits
or rights provided to such Pre-Closing Party or its affiliates under this
Agreement.
"Change-in-Control" - shall mean either (i) any consolidation, merger or
other business combination of HCC with or into another entity other than any
such consolidation, merger, or other business combination where HCC or an
affiliate of HCC is the surviving entity (a "Business Combination"), or (ii)
the sale, in a single transaction or series of related transactions of all or
substantially all of HCC's assets, other than a sale to a real estate
investment trust (a "Sale").
"Closing Date" - shall mean the date which is 10 days following the date upon
which all of the conditions to closing set forth in Section 8 of this
Agreement have been satisfied or waived or such other date as may be agreed
upon by all of the Pre-Closing Parties.
"Governmental Entity" - shall mean any political subdivision, governing
board, regulatory authority or other entity having jurisdiction over any of
the transactions contemplated in this Agreement.
"HCC" - shall mean Hollywood Casino Corporation, a Delaware corporation,
which is a wholly owned subsidiary of HCC.
"HWCC" - shall mean HWCC- Louisiana, Inc., a Louisiana corporation.
"LGCB" - shall mean the Louisiana Gaming Control Board.
"Management Committee" - shall mean a three-person committee comprised of one
individual selected by each of the Pre-Closing Parties.
"NOP" - shall mean New Orleans Paddlewheels, Inc., a Louisiana corporation.
"Operator" - shall mean HCC or an affiliate of HCC.
- 2 -
<PAGE>
"Original Joint Venture Agreement" - shall mean the Joint Venture Agreement
of QNOV dated May 20, 1992, as amended on January 14, 1994.
"Project" - shall mean the project described in paragraph "D" of the recitals
of this Agreement.
"QNOV" - shall mean Queen of New Orleans Joint Venture, a Louisiana
Partnership, and any successor thereto.
"Sodak" - shall mean Sodak Louisiana, L.L.C., a Louisiana Limited Liability
Company which is wholly owned by Sodak Gaming, Inc.
"SPL" - shall mean Shreveport Paddlewheels, L.L.C., a Louisiana Limited
Liability Company, or an entity which is owned in its entirety by NOP.
SECTION 2
PRE-CLOSING RIGHTS AND OBLIGATIONS
NOP, SPL, Sodak, and HWCC have entered into this Agreement to set forth their
respective rights and obligations prior to the earlier to occur of the Closing
Date or the Termination Date with respect to the planning and design of the
Project. The parties hereby agree as follows:
(a) Upon receipt of the Approval and an affirmative vote by a majority of
Sodak, NOP and HWCC (the "Pre-Closing Parties"), the Pre-Closing Parties agree
to deposit, within 3 business days of such vote, $1,000,000 each (the "Initial
Advance") into an impress account to be established by Operator (or, if the
Pre-Closing Parties all agree, into a trust established for the benefit of the
recapitalized QNOV) (the "Impress Account").
(b) From time to time after the Initial Advance and upon an affirmative vote
by a majority of the Pre-Closing Parties, each of the Pre-Closing Parties agrees
to deposit, within 3 business days of any such vote, an equal share of the
amount approved by such vote, provided that the aggregate amount advanced by all
of the Pre-Closing Parties according to the terms of this Section 2 (b) shall
not exceed $2,000,000 (all such advances under this Section 2 (b) are referred
to as the "Subsequent Advances"; the Initial Advance and the Subsequent Advances
are collectively referred to as the "Advances"); provided that NOP and/or SPL
shall apply the funds held in escrow pursuant to an Order of October 11, 1996
issued by the LGCB (the "Escrow Funds") upon their release as permitted by the
LGCB to meet its obligation to make Subsequent Advances under this Section 2(b)
and as called for under the Amended and Restated Joint Venture Agreement.
(c) Any Advances in excess of the amounts set forth in Sections 2 (a) and 2
(b) require the unanimous approval of the Pre-Closing Parties.
- 3 -
<PAGE>
(d) Sodak and HWCC agree to collectively loan (the "Capital Loan") to NOP,
and NOP, at such time as NOP makes a demand therefor, agrees to execute a
promissory note(s) in favor of Sodak and HWCC for, a principal amount up to, but
not greater than, (i) $5,000,000 less (ii) the amount of released Escrow Funds
as of such applicable date (one-half of such principal amount shall be loaned
each by Sodak and HWCC), with interest accrued thereon at an annual rate equal
to the prime rate of interest (as announced by Citybank, N.A., from time to
time) plus 3%, payable in twenty (20) equal quarterly installments over a five
year period via a priority cash flow sweep from NOP's and SPL's distributions of
funds made by QNOV to NOP and SPL. The proceeds of the Capital Loan shall only
be used by NOP to make capital contributions to QNOV as required pursuant to the
terms of this Agreement and to QNOV's successor upon the execution of and
pursuant to, the terms of the Amended and Restated Joint Venture Agreement.
Payment of the Capital Loan shall be secured by NOP's and SPL's equity interest
in QNOV (including the QNOV's successor joint venture upon execution of the
Amended and Restated Joint Venture Agreement) including, but not limited to, the
right to receive any and all distributions of funds made by QNOV to NOP and SPL
until full and final payment thereof.
(e) Each of the Pre-Closing Parties hereby authorizes Operator to make
disbursements from time to time from the Impress Account pursuant to a
pre-closing budget, agreed to by all of the Pre-Closing Parties, which budget
may be amended from time to time with the consent of all of the Pre-Closing
Parties, provided, however, that if HWCC or Sodak are required to provide all or
any part of the Subsequent Advances required to be made by NOP pursuant to the
provisions of Section 2(b), above, then the budget may thereafter be amended
from time to time with the consent of a majority of the Pre-Closing Parties
(which majority shall include, at a minimum, Sodak and HWCC).
(f) In the event (i) any joint venturer is found unsuitable by the LGCB (an
"Unsuitable Joint Venturer"), (ii) the remaining joint venturers elect to
proceed with the Project, and (iii) the Project ultimately opens for business
the Unsuitable Joint Venturer shall be entitled to receive from QNOV (unless
prohibited by the LGCB), within 30 days of the opening of the Project, an amount
equal to the Advances made by such Unsuitable Joint Venturer, without any
interest.
In addition, between the date of Approval and the Closing Date, unless
otherwise expressly provided herein, or unless Sodak and HWCC otherwise agree in
writing, NOP and SPL jointly and severally covenant and agree with Sodak and
HWCC that QNOV will:
(a) conduct its business and operations (including its cash management
practices, the collection of receivables, inventory control and payment of
payables) only in accordance with sound and prudent business practice;
(b) keep in full force and effect its joint venture existence and all
material rights and franchises relating or pertaining to its business;
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(c) permit each of Sodak and HWCC and its employees, agents, accounting and
legal representatives, appraisers, potential investors and lenders (and such
lenders' audit staff) and their representatives to have full access (during
normal business hours and in a manner so as not to interfere with the business
operations of QNOV) to QNOV's books, records, invoices, contracts, leases, key
personnel, facilities, equipment and other things reasonably related to QNOV's
business and assets, wherever located;
(d) promptly (once it has knowledge thereof) inform each of Sodak and HWCC in
writing of any material variances from the representations and warranties
contained in Section 5 of this Agreement of any breach of any covenant hereunder
by NOP or SPL;
(e) comply with all legal requirements and contractual obligations applicable
to QNOV's business and pay all applicable taxes;
(f) cooperate with each of Sodak with HWCC and: (i) make all registrations,
filings and applications, give all notices and obtain all governmental or other
consents, transfers, approvals, orders, qualifications and waivers necessary or
desirable for the consummation of the transactions contemplated hereby and cause
the other conditions to each of Sodak's and HWCC's obligation to close to be
satisfied (including, without limitation, the execution and delivery of all
agreements contemplated hereunder to be so executed and delivered); and (ii) if
requested by Sodak or HWCC, facilitate the transfer of the joint venture
interests contemplated hereby, notify customers, suppliers and other relevant
parties of such transfers and cause execution of documents necessary to
consummate such transfers; and
(g) confer on a reasonable basis with representatives of each of Sodak and
HWCC regarding the general status of QNOV's ongoing operations.
Furthermore, between the date of Approval and the Closing Date, without
Sodak's or HWCC's prior written consent, unless this Master Agreement is
terminated, none of QNOV, NOP or SPL will:
(a) make any amendments to the Original Joint Venture Agreement or admit any
additional venturers;
(b) initiate, solicit or participate in any discussions with, or furnish any
information to, any third party with respect to the acquisition of all or any
portion of the joint venture interests or any of QNOV's assets except as
contemplated hereby;
(c) make or grant any bonus or any wage or salary increase to any employee or
group of employees of QNOV; enter into any employment contract or collective
bargaining agreement, written or oral, with respect to QNOV; modify the terms of
any existing such contract or agreement; create any employee benefit plan with
respect to QNOV; or change in any other material respect employment terms for
any employee or agent of QNOV;
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(d) effect any recapitalization of QNOV, or declare or pay any distributions
upon, or acquire or redeem any of, QNOV's joint venture interests (except
distributions arising out of matters concerning operations prior to the date of
this Agreement);
(e) take or fail to take any action which would have or reasonably could be
anticipated to have a material adverse effect upon the business, financial
conditions, operating results, business prospects, assets or employee, customer
or supplier relations of QNOV; or
(f) enter into any new material contract on behalf of QNOV, alter the terms
of or cancel any existing material contract of QNOV or assume or otherwise incur
any liability, obligation, or other commitment, except in the ordinary course of
business or with the consent of Sodak and HWCC.
SECTION 3
CLOSING; AMENDMENT AND RESTATEMENT OF JOINT VENTURE
AGREEMENT
On the Closing Date, the parties hereto shall execute an Amended and Restated
Joint Venture Agreement for QNOV substantially in the form attached hereto as
Exhibit "A" with such amendments as may be unanimously agreed upon by the
parties hereto. The terms of the Amended and Restated Joint Venture Agreement
shall include, but not be limited to, the following amendments:
(a) The name of the joint venture shall be changed from "Queen of New Orleans
at the Hilton Joint Venture" to "QNOV" or to such other name as may be
unanimously agreed upon by the Pre-Closing Parties (the "JV").
(b) The JV shall be managed by a Management Committee composed of three
members, with NOP, Sodak, and HWCC each appointing one member.
(c) Consent of more than 90% of the JV Interests (as defined in the form of
Amended and Restated JV Agreement of QNOV), shall be required to:
(i) Amend the Amended and Restated Joint Venture Agreement;
(ii) Sell all or substantially all of (x) the assets of the Project or
(y) the JV Interests of all of the joint venturers in the JV;
(iii) Approve any decision which may place a gaming license of a joint
venturer or the JV in jeopardy;
(iv) Dissolve the JV;
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(v) Change the method of determining the "Ownership Ratio" of, or the
"JV Interests" to be credited to, a joint venturer; and
(vi) Add additional joint venturers, except, in the event of a call for
additional capital, the consent of a non-contributing joint venturer
would not be required to admit an additional joint venturer
advancing all or a portion of the non-contributing joint venturer's
portion of such call; and
(vii) To conduct temporary gaming operations.
(d) Each of Sodak and HWCC shall be admitted as joint venturers, and NOP
and/or SPL shall remain as a joint venturer, of the JV, with the Advances made
by each of the Pre-Closing Parties deemed to be the initial capital contribution
made by each such Pre-Closing Party to the JV. Assuming each Pre-Closing Party
makes all of the Advances that it is required to make pursuant to this
Agreement, as well as its one-third share of any advances required to be made
upon execution of the Amended and Restated Joint Venture Agreement, the
respective ownership interests of the Pre-Closing Parties in QNOV on the date of
execution of the Amended and Restated Joint Venture Agreement shall be as
follows:
NOP and/or SPL 33 1/3%
Sodak 33 1/3%
HWCC 33 1/3%
(e) Each of the Pre-Closing Parties shall be bound by the provisions set
forth in Article III of the form of Amended and Restated Joint Venture
Agreement, which shall not be modified after the date of this Agreement without
the unanimous consent of the Pre-Closing Parties.
SECTION 4
MANAGEMENT AGREEMENT
Upon Approval, NOP will execute, on behalf of QNOV, a Management Services
Agreement with the Operator in the form of Exhibit "C" hereto with such
amendments as the parties thereto may mutually agree (the "Management
Agreement"). Notwithstanding the foregoing, the Management Agreement shall
terminate concurrently with the termination of the Master Agreement for any
reason, provided that such termination shall not impair or diminish nor
otherwise affect any rights of indemnity or rights of reimbursement which have
accrued in favor of the Operator under the Management Agreement prior to the
date of termination thereof; and each of HWCC, Sodak and NOP
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acknowledge and agree that prior to the Closing Date such indemnities and/or
reimbursement shall be due from and shall be the joint, several and solidary
obligations of such Pre-Closing Parties to Operator.
SECTION 5
REPRESENTATIONS AND WARRANTIES
OF NOP AND SPL
Each of NOP and SPL represents and warrants to Sodak and HWCC as follows:
(a) Corporate Matters. (i) NOP is a corporation duly organized, validly
existing and in good standing under the laws of Louisiana and has the requisite
corporate power and authority to own an interest in QNOV. NOP owns its interest
in QNOV directly, and not through any other corporation, partnership or other
entity, (ii) SPL is a corporation duly organized, validly existing and in good
standing under the laws of Louisiana and has the requisite corporate power and
authority to own an interest in QNOV; and (iii) QNOV is a joint venture duly
organized, validly existing and in good standing under the laws of Louisiana and
has the requisite partnership power and authority and all licenses, permits and
authorization necessary to own its assets and properties and to operate its
business and the Original Joint Venture Agreement is a correct and complete copy
of the current documentation governing QNOV.
(b) Authorization and Effect of Agreements. Each of NOP and SPL has requisite
corporate power to execute and deliver this Agreement and following the
Approval, the Amended and Restated Joint Venture Agreement and on behalf of
QNOV, Management Agreement and to perform the transactions contemplated by this
Agreement and the Amended and Restated Joint Venture Agreement to be performed
by NOP and SPL. The execution and delivery by NOP and SPL of this Agreement, and
following the Closing Date, the Amended and Restated Joint Venture Agreement and
the performance by NOP and SPL of the transactions contemplated by this
Agreement and the Amended and Restated Joint Venture Agreement to be performed
by NOP and SPL have been duly authorized by all necessary action on the part of
NOP and SPL, NOP's and SPL's Board of Directors and stockholders, if required,
and, assuming the due execution and delivery of said agreements by Sodak and
HWCC, constitute the valid and binding obligations of NOP and SPL enforceable in
accordance with their respective terms.
(c) No Restrictions Against Transfer of the Ownership Interest in QNOV.
Except for the Approval and the transfer by HNOC to SPL of HNOC's right, title
and interest in QNOV as provided under the HNOC Exit Agreement, the execution
and delivery of this Agreement, the Amended and Restated Joint Venture
Agreement, and on behalf of QNOV, the Management Agreement by NOP and SPL do
not, and the performance by NOP and SPL of the transactions contemplated by this
Agreement and the Amended and Restated Joint Venture Agreement to be performed
by it will not, conflict with, or result in any violation of, or constitute a
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
loss
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of a material benefit under, (i) the articles of incorporation or bylaws of NOP
and SPL, (ii) the Original Joint Venture Agreement, as amended by the Amended
and Restated Joint Venture Agreement, of QNOV, (iii) any law, statute, rule,
regulation, zoning or other ordinance, order, code, arbitration award, judgment,
decree, permit or other legal requirement or any Governmental Entity (each a
"Law" and collectively, "Laws") to which NOP, SPL or QNOV are subject, (iv) any
contract or any document or instrument to which any of NOP, SPL or QNOV or its
assets is subject, or (v) any gaming license of NOP, SPL or QNOV. Except for the
Approval and the transfer by HNOC to SPL of HNOC's right title and interest in
QNOV pursuant to the HNOC Exit Agreement, no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made by or with respect to any of NOP, SPL
or QNOV under any applicable Law in connection with the execution and delivery
of this Agreement, the Amended and Restated Joint Venture Agreement, and on
behalf of QNOV, the Management Agreement by any of NOP, SPL or QNOV or the
performance by any such party of the transactions contemplated by this
Agreement, the Amended and Restated Joint Venture Agreement, and the Management
Agreement to be performed by it.
(d) Financial Statements. NOP has provided Sodak and HWCC audited balance
sheets and statements of operations of NOP dated December 31, 1996 and QNOV
dated December 31, 1996 (the "NOP/QNOV Financial Statements"), and has provided
an unaudited balance sheet and statement of operations for each such entity: NOP
Financial Statements dated July 31, 1997 and Flamingo Casino New Orleans dated
August, 1997 (the "Unaudited Financial Statements"). Except as set forth on
Schedule 5(d), such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied with past
periods, and fairly present the financial position and results of operation of
NOP and QNOV as of and for the periods referenced therein.
(e) Compliance with Laws. NOP has complied with all Laws in all material
respects. No fact, circumstances, condition or situation exists which, after
notice or lapse of time or both, would constitute noncompliance by NOP or give
rise to any material future liability of NOP with respect to any Law heretofore
or currently in effect. Except for the Approval, NOP is not required to obtained
any licenses or permits, or file any notices, applications or reports under
regulations related to any matters referred to in this Section 5 (e) that have
not been properly obtained or filed for.
(f) Absence of Liabilities. None of QNOV, NOP or SPL is subject to any
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise,
whether or not known to QNOV, NOP or SPL, whether due or to become due) except
those set forth in the NOP/QNOV Financial Statements or the Unaudited Financial
Statements.
(g) Litigation. Except for those matters referred in Section 8(iv) below,
there are no actions, suits, proceedings, orders or investigations pending or
threatened against or affecting QNOV or any of its assets, at law or in equity,
or before or by any federal, state,
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municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign; following Approval there are no
arbitration proceedings pending or threatened under collective bargaining
agreements or otherwise; there are no governmental inquiries (including
inquiries as to the qualification of it to hold or receive any license or
permit) and, to the best of NOP's knowledge, there is no basis for any of the
foregoing. Other than with respect to matters disclosed on Schedule 5(g), within
the past two years, neither QNOV nor NOP has received any opinion or legal
advice to the effect that it is exposed from a legal standpoint to any liability
or disadvantage which may be material to QNOV's business or prospects.
(h) Disclosure. Neither this Agreement, nor any of the exhibits hereto, nor
any other document, certificate or other item delivered pursuant hereto or in
connection herewith by or on behalf of QNOV, NOP or SPL, contains any untrue
statement of a material fact or omits a material fact necessary to make each
statement contained herein or therein not misleading. Each of NOP, for itself
and on behalf of QNOV, and SPL has disclosed to each of Sodak and HWCC all
material facts of which it is aware which relate to the business prospects,
assets, or employee, customer, or supplier relations of QNOV.
(i) Taxes. Each of QNOV, NOP and SPL has filed all required tax returns, IRS
Forms 1065, and refund requests on a timely basis and, subject to the matters
referenced in Section 8 (iv) below, has paid, withheld, collected or adequately
provided for in the NOP/QNOV Financial Statements and the QNOV/NOP Unaudited
Financial Statements the payment of, as appropriate, all federal, state and
local taxes and similar governmental charges including, without limitation, all
gaming, federal, state and local income, employment, withholding, payroll,
unemployment, profits, franchise, sales, use occupation, excise, property,
transfer or other taxes or other charges (including penalties and interest)
imposed on them ("Taxes"). Except as disclosed on Schedule 5(i), there is no
claim against either of QNOV, NOP or SPL with respect to any Taxes, and no
assessment, deficiency or adjustment has been asserted or proposed with respect
to any information or return of QNOV, NOP or SPL; and there is no proceeding
pending before any agency or court to which QNOV, NOP or SPL is a party, nor is
there a basis for any such proceeding. No consents extending the statute of
limitations have been filed by QNOV, NOP or SPL with respect to its tax
liability for any fiscal year.
(j) ERISA. None of QNOV, NOP or SPL maintains or sponsors any "employee
benefit plan" as defined in Section 3 (3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"). None of QNOV, NOP or SPL sponsors or
participates in any "multi-employer plan" as defined in Section 3 (7) of ERISA.
None of QNOV, NOP or SPL has any obligation or liability with respect to any
employee benefit plan, from administration, termination or otherwise.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF SODAK
Sodak represents and warrants to NOP, SPL and HWCC as follows:
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(a) Corporate Matters. Sodak is a Limited Liability Company duly organized,
validly existing and in good standing under the laws of Louisiana and has the
requisite corporate power and authority to own an interest in QNOV.
(b) Authorization and Effect of Agreements. Upon the approval of its Board of
Directors, if required, Sodak will have requisite corporate power to execute and
deliver this Agreement and the Amended and Restated Joint Venture Agreement and
to perform the transactions contemplated by this Agreement and the Amended and
Restated Joint Venture Agreement to be performed by Sodak. The execution and
delivery by Sodak of this Agreement and the Amended and Restated Joint Venture
Agreement and the performance by Sodak of the transactions contemplated by this
Agreement and the Amended and Restated Joint Venture Agreement to be performed
by Sodak, upon the approval of Sodak's Board of Directors, if required, will be
duly authorized by all necessary action on the part of Sodak, Sodak's Board of
Directors, if required, and stockholders, if required, and, upon obtaining the
consent required under Sodak's credit facility, holders of Sodak's indebtedness.
This Agreement has been duly executed and delivered by Sodak and, assuming the
due execution and delivery of this Agreement by NOP and HWCC, constitute the
valid and binding obligations of Sodak enforceable in accordance with their
respective terms.
(c) No Restrictions Against Transfer of the Assets. Except for the Approval,
the execution and delivery of this Agreement and the Amended and Restated Joint
Venture Agreement by Sodak does not, and the performance by Sodak of the
transactions contemplated by this Agreement and the Amended and Restated Joint
Venture Agreement to be performed by it will not, conflict with, or result in
any violation of, or constitute a 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 loss of a material benefit under, (i) the
articles of incorporation or bylaws of Sodak, (ii) any law, statute, rule,
regulation, zoning or other ordinance , order, code, arbitration award,
judgment, decree, permit or other legal requirement or any Governmental Entity
(each a "Law" and collectively, "Laws") to which Sodak is subject, (iii) any
contract or any document or instrument to which Sodak or its assets are subject,
other than Sodak's credit facility, or (iv) any gaming license of Sodak. Except
for the Approval and a finding of Sodak's suitability by the LGCB, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required to be obtained or made by or with
respect to Sodak, except as may be required pursuant to Section 6(e), under any
applicable Law in connection with the execution and delivery of this Agreement
and the Amended and Restated Joint Venture Agreement by Sodak or the performance
by Sodak of the transactions contemplated by this Agreement and the Amended and
Restated Joint Venture Agreement to be performed by it.
(d) Financial Statements. Sodak has provided NOP, SPL and HWCC an audited
balance sheet and statement of operations dated December 31, 1996; such
financial statements have been prepared in accordance with generally accepted
accounting
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principles, consistently applied with past periods, and fairly present the
financial position and results of operation of Sodak as of such date and for the
period referenced therein.
(e) Compliance with Laws. Sodak has complied with all Laws in all material
respects. No fact, circumstances, condition or situation exists which, after
notice or lapse of time or both, would constitute noncompliance by Sodak or give
rise to any material future liability of Sodak with respect to any Law
heretofore or currently in effect. Except for the approval by the LGCB, Sodak is
not required to obtain any licenses or permits, and within (30) days of the
execution of this Agreement will file any notices, applications or reports under
regulations related to any matters referred to in this Section 6 (e) that may be
required by regulatory entities with applicable jurisdictions.
SECTION 7
REPRESENTATIONS AND WARRANTIES OF HWCC
HWCC represents and warrants to Sodak, NOP and SPL as follows:
(a) Corporate Matters. HWCC is a corporation duly organized, validly existing
and in good standing under the laws of Louisiana and has the requisite corporate
power and authority to own an interest in QNOV. HWCC or a wholly owned direct or
indirect subsidiary of Hollywood Casino Corporation will own its interest in
QNOV and the Management Agreement.
(b) Authorization and Effect of Agreements. Upon the final approval of HWCC's
Board of Directors, HWCC will have requisite corporate power to execute and
deliver this Agreement and the Amended and Restated Joint Venture Agreement, and
to perform the transactions contemplated by this Agreement and the Amended and
Restated Joint Venture Agreement, to be performed by HWCC. The execution and
delivery by HWCC of this Agreement and the Amended and Restated Joint Venture
Agreement and the performance by HWCC of the transactions contemplated by this
Agreement and the Amended and Restated Joint Venture Agreement to be performed
by HWCC, upon the final approval of HWCC's Board of Directors, will be duly
authorized by all necessary action on the part of HWCC, HWCC's Board of
Directors and stockholders, if required, and, if applicable, holders of HWCC's
indebtedness. This Agreement has been duly executed and delivered by HWCC and,
assuming the due execution and delivery of this Agreement by NOP, SPL and Sodak,
constitutes the valid and binding obligation of HWCC enforceable in accordance
with its terms.
(c) No Restrictions Against Transfer of the Assets. Except for the Approval,
the execution and delivery of this Agreement and the Amended and Restated Joint
Venture Agreement by HWCC do not, and the performance by HWCC of the
transactions contemplated by this Agreement and the Amended and Restated Joint
Venture Agreement to be performed by it will not, conflict with, or result in
any violation of, or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of
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termination, cancellation or acceleration of any obligation or loss of a
material benefit under, (i) the articles of incorporation or bylaws of HWCC,
(ii) any law, statute, rule, regulation, zoning or other ordinance , order,
code, arbitration award, judgment, decree, permit or other legal requirement or
any Governmental Entity (each a "Law" and collectively, "Laws") to which HWCC is
subject, (iii) any Contract or any document or instrument to which HWCC or its
assets are subject, or (iv) any gaming license of HWCC. Except for the Approval
and a finding of HWCC's suitability by the LGCB, no consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made by or with respect to HWCC, except as
may be required pursuant to Section 7(e), under any applicable Law in connection
with the execution and delivery of this Agreement and the Amended and Restated
Joint Venture Agreement by HWCC or the performance by HWCC of the transactions
contemplated by this Agreement and the Amended and Restated Joint Venture
Agreement to be performed by it.
(d) Financial Statements. HWCC has provided Sodak, NOP and SPL with an
unaudited balance sheet and statement of operations of HCC and its consolidated
subsidiaries dated June 30, 1997; such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied with past periods, and fairly present the financial position and results
of operation of HCC and its consolidated subsidiaries as of such date and for
the period referenced therein.
(e) Compliance with Laws. HWCC has complied with all Laws in all material
respects. No fact, circumstances, condition or situation exists which, after
notice or lapse of time or both, would constitute noncompliance by HWCC or give
rise to any material future liability of HWCC with respect to any Law heretofore
or currently in effect. Except for the approval for the LGCB, HWCC is not
required to obtain any licenses or permits, and within (30) days of execution of
this Agreement will file any notices, applications or reports under regulations
related to any matters referred to in this Section 7(e) that may be required by
regulatory entities with applicable jurisdictions.
SECTION 8
CONDITIONS TO CLOSING
The obligation of each of the parties to this Agreement to consummate the
transactions set forth in Section 3 of this Agreement is expressly subject to
satisfaction on or prior to the Closing Date of each and all of the following
conditions, any of which may be waived by any party hereto:
(i) Receipt of the Approval;
(ii) Receipt of satisfactory suitability determinations by the LGCB for
each of the Pre-Closing Parties;
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(iii) Receipt of a binding commitment of an institutional lender to
provide financing for the Project which is non-recourse to the
parties which by its terms requires equity contributions by the
parties to this Agreement in an aggregate amount not to exceed
$37,500,000 and has other terms and conditions satisfactory to all
of the Pre-Closing Parties.
(iv) Approval by all of the Pre-Closing Parties of the disposition or
settlement of the $10,000,000 payment to the City of New Orleans
described in the October 11, 1996 Order of the LGCB.
(v) Execution of a lease of the property shown on Exhibit "D" attached
hereto between QNOV and the City of Shreveport on terms and
conditions satisfactory to a majority of the Pre-Closing Parties;
(vi) Confirmation that Harrah's has waived its right to exclusively lease
property owned or controlled by the City of Shreveport for a gaming
facility;
(vii) Transfer by HNOC to SPL of HNOC's right, title and interest in QNOV
in accordance with the terms of the HNOC Exit Agreement.
(viii) (x) A satisfactory determination by each of Sodak and HWCC, in
their sole and absolute discretion, as to the current and potential
liabilities of QNOV for the operations of QNOV prior to the Closing
Date, and (y) there has been an indemnification by HNOC and Hilton
Hotels Corporation as to such liabilities (the "Hilton Indemnity")
satisfactory to each of Sodak and HWCC in its sole and absolute
discretion.
(ix) If required, final approval by each of Sodak's and HWCC's Board of
Directors by not later than November 21, 1997; and
(x) Sodak obtaining consent required under Sodak's existing credit
facility by not later than November 21, 1997 (which Sodak covenants
to use its good faith best efforts to obtain in a timely manner).
(xi) The Project having a minimum of 1800 gaming positions.
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SECTION 9
CHANGE-IN-CONTROL PROVISIONS
In the event of a Change-in-Control after the Closing Date, then the joint
venturers other than HWCC shall have the right to exercise collectively their
Tag-a-Long Rights (as defined below) or their Call Rights (as defined below),
subject to the following conditions:
(a) HWCC will (i) first inform the other joint venturers in writing (the
"Change-in-Control Notice") of (x) the occurrence of such Change-in-Control, (y)
the prices, terms and conditions upon which such Change-in-Control will be
effected, including the consideration to be received by HCC and/or its
stockholders (the "Consideration"), and (z) the value of (I) the JV as a whole
(excluding any valuation of the Management Agreement) as determined by the
investment banking firms of national standing involved in such Business
Combination or Sale (the JV Value") and (II) the Management Agreement as
determined by the same such investment banking firms (the "Management Agreement
Value") and (ii) offer the other joint venturers the opportunity to irrevocably
collectively elect to either (x) participate in such Change-in-Control to the
extent of such other joint venturers' interest in the JV, it being understood
that if the Consideration is other than cash or unrestricted publicly traded
stock, such joint venturers may demand that they receive their consideration in
cash (the "Tag-a-Long Rights") or (y) require that (I) HWCC sell to such joint
venturers or their designee all of HWCC's interest in the JV for a cash price
equal to the JV Value multiplied by HWCC's interest in the JV and (II) HCC (or
its affiliate) sell its interest in the Management Agreement to such joint
venturers or their designee for a cash price equal to the Management Agreement
Value (the "Call Rights").
(b) In the event that the joint venturers exercise their Tag-a-Long Rights,
HWCC will use its best efforts to cause the surviving entity to purchase such
joint venturers' interest in the JV according to the terms of Section
9(a)(ii)(x) above. In the event that such surviving entity will not agree to
purchase such joint venturers' interest in the JV, (i) HCC may not proceed with
such Change-in-Control without the prior written consent of such other joint
venturers and (ii) neither HCC nor HWCC shall have any further obligations with
respect to such particular exercise of the Tag-a-Long Rights.
(c) In the event that the joint venturers exercise their Call Rights, the
closing for such sale will occur within 30 days of exercise of the Call Rights.
(d) It will be deemed that the Tag-a-Long Rights and the Call Rights have
been waived if such rights have not been exercised in writing within 30 calendar
days after delivery of the Change-in-Control Notice.
(e) Notwithstanding anything contained herein to the contrary, the Tag-a-Long
Rights may only be exercised if all the other joint venturers elect to exercise
one of such rights (i.e., one joint venturer cannot elect to exercise Tag-a-Long
Rights with one or other joint venturer(s) electing to exercise the Call
Rights.) Any attempt by one joint venturer to exercise the Tag-a-Long Rights
without the concurrent exercise by all other joint venturers
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of their Tag-a-Long Rights, or any attempt by one joint venturer to exercise the
Call Rights without the concurrent exercise by all other joint venturers of
their Call Rights, shall be deemed null and void.
SECTION 10
TERMINATION
(a) This Agreement may be terminated by:
(i) NOP, Sodak, and HWCC, upon their unanimous written consent;
(ii) NOP, Sodak, or HWCC, upon the material breach by any other party to
this Agreement of its representations, warranties, or covenants, if
such breach remains uncured for ten days after receipt of written
notice of such breach; provided, however, the breaching party shall
not be permitted to terminate this Agreement.
(iii) NOP, Sodak, or HWCC if Approval is denied or does not occur.
(iv) NOP or Sodak if HWCC is found unsuitable by the LGCB, or by NOP or
HWCC if Sodak is found unsuitable by the LGCB.
(v) NOP, Sodak or HWCC if the Closing does not occur prior to December
31, 1998.
(b) Except as otherwise provided in Section 10(c), no termination of this
Agreement will relieve any party from (i) liability for a breach of
representation, warranty or covenant under this Agreement that occurs prior to
such termination or (ii) the reimbursement obligations described in Section 2(e)
of this Agreement.
(c) If this Agreement is terminated by Sodak or HWCC solely because of a
breach by NOP of its representations and warranties made on behalf of QNOV in
Section 5(g), 5(h), 5(i) and 5(j) of this Agreement, and such breach was due
solely to the fact that NOP did not know certain facts and information relative
to the business and affairs of QNOV at the time such representation or warranty
was made, then NOP shall not have any liability to Sodak or HWCC for the breach
of such representations and warranties; provided, further, NOP shall not be
obligated to indemnify Sodak, HWCC and QNOV for any such breach known to the
parties of this Agreement prior to the Closing Date, under the terms of the
Amended and Restated Joint Venture Agreement if the parties proceed to Closing
rather than terminating this Agreement, but shall otherwise indemnify such
parties as provided under Section 11(b) below.
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<PAGE>
SECTION 11
SURVIVAL AND INDEMNIFICATION
(a) Each of NOP, SPL, Sodak and HWCC hereby represents that the
representations, warranties, and covenants contained in this Agreement will be
true and correct on the Closing Date and that such representations, warranties
and covenants will survive the execution and delivery of this Agreement, the
Amended and Restated Joint Venture Agreement and the Management Agreement and
will remain operative and in full force and effect without any time limitation,
except as any such covenant is limited in duration by the express terms of this
Agreement.
(b) Indemnification by NOP and SPL. Except as otherwise provided in Section
10(c) of this Agreement, from and after the date of this Agreement, each of NOP
and SPL will indemnify, defend and hold Sodak, HWCC and QNOV and their
respective directors, officers, managers, representatives, employees and agents
harmless from and against any and all claims, actions, suits, demands,
assessments, judgements, losses, liabilities, damages, costs and expenses
(including interest, penalties, attorneys' fees, accounting fees and
investigation costs) (collectively, "Liabilities") resulting or arising from,
relating to or incurred in connection with: (i) any breach of any representation
or warranty of NOP or SPL made solely on behalf of such party contained in this
Agreement or in any other document delivered by NOP or SPL in connection with
it, or (ii) any material breach of any covenant of NOP or SPL in this Agreement
or in any other documents delivered in connection with it.
(c) Indemnification by Sodak. From and after the date of this Agreement,
Sodak will indemnify, defend and hold NOP, SPL, HWCC, and QNOV and their
respective directors, officers, managers, representatives, employees and agents
harmless from and against any and all Liabilities resulting or arising from,
relating to or incurred in connection with: (i) any breach of any representation
or warranty of Sodak contained in this Agreement or in any other document
delivered by Sodak in connection with it, or (ii) any material breach of any
covenant of Sodak contained in this Agreement or in any other document delivered
by Sodak in connection with it.
(d) Indemnification by HWCC. From and after the date of this Agreement, HWCC
will indemnify, defend and hold NOP, SPL, Sodak and QNOV and their respective
directors, officers, managers, representatives, employees an agents harmless
from and against any and all Liabilities resulting or arising from, relating to
or incurred in connection with: (i) any breach of any representation or warranty
of HWCC contained in this Agreement or in any other document delivered by HWCC
in connection with it, or (ii) any material breach of any covenant of HWCC
contained in this Agreement or in any other document delivered by HWCC in
connection with it.
(e) Notice of Claim; Right to Participate in and Defend Third Party Claim. If
any indemnified party receives notice of the assertion of any claim, the
commencement of any suit, action or proceeding, or the imposition of any penalty
or assessment by a third party
- 17 -
<PAGE>
in respect of which indemnity may be sought under this Agreement (a "Third Party
Claim"), and the indemnified party intends to seek indemnity under this
Agreement, then the indemnified party will promptly provide the indemnifying
party with prompt written notice of such Third Party Claim, but in any event not
later than 30 calendar days after receipt of such notice of Third Party Claim.
The failure by an indemnified party to notify an indemnifying party of a Third
Party Claim will not relieve the indemnifying party of any indemnification.
SECTION 12
SETTLEMENT OF QNOV
On or prior to the Closing Date, NOP shall cause a final accounting of QNOV
to be made and a final distribution to be made to NOP and SPL of any amounts due
to such parties as a result of such accounting and concurrently with such
distribution, NOP and SPL shall release any claims then held against QNOV for
any further distributions other than claims for any monies due, or may become
due, to QNOV pursuant to any activities prior to the Closing Date, and NOP and
SPL expressly reserve the right at any time, upon notice of the intention to
exercise the same given by NOP to HWCC and to Sodak, to prosecute on behalf of
or in the name of QNOV any causes or rights of action or claims against any
party or entity which arose prior to the Closing Date, provided that if the
Hilton Indemnity is not executed, then QNOV shall not prosecute any such claim
without the consent of Sodak and HWCC. Until the Closing Date, all of the
economic benefits and burdens of gaming activities by QNOV shall belong to NOP.
SECTION 13
MISCELLANEOUS
(a) Headings. The subject headings of the sections and paragraphs of this
Agreement are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
(b) Entire Agreement, Modification and Waiver. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations
and understandings of the parties. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver. Should any part of this
Agreement or transactions contemplated thereby be held unenforceable by any
court of competent jurisdiction or any administrative agent with jurisdiction
over the matter, the other parts shall remain in force and effect and be
enforceable.
(c) Third Parties. Nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under or by reason of this Agreement
or any persons other
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<PAGE>
than the parties to it and their respective successors and assigns, nor is
anything in the Agreement intended to relieve or discharge the obligation or
liability of any third party to any party of this Agreement, nor shall any
provision give any third persons any right of subrogation or action against any
party to this Agreement.
(d) Successors. This Agreement shall be binding on, and shall inure to the
benefit of, the parties to it and their respective heirs, legal representatives,
successors and assigns.
(e) Press Releases and Announcements. All matters relating to this Agreement
shall be kept strictly confidential and shall be disclosed only to the parties'
immediate accounting, legal and financial advisors. No press releases relating
to this Agreement and the transactions contemplated hereby will be used without
the mutual approval of the parties hereto, except any other public disclosure
which any part in good faith believes is required by law or regulation (in which
case the disclosing party will advise the other parties prior to making such
disclosure). The parties will cooperate to prepare a joint press release and
announcement on the Closing Date.
(f) Confidentiality. If the transactions contemplated by this Agreement are
not consummated, each of the parties will use its best efforts to maintain the
confidentiality of all confidential information and material. Whether or not the
transactions contemplated hereby are consummated, each of the parties hereto
will use its best efforts to maintain the confidentiality of all confidential
information and materials.
(g) Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any of the parties hereto.
(h) Arbitration. Any controversy or claim arising out of or relating to this
Agreement or the breach hereof, other than matters pertaining to injunctive
relief, including, without limitation, temporary restraining orders, preliminary
injunctions, and permanent injunctions, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator shall be and
may be entered in any court having jurisdiction thereof. The dispute shall be
submitted to an arbitrator agreed to by the parties to the dispute or if such
parties cannot agree upon an arbitrator, an arbitrator selected for the parties
by the American Arbitration Association. The parties hereby agree that the
arbitrator shall not have jurisdiction to award punitive damages and shall be
without authority to award relief other than monetary damages. Such arbitration
shall take place in Dallas, Texas, unless otherwise agreed to in writing by the
parties. In any such arbitration, discovery shall be allowed to the full extent
permitted under, and shall be governed by, the Federal Rules of Civil Procedure
and the Federal Rules of Evidence shall apply.
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<PAGE>
(i) Notice. All notices, requests, demands or other communications hereunder
shall be in writing or by telex or facsimile transmission and shall be deemed to
have been duly given (i) on the date of service if delivered in person or by
telex or facsimile transmission (with the telex or facsimile confirmation of
transmission receipt acting as confirmation of service when sent and provided
that telexed or telecopied notices are also mailed by first class, certified or
registered mail, postage prepaid) or (ii) in seventy-two (72) hours after
mailing by first class, registered or certified mail, postage prepaid, and
property addressed as follows:
If to NOP or SPL: 27 Poydras Street
New Orleans, Louisiana 70130
Attention: Warren Reuther, Jr.
Fax: (504) 524-6265
With a Copy to: Smith Martin
700 Camp Street
New Orleans, Louisiana 70130
Attention: James E. Smith, Jr.
Fax: (504) 525-0163
If to Sodak: 5301 South Highway 16
Rapid City, South Dakota 57701
Attention: General Counsel
Fax: (605) 342-3464
With a Copy to: Dorsey & Whitney LLP.
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Jack Kramer
Fax: (612) 340-2868
If to HWCC: Two Galleria Tower
Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Attention: General Counsel
Fax: (972) 386-7411
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<PAGE>
Any party may change its address for purposes of this Section by giving the
other parties written notice of the new address in the manner set forth above.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF LOUISIANA, WITHOUT REGARD TO APPLICATION OF SUCH STATES'S
DOCTRINES ON CHOICE OF LAWS.
(k) Counterparts. This Agreement and any amendments hereto may be executed in
one or more counterparts, all of which together shall be deemed an original.
(l) Conflict. Until the Closing Date, if there is any conflict between the
terms and conditions of this Agreement and any other agreement among the
Pre-Closing Parties, the terms and conditions of this Agreement shall govern.
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<PAGE>
IN WITNESS WHEREOF, SPL, NOP, Sodak and HWCC have executed this agreement as
of the _______ day of October, 1997 through its duly authorized representative.
SODAK LOUISIANA, L.L.C.
By: /s/ Mike Wordeman
--------------------
Title: Chief Executive Officer
SHREVEPORT PADDLEWHEELS, L.L.C.
/s/ Duane P. Smith
-------------------------
By: Duane P. Smith
Title: Manager
NEW ORLEANS PADDLEWHEELS,
INC.
/s/ Duane P. Smith
-------------------------
By: Duane P. Smith
Title: President
HWCC-Louisiana, Inc.
By: /s/ Jack E. Pratt
-----------------------
Title: Chairman of the Board
- 22 -
<PAGE>
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF QNOV
(FORMERLY KNOWN AS
THE "QUEEN OF NEW ORLEANS AT THE
HILTON JOINT VENTURE")
THIS AMENDED AND RESTATED JOINT VENTURE AGREEMENT is entered into as of
_________, 1997, by and among New Orleans Paddlewheels, Inc., Shreveport
Paddlewheels, Inc., Sodak Gaming, Inc., and HWCC-Louisiana, Inc. Unless the
context otherwise requires, terms which are capitalized and not otherwise
defined shall have the meanings set forth or cross-referenced in ArticleII of
this Agreement.
PRELIMINARY STATEMENT
A. Hilton Hotels Corporation and New Orleans Paddlewheels, Inc. entered
into a Basic Agreement, dated as of January 9, 1992, and Joint Venture Agreement
dated May 20, 1992 (the "Original Joint Venture Agreement") collectively setting
forth the agreement of such parties to operate, as joint venturers under the
name "Queen of New Orleans at the Hilton Joint Venture" (the "Original JV"),
riverboat casinos in New Orleans, Louisiana.
B. Hilton Hotels Corporation assigned its equity interest in the Original
JV to Hilton New Orleans Corporation on January 14, 1994.
C. Hilton New Orleans Corporation on ______ 1997 transferred 49% of the
total equity interest in the Original JV to New Orleans Paddlewheels, Inc. and
1% of such equity interest to Shreveport Paddlewheels, Inc.
D. New Orleans Paddlewheels, Inc. and Shreveport Paddlewheels, Inc.
collectively owned all of the equity interest of the Original JV.
E. New Orleans Paddlewheels, Inc., Shreveport Paddlewheels, Inc., Sodak
Gaming, Inc. and HWCC-Louisiana, Inc. have entered into a Master Agreement dated
October ______, 1997, setting forth the agreement of the parties, as joint
venturers, to participate in, construct and operate a riverboat gaming vessel,
hotel and casino in Shreveport, Louisiana.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Original Joint Venture Agreement is hereby amended and
restated in its entirety as follows:
- 1 -
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the respective meanings
indicated:
"Accountants" - shall have the meaning as defined in Section 9.2(c).
"Act" - shall mean the Louisiana Gaming Control Act, La. R.S. 27:1 et.
seq., including the amendments thereto and regulations promulgated
thereunder, as may be in effect from time to time.
"Affiliate(s)" - shall mean with respect to any person or entity, any
firm, corporation, partnership, limited liability company, association,
trust or other person or entity which, directly or indirectly, controls,
is controlled by, or is under common control with, the subject person or
entity or such person or entity owns directly or indirectly ten percent
(10%) or more of any class of equity securities of, or otherwise has a
substantial beneficial interest in such entity. For purposes hereof, the
term "control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
any such person or entity, whether through the ownership of voting
securities, by contract or otherwise. Such term shall also include with
respect to any person who is a spouse, child, grandchild, sibling or
parent of the owner of any Venturer, or any trust, partnership or other
entity beneficially owned by any of the foregoing, individually or
collectively.
"Agreement" - shall mean this Amended and Restated Joint Venture
Agreement.
"Available Funds" - shall mean all revenues of the Venture less all
payments of debt services, taxes, operating expenses and retention of
appropriate capital and operating reserves.
"Budget" - shall mean the annual operating budget for the Venturers
adopted by the Management Committee pursuant to Article VIII hereof.
"Business Days" - shall mean any day during which federally chartered
banks are not required to be closed under applicable federal or Louisiana
law.
"Capital Accounts" - shall mean the capital account of a Venturer
maintained in accordance with Section 4.1 hereof.
"Casino" - shall mean the premises of the Complex upon which gaming
activities will be conducted pursuant to the Act.
"Code" - shall mean the Internal Revenue Code of 1986, as amended.
"Complex" - shall mean, upon completion of the Project, collectively the
Vessel, the Casino, the Hotel, and the land based facilities related
thereto, together with all related improvements, facilities and amenities
used in connection with the operation thereof.
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<PAGE>
"Contribution Date" - shall have the same meaning as defined in Section
3.5 hereof.
"Defaulting Venturer" - shall have the meaning as defined in Section 13.1
hereof.
"Distributions" - shall mean distributions of Available Funds made by the
Venture to the Venturers pursuant to Article V hereof.
"Gaming Authorities" - shall mean any State of Louisiana gaming regulatory
authority authorized under the Act, including but not limited to, the
Louisiana Gaming Control Board and the Riverboat Gaming Enforcement
Division of the Louisiana State Police, and any other gaming regulatory
authority with jurisdiction over the Venture.
"HWCC" - shall mean HWCC-Louisiana, Inc., a Louisiana corporation, a
wholly owned subsidiary of Hollywood Casino Corporation.
"Hotel" - shall mean an approximately 300 room hotel to be owned by the
Venture located on or adjacent to the "Harrah's valet parking site" in
Shreveport, Louisiana.
"JV Interest" - shall mean a Venturer's equity interest in the Venture.
"Liquidating Venturer" - shall have the meaning as defined in Article XII.
"Loan Commitments" - shall mean collectively the financing commitments for
construction of the Project upon terms acceptable to the Management
Committee.
"Management Agreement" - shall mean the Management Services Agreement
between Paddlewheels, on behalf of the Venture, and Hollywood Casino
Corporation or its Affiliate dated ___, 1997, together with such
amendments as the parties thereto may mutually agree.
"Management Committee" - an shall mean the management committee of the
Venture, as defined in Section 7.1.
"Ownership Ratio(s)" - shall have the meaning as defined in Section 3.3.
"SPI" - shall mean Shreveport Paddlewheels, Inc., a Louisiana corporation.
"Sodak" - shall mean Sodak Gaming, Inc., a South Dakota corporation, or a
wholly owned subsidiary thereof.
"Paddlewheels" - shall mean New Orleans Paddlewheels, Inc., a Louisiana
corporation.
"Project" - shall mean the planning, construction and operation of (i) the
Vessel, (ii) landside improvements to facilitate the operation of the
riverboat including a terminal/boarding facility, various restaurants, and
parking areas, and (iii) the Hotel (collectively, the "Project"). The
berth site for the riverboat gaming vessel shall be located at the area
know to the parties as the "Harrah's valet parking site" in Shreveport,
Louisiana.
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<PAGE>
"Regulations" - shall mean permanent, temporary, or proposed regulations
of the United States Department of Treasury promulgated under the Code.
"Venture" - shall mean the joint venture governed by this Agreement
governed by this Agreement.
"Venturer(s)" - shall mean Paddlewheels, Sodak, HWCC, and such other
entities which may hereafter become Venturers and any person or entity
admitted to the Venture pursuant to the provisions of this Agreement, and
any of the Venturers when the reference is singular, and their respective
successors in interest.
"Vessel" - shall mean a riverboat gaming vessel of at least 30,000 square
feet of net gaming space located in the area known to the parties as the
"Harrah's valet parking site" in Shreveport, Louisiana.
"Transfer" - shall mean the sale, assignment, or other transfer, whether
voluntary or by operation of law.
1.2 References. Except as otherwise specifically indicated, all references
to Article, Section and Subsection numbers refer to Articles, Sections and
Subsections of this Agreement, and all references to Exhibits refer to the
Exhibits attached hereto. The words "herein", "hereof", "hereunder",
"hereinafter" and words of similar import refer to this Agreement as a whole and
not to any particular Section or Subsection hereof. For purpose of convenience,
the impersonal pronoun is sometimes used herein to refer to the Venturers.
ARTICLE II
FORMATION OF VENTURE
2.1 Joint Venturers. The Venturers hereby agree to continue the Original
Joint Venture, in partnership form (the "Venture"), for the limited purposes
hereinafter and pursuant to the terms and conditions set forth herein.
2.2 Name. The name of the Venture shall be "QNOV."
2.3 Principal Office. The principal office of the Venture shall be located
at ________________, Louisiana ____________, or such other place as the
Management Committee may, from time to time, determine.
2.4 Partnership Act; Ownership. Except as otherwise expressly stated
herein, the rights and obligations of the Venturers and the administration and
termination of the Venture shall be governed by this Agreement and the laws of
the State of Louisiana.
2.5 Purpose. The purpose of the Venture shall be to develop, construct,
own and operate the Project, and the performance of all things necessary or
incidental to or in connection with the foregoing in accordance with the terms
and conditions of this Agreement. The purposes of the Venture shall not be
modified in any manner, except by written agreement of the Venturers in the
manner set forth in Section 7.11 hereof.
- 4 -
<PAGE>
2.6 No Individual Authority. Except as otherwise expressly provided in
this Agreement, no Venturers, acting alone, shall have any authority to act for,
or undertake or assume any obligations or responsibility on behalf of, the other
Venturer or the Venture.
2.7 No Restrictions. Nothing contained in this Agreement shall be
construed so as to limit, in any manner, a Venturer, or any Affiliate of such
Venturer, from owning, operating, financing or investing or otherwise being
affiliated in any other venture or operation, including any riverboat or gaming
operation not owned or operated by the Venture wherever located; provided,
however, that no Venturer, nor any of its Affiliates, may be directly or
indirectly involved in the ownership, operation, management, financing or
development of any casino gaming operation (a "Proposed Development") (i)
located within a 100-mile radius of the dock site of the Complex, without the
prior written consent of each of the other Venturers, and (ii) within five years
of the execution of the Master Agreement, in Tarrant or Dallas County, Texas, or
the State of Arkansas without providing each of the Venturers with written
notice of such Proposed Development (the "Proposed Development Notice") and the
opportunity to participate in the Proposed Development by contributing cash
equity to the Proposed Development in an amount not to exceed the amount of
equity capital such Venturer has theretofore contributed to the Venture, with
such right to participate in such particular Proposed Development expiring and
being of no further force or effect with respect to any Venturer who has not
delivered to the Venturer written notice of an election to participate within
thirty (30) days of delivery of the Proposed Development Notice. Nothing in this
Section 2.7 shall be deemed to restrict Sodak or an Affiliate thereof or HWCC,
or an Affiliate thereof, in any manner, from engaging in the business of the
distribution and sale of casino gaming equipment, gaming and accounting systems,
ancillary equipment and supplies, the financing or other investment in
riverboats or gaming operations anywhere. The Venturers agree that Harrah's
______ riverboat operation in Shreveport, Louisiana is specifically excluded
from this Section 2.7.
2.8 Venturers Not Responsible for Other's Commitments. No Venturer shall
be responsible or liable for any indebtedness or obligation of another Venturer
incurred either before or after the execution of this Agreement, nor shall the
Venture be responsible or liable for any such indebtedness or obligation of a
Venturer, except for indebtedness or obligation expressly incurred or assumed by
a Venturer pursuant to the terms of this Agreement or otherwise as expressly
mutually agreed upon by the parties.
2.9 Term. The Venture shall continue until the first to occur of the
following:
(a) December 31, [2033];
(b) the purchase by a Venturer of the JV Interests owned by all of the
other Venturers;
(c) the sale or other disposition to a third party of all or substantially
all of the outstanding JV Interests, or of all or substantially all of the
Venture's assets; or
(d) the dissolution of the Venture as expressly provided in this
Agreement.
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<PAGE>
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Management Services Agreement. Either prior to or concurrently with
the execution of this Agreement, the Venture will enter into a Management
Services Agreement with Hollywood Casino Corporation or an affiliate thereof.
3.2 Transfers to Affiliates. At any time or from time to time during the
term hereof, (a) Paddlewheels may transfer to SPI, (b)Sodak may transfer to a
wholly-owned subsidiary and (c) HWCC may transfer to a wholly-owned subsidiary
of Hollywood Casino Corporation, all or any portion of their respective right,
title and interest in the Venture. The parties hereby consent to any such
transfer and waive any right or claim they may have had or will have to
participate in said transfer.
3.3 Capital Contributions and Ownership Ratios.
(a) The parties acknowledge that on or prior to the date hereof,
Paddlewheels, Sodak and HWCC have each made a capital contribution to the
Venture in the amount set forth below opposite their respective names. Each
Venturer is hereby credited with one JV Interest for each dollar contributed by
such Venturer on or prior to the date hereof. The "Ownership Ratio" in the
Venture, adjusted from time to time as additional capital contributions are made
in accordance with this Article III, shall for each Venturer equal a fraction,
the numerator of which is the number of JV Interests held by such Venturer at
such time, and the denominator of which is the total number of JV Interests held
by all Venturers at such time, it being understood that on the date hereof the
Ownership Ratio of each of the Venturers, and the JV Interests owned by each
Venturer, are as follows:
<TABLE>
<CAPTION>
Capital Ownership Number of
Contribution Ratio JV Interests Owned
------------ ----- ------------------
<S> <C> <C> <C>
Paddlewheels $ %
Sodak $ %
HWCC $ %
</TABLE>
(b) The Venturers each agree to make, within 5 days of the date of this
Agreement or such later date as agreed upon by all of the Venturers (the
"Initial Capital Contribution Date"), capital contributions to the Venture (the
"Initial Capital Contribution") in an amount equal to $12,500,000 (including the
amounts set forth opposite such applicable Venturer's name in Section 3.3(a)
above). If Paddlewheels fails to pay, in full, its respective Initial Capital
Contribution obligation on or before the Initial Capital Contribution Date,
Sodak and HWCC shall collectively pay such unpaid amount (the "Claw-back
Amount"). Sodak and HWCC shall each pay one-half of the Claw-back Amount. Upon
submitting payment to the Venture for their respective portion of the Claw-back
Amount, Sodak and HWCC shall each be deemed to have made a capital contribution
to the Venture, and the JV Interests attributed to Sodak and HWCC, respectively,
shall be adjusted pursuant to the terms of Section 3.3(a) above.
- 6 -
<PAGE>
(c) If on or before the Initial Capital Contribution Date, Paddlewheels'
aggregate capital contributions to the Venture equals or exceeds $6,000,000,
then Paddlewheels shall be entitled, at any time during the one-year period
immediately following the date of the Master Agreement dated as of October 20,
1997 among the Venturers (the "Master Agreement"), to make a capital
contribution(s) to the Venture in an amount equal to all or any portion of the
Claw-back Amount (such contribution(s) by Paddlewheels referred to herein as the
"Claw-back Payment") plus accrued interest on the Claw-back Payment equal to the
prime rate of interest (as announced by Citibank, N.A. from time to time) plus
3%, which interest shall accrue from the date or dates the Claw-back Amount was
paid by Sodak and HWCC pursuant to Section 3.3(b) above. If Paddlewheels makes a
Claw-back Payment pursuant to this Section 3.3(c), then (x) the number of JV
Interests attributable to Paddlewheels shall be adjusted pursuant to Section
3.3(a) above, (y) notwithstanding the provisions of Section 5.1, the Management
Committee shall approve and authorize a special distribution to Sodak and HWCC
each in an amount equal to one-half the Claw-back Payment plus all accrued
interest thereon, and (z) Sodak's and HWCC's respective number of JV Interests
shall be adjusted to equal (A) the respective number of JV Interests attributed
to Sodak and HWCC, respectively, immediately prior to the date of the Claw-back
Payment less (B) one-half of the Claw-back Payment amount. Thereupon, the
Ownership Ratio of each Venturer shall be adjusted pursuant to Section 3.3(a)
above.
(d) In the event Paddlewheels fails to make the Claw-back Payment during
the one-year period immediately following the date of the Master Agreement,
Paddlewheels shall have no further right to make any payments pursuant to
Sections 3.3(b) and 3.3(c) above.
3.4 Notice of Subsequent Capital Contributions. Subsequent to the Initial
Capital Contribution Date, the Venturers from time to time may make additional
capital contributions ("Subsequent Capital Contributions") in cash as needed to
meet the immediate needs of the Venture, which Subsequent Capital Contributions
shall be based on the Budgets to be furnished pursuant to Article VIII below.
(a) The Management Committee, upon a vote of the members of such
Management Committee representing at least 662/3% of the then outstanding JV
Interests (a "Supermajority"), shall give written notice (the "Notice of
Subsequent Capital Contribution") to each Venturer of the decision of the
Management Committee that Subsequent Capital Contributions are necessary in
connection with the Project (a "Capital Call"). Such notices will state (i) the
total amount of additional capital required by the Venture, (ii) the amount of
additional capital that each of Sodak and HWCC is required to contribute,
(iii) the amount, if any, of additional capital that Paddlewheels is entitled to
contribute, (iv) the use of proceeds of the capital contribution, including a
reasonable itemization of said use, and (v)the date by which the contribution
shall be made (the "Contribution Date"), which date shall not be less than 20
days nor more than 30 days after mailing of the Notice of Subsequent Capital
Contribution.
(b) Except as otherwise provided in Section 3.6, each Venturer shall be
credited with one additional JV Interest for each additional dollar contributed
to the Venture.
(c) The allocation of any Subsequent Capital Contribution among the
Venturers will be based on the relative Ownership Ratios of the Venturers
immediately prior to the issuance of the Notice of Subsequent Capital
Contribution.
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3.5 Failure of Paddlewheels to Make Subsequent Capital Contributions. In
the event that Paddlewheels fails to make the full amount of any Subsequent
Capital Contribution that it is entitled to make hereunder, such failure shall
not be deemed to be a default or a breach of this Agreement. If Paddlewheels
shall fail to make a Subsequent Capital Contribution, or makes only a portion of
its Subsequent Capital Contribution on or before the Contribution Date
established in any Notice of Subsequent Capital Contribution (resulting in a
"Contribution Shortfall" equal to the amount by which Paddlewheels' share of
such Capital Call exceeds the amount, if any, actually contributed by
Paddlewheels with respect to such Capital Call), then each of Sodak and HWCC
shall be required to contribute one-half of the amount of Paddlewheels'
Contribution Shortfall.
3.6 Dilution Relating to Subsequent Capital Contributions for Certain
Venture Needs. Each Venturer shall be credited with one additional JV Interest
for each additional dollar contributed by such Venturer, except for Subsequent
Capital Contributions made in the following circumstances:
(a) If the purpose of the Capital Call is to fund capital improvements
where (i) the total amount of the Capital Call is not in excess of 30% of the
total cost of such improvements and (ii) the Contribution Date is on or after a
date that is 36 months after the date of approval of the Project by the LGCB,
then each Venturer shall be credited with 1.5 additional JV Interests for each
additional dollar contributed by such Venturer with respect to such Capital
Call.
(b) Except as otherwise provided in the next sentence, if the purpose of
the Capital Call was to fund operating expenses of the Project, then each
Venturer shall be credited with 2.0 additional JV Interests for each additional
dollar contributed with respect to such Capital Call. If the purpose of the
Capital Call is to fund operating expenses of the Project and if the operating
expenses of the Project for the twelve-month period ending on the last day of
the month preceding the date of the Notice of Subsequent Capital Contribution
with respect to such Capital Call exceeded the budgeted operating expenses for
such twelve-month period by 25% or more of the actual operating expenses for the
most recent calendar year, then each Venturer shall be credited with one
additional JV Interest for each additional dollar contributed with respect to
such Capital Call.
3.7 No Interest Payable. No Venturer shall receive any interest on its
Capital Account.
ARTICLE IV
CAPITAL ACCOUNTS
4.1 Capital Accounts. The Venture shall establish Capital Accounts for
each of the Venturers (the "Capital Accounts") which it shall credit their
respective contributions made pursuant to Section 3.3 above. The net profits and
losses of the Venture shall be credited or charged to the respective capital
accounts in accordance with the Ownership Ratios of the Venturers. The Capital
Account of each Venturer shall further be credited by the amount of any
additional Capital Contributions to the Venture made by such Venturer from time
to time, shall be debited by the amount of any cash distributions made by the
Venture to such Venturer and shall be credited with the amount of income and
gains and debited with the amount of losses of the Venture allocated to such
Venturer. In all instances, the capital accounting rules set forth in Treas.
Reg. Section 1.704- 1(b)(iv) shall determine the proper debits or credits to
each Venturer's Capital Account. The Management Committee may, at their option,
increase or decrease the Capital Accounts of the Venturers to reflect a
revaluation of Venture assets on the Venture's books at the times when,
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pursuant to Treas. Reg. Section 1.704-1(b)(iv), such adjustments may occur. The
adjustments, if made, will be made in accordance with such Regulations,
including allocating taxable items, as computed for book purposes, to the
Capital Accounts as prescribed in such Regulation. In the case of the transfer
of all or part of the JV Interests of a Venturer, the Capital Account of the
transferor Venturer attributable to the transferred JV Interests will carry over
to the transferee Venturer. In the case of termination of the Venture pursuant
to Section 708 of the Code, the rules of Treas. Reg. Section 1.704-1(b)(2)(iv)
shall govern adjustments to the Capital Accounts. If there are any adjustments
to Venture property as a result of Sections 732, 734 or 743 of the Code, the
Capital Accounts of the Venturer shall be adjusted as provided in Treas. Reg.
Section 1.704-1(b)(2)(iv)(m).
4.2 No Right to Return of Contribution. Except as otherwise expressly
provided in this Agreement, no Venturer shall have the right to withdraw or
receive any return of its initial Capital Contribution or any additional Capital
Contribution. Under circumstances requiring a return of any Capital Contribution
no Venturer shall have the right to receive property other than cash. The
Venturer shall have no right to the withdrawal or to the return of any Capital
Contribution made by it to the Venture, except upon the dissolution and
liquidation of the Venture.
4.3 Loans to the Venture; No Interest on Capital. The Venturers may, but
are not obligated to make, loans to the Venture from time to time, the terms and
conditions of which (including, but not limited to, any equity conversion
provisions) shall be approved by the Management Committee, and any such loans
(prior to any applicable conversion thereof) shall not be treated as Capital
Contributions to the Venture for any purpose hereunder, nor entitle such
Venturer to any increase in its share of the profits and losses and cash
distributions of the Venture, but the Venture shall be obligated to such
Venturer for the amount of any such loans pursuant to the terms thereof. All
scheduled principal and interest payments with respect to any loans from a
Venturer to the Venture pursuant to this Section shall be repaid prior to any
Distributions to the Venturers. No Venturer shall be paid interest on any
Capital Contribution to the Venture or any balance in such Venturer's Capital
Account.
4.4 Creditor's Interest in the Venture. No creditor who makes a
non-recourse loan to the Venture shall have or acquire, at any time as a result
of making the loan, any direct or indirect interest in the profits, capital or
property of the Venture, other than as a secured creditor, and then, only to the
extent of such creditor's security interest in its collateral. Notwithstanding
the foregoing, this provision shall not prohibit in any manner whatsoever a
secured creditor from participating in the profits of operation or gross or net
sales of the Venture or in the gain on sale or refinancing of the Venture, all
as may be provided in its loan or security agreements.
ARTICLE V
DISTRIBUTIONS
5.1 Distributions.
(a) Time of Distribution. Distributions of Available Funds
("Distributions") shall be made each calendar quarter in an amount and at the
time determined by the Management Committee.
(b) Withholding. If required by the Code or by state or local law, the
Venture will withhold any required amount payable to a Venturer pursuant to
Article V for payment to the
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appropriate taxing authority. Any amount so withheld from a Venturer will be
treated as a Distribution by the Venture to such Venturer. Each Venturer agrees
to timely file any agreement or return that is required by any taxing authority
in order to avoid any withholding obligation that would otherwise be imposed on
the Venture.
(c) Distribution Limitation. Notwithstanding any other provision of this
Agreement, the Venture shall not make any Distribution to the Venturers if,
after the Distribution, the aggregate liabilities of the Venture (other than
liabilities to Venturers on account of their JV Interests) would exceed the fair
market value of all of the Venture's assets. With respect to any property
subject to a liability for which the recourse of creditors is limited to the
specific property, such property will for this purpose be included in assets
only to the extent the property's fair market value exceeds its associated
liability, and such liability will be excluded from the Venture's liabilities.
5.2 Profits and Losses.
(a) Profits and Losses. "Profits and Losses" means, for each Venture
fiscal year or other fiscal period, an amount equal to the Venture's taxable
income or loss for such year or period, as determined in accordance with Section
703(a) of the Code (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Section 703(a)(1) of the
Code shall be included in Profits or Losses), with the adjustments required to
comply with the Capital Account maintenance rules of Regulation Section
1.704-1(b). If Capital Accounts are adjusted in accordance with Regulation
Section 1.704-1(b), such adjustments shall be treated as Profits and Losses, as
the case may be, that are to be allocated among the Venturers in accordance with
this Section 5.2; subsequent to any such adjustments, tax allocations of income,
gain, loss and deduction with respect to Venture assets shall take into account
any variation between their respective adjusted bases for federal income tax
purposes and their fair market value in the same manner as under Code Section
704(c). Adjustments to Capital Accounts made pursuant to this Section 5.2 shall
have no impact on the Venturers' respective Ownership Ratios.
(b) Allocation of Losses. All Losses shall be allocated to the Venturers
in proportion to each Venturer's Ownership Ratio (provided, however, that for
this purpose only, any credit to a Capital Account that is attributable to the
difference between the fair market value of an asset and its federal income tax
basis will be disregarded); provided, however, that any Losses (or portion
thereof) attributable to a loan made or guaranteed by a Venturer, or Venturer
nonrecourse debt within the meaning of Regulation Section
1.704-1(b)(4)(iv)(g)2(I) ("Venturer Nonrecourse Debt"), shall be allocated to
such Venturer in accordance with such Regulation.
(c) Allocation of Profits. Profits shall be allocated to the Venturers in
accordance with each Venturer's respective Ownership Ratio.
(d) Minimum Gain Chargeback. Notwithstanding any other provision of this
Agreement, if there is a net decrease in Venture minimum gain (as defined in
Regulation Section 1.704-2(d), Profits (or items thereof) shall be allocated to
all Venturers in an amount determined as provided in Regulation Section
1.704(2(g)(2) and otherwise in accordance with Regulation Section 1.704-2(f).
This Section 5.2(d) is intended to comply with the minimum gain chargeback
requirements of Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith. Any special allocations made under this Section shall be
taken into account for purposes of determining subsequent allocations of Profits
and Losses so that the total allocations will, to the extent possible,
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equal the allocations that would have been made if this Section had not
previously applied. In addition, notwithstanding any other provision of this
Agreement, if there is a net decrease in minimum gain attributable to a Venturer
Nonrecourse Debt (as determined pursuant to Regulation Section 1.704-2(I)(3);
such minimum gain being hereinafter referred to as "Venturer Nonrecourse Minimum
Gain") for a taxable year of the Venture, then, after taking into account
allocations pursuant to this Section, but before any other allocations are made
for such taxable year, each Venturer with a share of Venturer Nonrecourse Debt
at the beginning of such year shall be allocated items of income and gain for
such year (and, if necessary, for subsequent years) in an amount equal to such
Venturer's share (determined in a manner consistent with Regulation Section
1.704(g)(2)), of the net decrease in Venturer Nonrecourse Minimum Gain. Any
special allocations made under this Section shall be taken into account for
purposes of determining subsequent allocations of Profits and Losses so that the
total allocations will, to the extent possible, equal the allocations that would
have been made if this Section had not previously applied.
(e) Qualified Income Offset. If any Venturer unexpectedly receives an
adjustment, allocation or distribution described in the qualified income offset
provisions of the Regulations promulgated under Section 704(b) of the Code, then
such Venturer will be allocated items of income and gain in an amount and manner
sufficient to eliminate any adjusted negative balance (determined under such
Regulations, including adjustments to reflect reasonably expected future items)
in such Venturer's Capital Account as quickly as possible. Such items will
consist of a pro rata portion of each item of income (including gross income)
and gain of the Venture. If more than one Venturer receives such an allocation,
such items will be allocated among them in proportion to the adjusted negative
balances of their Capital Accounts. It is intended that this Section qualify and
be construed as a "qualified income offset" within the meaning of Regulation
Section 1.704-1(b)(2)(ii)(d).
(f) Targeted Balances. The allocation provisions of this Agreement
relating to Profits and Losses are intended to produce final Capital Account
balances that reflect the distribution priorities described herein. If such
provisions do not produce these targeted Capital Account balances, then in the
fiscal year of liquidation, an appropriate amount of the Venture's gross income
and deductions recognized in such fiscal year (regardless of the source, and
including any item of Profit or Loss derived from Venture operations or sales)
will be allocated in the manner that produces these targeted Capital Account
balances. If necessary, prior federal income tax returns of the Venture will be
amended to reallocate gross income and deductions from prior years to produce
these targeted Capital Account balances.
(g) Nonrecourse Deductions. Any "Venturer nonrecourse deductions," as
defined below, for any fiscal year or other periods shall be specially allocated
to the Venturer who bears the economic risk of loss with respect to the
"Venturer nonrecourse debt," as defined below, to which such Venturer
nonrecourse deductions are attributable in accordance with Treas. Reg. Section
1.704-2(i). For purposes of this Agreement, the term "Venture nonrecourse
deductions" shall have the same meaning as "partner nonrecourse deduction" set
forth in Treas. Reg. Section 1.704-2((i)(2), and the term "Venturer nonrecourse
debt" shall have the same meaning as "partner nonrecourse debt" set forth in
Treas. Reg. Section 1.704-2(b)(4). The amount of Venturer nonrecourse deductions
with respect to a Venturer nonrecourse debt for a fiscal year equals the excess,
if any, of the net increase, if any, in the amount of Venture minimum gain
attributable to such Venturer nonrecourse debt during such fiscal year over the
aggregate amount of the proceeds of the liability distributed during that fiscal
year to the Venturer that bears the economic risk of loss for such Venturer
nonrecourse debt.
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The inclusion of references in this Section 5.2 to specific Regulation Sections
is not intended to imply that other Regulations are not to apply, the Venturers'
intent being that all provisions of Regulation Section 1.704 are to apply to the
allocation of profits and losses under this Agreement.
5.3 Transfer. If any JV Interest is transferred during any fiscal year
(after the date hereof) of the Venture (whether by liquidation of a JV Interest,
transfer of all or part of a JV Interest or otherwise), the books of the Venture
will be deemed to be or will be closed as of the effective date of such
transfer. The Profits or Losses attributable to the period from the first day of
such fiscal year through the effective date of such transfer will be allocated
to the transferor, and the Profits or Losses attributable to the period
commencing on the effective date of such transfer will be allocated to the
transferee. In lieu of an interim closing of the books of the Venture and with
the agreement of the transferor and the transferee, the Venture may allocate
Profits and Losses for such fiscal year between the transferor and the
transferee based on a daily proration of items for such fiscal year or any other
reasonable method of allocation (including an allocation of extraordinary
Venture items, as determined by the Venture, based on when such items are
recognized for federal income tax purposes). This allocation provision is
subject to the provisions of Section 706(d) of the Code, relating to allocable
cash basis items.
5.4 Tax Credits.Any tax credit, and any tax credit recapture, will be
allocated to the Venturers in the same ratio that the federal income tax basis
of the asset (to which such tax credit relates) is allocated to the Venturers
under the Regulations promulgated under Section 46 of the Code, and if no basis
is allocated, in the same manner as Profits are allocated to the Venturers under
Section 5.2 hereof.
5.5 Tax Allocations: Section 704(c) of the Code. In accordance with
Section 704(c) of the Code, income, gain, loss and deduction with respect to any
property contributed to the Venture shall, solely for tax purposes, be allocated
among the Venturers so as to take account of any variation between the adjusted
basis of such property to the Venture for federal income tax purposes and its
book value, in the same manner as such variations are treated under Section
704(c) of the Code. Any elections or others decisions related to such
allocations shall be made by the Management Committee in any manner that
reasonable reflects the purpose and intention of this Agreement.
5.6 Tax Information Notices. Each Venturer shall furnish the "Tax Matters
Manager" (as defined in Section 9.8 hereof) with such information (including
information specified in Section 6230(e) of the Code) as the Tax Matters Manager
may reasonably request to permit the Tax Matters Manager to provide the Internal
Revenue Service with sufficient information to allow proper notice to the
Venturers in accordance with Section 6223 of the Code. The Tax Matters Manager
shall keep each Venturer informed of those administrative and judicial
proceedings for the adjustment of the Venture level of Venture items required by
Section 6223(g) of the Code and the Regulations thereunder, and such other
matters as the Tax Matters Manager, in its sole discretion, deems appropriate.
5.7 Inconsistent Tax Treatment. Each Venturer shall notify the Tax Matters
Manager in the event its treatment of any Venture item on its federal income tax
return is inconsistent with the treatment of that item on any return filed by or
in any records of the Venture within thirty (30) days of the date such
Venturer's return is filed.
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5.8 Tax Proceedings. The Tax Matters Manager, in its sole discretion,
shall direct and oversee all proceedings, disputes and other similar matters
between the Venture and the Internal Revenue Service. Any Venturer who intends
to file a petition under Section 6226, 6228, or other sections of the Code with
respect to any Venture item, or other tax matters involving the Venture shall
give reasonable notice to each of the Venturers of such intention and the nature
of the contemplated proceedings. In the case where the Tax Matters Manager, on
behalf of the Venture, intends to file such petition, the Tax Matters Manager,
in its sole discretion, shall choose the forum in which such petition will be
filed. If any Venturer desires to seek review of any court decision rendered as
a result of a proceedings instituted under this Section, such Venturer shall so
notify each of the Venturers, and shall request the Tax Matters Manager to so
act. The Tax Matters Manager may, in its sole discretion, choose to pursue or
forego settlement, review, litigation or any other proceedings in connection
with any such proceeding, dispute or other similar matter with the Internal
Revenue Service.
5.9 Tax Settlements. The Tax Matters Manager shall have the authority to
bind any other Venturer to a settlement agreement regarding any proceeding
dispute or other matter by and between the Venture and the Internal Revenue
Service without obtaining the written concurrence of any such Venturer who would
be bound by such agreement. Any other Venturer who enters into a settlement
agreement with the United States Secretary of the Treasury with respect to any
Venture items, as defined by Section 6231(a)(3) of the Code, shall notify
Venturers of such settlement agreement and its terms within ninety (90) days
from the date of settlement.
5.10 Expenditures, Fees and Indemnification. The Tax Matters Manager may
engage such legal counsel, certified public accountants, or others (including,
without limitation, experts) on behalf of the Venture as it may determine to be
necessary and appropriate. Any other Venturer may engage other legal counsel,
certified public accountants, or others on such other Venturer's own behalf and
at such other Venturer's sole cost and expense. Any reasonable item of expense,
including but not limited to fees and expenses for legal counsel, certified
public accountants, and others (including, without limitation, experts) that the
Tax Matters Manager incurs on behalf of the Venture in connection with any
audit, assessment, litigation, or other proceeding regarding any Venture item,
shall constitute expenses of the Venture. In the event that the Venture does not
have adequate cash or other assets to pay such items of expense, the Tax Matters
Manager shall not be obligated to make Capital Contributions or loans to fund
such expenses except as otherwise provided herein, and the Tax Matters Manager
shall be free to resign as the "tax matters partner" of the Venture pursuant to
Section 5.11 hereof.
5.11 Resignation of Tax Matters Manager. The Tax Matters Manager may
resign as "Tax Matters Manager" of the Venture at any time upon the filing of a
signed statement with the Internal Revenue Service in accordance with Temp.
Treas. Reg. ss. 301.623(a)(7)-1T(i) (or any successor provision thereto). The
successor "Tax Matters Manager" shall be determined pursuant to Temp. Treas.
Reg. ss. 301.6231(a)(7)-1T (or any successor provision thereto).
5.12 Survival of Tax Matters Manager Provisions. The provisions of this
Article including without limitation the obligation to pay fees and expenses
shall survive the termination of the Venture or the termination of any
Venturer's interest in the Venture and shall remain binding on the Venture for a
period of time necessary to resolve with the Internal Revenue Service, the
Department of the Treasury or any state taxing authority any and all matters
regarding the federal or state income taxation of the Venture for the applicable
tax year(s).
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ARTICLE VI
[Reserved]
ARTICLE VII
MANAGEMENT AND OPERATION OF THE VENTURE
7.1 Management Committee. The Venture shall be managed by a management
committee (the "Management Committee") to oversee and supervise the operation of
the Venture's business and to make decisions on behalf of the Venture. The
Management Committee shall have sole and exclusive control of the business of
the Venture and shall be authorized and empowered to determine all questions
relating to the conduct, operation and management of the business of the
Venture, and the determinations of the Management Committee shall be binding
upon Venturers and all other persons for all purposes.
7.2 Number; Appointment. The number of members on the Management Committee
shall, at all times, be three. One member shall be appointed by each of Sodak,
Paddlewheels and HWCC. Each of Sodak, Paddlewheels and HWCC, in its respective
sole discretion, may remove the applicable member of the Management Committee
who was appointed by it and appoint a new member, by giving the other Venturers
written notice of such change. The initial members of the Management Committee
are set forth in Exhibit A attached hereto. If any vacancy on the Management
Committee established pursuant to Section 7.1 shall continue for a period of
thirty (30) days following the delivery of written notice of such vacancy by the
remaining members of the Management Committee to the applicable appointing
Venturer who pursuant to this Section 7.2 has the right to appoint the member to
fill such vacancy, then the remaining members of the Management Committee
holding a Supermajority of the then outstanding JV Interests shall have the
right, in their sole discretion, to appoint an individual to fill such vacancy
until such time as the Venturer that has the right to appoint such member
exercises such right and appoints a replacement member.
7.3 Acts of the Managers; Minutes. Except as otherwise provided herein,
the members of the Management Committee shall take action by the affirmative
vote of the members representing a Supermajority of the then outstanding JV
Interests. No member, acting individually, shall have any authority to act for
or to assume any obligations or responsibilities on behalf of the Venture,
unless expressly authorized by the members of the Management Committee in
accordance with this Section 7.3. Minutes of all actions of the Management
Committee shall be kept with the other Venture records and shall be available at
any reasonable time for inspection by any Venturer.
7.4 Management Committee Meetings. The Management Committee shall meet
from time to time to take any action they deem necessary or advisable for the
furtherance of the Venturer's business. Meetings of the Management Committee
shall be held at such time and place as shall be designated at a previous
meeting of the Management Committee. Any or all members of the Management
Committee may participate in any meeting of the Management Committee by any
means of communication through which all of the members of the Management
Committee
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participating in such meeting can simultaneously hear and speak to each other
during such meeting. For the purposes of establishing a quorum and taking any
action at the meeting, such members of the Management Committee so participating
shall be deemed present in person at the meeting; and the place of the meeting
shall be the place of origination of the telephone conversation or other
comparable communication technique.
7.5 Calling Special Meetings; Notice. Special meetings of the Management
Committee may be called by any member by giving at least five (5) business days'
notice of the date, time and place thereof to each member by mail, telephone,
facsimile, telegram or in person. If the day or date, time and place of a
special meeting of the Management Committee has been announced at a previous
meeting of the Management Committee, no notice is required. Notice of an
adjourned meeting of the Management Committee need not be given other than by
announcement at the meeting at which adjournment is taken. The notice of any
special meeting shall contain a statement of the purposes of the meeting.
7.6 Waiver of Notice. Notice of any meeting of the Management Committee
may be waived by any member thereof either before, at, or after such meeting in
a writing signed by such member. A member, by his or her attendance at any
meeting of the Management Committee, shall be deemed to have waived notice of
such meeting, except where the member objects at the beginning of the meeting to
the transaction of business because the meeting is not properly called or
convened and does not participate thereafter in the meeting.
7.7 Quorum. Members representing a Supermajority of the then outstanding
JV Interests shall constitute a quorum for the transaction of business at any
meeting with respect to which notice was duly given or waived.
7.8 Written Action; Proxies.
(a) Any action required or permitted to be taken at a meeting of the
Management Committee may be taken without a meeting by written action signed by
the members representing the number of outstanding JV Interests that would be
required to take the same action at a meeting of the Management Committee at
which such members were present. The written action is effective when signed by
the required members, unless a different effective time is provided in the
written action. When written action is taken by less than all of the members
representing all of the outstanding JV Interests, all of the members shall be
notified immediately of its text and effective date.
(b) A member of the Management Committee may cast or authorize the casting
of a vote (including any and all votes at any and all meetings of the members)
by filing a written appointment of a proxy with the Management Committee of the
Venture at or before the meeting or meetings at which the appointment is to be
effective. Any appointment of a proxy shall be signed by the member making the
appointment.
7.9 Powers of the Management Committee. The Management Committee shall
have all necessary powers to carry out the purposes and conduct the day-to-day
business of the Venture. In addition to any other rights and powers that the
Management Committee may possess, the Management Committee shall have all
specific rights and powers required or appropriate to the management of the
business of the Venture, and only the Management Committee shall have these
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rights and powers (provided, however, that nothing contained herein shall
prohibit the Management Committee from delegating any or all such rights and
powers to any other person). Subject to the requirements of Section 7.11, all
decisions made for or on behalf of the Venture by the Management Committee
consistent with the above provisions shall be binding upon the Venture.
7.10 Indemnification.
(a) To the fullest extent permitted by law, the members of the Management
Committee and each Venturer (the "Indemnitee") shall be indemnified, held
harmless and defended by the Venture from and against any and all losses,
claims, damages, liabilities, whether joint or several, expenses (including
legal fees and expenses), judgments, fines and other amounts paid in settlement,
incurred or suffered by such Indemnitee, as a party or otherwise, in connection
with any threatened, pending, or completed claim, demand, action, suit or
proceedings whether civil, criminal, administrative or investigative, and
whether formal or informal, arising out of or in connection with the business or
the operation of the Venture and by reason of the Indemnitee's status with
respect to the Venture regardless of whether the Indemnitee continues to be a
member of the Management Committee or a Venturer at the time any such loss,
claim, damage, liability or other expense is paid or incurred if (i)the
Indemnitee acted in good faith and in a manner it reasonable believed to be in
the best interests of the Venture and, with respect to any criminal proceeding,
had no reasonable cause to believe that its conduct was unlawful, (ii) the
Indemnitee's conduct did not constitute gross negligence, wilful misconduct or a
material breach of the terms of this Agreement and (iii) the Indemnitee's
conduct did not constitute fraud or breach of their fiduciary duty, if any, to
the Venture. The termination of any action, suit or proceeding by judgment,
order, settlement or upon a plea of nolo contendere, or its equivalent, shall
not, of itself, create a presumption that the Indemnitee did not act in the best
interests of the Venture.
(b) To the fullest extent permitted by law, expenses incurred by an
Indemnitee in defending any claim, demand, action, suit or proceeding subject to
this Section shall, from time to time be advanced by the Venture prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Venture of an undertaking by or on behalf of the Indemnitee to repay such
amount unless it is determined that such Indemnitee is entitled to be
indemnified therefor pursuant to this Section.
7.11 Unanimous Action. Neither the Venture nor any Venturer, without the
prior written consent of Venturers owning more than 90% of the then outstanding
JV Interests, shall:
(a) Admit an additional Venturer except, in the event of a Capital Call,
the consent of a non-contributing Venturer would not be required to admit an
additional Venturer advancing all or a portion of the non-contributing
Venturer's portion of such additional Capital Contribution;
(b) Amend or modify this Agreement in any matter, or waive any right or
privilege of the Venture or Venturer under this Agreement, including but not
limited to altering the manner in determining each Venturer's Ownership Ratio
and JV Interests credited to each Venturer;
(c) Sell, exchange or otherwise dispose of all or substantially all of
such Venture's assets, or on a recourse basis, borrow in excess of $100,000 from
any third party for purposes other than refinancing existing Venture
indebtedness or working capital;
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(d) Approve any act which could have a material adverse effect on any
gaming license of the Venture or any Venturer;
(e) Redeem any portion of a Venturer's JV Interests by the Venture;
(f) Authorize a change in any material respect in the nature of the
Venture's business, including, but not limited to, any material change to the
Project;
(g) Grant a material lien, charge or encumbrance upon the Venture's
assets;
(h) Authorize the initiation of any action of the Venture under the
applicable federal bankruptcy law (other than the filing of a proof of claim to
collect a debt to the Venture);
(i) Authorize an amendment to the Management Agreement;
(j) Authorize any material litigation, or any material regulatory
proceeding, which has not arisen in the ordinary course of the Venturer's
business;
(k) Approve the reorganization of the Venture or the acquisition of
another business by the Venture; or
(l) Authorize the dissolution of the Venture.
7.12 Bank Accounts. The Venture shall maintain bank accounts in such banks
as the Management Committee may designate exclusively for the deposit and
disbursement of all funds of the Venture. All funds of the Venture shall be
promptly deposited in such accounts. The Management Committee from time to time
shall authorize the signatories for such accounts.
7.13 Reimbursement for Costs and Expenses. The Management Committee shall
determine the amounts, if any, by which the Venture will reimburse a Venturer
for costs and expenses incurred by such Venturer on behalf and for the benefit
of the Venture; provided, however, that no overhead or general administrative
expenses of a Venturer or its Affiliates shall be allocated to the operation of
the Venture, and no salaries, fees, commissions or other compensation shall be
paid by the Venture to a Venturer or its Affiliates or to any officer or
employee of a Venturer or its Affiliates for any services rendered to the
Venture, except as may be provided in the Management Agreement or as may be
approved in advance by the Management Committee.
7.14 Fidelity Bonds and Insurance. To the extent determined by the
Management Committee, the Venture shall obtain fidelity bonds with reputable
surety or insurance companies covering all persons having access to the
Venture's funds, indemnifying the Venture against loss resulting from fraud,
theft, dishonesty and other wrongful acts of such persons. The Venture shall
carry or cause to be carried on its behalf in insurance companies acceptable to
the Management Committee all property, liability and workmen's compensation
insurance as shall be required under applicable loans, leases, agreements and
other instruments and statutes or as may otherwise be required by the Management
Committee.
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7.15 Cooperation. The Venturers agree to use their best efforts and
cooperate with each other in carrying out the transactions contemplated by this
Agreement, including the following, provided that the cost thereof shall be
borne by the Venture:
(a) filing all required applications with the Gaming Authorities for
receipt on maintaining of a gaming license under the Act, and maintaining
compliance by the Venture with directives of the Gaming Authorities and the
provisions of the Act;
(b) filing materials with, or participating in, all attendant
investigations instituted by, a gaming regulatory authority of a State other
than Louisiana to which a Venturer is subject;
(c) developing the design of the Complex and supervising the construction
thereof;
(d) making arrangements with respect to the provision of food, beverage
and entertainment for the Complex;
(e) filing all required applications for the Vessel license, liquor
licenses and any other licenses or permits required for the operation of the
Complex;
(f) filing all tax returns and other governmental filings on behalf of the
Venture;
(g) securing all required insurance covering the Complex and the operation
thereof;
(h) making arrangements with respect to sales, marketing and publicity for
the Complex; and
(i) executing and delivering any other agreements, instruments, documents
or consents necessary for the operation of the Complex, including but not
limited to, the Loan Commitments, the Hotel and Vessel construction agreements
and any dock site licensing or leasing agreements.
ARTICLE VIII
BUDGETS AND CONTRIBUTIONS
Not later than 45 days prior to the commencement of each Venture fiscal
year, the Management Committee shall furnish to each of the Venturers a budget
(the "Budget(s)") covering in reasonable detail the budget for the ensuing
fiscal year. Each Budget shall show the additional cash requirements of the
Venture for the ensuing fiscal year, which shall be the aggregate of all
estimated expenditures to be made by the Venture during such year, plus
appropriate reserves for general maintenance and cash contingencies, over the
sum of the anticipated borrowings from the Loan Commitments and the estimated
cash on hand at the beginning of the year. Not later than 25 days prior to the
end of each calendar quarter, the Venture will furnish to each of the Venturers
any updates or revisions to the yearly Budget then in effect which shall be
required to accurately reflect the cash requirements of the Venture at such
time.
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ARTICLE IX
BOOKS AND RECORDS;
AUDIT, TAXES, ETC.
9.1 Books; Statements. The Venture shall keep, or cause to be kept,
accurate and complete books and accounts showing its assets and liabilities,
operations, transactions and financial condition. All financial statements shall
be accurate in all material respects, shall present fairly the financial
position and results of the Venture and shall be prepared on an accrual basis in
accordance with generally accepted accounting principles consistently applied.
The Management Committee shall determine the methods to be used in the
preparation of financial statements and federal, state and municipal income and
other tax returns for the Venture in connection with all items of income and
expense, including but not limited to, valuation of assets, the methods of
depreciation, elections, credits and accounting procedures.
9.2 Reports and Statements. On and after the operation commencement date
of the Complex, the Venture shall furnish, or caused to be furnished, to each of
the Venturers the following reports and statements:
(a) (i) during the six-month period immediately following the opening date
of the Complex, within 25 days after the end of each calendar quarter, and
thereafter (ii) within 15 days after the end of each calendar quarter, a
statement setting forth the calculation of the Available Funds (or deficit
Available Funds for such quarterly period);
(b) (i) during the six-month period immediately following the opening date
of the Complex, within 25 days after the end of each calendar quarter, and
thereafter (ii) within 15 days after the end of each calendar quarter, an
accrual basis balance sheet and an accrual basis profit and loss statement for
the preceding month, including a statement setting forth the calculation of the
management and incentive fees payable to Hollywood Casino Corporation or an
Affiliate thereof pursuant to the terms of the Management Agreement (the
"Management Fees") for the preceding month, together with a cumulative calendar
year accrual basis profit and loss statement to date; and
(c) as soon as practicable after the end of each fiscal year of the
Venture, a general accounting and audit shall be taken and made by an
independent certified public accountant of recognized national standing,
selected by the Management Committee and retained by the Venture (the
"Accountants"), covering the assets, liabilities and net worth of the Venture,
and its dealings, transactions and operations during such fiscal year, and all
matters and things customarily included in such accounts and audits, and a full
detailed certified statement shall be furnished to each Venturer within 90 days
after the end of such fiscal year, showing the assets, liabilities, net worth,
profits, losses, net income and Available Funds (or deficit Available Funds) of
the Venture, and the Management Fees, for such fiscal year.
9.3 Where Maintained. The books, accounts and records of the Venture shall
be at all times maintained at its principal office.
9.4 Audits. Any Venturer may, at its option and at its own expense,
conduct internal audits of the books, records and accounts of the Venture.
Audits may be on either a continuous or
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a periodic basis and may be conducted by employees of any Venturer, or of an
Affiliate of any Venturer, or by independent auditors retained by the Venture or
by a Venturer.
9.5 Objections to Statements. Each Venturer shall have the right to object
to each statement described in Section 9.2 hereof by giving notice in writing to
the Management Committee within 45 days after such statement is received by such
Venturer, indicating in reasonable detail the objections of such Venturer and
the basis for such objections. The statements described in Section 9.2 and the
contents thereof, in the absence of fraud or willful misconduct by the other
Venturer or by the Accountants certifying the statements, shall be deemed
conclusive and binding upon any Venturer who fails to give such notice within
such 45-day period, subject to the audit provided for in Section 9.2(c).
Settlement of objections to any statement and disputes of any result of audits
of the Venture's books shall be made by the Management Committee.
9.6 Fiscal Year. The fiscal year of the Venture shall be the calendar
year.
9.7 Tax Returns.
(a) The Management Committee shall be responsible to cause the Accountants
to prepare and file all state and federal tax returns on a timely basis. The
Management Committee shall cause the Venture's Accountants to prepare and submit
to the Venture on or before April 1 of each year for its approval all federal
and state income tax returns of the Venture. If the Venture shall disapprove the
Venture's tax returns as submitted by the Accountants, the Venture may direct
the Accountants to revise the tax returns and resubmit them to the Venture for
its approval. A statement of the allocation of profit or loss shown on the
annual income tax returns prepared by the Accountants shall be transmitted and
delivered to each Venturer within ten days of the receipt thereof by the
Venture.
9.8 Tax Information Submitted; Notices Sent. HWCC shall be the "tax
matters partner" as defined in Section 6231(a)(7) of the Code (the "Tax Matters
Manager"). The Tax Matters Manager shall perform all duties and functions within
the contemplation of Sections 6223, 6224, 6226, 6228 and 6230 of the Code in
connection with any administrative proceeding by the Internal Revenue Service
(or any taxing authority) or ensuing judicial proceeding by the Internal Revenue
Service (or any taxing authority) or ensuing judicial proceeding regarding a tax
return of the Venture. The Tax Matters Manager shall determine whether the
Venture should make any available tax election and, except for fraud or bad
faith in the making or failure to make such election, shall not be held
responsible or liable for the making of or failure to make such election. The
Tax Matters Manager shall consult with the Venturers concerning, and shall keep
the Venturers apprised of, matters within the scope of responsibility of the Tax
Matters Manager.
ARTICLE X
ASSIGNMENT BY ANY VENTURER OF ITS JV INTERESTS
10.1 Restriction on Transfer.
(a) Except as expressly permitted in Section 10.2 below and, in any case,
subject to the other provisions of this Article X and Article XI, no Venturer
shall sell, assign, transfer, convey, or otherwise dispose of all or any part of
its JV Interests, whether for consideration or not, and no purchaser or other
transferee thereof for value or otherwise shall have any rights in the Venture
or,
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have any rights as a Venturer with respect to all or any part of such JV
Interests attempted to be sold, assigned, transferred, conveyed or otherwise
disposed of, and any such attempted sale, assignment, transfer, conveyance, or
other disposition (a "Transfer") of all or any part of a Venturer's JV Interests
shall be entirely null and void, unless all of the applicable provisions of this
Article X have been satisfied.
(b) The appropriate Venture records shall be noted to prevent the transfer
of a Venturer's JV Interests otherwise than in accordance with this Article X.
10.2 Certain Permitted Transfers. Subject to the other provisions of this
Article X, Article XI, this Agreement, the Act or as otherwise agreed to by the
Venturers owning more than 90% of the then outstanding JV Interests, the sale,
assignment, transfer, conveyance or other disposition, as the case may be, of
all or any part of the JV Interests of a Venturer shall be permitted in each of
the following limited circumstances: (i) where such sale, assignment, transfer,
conveyance or other disposition is performed pursuant to the requirements of
Sections 10.3 and 10.4 hereof; or (ii) where a Venturer transfers all, but not
less than all of its JV Interests to an Affiliate controlled by the Venturer. In
the event of any such transfer by a Venturer to one of its Affiliates, the
transferee of the Venturer's JV Interests shall assume in writing all of the
obligations and liabilities of the Venturer under this Agreement and succeed to
all of the rights and privileges of the Venturer under this Agreement.
10.3 Rights of First Refusal Arising from Desired Transfer.
(a) Grant of Options. Subject to Section 10.2 and any other express
agreement by the Venturers, if any Venturer (the "Optionor Venturer") desires to
Transfer any or all of the JV Interests owned by it, such Venturer shall give
notice in writing (the "First Option Notice") to the Venture and the other
Venturers setting forth such desire, the portion of the JV Interests (the
"Offered JV Interests") sought to be transferred, the price (the "Offer Price")
at which the Optionor Venturer proposes to make such transfer and the name of
the proposed transferee. Upon receipt of the First Option Notice, the Venture
shall have the irrevocable right and option (the "First Option") to purchase all
or a portion of the Offered JV Interests. In the event that the Venture does not
exercise the First Option with respect to all of the Offered JV Interests within
the time period specified in Section 10.3(b), such Optionor Venturer shall give
notice in writing (the "Second Option Notice"), within five days of its receipt
of the earlier of the Election Notice described in Section 10.3(b) or expiration
of the 30-day period following the date of the First Option Notice, to each of
the other Venturers setting forth the same information as in the First Option
Notice and the number of Offered JV Interests to be purchased by the Venture.
Upon the giving of the Second Option Notice, each other Venturer shall have the
irrevocable right and option (the "Second Option") to collectively purchase all
of the remaining Offered JV Interests.
(b) Exercise of First Option. The Venture may exercise the First Option by
delivering to the Optionor Venturer written notice (the "Election Notice") of
its election to exercise all or part of the First Option within 30 days after
the date that the Venture receives the First Option Notice.
(c) Exercise of Second Option. If the Venture does not exercise its option
to purchase all of the Offered JV Interests, each of the other Venturers shall,
pursuant to the Second Option, have the right to collectively purchase all of
the remaining Offered JV Interests. If the other Venturers exercising the Second
Option elect to purchase more JV Interests than are subject to the Second
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Option, each participating Venturer will be entitled to purchase up to its pro
rata share, based on the respective Ownership Ratio of the participating
Venturer, of the remaining Offered JV Interests. Each participating Venturer may
exercise the Second Option by delivering to the Optionor Venturer written notice
of its election to exercise the Second Option within the 10-day period
immediately following the date of the Second Option Notice. If any participating
Venturer should elect to purchase less than its pro rata share of the remaining
Offered JV Interests, the Optionor Venturer shall give oral or written notice of
the number of remaining Offered JV Interests available to each other Venturer,
each of whom shall have five business days after receipt of such notice to elect
to purchase all of such remaining JV Interests. If the participating Venturers
elect to purchase more of the remaining Offered JV Interests than are available,
each Venturer participating in such re-offer shall have the right to purchase
its pro rata share (based on the respective Ownership Ratio of such Venturers
participating in the re-offer) of such remaining Offered JV Interests. If, after
such re-offer, the participating Venturer shall fail to purchase all of the
Offered JV Interests, the Second Option shall expire.
(d) Purchase Price. The purchase price (the "Purchase Price") for the
Offered JV Interests at which the Optionor Venturer shall be obligated to sell
the Offered JV Interests pursuant to the First Option or the Second Option shall
be equal to the price set forth in the applicable third party offer. No Venturer
shall voluntarily transfer any JV Interests for any consideration other than for
cash. The Venturer and Venturers who exercise the First Option and Second Option
shall tender payment in cash for the Offered JV Interests to be purchased by
them on the date of closing of such purchase.
(e) Sale of Offered JV Interests. If the First Option Notice and the
Second Option Notice shall be duly given, and if the Venture and the applicable
Venturers shall not collectively exercise their options to purchase all of the
Offered JV Interests, then the Optionor Venturer shall be free to sell all of
its Offered JV Interests to any third party transferee on the same material
terms as were described in the First Option Notice on or before the later of (i)
the 120th day immediately following the date of the Venturers' applicable 30-day
option period pursuant to Section 10.3(c) or (ii) the 60th day immediately
following the date the applicable transferee obtains a license from the
applicable state gaming regulatory authority. In such instance, the Venture's
and applicable Venturers' election to purchase the Offered JV Interests shall be
null and void and of no further legal effect.
(f) Re-Offers. If the proposed purchase price of a transferee for the
Offered JV Interests is less than the applicable price as set forth in the First
Option Notice, the Optionor Venturer shall not transfer the Offered JV Interests
to such transferee unless the Optionor Venturer shall first re-offer the Offered
JV Interests at such lesser price to the Venture and each of the other Venturers
by giving written notice (the "Re-offer Notice") thereof, stating the Optionor
Venturer's intention to make such transfer at such lower price (the "Re-offer
Price"). The Venture and each of the other Venturers shall then have the
irrevocable and exclusive option to purchase all of the Offered JV Interests at
the Re-offer Price, exercisable in the same order of priority, proportions and
manner as provided in Sections 10.3(b), (c) and (d) hereof; provided the 30-day
period referenced in Section 10.3(b) shall be reduced to a 10-day period.
10.4 Transfer by Legal Process.
(a) Involuntary Transfers. Upon any involuntary transfer of all or any
portion of the JV Interests pursuant to a levy of execution, foreclosure of
pledge, garnishment, attachment, bankruptcy
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or other legal process (or by operation of law resulting from the liquidation,
dissolution or winding-up of a Venture), the applicable transferee or
transferees of, or any successor in title to, the transferred JV Interests
(hereinafter the "Transferred JV Interests"), shall, within 30 days after such
transfer, offer the Transferred JV Interests first to the Venture and second to
the other Venturers under this Section 10.4 by delivering notice of such offer
(the "Transfer Notice") in writing to the Venture and to the other Venturers.
(b) Option. The Venture shall have the right to purchase any or all of any
Transferred JV Interests at a price equal to the stated book value thereof by
giving written notice to the transferee or transferees thereof, or successor in
title thereto (any such transferee, transferees, successor or Venturer being
hereinafter collectively referred to as the "Recipient") within 90 days after
receipt of the Transfer Notice.
(c) Transfer Option. If the Venture does not elect to purchase all of the
Transferred JV Interests, the Venturers (other than any Venturer whose JV
Interests were subject to the transfer by legal process) shall have the option
(the "Transfer Option") to purchase the remaining Transferred JV Interests at a
price equal to the stated book value thereof by giving written notice to the
recipient within 120 days after their receipt of the Transfer Notice. If the
other Venturers elect to purchase more Transferred JV Interests than are
available, the available Transferred JV Interests shall be allocated among the
participating Venturers in the manner described in Section 10.3(c) above.
(d) Transfer Price. The Venture and other Venturers who exercise the
Transfer Option shall tender payment in cash for the Transferred JV Interests to
be purchased by them on the date of closing of such purchase.
(e) Absence of Transfer Notice. If no Transfer Notice shall be given and
the Venture or any Venturer becomes aware of the transfer of JV Interests by
legal process or otherwise that is subject to this Section 10.4(e), then the
Venture or such Venturer shall give written notice to the Venturers, in the case
of the Venture, and to the Venture and Venturers, in the case of any Venturer,
of such of the facts and circumstances of such transfer as are known by the
Venture or such Venture and such notice shall be considered the Transfer Notice
for the purposes of this Section 10.4(e). Any Transferred JV Interests shall
nevertheless remain subject to this Section 10.4(e) until a Transfer Notice
shall have been properly delivered by the recipient and the Venture and the
Venturers shall have been given the opportunity to exercise their respective
options. If, after a Transfer Notice shall have been properly delivered, the
Venture and the Venturers shall fail to purchase all of the Transferred JV
Interests as provided above, the Transferred JV Interests not so purchased will
no longer be subject to this Section 10.4(e), provided, however, that the
recipient (if such person is not already a party to this Agreement) shall, as a
condition to the effectiveness of any transfer to such person be required to
become a party to this Agreement.
ARTICLE XI
MANDATORY TRANSFERS
11.1 Unsuitability in Louisiana. If the Louisiana Gaming Control Board
("LGCB") makes a determination any Venturer or any Affiliate of such Venturer
(the "Unsuitable Venturer") is unsuitable to hold a license to perform or
conduct gaming activities (an "Unsuitability
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Determination"), after the commencement of gaming operations of the Complex, the
Unsuitable Venturer shall immediately give to the other Venturers, upon
submitting written notice, a right to purchase all of the Unsuitable Venturers'
JV Interests. In the event the other Venturers elect not to purchase all of the
Unsuitable Venturer's JV Interests within a 30-day period following the date the
LGCB makes an Unsuitability Determination, the Venture shall purchase all of the
remaining Unsuitable Venturer's JV Interests within a 30-day period following
the termination date of the foregoing 30-day period. The purchase price for the
JV Interests purchased pursuant to this Section 11.1 shall be an amount agreed
upon by the purchasing and selling party, and if no such agreement is made, the
fair market value as determined by an appraiser mutually acceptable to the
selling and purchasing party. Notwithstanding the foregoing, if the Unsuitable
Venturer receives an offer to purchase such Unsuitable Venturer's JV Interests
from a third person, at any time during either the Venturers' 30-day election
period or Venture's 30-day election period pursuant to the this Section 11.1,
then the provisions set forth in Sections10.3 and 10.4 shall govern.
Each Venturer shall independently comply with all federal, state and
local gaming regulations and any jurisdiction to which any Venturer is or
becomes subject to during the term of the license issued by the LGCB to the
Venture, including submitting to and cooperating in any investigation required
by such jurisdiction by virtue of the Venturer's JV Interests in the Venture.
Each Venturer shall bear all of their own costs which they incur in connection
with such compliance.
11.2 Unsuitability in Other Jurisdictions.
(a) Buy/Sell. If (i) a gaming regulatory authority of a State other than
Louisiana makes an Unsuitability Determination as to any Venturer or an
Affiliate of such Venturer and (ii) any other Venturer (the "Affected Venturer")
reasonably determines that the affiliation of the Affected Venturer with such
Unsuitable Venturers threatens any gaming permit, approval or other entitlement
that the Affected Venturer or any Affiliate of the Affected Venturer holds or
has applied for because of such Unsuitability Determination, then the Affected
Venturer shall give a notice of such determination to such Unsuitable Venturers.
Within 20 days after such notice is given, the Venturers receiving such notice
shall give a notice (a "Buy/Sell Notice") to the Affected Venturer and to the
Affected Venturer's Accountants of their election to either sell all (but not
less that all) of the Unsuitable Venturers' JV Interests to the Affected
Venturer or to buy all (but not less that all) of the JV Interests of the
Affected Venturer, in either case at a purchase price mutually agreed upon by
such parties or at the fair market value of such JV Interests as determined by
an appraiser mutually acceptable to such parties.
(b) Suitability Determination. Without limiting reasonableness to such
circumstances, a determination made by the Affected Venturer referred to in
Section 11.2(a) hereof shall be deemed to be reasonable if based upon: (i) any
written communication from a gaming regulatory authority of the applicable
state; or (ii) written evidence that, if true, the Affected Venturer's
participation in the Venture would violate any law, rule or regulation
administered by any gaming regulatory authority, so long as such evidence is not
induced in bad faith by its recipient.
11.3 Closing of Inter-Venturer Transfers. The closing of any Transfer of
the JV Interests of a Venturer to another Venturer under this Article XI shall
take place at the principal office of the Venture or such other place as may be
agreed upon by the Venturers on the first Business Day that is at least ten days
after the date on which the purchase price is determined pursuant to the
applicable provisions set forth in Article XI, or such other date as may be
agreed by the Venturers.
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11.4 Limitation of Transfers. Except for Transfers effected pursuant to
any of Sections 11.1 and 11.2, no Transfer shall be made of any JV Interests if
(a) such Transfer, in the opinion of the Venture's legal counsel, would result
in the Venture being treated as an association taxable as a corporation for
federal or state tax purposes, (b) such Transfer, when considered with all other
Transfers of JV Interests within the previous 12 months, would result in the
Venture's being considered to have terminated within the meaning of Code Section
708, (c) such Transfer is effectuated through an "established securities market"
or a "secondary market (or the substantial equivalent thereof)" within the
meaning of Code Section 7704, (d) such Transfer would otherwise result in the
Venture's being classified as a "publicly traded venture" within the meaning of
Code Section 7704(b), (e) in the opinion of the Venture's legal counsel such
Transfer requires the registration of such JV Interests pursuant to any federal
or state securities law, (f) such Transfer would otherwise violate any
applicable federal or state securities laws (including any investor suitability
standards), (g) such Transfer would subject the Venture or any of the Venturers
to regulation under the Investment Company Act of 1940, the Investment Advisers
Act of 1940 or the Employee Retirement Income Security Act of 1974, each as
amended, (h) such Transfer would violate state gaming laws or regulations; (i)
such Transfer is made to any person who lacks the legal right, power or capacity
to own such JV Interests, or (j) the Venture does not receive written
instruments (including, without limitation, true copies of any transfer
instruments and the transferee's consent to be bound by this Agreement) that are
in form and substance satisfactory to the Management Committee of the Venture in
its sole and absolute discretion. Notwithstanding Article X above, no Transfer
of any JV Interests shall be made if such Transfer would (w)result in a default
under the instrument evidencing or securing indebtedness of the Venture unless
such Transfer is otherwise consented to by, or such default is waived by, the
applicable lender, (x) with respect to any agreements or comments to which any
party is bound, require a prepayment of, or result in any adverse change in the
terms of any other instrument evidencing or securing indebtedness of the
Venture, (y) result in, or jeopardize the revocation, suspension or denial of
the gaming license issued by the Gaming Authorities to the Venture permitting
gaming activities pursuant to the Act, or (z) result in, or jeopardize the
revocation, suspension or denial of any gaming license, or application for a
gaming license, of any Venturer or any of its Affiliates in any jurisdiction in
which such Venturer or its Affiliates are so licensed or have applied for a
gaming license. The Venturers acknowledge that adequate legal remedies are not
likely to exist for any breach of this Section 11.4 and, accordingly, that the
Venture and any aggrieved Venturer(s) shall have the right to secure injunctive
relief in the event of any actual or threatened breach of a Venturer's
obligations under this Section 11.4.
11.5 Ineligible Transferees. Notwithstanding any provision of this
Agreement to the contrary, no Transfer of any JV Interests may be made under any
circumstances to any person who: (a) has not been determined suitable or
otherwise approved or exempted from such determination by the Louisiana Gaming
Control Board; or (b) is subject to an unsuitability determination by any
regulatory authority of any other state; or (c) has been convicted of a felony
offense.
ARTICLE XII
DISSOLUTION UPON CERTAIN EVENTS
Upon the occurrence of any of the following events:
(a) The occurrence of any event enumerated in Section 2.9 herein or,
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(b) If the Complex is not in full operation by __________, 199__,
then, unless such occurrence shall by law cause the Venture not to be dissolved,
the Venturers in accordance with the provisions of Article XIV hereof, shall
wind up the affairs of the Venture unless the Venturers owning a Supermajority
of the outstanding JV Interests elect within 60 days after such dissolution
event to continue the Venture. If, upon dissolution of the Venture for any
reason described in Article XII, the business of the Venture is continued
without liquidation and without the winding up of the affairs of the Venture
pursuant to the terms hereof, title to the property of the Venture shall be
vested in the Venture continuing the business. Upon such dissolution, no
Venturer, nor any legal representative of a Venturer, shall have the right to an
accounting of its JV Interests as against the Venture continuing the business,
and no Venturer shall have the right to have the value of its interest as of the
date of dissolution ascertained or have any right as a creditor or otherwise
with respect to the value of its JV Interests.
ARTICLE XIII
DEFAULTS AND TERMINATION
13.1 Defaults. Upon the occurrence of any of the following events (the
affected Venturer being herein called the "Defaulting Venturer"):
(a) if the Defaulting Venturer shall fail to make capital contributions to
the Venture that such Venturer is obligated to make pursuant to Article III
within the 30-day period following receipt of the notice of default with respect
thereto;
(b) if the Defaulting Venturer shall fail in any other material respect to
perform its obligations and agreements hereunder, and such default shall
continue for 30 days after receipt of a notice of default with respect thereto
(provided that if either the event or condition causing the default shall be
such that it could not reasonably be cured within 30 days, then no default shall
be deemed to have occurred hereunder if within such 30-day period the Defaulting
Venturer shall have commenced the curing of such default and shall thereafter
proceed with all reasonable diligence to complete the same);
(c) if the Defaulting Venturer shall be dissolved (except as permitted in
Article X); or
(d) if the Gaming Authorities provide notice to the effect that the
Defaulting Venturer no longer satisfies the criteria for licensure under the
Act, or that the gaming license of the Venture or the other Venturer shall be in
jeopardy of being revoked, denied or suspended as a result of the continued
participation of the Defaulting Venturer in the Venture, and the Defaulting
Venturer has exhausted all administrative remedies;
(e) if the Defaulting Venturer shall file a voluntary petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under the
present or any future federal bankruptcy, or state insolvency or other relief
for debtors, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver, conservator or liquidator of such Venturer or of all, or any
substantial part of its properties or its interest in the Venture (the term
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"acquiesce" includes but is not limited to the failure to file a petition or
motion to vacate or discharge any order, judgment or decree providing for such
appointment within 10 days after the appointment);
(f) if a court of competent jurisdiction shall enter an order, judgment or
decree approving a petition filed against the Defaulting Venturer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal bankruptcy act, or any
other present or future applicable federal, state or other statute or law
relating to bankruptcy, insolvency or other relief for debtors, and such
Venturer shall acquiesce in the entry of such order, judgment or decree (the
term "acquiesce" includes but is not limited to the failure to file a petition
or motion to vacate or discharge such order, judgment or decree within 10 days
after the entry of the order, judgment or decree), or such order, judgment or
decree shall remain unvacated and unstayed for an aggregate of 60 days (whether
or not consecutive) from the date of entry thereof, or any trustee, receiver,
conservator or liquidator of such Venturer or of all or any substantial part of
its property or its interest in the Venture shall be appointed without the
consent or acquiescence of said Venturer and such appointment shall remain
unvacated and unstayed for an aggregate of 60 days (whether or not consecutive);
(g) if the Defaulting Venturer shall admit in writing its inability to pay
its debts as they mature;
(h) if the Defaulting Venturer shall give written notice to any
governmental body of insolvency or pending insolvency, or suspension or pending
suspension of operations;
(i) if the Defaulting Venturer shall make an assignment for the benefit of
creditors or take any other similar action for the protection or benefit of
creditors; or
(j) if all or a portion of JV Interests of the Defaulting Venturer in the
Venture shall be validly and legally seized or charged in execution of a
judgment;
then in any such event, the other Venturer(s) (the "Nondefaulting Venturer(s)")
shall have the right to dissolve the Venture by giving the Defaulting Venturer
written notice thereof, unless the Non-Defaulting Venturers holding at least a
Supermajority of the then outstanding JV Interests elect to continue the
Venture. If the Non-Defaulting Venturers elect to continue the business of the
Venture, then the Nondefaulting Venturer(s) shall have the right to acquire all
of the JV Interests of the Defaulting Venturer at a purchase price equal to the
lessor of book value or appraised value (performed by an appraiser appointed by
the Non-Defaulting Venturers) of the Defaulting Venturer's JV Interests.
Failure by the Non-Defaulting Venturers to give any notice of a default as
specified herein, or any failure to insist upon strict performance of any of the
terms of this Agreement shall not constitute a waiver of any such breach or any
of the terms of this Agreement. No breach shall be waived and no duty to be
performed shall be altered or modified except in writing. One or more waivers or
failure to give notice of default shall not be considered as a waiver of a
subsequent or continuing breach of the same covenant.
13.2 Not Exclusive Remedy. The rights granted in Section 13.1 shall not be
deemed an exclusive remedy of the Nondefaulting Venturers, but all other rights
and remedies, legal and equitable, shall be available to it.
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ARTICLE XIV
DISSOLUTION
14.1 General Procedures. Upon any event of termination or dissolution of
the Venture as set forth in Article XII or Article XIII, hereof, the Venture
shall cease to engage in any further business, except to the extent necessary to
perform existing contracts, and shall wind up its affairs and liquidate its
assets, unless the Non-Defaulting Venturers elect to continue the business of
the Venture pursuant to Article XII or Section 13.1 above. During the course of
liquidation, the Venturers shall continue to share in the profits and losses as
provided in Article V hereof, and the provisions of this Agreement shall
continue to bind the Venturers and apply to the activities of the Venture,
except as specifically provided to the contrary, but there shall be no cash
distributions to any of the Venturers until the Distribution Date (as defined
below).
14.2 Distribution Date. Liquidation will continue until the Venture's
affairs are in such condition that there can be a final accounting, showing that
all fixed or liquidated obligations of the Venture are satisfied or can be
adequately provided for hereunder. The assumption or guarantee in good faith by
one or more financially responsible corporations or other persons shall be
deemed to be an adequate means of providing for such obligations. When the
Venturers shall have determined that there can be a final accounting, the
Venturers shall establish a date for the distribution of the Venture's assets
(the "Distribution Date") and the assets of the Venture shall be distributed as
provided in Section 14.3 hereof on such date.
14.3 Liquidation and Winding Up. If dissolution of the Venture and the
business of the Venture is not continued pursuant to the terms of Article XII or
Section 13.1, the Venture shall be liquidated and the Management Committee (or
other person or persons designated by a decree of a court with proper
jurisdiction) shall wind up the affairs of the Venture. The Management Committee
or other persons winding up the affairs of the Venture shall promptly proceed to
the liquidation of the Venture and, in settling the accounts of the Venture, the
assets and the property of the Venture shall be distributed in the following
order of priority:
(a) the payment of all debts and liabilities of the Venture in the order
of priority as provided by law (including outstanding loans from a Venturer);
(b) to establish any reserves deemed necessary by the Management Committee
or the person winding up the affairs of the Venture for any contingent
liabilities or obligations of the Venture; and
(c) the balance, if any, distributed to the Venturers pro rata in
accordance with the Venturers' respective Ownership Ratio after giving effect to
all allocations of gain or loss in accordance with Article V hereof.
14.4 Compensation and Reimbursement. The Venture shall retain a person
(who may be any Nondefaulting Venturer) to act as liquidator for the Venture's
assets. The Nondefaulting Venturer or other person so retained shall be entitled
to reimbursement for out-of-pocket expenses
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incurred and reasonable compensation for services rendered in connection with
the winding up and liquidation of the Venture, as agreed by the Venturers. Such
reimbursement shall be paid as an expense of the Venture after all debts to
third parties have been repaid or adequately provided for.
14.5 No Capital Contribution Upon Dissolution. Each Venturer shall look
solely to the assets of the Venture for all distributions with respect to the
Venture, and shall have no recourse therefor (upon dissolution or otherwise)
against any other Venturer. No Venturer shall be obligated to restore to the
Venture any negative balance that may exist or continue in such Venturer's
Capital Account.
ARTICLE XV
NOTICES
15.1 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed delivered, given or made, upon delivery if delivered
personally, by facsimile, or by express mail or other overnight courier service
or 72 hours after deposit thereof in the United States mails, certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Paddlewheels or SPI:
c/o New Orleans Paddlewheels, Inc.
610 S. Peters St.
New Orleans, Louisiana
Facsimile:
Attention: Duane Smith, President
With copy to:
Smith Martin
700 Camp Street
New Orleans, Louisiana
Facsimile (504) 525-0163
Attention: James E. Smith, Jr. Esq.
If to Sodak:
Sodak Gaming, Inc.
5301 South Highway 16
Rapid City, South Dakota 57701
Facsimile
Attention: President
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With copy to:
If to HWCC:
HWCC-Louisiana, Inc.
c/o Hollywood Gaming Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Facsimile
Attention: Jack Pratt, President
With copy to:
Any party shall have the right to change its address for notice by written
notice to the other Venturers delivered in accordance with this Section 15.1.
ARTICLE XVI
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Venturer represents and warrants to and with the Venture and each
other Venturer as of the date hereof, that:
16.1 Organization. It is, and shall continue to be, validly existing and
duly organized under the laws of the state of its formation, and the persons
acting in its behalf have all the requisite power and authority to execute,
deliver and comply with the terms and provisions hereof and consummate the
transactions contemplated hereby.
16.2 Authority. It has requisite corporate power to execute and deliver
this Agreement, and to perform the transactions contemplated by this Agreement.
The execution and delivery of this Agreement, and the performance of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action and, constitute the valid and binding obligations of
such Venturer enforceable in accordance with its terms.
16.3 No Conflicts; Enforceability. Its execution, delivery and performance
of this Agreement do not require the consent or approval of any governmental
body or regulatory authority, are not in contravention of or in conflict with
any applicable federal laws or state regulations, rules or orders, and will not
result in a breach or default under any contract or other binding commitment or
any provision of the articles of incorporate or bylaws or other organizational
documents, as the case may be, of such entity.
16.4 Investment Intent. Its JV Interests hereunder have been acquired
solely by and for its account for investment purposes and is not being purchased
for, or with a view to, subdivision, fractionalization, resale or distribution,
it has no contract, undertaking, agreement or arrangement with any person to
transfer such property (or any part hereof) to such person or anyone else; and
it
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has no present plans or intentions to enter into any such contract, undertaking
or arrangement; and agrees not to transfer all or any part of such property (or
any part thereof), except that subject to compliance with the terms of this
Agreement and all applicable laws, regulations, rules and orders.
16.5 Liens. There does not exist any liens or encumbrances on its JV
Interest hereunder, and hereafter will not cause or suffer to exist any liens or
encumbrances on such property, except in accordance with and subject to
applicable law and the provisions of this Agreement.
16.5 Adverse Effect. It is not in violation or default under any agreement
with any person, or under any law, judgment and by virtue of this Agreement or
the transactions contemplated herein be, order, decree, license, permit,
approval, rule, or regulation of any court, arbitrator, administrative agency,
or other government authority to which it may be subject, or that could
reasonably be anticipated to have a material adverse effect upon the Venture or
any other Venturer, and hereafter shall take no action that shall be in
violation or cause a default under any agreement with any person, or under any
law, judgment, order, decree, license, permit, approval, rule, or regulation of
any court, arbitrator, administrative agency, or other governmental authority to
which it may be subject, or that could reasonably be anticipated to have a
material adverse effect upon the Venture or any other Venturer.
16.6 Investment Sophistication. With respect to its investment in the
Venture:
(a) it has knowledge and experience in financial and business matters in
general, and in investments of this type;
(b) it is capable of evaluating the merits and risks of such investment;
(c) it has either secured independent tax advice with respect to such
investment, upon which it is solely relying, or it is sufficiently familiar with
the income taxation of the Venture that it has deemed such independent advice
unnecessary;
(d) it has received or has access to all material information and
documents with respect to such investment and has had the opportunity to ask
questions and receive answers thereto and to verify and clarify any information
available.
(e) it understands that no federal or state agency has reviewed or passed
upon the adequacy or accuracy of the information set forth in the documents
submitted to it or made any finding or determination as to the fairness for
investment, or any recommendation or endorsement of such investment;
(f) it understands that there are restrictions on the transferability of
its JV Interest as set forth in this Agreement;
(g) it understands that there will be no public market for its JV
Interests, and accordingly, it may not be possible to liquidate such investment;
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(h) it understands that any anticipated federal or state income tax
benefit applicable to such property may be lost through changes in, or adverse
interpretations of, existing laws and regulations;
(i) it has entered into this Agreement freely and voluntarily, without
coercion, duress, distress, or undue influence by any other persons or their
respective stockholders, directors, officers, Venturers, agents or employees;
and
(j) it understands that this Agreement may affect legal rights and it has
received legal advice from counsel of its choice in connection with the
negotiation and execution of this Agreement and is satisfied with its legal
counsel and the advice received from it.
16.7 Survival of Representatives, Warranties and Covenants. All
warranties, representations and covenants in this Article shall be deemed to be
continuing and shall remain true and correct in all material respects and shall
survive formation and termination of the Venture and shall survive any exercise
of any remedy of a Venturer under this Agreement.
ARTICLE XVII
CASUALTY AND CONDEMNATION
17.1 Insurance. The Venture shall maintain insurance with respect to the
ownership and operation of the Complex, and any additional assets and the risks
of conducting its business, including but not limited to worker's compensation
coverage, all risk coverage, difference in conditions coverage, public liability
coverage, property damage coverage, and boiler and machinery coverage, on such
terms and in such amounts as are agreed upon by the Management Committee from
time to time.
17.2 Procedure Following Casualty. Upon the occurrence of a casualty
resulting in any damage to or destruction of all or any portion of the Complex,
any insurance proceeds in respect of such casualty, net of any collection costs
and amounts due to any lender to the Venture, shall, subject to the Management
Agreement, be used to repair or reconstruct such damaged portion of the Complex
on the condition that the Venturers shall have previously mutually agreed upon
or mutually approved each of the following:
(a) A construction schedule calling for complete repair or reconstruction
of the damage within a specified time period after the date of occurrence of the
casualty;
(b) A construction contract pursuant to which the repair or reconstruction
is to be accomplished;
(c) Plans and specifications for the repair or reconstruction;
(d) An operating budget for the restored property which demonstrates that
the Complex, after repair or reconstruction, can reasonably be expected to be
economically viable; and
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(e) A budget and source of funds for the cost of such repair or
reconstruction and express approval of any expenses in excess of any insurance
proceeds that may be available for such repair or reconstruction.
17.3 Procedure Following Partial Condemnation. Upon the occurrence of any
partial condemnation of the Complex, any proceeds or payments to the Venture as
a result of such partial condemnation, net of any collections costs and amounts
due to any lender to the Venture, shall, subject to the terms and conditions of
the Management Agreement, be used to repair or reconstruct the remaining portion
of the Complex on the condition that the Venturers shall have previously
mutually agreed upon or mutually approved each of the following:
(a) A construction schedule calling for complete repair or reconstruction
of the remaining portion of the Complex within a specified time period after the
partial taking;
(b) A construction contract pursuant to which the repair or reconstruction
is to be accomplished;
(c) Plans and specifications for the repair or reconstruction;
(d) An operating budget for the remaining portion of the Complex which
demonstrates that such remaining portion of the Complex, after the repair or
reconstruction, can reasonably be expected to be economically viable; and
(e) A budget and source of funds for the cost of such repair and
reconstruction and express approval of any expenses in excess of any
condemnation proceeds that may be available for such repair or reconstruction.
ARTICLE XVIII
GENERAL PROVISIONS
18.1 Other Interests. Each of the Venturers understands that each other
Venturer or its Affiliates may be interested, directly or indirectly, in various
other businesses and undertakings not included in the Venture. Except as
provided in Section 18.3 hereof or elsewhere in this Agreement or as mutually
agreed upon by the Venturers, the Venturers hereby agree that the creation of
the Venture and the assumption by each of the Venturers of its duties hereunder
shall be without prejudice to their rights (or the rights of its Affiliates) to
have such other interests and activities and to receive and enjoy profits or
compensation therefrom, and each Venturer waives any rights it may otherwise
have to, by reason of any duty otherwise owed to the Venture or its Venturers,
share or participate in such other interests or activities of the other Venturer
or its Affiliates. Except as provided in Section 18.3 hereof or elsewhere in the
Agreement, the Venturers and their Affiliates may engage in or possess any
interest in any other business venture of any nature or description
independently or with others, including, but not limited to, the ownership,
financing, leasing, operation, management, syndication, brokerage, or
development of real property and gambling casinos, and neither the Venture nor
any other Venturer shall have the right by virtue of this Agreement or otherwise
to prevent or participate in any such activity or the income or profits derived
therefrom.
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18.2 Other Opportunities. No Venturer need disclose to any other Venturer
or the Venture any other business venture in which it or its Affiliates may have
an interest or any other business opportunity presented to it, even if such
opportunity is of a character which, if presented to the Venture, could be taken
by the Venture, and each Venturer and its Affiliates shall have the right to
take for its own account or to recommend to others any such particular
investment opportunity or business venture.
18.3 Prohibited Payments. Each Venturer agrees that it and its Affiliates
will conduct their activities, and will cause any activities conducted on their
behalf to be conducted, in a lawful manner and specifically will not engage in
the following transactions:
(a) Payments or offers of payment, directly or indirectly, to any domestic
or foreign government official or employee in order to obtain business, retain
business or direct business to others, or for the purpose of inducing such
government official or employee to fail to perform or to perform improperly his
official functions;
(b) receive, pay or offer anything of value, directly or indirectly, from
or to any private party in the form of a commercial bribe, influence payment or
kickback for any such purpose; or
(c) use, directly or indirectly, any funds or other assets of the Venture
or of such Venturer for any unlawful purpose including, without limitation,
political contributions in violation of applicable laws, regulations, rules or
orders.
18.4 Subsequent Actions and Good Faith. Each Venturer shall hereafter
execute, deliver and file such further instruments and do such further acts and
things as may be required or useful to carry out the intent and purpose of this
Agreement and that are not inconsistent with the terms of this Agreement. Each
Venturer shall exercise in good faith and its best efforts in all transactions
affecting the Venture. If a Venturer is required to retain the services of an
attorney to enforce or otherwise litigate or defend any matter arising out of
this Agreement between such Venturer and the Venture or any other of the
Venturers, the prevailing party shall be entitled to be reimbursed for its
reasonable attorney's fees by the non-prevailing party.
18.5 Standing and Discharge of Liens. Each Venturer: (a) shall at all
times preserve and keep in good standing its corporate status, as the case may
be, in Louisiana and in the State under whose laws it is organized; and (b)
shall pay all federal, state and local taxes, assessments and other governmental
charges imposed upon it or its JV Interests before any such taxes, assessments
or charges become a lien on its JV Interests.
18.6 Compensation and Interest. No Venturer shall receive from the Venture
any salary, drawings, payments or compensation for services rendered on behalf
of the Venturer in its capacity as a Venturer, nor shall any Venturer receive
interest in its capacity as a Venturer, nor shall any Venturer receive interest
on its Capital Contribution to the Venture or its Capital Account.
18.7 Captions. The captions and section headings used herein are for
convenience and for ease of reference only and constitute no part of the
agreement or understanding of the parties hereto, and no reference shall be made
thereto for the purpose of construing or interpreting any of the provisions of
this Agreement.
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18.8 Counterparts. This Agreement and any amendments hereto may be
executed in one or more counterparts, all of which, taken together, shall
constitute one agreement binding upon the parties, notwithstanding that all
parties are not signatories to the same counterpart.
18.9 Applicable Law. This Agreement is made pursuant to, and shall be
governed by, the laws of the State of Louisiana.
18.10 Entire Agreement. Except for the Master Agreement dated _________,
1997, and Management Agreement among the Venturers, this Agreement shall
supersede any written and oral agreement among such parties and constitutes the
entire understanding and agreement of the Venturers with respect to the subject
matter, and may not be altered, modified or rescinded except by written
instrument executed by the Venturers. The parties hereto acknowledge that they
do not deem or intend their interests in the Venture, either alone, together or
in conjunction with the Management Agreement or any other document or
understanding, to represent or to be a "security" for the purposes of any state
or federal law.
18.11 Severability. If any of the terms and provisions of this Agreement
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall in no event affect any of the other terms or provisions,
each of which other terms and provisions of this Agreement shall be valid and
enforceable to the fullest extent permitted by law
18.12 Successors and Assigns. The terms, provisions, covenants,
undertakings, agreements, obligations and conditions of this Agreement shall be
binding upon and shall inure to the benefit of the permitted successors in
interest and assigns of the parties hereto with the same effect as if mentioned
in each instance where the party hereto is named or referred to, except that no
Transfer by a Venturer in violation of the provisions of this Agreement shall
vest any rights in the assignee, transferee, purchaser, secured party, mortgagee
or pledgee.
18.13 Time of the Essence. Time is of the essence with respect to all of
the terms, covenants, obligations and agreements herein contained.
18.14 No Third Party Beneficiaries. Nothing contained in this Agreement
shall inure to the benefit of any third parties or any creditors of the Venture
or grant such third parties or creditors any rights or causes of action against
any of the parties hereto.
18.15 Regulatory Information. Each Venturer shall provide, to the Venture
or regulatory agency, as the case may be, as required by applicable laws,
regulations, rules or orders, all information pertaining to the Venture and such
Venturer's officers, directors, shareholders, financial sources, and
associations as shall be required by any federal or state securities law or any
regulatory authority with jurisdiction over the Venture, the Complex, or any
Venturer or any Affiliates of such person.
18.16 Required Loan Document Provisions. No Venturer shall incur, or
permit any person or entity that holds any JV Interests to incur, any
indebtedness for borrowed money unless the documents evidencing such
indebtedness (the "Loan") include a provision obligating the applicable lender
indebtedness (the "Lender") as follows:
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If the Lender is required to qualify or be found suitable under any
applicable gaming law, regulation or rule and does not so qualify or
otherwise does not meet the suitability standards pursuant to any
applicable gaming law, regulation or rule, the Lender shall sell the Loan
to a suitable lender or lenders (the "Substitute Lender") that assumes(s)
and accept(s) the rights and obligations of the Lender. If the Lender
fails to sell the Loan to a Substitute Lender, upon payment of the
outstanding principal and interest, only, and without any fee or other
charge for such sale, within 30 days of being determined unsuitable or
unqualified, or such lesser period of time as specified by any applicable
gaming law, regulation or rule, the borrower may designate a Substitute
Lender within an additional 90-day period, or such lesser period of time
as specified by any applicable gaming law, regulation or rule, or may at
its election upon written notice to the Lender, subject to all
restrictions of any applicable gaming law, regulation or rule, immediately
redeem the Loan by payment of all principal, interest and other amounts
due with respect thereto without premium or penalty for prepayment. To the
extent and for so long as required by any applicable gaming law,
regulation or rule, the Lender agrees that upon the Lender being
determined unsuitable or unqualified, the redemption of the Loan and all
payments to and rights of the Lender shall be subject to all restrictions
of any applicable gaming law, regulation or rule.
18.17 Lender Suitability. No Venturer shall incur or permit any person or
entity that holds any JV Interests to incur any indebtedness unless the
documents for such indebtedness provide that:
(a) If any lender to the Venture or to any person that holds any JV
Interest becomes subject to an unsuitability determination by the Gaming
Authorities the result of which is to threaten the revocation, suspension,
termination or rescission of any permit, approval, any entitlement or license
granted by the Gaming Authorities to or for the benefit of the Venture, a
Venturer, or any Affiliate of a Venturer, or result in any other penalty to the
Venture, a Venturer and any Affiliate of a Venturer, and if such Unsuitability
Determination is not cured in accordance with applicable laws, regulations rules
or orders, then to the extent and so long as provided by applicable laws,
regulations, rules or orders: (i) all payments to such lender shall be suspended
and escrowed; (ii) such lender shall immediately divest itself of all loans made
to the Venture or such person; and (iii) such lender shall be subject to any
other remedies as shall be required by applicable laws, regulations, rules and
orders.
(b) If the Management Committee reasonably determines that the existence
of a loan from a lender to the Venture will threaten any gaming license, permit,
approval, or other entitlement that such Venturer or any Affiliate of such
Venturer holds or applies for in any other jurisdiction, such Venturer may, at
no cost to the Venture or the other Venturer: (i) require the Venture to
exercise any redemption rights in any loan documents with such lender and redeem
such loan so long as such Venturer makes a loan to the Venture (with the same
security, interest and maturity provisions as the redeemed loan) of the funds
necessary to effect such redemption or procures a loan for the Venture (with the
same interest, security and maturity provisions as the redeemed loan) from a
Substitute Lender and so long as such loan is in compliance with the Venture's
loan documents and this Agreement; (ii) require the Venture to exercise the
rights in any loan documents with such lender to procure a Substitute Lender or
lenders that will assume and accept the rights and obligations of the
objectionable lender; or (iii) with the consent of such lender, if required in
any
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loan documents with such lender, procure a Substitute Lender or lenders that
assume and accept the rights and obligations of the objectionable lender.
ARTICLE XIV
[INTENTIONALLY OMITTED]
ARTICLE XX
INSURANCE
20.1 Coverage.
(a) Required Insurance. The Venture shall secure and maintain the
following insurance with respect to the Complex at all times during the term of
this Agreement:
(i) Hull and machinery insurance as outlined by the American
Institute Hull clauses in an amount equal to the stated market value of the
Vessel;
(ii) Insurance against loss of profits measured by net income of the
Venture plus continuing expenses for a period of not less than one year;
(iii) Liability insurance covering any liability arising out of the
ownership, maintenance or use of the Complex and also covering liability arising
from wharves and land based operations, including but not limited to liquor,
personal injury, wharfingers, contractual, premises and advertising liability in
an amount not less than $125 million per occurrence;
(iv) Comprehensive crime insurance in an amount equal to not less
than $5 million;
(v) Worker's compensation and employer's liability or other
appropriate insurance covering all employees of sea and land operations;
provided that the limit of liability shall be equal to the statutory benefit
limits that are provided by the appropriate governing act, and employer's
liability coverage shall have a limit of $2 million where applicable; and
(vi) Insurance against such other insurable risks as the Venture
may, from time to time, reasonably require.
(b) Changes in Coverage. The Venture may raise the minimum amount of
insurance to be maintained with respect to the Complex under the above
Subsection (a) to make such insurance comparable to the amount of insurance
carried with respect to other similar operations taking into account the size,
location and character of the Complex. In addition, neither party shall
unreasonably withhold its consent to a request by the other party that such
minimum limits of insurance be lowered on the basis that such insurance cannot
be obtained in such amounts, or can be obtained only at a prohibitive cost.
Similarly, if during the term of this Agreement changes in the insurance
industry shall make any of the descriptions of the required insurance coverage
inaccurate or inappropriate, then the Venture may change such requirements to
accurately describe,
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in the then current vernacular, the type of insurance which would be comparable
to the coverage described in the above Subsection (a).
(c) Requirements. All policies of insurance shall be written on an
"occurrence" basis, if possible, and if any policy is written on a "claims made"
basis, then such policy must, if possible, be continued in effect for a period
of two years following the expiration or early termination of this Agreement.
The insurance coverage shall in any event comply with the requirements of the
Loan Commitments, if any.
20.2 Policies and Endorsements.
(a) Policies. All insurance provided for under the above Section 20.1
shall be effected by policies issued by insurance companies of good reputation
and of sound and adequate financial responsibility as determined by the
Management Committee. The Venture shall furnish to each Venturer certificates of
insurance with respect to all of the policies of insurance so procured,
including existing, additional and renewal policies, and in the case of
insurance about to expire, the Venture shall deliver to each Venturer
certificates of insurance with respect to the renewal policies not less than 30
days after the respective dates of expiration.
(b) Endorsements. All policies of insurance provided for under this
Article XX shall have attached thereto (a) an endorsement that such policy shall
not be canceled or materially changed without at least 30 days prior written
notice to the Venture and each Venturer, (b) an endorsement to the effect that
no act or omission of the Venture or any Venturer shall affect the obligation of
the insurer to pay the full amount of any loss sustained and (c) an endorsement
to the effect that all liability policies of insurance shall be endorsed to
include worldwide coverage for suits brought against named insureds as described
in Subsection 20.2(c).
(c) Named Insureds. All policies of insurance required under clauses
(a)(i) and (a)(ii) of Section 20.1 shall be carried in the name of the Venture,
and, if required, the lender under the Loan Commitments, and each of the
Venturers shall be named as additional insureds thereunder. Losses thereunder
shall be payable to the parties as their respective interests may appear.
Notwithstanding the foregoing, if the lender under the Loan Commitments is an
institutional lender, and so requires, losses may be made payable to such
lender, or to a bank or trust company, in either instance as trustee for the
custody and disposition of the proceeds therefrom. The Venturers agree that any
Loan Commitment documents shall contain a provision to the effect that proceeds
from property insurance shall be available for restoration of the Complex. All
insurance policies required in clauses (a)(iii), (a)(iv) and (a)(v) of Section
20.1 shall name the Venture and its Affiliates, and the directors, officers,
agents and employees of each such entity as named insureds, and the Venturers
and their Affiliates, and the directors, officers, agents and employees of such
entity as additional insureds.
20.3 Waiver of Liability. No Venturer shall assert against the other, and
each of the Venturers hereby waives with respect to each other, or against any
other entity or person named as additional insureds on any policies carried
under this Article XX, any claims for any losses, damages, liability or expenses
(including attorney's fees) incurred or sustained by either of them on account
of injury to persons or damage to property arising out of the ownership,
development, construction, completion, operation or maintenance of the Complex,
to the extent that the same are covered by the insurance required under this
Article XX. Each policy of insurance shall contain a
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<PAGE>
specific waiver of subrogation reflecting the provisions of this Section 20.3,
or a provision to the effect that the existence of the preceding waiver shall
not affect the validity of any such policy or the obligation of the insurer to
pay the full amount of any loss sustained.
20.4 Insurance by Venturers. Any insurance provided by the Venture under
this Article XX may be effected under policies of blanket insurance which cover
other properties of the Venturers, or any of their respective Affiliates, and
the pro rata portion of such premiums shall be charged and allocated to the
Complex on the same basis as allocated to other participating operations of said
Venturer. Any policies of insurance maintained by the Venture pursuant to the
provisions of this Article XX may contain deductible provisions in such amounts
as are maintained with respect to other operations of said Venturer, taking into
account local standards and practices. Further, in lieu of all or a part of
comprehensive public liability insurance and worker's compensation and
employer's liability insurance under clauses (a)(iii) and (a)(v) of Section
20.1, any or all of the risks covered by such insurance may be self-insured or
self-assumed by the Venture under a self-insurance or assumption of risk program
similar to those in effect at other operations of said Venturer, up to such
amounts as such risks are assumed or self-insured at other operations of said
Venturers.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
By: NEW ORLEANS PADDLEWHEELS, INC.
By:___________________________
Title: ______________________
By: SODAK GAMING, INC.
By:___________________________
Title: ______________________
By: HWCC-LOUISIANA, INC.
By:___________________________
Title: ______________________
By: SHREVEPORT PADDLEWHEELS, INC.
By:___________________________
Title: ______________________
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<PAGE>
GAMING CONTROL BOARD
STATE OF LOUISIANA
- ------------------------------------------)
)
In re )
)
QUEEN OF NEW ORLEANS AT )
THE HILTON JOINT VENTURE )
- ------------------------------------------)
PETITION FOR MODIFICATION AND
APPROVAL OF TRANSFERS OF INTEREST
NOW BEFORE THE BOARD, comes the Queen of New Orleans at the Hilton Joint
Venture ("QNOV"), through undersigned counsel, and petitions this Board for the
approvals specified herein, which will allow QNOV to successfully relocate its
gaming operations in Shreveport.
1.
QNOV intends to develop a first class, highly themed Hollywood gaming
project in Shreveport. The project will feature a state-of-the-art riverboat
newly constructed in a Louisiana shipyard. This riverboat will offer 30,000
square feet of net gaming space and will be docked in a water-regulated coffer
dam. The landside improvements are planned to include a 300 room hotel and a
60,000 square foot pavilion building which includes a gourmet steakhouse and
other restaurants, new retail outlets and more than 1500 parking spaces. The
project is estimated to cost approximately $137 million and should create more
than one thousand new jobs.
2.
To facilitate this project, QNOV will bring into the venture as partners
two successful, publicly-traded gaming corporations. These two companies,
Hollywood Casino Corporation
<PAGE>
("Hollywood"), and Sodak Gaming, Inc. ("Sodak"), will add financial strength and
provide the gaming and marketing experience necessary to complete a first class
gaming project.
3.
Hollywood, headquartered in Dallas, Texas, will participate in the venture
through its wholly-owned subsidiary, HWCC-Louisiana, Inc. A wholly owned
subsidiary of Hollywood will manage the project and bring to the project
Hollywood's popular Hollywood-movie theme and decades of hotel and casino
experience. Sodak is a leading provider of gaming equipment and services and is
located in Rapid City, South Dakota. Sodak's interest in QNOV will be held by
its wholly-owned affiliate, Sodak Louisiana, L.L.C.
4.
Both Hollywood and Sodak have been approved for gaming licenses or
certified in Louisiana. This should benefit the project because the time
necessary to review and license these companies should be reduced.
5.
In order to facilitate the Shreveport venture, Hilton New Orleans
Corporation ("HNOC"), now a 50 percent partner in QNOV, will transfer its
interest in QNOV to Shreveport Paddlewheels, L.L.C. ("Shreveport Paddlewheels"),
which has the identical ownership as QNOV's other 50 percent partner, New
Orleans Paddlewheels, Inc. ("Paddlewheels"). Paddlewheels and Shreveport
Paddlewheels will ultimately transfer a one-third interest to both Hollywood and
Sodak, so that Shreveport Paddlewheels, Hollywood and Sodak will each own
one-third of QNOV.
6.
The designated berth and site for development of this project is the area
along the Shreveport riverfront referred to as the Harrah's valet parking lot.
As this site is included within
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<PAGE>
the berth site awarded to QNOV last year, it is not necessary to hold a new
referendum on the project.
WHEREFORE, the premises considered, the Queen of New Orleans at the Hilton
Joint Venture prays that this Board approve its new Shreveport project and the
transfers of interest requested herein, specifically, (a) the transfer of
interest from HNOC to Paddlewheels or Shreveport Paddlewheels in accordance with
the terms of the agreement between HNOC and Paddlewheels attached as Exhibit 13
hereto, (b) the transfer of interest from Paddlewheels and/or Shreveport
Paddlewheels to Hollywood and Sodak, and (c) QNOV's Shreveport project as
described in the attached memorandum.
Respectfully submitted,
/s/ James E. Smith, Jr.
------------------------------------
JAMES E. SMITH, JR.
IRA J. ROSENZWEIG
700 Camp Street
New Orleans, Louisiana 70130
(504) 525-0134
Attorneys for the Queen of New Orleans
at the Hilton Joint Venture
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<PAGE>
GAMING CONTROL BOARD
STATE OF LOUISIANA
- ------------------------------------------)
In re )
)
QUEEN OF NEW ORLEANS AT )
THE HILTON JOINT VENTURE )
- ------------------------------------------)
MEMORANDUM IN SUPPORT OF
PETITION FOR MODIFICATION AND
APPROVAL OF TRANSFERS OF INTEREST
MAY IT PLEASE THE BOARD:
The Queen of New Orleans at the Hilton Joint Venture ("QNOV") stands ready
to begin development of a first class gaming project in Shreveport. As an
integral part of this process, QNOV has attracted two new publicly traded gaming
companies to replace Hilton New Orleans Corporation's interest in the venture.
These two companies, Hollywood Casino Corporation ("Hollywood") and Sodak
Gaming, Inc. ("Sodak"), bring financial support and gaming experience to this
project.
In order to proceed with the development of the project, QNOV requests
that this Board approve the proposal for its project and the transfer of
interest in QNOV to the Louisiana affiliates of Hollywood and Sodak.
THE PROJECT
QNOV proposes a Shreveport project estimated to cost approximately $137
million and including a new, state-of-the-art riverboat and a 300 room hotel. An
overall site plan is attached at Tab 3. The project will operate under the
"Hollywood Casino" service mark and will draw on Hollywood's success and
experience in operations and marketing.
<PAGE>
The centerpiece of the project will be a newly constructed riverboat
offering 30,000 square feet of net gaming space. By opting for new construction,
QNOV will be able to offer state-of-the-art facilities tailored specifically for
the Shreveport market. As the riverboat will be built utilizing Louisiana
shipyards, additional economic opportunities will be created within the State.
The boat will be moored in a water-regulated coffer dam to alleviate
interference with operations during high water times. To the extent necessary,
the maritime operations will be managed by Paddlewheels, which has operated
QNOV's riverboats in New Orleans.
It is estimated that the new riverboat will take twelve months to
complete. Drawings and specifications for this riverboat are currently being
developed and will be submitted as completed. Projected views of the project are
attached at Tab 4. The vessel will comply with all applicable laws and
regulations, and QNOV representatives will work with this Board and the U.S.
Coast Guard during the planning and construction.
The casino will be managed by a subsidiary of Hollywood. Hollywood,
through its affiliates, has considerable experience operating a riverboat casino
in Illinois, a dockside casino in Mississippi and the Sands Hotel and Casino in
New Jersey. The casino and pavilion will emphasize Hollywood's distinctive
movie-memorabilia theme, including its featured Hollywood Studio Store. The
pavilion will also feature a Fairbanks Gourmet Steakhouse and at least two other
dining areas.
The landside facilities will also include a 300 room hotel offering both
suites and standard rooms. The hotel, estimated to cost at least $24 million, is
planned with a restaurant, meeting rooms and banquet facilities. The terminal
will include a retail facility and more than 1500 parking spaces. Additional
drawings of the planned project are attached at Tab 5, and further details of
the project are attached at Tab 6.
- 2 -
<PAGE>
ECONOMIC BENEFIT
QNOV's project will yield a tremendous economic benefit for Shreveport and
will key the development of Shreveport's important downtown riverfront area. The
hotel, restaurants and retail outlets associated with the project will
complement Shreveport's downtown. In addition to the hundreds of jobs created by
construction of the riverboat, hotel and other landbased facilities, the project
is anticipated to add more than one thousand permanent jobs to the
Shreveport/Bossier economy. QNOV will diligently pursue the hiring of minorities
to fill these jobs.
Hollywood's familiar movie-related themes and aggressive marketing will
bolster the project. Hollywood is the largest institutional collector of movie
memorabilia in the United States and displays this memorabilia in its casinos,
creating an interesting and attractive experience for its patrons.
Shreveport remains the State's premier gaming location. An independent
study conducted last year by Standard & Poor's Corp. demonstrates that the
Shreveport-Bossier market should grow to $600 to $650 million dollars in revenue
with the addition of more casino space, quality hotel rooms and other amenities.
See Standard & Poor's Report, page 23, attached at Tab 7.
THE SITE
The berth site for the riverboat will be located in the area now known as
the Harrah's valet lot. More specifically, the berth site for the vessel is the
property bounded on the east by the Red River, on the south by the Texas Street
Bridge right of way, on the west by Clyde Fant Parkway and on the North by
Harrah's casino project. QNOV will also lease other properties for parking and
the development of future amenities.
This site is within the "designated berth" for QNOV which was approved by
this Board in its October 11, 1996, order. By sharing a portion of Harrah's
site, as originally contemplated,
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<PAGE>
QNOV ensures that the site is within the berth granted to QNOV last year.
Therefore, a referendum election should not be necessary.
To facilitate QNOV's development, Harrah's has agreed to relinquish
portions of its complex, which are now leased from the City of Shreveport and
used as a valet parking lot. That property is immediately adjacent to the Texas
Street Bridge and immediately shoreside of the berth designated for QNOV in the
Order. In exchange for Harrah's agreement, the City of Shreveport agreed to
lease Harrah's additional city-owned land adjoining the Harrah's complex to the
immediate north. Harrah's will relocate its valet parking lot to the new leased
property and will retain that property for future development and expansion of
its gaming complex. Harrah's agreement to participate by making its property
available has been memorialized in correspondence which is attached at Tab 8.
FINANCING FOR THE PROJECT
The project will be funded, in part, by capital contributions from the
three partners totaling an estimated $37.5 million. The remainder of the project
will be financed through public or private debt offerings. QNOV has already
contacted Prudential Securities Incorporated ("Prudential"), one of the largest
brokerage firms in the United States, to assist in these offerings.
Prudential has determined that QNOV "can successfully raise approximately
$100-115 million of debt securities in the public or private (144A) capital
markets at this time." See Letter from Prudential attached at Tab 9. In reaching
this conclusion, Prudential analyzed information on the Shreveport/Bossier
gaming market, other casino financings, and general economic and market
considerations.
THE CHANGES TO QNOV
As this Board knows, in order for QNOV to fulfill its commitments to this
Board and the City of Shreveport, Hilton New Orleans Corporation ("HNOC") had to
agree to withdraw from
- 4 -
<PAGE>
the venture and transfer its interest to Paddlewheels. QNOV then attracted
Hollywood and Sodak as new partners to help develop a Shreveport project. The
process involved in developing this project, and the approvals needed from this
Board, are set forth below.
BRIEF HISTORY OF THE LICENSEE
Currently, QNOV is a joint venture owned 50 percent by each of
Paddlewheels and HNOC. QNOV received a Certificate of Preliminary Approval from
this Board's predecessor, the Louisiana Riverboat Gaming Commission, on March
12, 1993. QNOV also received its gaming license from the Louisiana Riverboat
Gaming Enforcement Division (the "Division") on October 13, 1993.
On February 10, 1994, QNOV opened the second riverboat casino in the New
Orleans area with the operation of the M/V Queen of New Orleans in downtown New
Orleans on the Mississippi River. QNOV operated this vessel, measuring 245 feet
by 64 feet, until November 19, 1994, when the much larger M/V Flamingo Casino
was completed and began operation. Although greater revenues were expected from
this larger, state-of-the-art vessel, QNOV's earnings and profits fell well
below expectations when competition in downtown New Orleans increased. QNOV then
sold the M/V Flamingo Casino and replaced it once again with the smaller M/V
Queen of New Orleans, which resumed operations on January 19, 1996.
THE COMPANIES
Since the last meeting of this Board, Paddlewheels and its prospective new
partners, Hollywood and Sodak, have conducted extensive negotiations and
planning aimed at submitting to this Board the proposal described herein.
Samples of the agreements supporting this proposal are attached at Tab 10. The
parties to this proposed new project are as follows:
- 5 -
<PAGE>
New Orleans Paddlewheels, Inc.
Paddlewheels is one of the founding companies of riverboat gaming in the
state of Louisiana. In 1989, as the owner of excursion vessels on the
Mississippi River at New Orleans the company began to draft and lobby for a
riverboat casino bill before the Louisiana Legislature. In 1991 that bill was
passed and signed into law. Through its affiliation with HNOC, Paddlewheels
became licensed and owned and operated the third riverboat casino in the State.
Paddlewheels is a preeminent player in the state's all-important tourism
industry. Paddlewheels' principals have been in the maritime business in
Louisiana for more than 20 years. Paddlewheels now owns and operates two other
riverboats which operate on the Mississippi river in New Orleans. Through its
affiliates, Paddlewheels owns and operates tours, transportation facilities, a
travel agency and a hotel. Paddlewheels and its affiliates employ more than 800
workers in the state.
Paddlewheels is already licensed through its participation in QNOV.
- 6 -
<PAGE>
Hollywood Casino Corporation
Hollywood Casino Corporation became introduced to Louisiana when it
applied for and earlier this year was approved for the 15th riverboat gaming
license. Although this approval was withdrawn through circumstances beyond
Hollywood's control, Hollywood remained committed to Louisiana and returns as a
prospective partner and gaming operator of QNOV's Shreveport project.
Hollywood's prior approval, however, should ease the process of approving
Hollywood for this project. A copy of Hollywood's 1996 Form 10-K is attached at
Tab 11.
Hollywood's casinos are noted for their ties to Hollywood movie
personalities and themes and exhibition of actual movie memorabilia. Hollywood
was incorporated in 1990 as the parent company of Pratt Hotel Corporation (n/k/a
Greate Bay Casino Corporation), a large hotel/resort developer and the owner and
operator of the Sands Hotel and Casino in Atlantic City, New Jersey, and the
Sands San Juan Hotel and Casino in San Juan, Puerto Rico, to develop and own
expanded interests in the lodging, gaming and entertainment industries. Such
expanded interests now include Hollywood's ownership and operation of the
Hollywood Casino in Aurora, Illinois, which opened in June 1993, and the
Hollywood Casino Hotel and RV Park in Tunica County, Mississippi, which opened
in August 1994. In 1996, Hollywood spun-off Pratt Hotel Corporation and its
subsidiaries to its stockholders.
Hollywood is a family controlled, publicly traded corporation. Jack E.
Pratt, Chairman and CEO of the company, along with his brothers, formed Pratt
Hotel Corporation in 1967. They opened their first hotel, a Holiday Inn
franchise in Mineral Wells, Texas, and over the next 30 years developed over 40
hotel and resort properties throughout the United States and Latin America, with
an aggregate value of approximately $2.5 billion.
The Pratt brothers have also developed casino properties such as the
Hollywood Casino in Aurora, the Hollywood Casino in Tunica, the Sands Hotel and
Casino in Atlantic City, the
- 7 -
<PAGE>
Sands San Juan Hotel and Casino in Puerto Rico (which was sold in 1997) and the
Sands Hotel Casino in Las Vegas, Nevada (which was sold in the early 1980's).
The Pratt brothers have also drawn on their casino experience to form Advanced
Casino System Corporation, which now licenses casino accounting and control
software and supplies software to more than 60 major casino clients.
Hollywood and its affiliated companies now have more than 7,000 corporate
and casino-based employees and is headquartered in Dallas, Texas. Dallas, of
course, is Shreveport's largest market. Hollywood will participate in QNOV
through its wholly-owned subsidiary, HWCC-Louisiana, Inc.
Sodak Gaming, Inc.
Sodak is a leading distributor and provider of gaming equipment and
services. Sodak built and manages the largest network of interstate wide area
progressive systems in the United States. The company also has an interest in
the management of two casinos, one each in Iowa and Arizona and has invested in
gaming operations in South America.
Sodak was founded as a gaming equipment distributor in 1989 and has been
publicly traded since 1993. Sodak is the exclusive distributor of IGT products
and systems in U.S. Indian gaming. Sodak has a 74 percent market share (52,000)
machines sold) of an installed base of 70,000 machines. In addition to IGT
machines, the company provides a full range of casino products and services
including: gaming and related equipment and supplies; financing for product
sales; casino design and layout; legal and regulatory assistance; demographic
and market information; and installation, maintenance and training. Sodak
implemented the first and largest interstate mega-jackpot systems, now located
in 69 casinos. More than 1,500 machines are connected to the systems.
- 8 -
<PAGE>
Sodak operates the Miss Marquette riverboat in Iowa and participates as a
financier in Harrah's Ak-Chin Indian casino near Phoenix, Arizona. Sodak,
through its subsidiaries, operates gaming machine routes and a casino in South
America. The company holds licenses in more than 100 regulatory jurisdictions.
In Louisiana, Sodak is certified by the State Police as a gaming equipment
manufacturer/supplier for the state's Indian gaming market. Sodak has 1,100
employees and is headquartered in Rapid City, South Dakota. Sodak's interest in
QNOV will be held by a Louisiana limited liability company, Sodak Louisiana,
L.L.C. A copy of Sodak's Form 10-K for the last year is attached at Tab 12.
THE TRANSFERS IN INTEREST
To facilitate this Shreveport project, HNOC has agreed to transfer its
interest in QNOV to Shreveport Paddlewheels, L.L.C. ("Shreveport Paddlewheels").
A copy of HNOC's agreement is attached at Tab 13. The principals of Paddlewheels
created Shreveport Paddlewheels solely to receive HNOC's interest in QNOV. The
ownership of Shreveport Paddlewheels is identical to that of Paddlewheels and,
therefore, the Board should not have to make any additional suitability
determinations with respect to Shreveport Paddlewheels. Shreveport Paddlewheels'
creation is necessitated solely because Louisiana law, in Civil Code Article
2826, requires that a partnership consists of at least two members. QNOV must be
preserved because it holds the gaming license, and licenses cannot be
transferred. R.S. 27:68.
Upon the approval of HNOC's transfer of interest in this manner,
Paddlewheels and Shreveport Paddlewheels will collectively own 100 percent of
the license. Paddlewheels and Shreveport Paddlewheels will then transfer a
one-third interest in QNOV to both Hollywood and Sodak or their affiliates.
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<PAGE>
All of the parties to these transactions, QNOV, Paddlewheels, Shreveport
Paddlewheels, Hollywood and Sodak, recognize that these transfers are subject to
the parties being investigated and determined suitable for a gaming license.
CONCLUSION
Pursuant to this Board's directive, QNOV and Paddlewheels have attracted
new partners and developed a significant and sound project for Shreveport.
Accordingly, QNOV requests that the transfers of interest set forth herein be
approved and that its proposal for a Shreveport gaming project be approved.
Respectfully submitted,
/s/ James E. Smith, Jr.
-----------------------------------
JAMES E. SMITH, JR.
IRA J. ROSENZWEIG
700 Camp Street
New Orleans, Louisiana 70130
(504) 525-0134
Attorneys for the Queen of New Orleans
at the Hilton Joint Venture
<PAGE>
---------------------------------------
MANAGEMENT SERVICES AGREEMENT
---------------------------------------
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made and entered
into as of the _____ day of October, 1997, by and between QUEEN OF NEW ORLEANS
AT THE HILTON JOINT VENTURE, a Louisiana joint venture ("Owner"), and [HOLLYWOOD
CASINO CORPORATION OR ITS AFFILIATE], a [Delaware] corporation ("Operator").
W I T N E S S E T H:
WHEREAS, Owner is or will become (i) the lessee of those certain premises
located on or adjacent to the Red River in the City of Shreveport, State of
Louisiana owned by the City of Shreveport and more particularly described on
Exhibit "A" which is attached hereto and made a part hereto by reference (the
"Property"), (ii) owner in fee of a pavilion, hotel, parking garages and other
facilities to be located on the Property and (iii) owner in fee or lessee of a
riverboat to be located in a coffer dam on the Property which upon receipt of
certain approvals from the Louisiana Gaming Control Board (the "Board") will be
entitled to conduct gaming activities thereon (collectively referred to as the
"Complex"); and
WHEREAS, Operator has extensive experience in casino operations and
management and has the knowledge and expertise to manage and operate the Complex
on behalf of Owner; and,
WHEREAS, Owner desires to benefit from the Operator's expertise in the
management and operation of the Complex and Operator is willing to manage and
operate the Complex on behalf of Owner, all in accordance with the terms and
pursuant to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual promises, representations, warranties, understandings, undertakings and
covenants herein contained, and intending to be legally bound thereby, Owner and
Operator hereby covenant and agree as follows:
ARTICLE ONE
APPOINTMENT OF OPERATOR
1.01 Appointment and Term. Owner hereby appoints and employs Operator, and
Operator agrees, to act as its sole and exclusive agent for the supervision,
direction and control of the management of the Complex (or any additions or
expansions thereto) on the Owner's behalf, upon the terms and conditions
hereinafter set forth for a term commencing as of the date the Louisiana Gaming
Control Board approves of the development of the Complex (the "Commencement
Date") through the date Owner no longer holds a riverboat gaming license in
Louisiana, subject to earlier termination in accordance with Article Eleven of
this Agreement (the "Term"). Upon termination of the Term or any early
termination as provided herein, Owner shall forthwith pay to Operator any and
all amounts due to Operator as of such termination date.
<PAGE>
1.02 Relation of the Parties. In taking any action pursuant to this
Agreement, Operator will be acting only as the appointed agent or representative
of Owner, and nothing in this Agreement shall be construed as creating a
tenancy, partnership, joint venture or any other relationship between the
parties hereto, except that of principal and agent. All debts and liabilities
properly incurred by Operator in the course of its management and operation of
the Complex hereunder shall be the debts and obligations of the Owner only, and
Operator shall not be liable therefor, except as specifically stated to the
contrary herein.
ARTICLE TWO
PRE-OPENING PROGRAM
2.01 Construction of the Complex. Owner hereby warrants and represents
that it is presently preparing for the construction of the Complex, in
accordance with those certain plans and specifications tendered by Owner to
Operator. During such construction, and prior to the Opening Date (as hereafter
defined), Operator shall perform the following project development services for
Owner, provided Owner separately provides Operator reimbursement of (i) all
expenses incurred by Operator under the provisions of this Section 2.01, and
(ii) the compensation (including any and all salaries, expenses, benefits, and
the like) paid to Operator's employees or those employees of Operator's
affiliates assigned to the Complex on a full-time basis for the purpose of
providing the following project development services until the Opening Date:
(a) Pre-opening sales office set-up, together with a pre-opening marketing
plan to be approved in advance by Owner, which approval shall not be
unreasonably withheld or unduly delayed; and,
(b) Hiring of personnel in accordance with the provisions of this
Agreement; and,
(c) Coordination of initial inventories purchases; and,
(d) Establishment of operating policies and procedures for the entire
Complex; and,
(e) Establishment of Complex security systems for assets, personnel and
patrons; and,
(f) Establishment of accounting and internal control systems and
procedures; and,
(g) Establishment of a preventative maintenance program; and,
(h) Establishment of risk management policies and procedures; and,
(i) Training of all staff.
Notwithstanding the foregoing, the aggregate amount of all reimbursements
paid by Owner to Operator for project development services shall not exceed the
amount included for such reimbursements in the Pre-Opening Budget described in
Section 4.10(a)(i).
2.02 Construction, Furnishings and Equipment of the Complex. Owner
warrants and represents:
2
<PAGE>
(a) That the Complex will be professionally designed, fully-furnished and
provided with all necessary accessories, including but not limited to casino
equipment and supplies, and will meet all fire, security and alarm requirements
of all applicable building codes; and,
(b) That Owner will provide, initially and throughout the Term, and at
Owner's sole cost and expense, full and adequate inventories of food and
beverage and of consumable items utilized in operating the Complex, such as
soap, cleaning materials, matches, stationery and all other similar items; and,
(c) That Owner will provide, initially and throughout the Term, and at
Owner's sole cost and expense, sufficient working capital, as contemplated in
Section 4.09, for the operation of the Complex.
2.03 Technical Services Agreement. Simultaneous with the execution of this
Agreement, Owner and Operator or one of its affiliates shall have entered into a
Technical Services Agreement, a form of which is attached hereto as Exhibit "B"
(the "Technical Services Agreement").
2.04 Title to Complex. Owner covenants and agrees that it will have and it
will maintain throughout the Term of this Agreement:
(a) A leasehold interest in the Property (and the riverboat, if the Owner
shall so elect), and full ownership of and title to the improvements of the
Complex, except for such mortgages or other encumbrances related to Owner's
financing of the purchase and refurbishment of the Complex to be constructed on
the Property (the "Project Financing"); and,
(b) Full ownership of the furnishings, fixtures and equipment located on
the Property ("FF&E"), free and clear of any liens, encumbrances, covenants,
charges, burdens or claims, except: (i) such as do not materially and adversely
affect the use thereof by Operator; (ii) mortgages or other encumbrances related
to the financing of the Complex and the FF&E; (iii) leases of personal property
and equipment; and (iv) purchase money mortgages. This Agreement shall not be
subject to forfeiture or termination under any financing documents relating to
the Complex, except in accordance with the provisions of this Agreement,
notwithstanding that there shall be a default under such financing documents.
Owner further covenants and agrees to pay and discharge any ground rents, any
other rental payments, concession charges or any other charges payable by Owner
in respect of the Complex, and, at its own expense, to undertake and prosecute
all appropriate actions, judicial or otherwise, to facilitate the quiet and
peaceable operation of the Complex by Operator. Owner also agrees to pay, prior
to delinquency, all taxes and assessments of whatever type which may become a
lien on the Complex and which may be due and payable during the Term, unless (i)
payment thereof is in good faith being contested by Owner, (ii) enforcement of
any purported lien is stayed, and (iii) Owner maintains adequate reserves in a
separate account with a reputable financial institution in order to discharge
any such lien upon five (5) days notice of the existence of such lien.
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ARTICLE THREE
NOTICES
Any and all written notices required by this Agreement shall be either
hand-delivered or mailed, certified mail, return receipt requested, telecopied,
or sent via commercial courier, addressed to:
TO OPERATOR: HWCC-Louisiana, Inc.
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Attention: President
Telecopier No. (972) 386-7411
TO OWNER: The Queen of New Orleans at
the Hilton Joint Venture
c/o New Orleans Paddlewheel, Inc.
_________________
New Orleans, Louisiana
Attention: Duane Smith
Telecopier No. ___________
WITH COPY TO: Sodak Gaming, Inc.
5301 South Highway 16
Rapid City, South Dakota 57701
Attention: General Counsel
Telecopier No. (605) 355-4976
All notices hand-delivered shall be deemed delivered as of the date actually
delivered. All notices mailed shall be deemed delivered as of three (3) business
days after the date postmarked. All notices telecopied shall be deemed delivered
as of the business day immediately following the date receipt of the telecopy is
confirmed. All notices sent via commercial courier shall be deemed delivered as
of the business day immediately following the date the notice is entrusted to
the commercial courier service with directions for service within one (1) day.
Any changes in any of the addresses listed herein shall be made by notice as
provided in this Article Three.
ARTICLE FOUR
OPERATION
4.01 Standards.
(a) With respect to the operation of the Complex pursuant to this and
every other applicable Section of this Agreement, subject to the terms of
Section 4.11 of this Agreement, Operator shall manage the Complex in a manner
consistent with both a first class entertainment complex and the standards and
procedures exercised by Operator, its subsidiaries and affiliates, in the
management of other casinos owned and operated by affiliates of Operator of the
same or similar type, class and quality as the Complex, as such standards and
procedures may be reasonably
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modified or revised by Operator from time to time, all in a professional manner
and in the exercise of good faith.
(b) In order for Operator to meet or exceed the aforementioned standards
and procedures in a professional manner, and to comply with any legal
requirements, Owner hereby agrees that, subject to the terms of Section 4.11 of
this Agreement, (i) Operator shall have uninterrupted control and operation of
the Complex during the Term of this Agreement, (ii) Owner will not interfere or
involve itself with the day-to-day operation of the Complex, and (iii) Operator
may operate the Complex free of molestation, eviction or disturbance by Owner or
any third party claiming by, through or under Owner. Examples of the matters
which Operator in its sole and exclusive discretion shall determine from time to
time hereunder include, but shall not be limited to: rates; prices; charges to
guests for other services performed by Operator at the Complex; the issuance of
credit or other like decisions; the granting of complementaries or other like
decisions; the terms of admittance to the Complex for purposes of entertainment;
the labor policies of the Complex; and the type and character of publicity and
promotion.
4.02 Permits. Owner, with the assistance of Operator, shall obtain and
maintain in full force and effect all necessary licenses and permits as may be
required for the operation of the Complex by Operator including, without
limitation, casino, liquor, bar, restaurant, sign, coast guard and hotel
licenses. All licenses and permits are to be in effect as of the date the
Complex opens for business (the "Opening Date"). Operator undertakes to comply
fully with any and all reasonably imposed conditions set out in any such
licenses and permits.
4.03 Personnel.
(a) All personnel of the Complex, except those mentioned in Section
4.03(b), shall be personnel of Owner. As agent for Owner, Operator shall have
the sole and absolute discretion to hire, supervise, direct the work of,
discharge and determine the compensation and other benefits of all personnel
working in the Complex. Owner shall not interfere with or give orders or
instructions to personnel employed at the Complex. Operator, in its sole and
absolution discretion, shall determine the fitness and qualification of such
personnel. Operator shall in no way be liable to said personnel or to Owner for
any and all claims for wages, compensation or other benefits (including, without
limitation, severance, pension, superannuation, retirement and termination pay)
asserted by or on behalf of such personnel. The salaries, other compensation and
benefits of such personnel shall be paid by Owner.
(b) Operator shall employ, in Operator's name but as agent of Owner and at
Owner's sole expense, the General Manager of the Complex. Such General Manager
shall be selected through a process by which the Operator (i) provides Owner
with up to three (3) candidates for such position and (ii) selects the candidate
of its choice, subject to Owner's approval, which approval shall not be
unreasonably withheld. The Operator shall present the General Manager
compensation package to the Owner for approval and inclusion in the Annual
Budget (as hereafter defined). Operator shall pay the salary, other compensation
and benefits of such General Manager (as approved in the Annual Budget), for
which Operator shall be reimbursed by Owner each month as a charge against
Complex operations. Upon any termination of this Agreement, Operator shall have
the right, but not the obligation, to remove or terminate General Manager from
his or her duties at the Complex simultaneously with the termination hereof;
Owner hereby covenants and agrees that, unless Operator terminates the
employment of the General Manager, it shall not hire or otherwise retain
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such General Manager either prior to or after removal by Operator, without
Operator's prior written consent thereto, which consent may be unreasonably
withheld. As an expense of Complex operations, Operator shall have the right to
grant the General Manager (i) such complimentary privileges usual and customary
in the industry to similar positions, (ii) housing and meal allowances,
including complimentary housing and meals at or near the Complex as is usual and
customary in the hospitality industry for similar positions, or (iii) both (i)
and (ii).
(c) Owner shall pay monthly to Operator all reasonable travel, lodging and
meal costs and expenses incurred by Operator's employees, and those of
subsidiaries and Operator's affiliated entities, prior to and after the Complex
is opened to the public as the same are incurred in the performance of duties
imposed under this Agreement solely for the benefit of the Project and as agreed
to by Owner in the Annual Budget. Operator shall have the right, which right
shall not be unreasonably exercised, to determine the advisability of such
travel. Operator's employees shall be furnished and provided with rooms and
food, as an expense of Complex operations, whenever such employees are located
at the Complex in the performance of this Agreement.
(d) Operator shall, as agent for Owner and at Owner's sole expense, employ
third-party specialists to perform services for the Complex related to the
operation, maintenance and/or protection of the Complex, such as engineers,
designers, attorneys and the like.
4.04 Sales and Promotions.
(a) Operator shall cause the Complex to participate in sales and
promotional campaigns and, as appropriate, activities involving complimentary
items to hotels, casinos, travel agents, tourist officials and airline
representatives and other hospitality industry representatives. Operator shall
have the sole right to entitle the key personnel and the personnel employed by
Owner and Operator to grant complimentary items when the same is customary in
the travel, hospitality or gaming industry or in Operator's standard practice or
policy.
(b) Owner and Operator shall establish certain standards relating to the
granting or extension of credit and, unless and until Owner and Operator agree
to revise such standards, Owner agrees to bring no influence on Operator or the
General Manager with respect to requests from Owner to deviate from such
standards.
(c) Subject to the terms of Section 4.11 of this Agreement, Operator, on
behalf of Owner, shall institute and supervise a sales and marketing program and
shall coordinate and cooperate with the local and national sales and marketing
programs of Operator and its affiliated entities and shall also coordinate with
tour programs marketed by airlines, travel agents and government tourist
departments when Operator determines such programs are in the best interest of
Owner.
4.05 Maintenance and Capital Replacement.
(a) Owner recognizes the necessity of a program of replacement of FF&E and
the need to cause the Complex to continue to be furnished, equipped and
landscaped in accordance with the standards described herein. Both parties
recognize that the particular properties or particular articles of FF&E may not
require expenditure for maintenance and repairs in any given year, but average
costs thereof shall be reflected in the Budgets (as defined in Section 4.10(a)).
During the first year of operations hereunder, a reserve of not less than one
and one-half percent (1.5%) of the gross
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revenues of the Complex shall be established for replacements, substitutions and
additions to FF&E, such reserve to be established by setting aside each month
from operating profits an amount equal to one and one-half percent (1.5%) of the
gross revenues of the Complex for such month; for the second operating year (and
for each operating year thereafter), the respective percentages shall be
increased to two percent (2%), respectively. In determining the Annual Budget
(as defined in Section 4.10(a)(iii)) of the second operating year (and for each
operating year thereafter), Owner and Operator shall mutually agree as to
whether such reserve should be increased or decreased, it being understood that
the account of such reserve must always be sufficient to meet the standards
established hereunder.
(b) Operator, as agent of Owner, is authorized to make and enter into such
agreements as are in Operator's reasonable opinion necessary for the operation,
supply and maintenance of the Complex as required by this Agreement.
Notwithstanding the foregoing, Operator agrees to use its best efforts to enter
into agreements for the provision of goods and/or services to the Complex at the
fair market value of the goods and/or services provided or rendered.
(c) Operator shall have the right, without prior approval of Owner, to
make alterations, additions or improvements in or to the Complex as are
consistent with the standards established hereunder, provided that prior
approval of Owner is required for any single expenditure having a cost in excess
of $50,000, or for aggregate expenditures in any calendar year in excess of
$250,000. The cost of such alterations, additions or improvements shall be
charged directly to current expenses of the Complex or shall be capitalized and
amortized on the books of account of the Complex in accordance with Operator's
standard accounting practices consistently applied.
(d) In the event that, at any time during the Term of this Agreement,
repairs or additions to or changes in the Complex shall be required by reason of
any laws, ordinances, rules or regulations now or hereafter in force, or by
proper and lawful order of any governmental or municipal power, department,
agency, authority, or officer, such repairs or changes shall be made at the
discretion of Operator, without the prior approval of Owner; provided that
Operator shall use its best efforts to consult, in advance, with Owner with
respect to such changes, additions or repairs.
4.06 Accounting Services.
(a) Operator, at Owner's sole cost and expense, shall maintain a complete
accounting system in connection with the management of the Complex. The books
and records shall be kept in accordance with generally accepted accounting
principles consistently applied ("GAAP"), as applied by Operator or its
subsidiaries or Operator's affiliated entities in other gaming operations
similar to the Complex and as approved by the Owner, which approval shall not
unreasonably be withheld. Books and accounts shall be maintained at the Complex.
Title to such books and accounts shall vest jointly in Owner and Operator, while
possession of such books and records shall vest solely in Operator; provided,
however, that upon proper termination of this Agreement and proper and timely
payment to Operator of all sums due to or accrued for the benefit of Operator
under this Agreement, title to and possession of such books and accounts shall
vest in Owner. Owner shall have the right and privilege of examining and copying
said books and records at any reasonable time during regular business hours.
(b) Operator, at Owner's sole cost and expense, shall cause a certified
audit of the Complex to be performed annually by such reputable accounting firm
mutually acceptable to Owner
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and Operator, and at least three (3) copies thereof shall be furnished to each
party not later than ninety (90) days from the end of Owner's fiscal year, with
Operator utilizing its good faith efforts to ensure that such accounting firm
"signs off" on the numbers contained therein within forty-five (45) days from
the end of Owner's fiscal year. Nothing herein contained shall prevent Owner, at
its sole expense, from designating a reputable accounting firm to, upon
reasonable prior written notice, examine the books and records of the Complex
during regular business hours.
(c) On or before the twenty-fifth (25th) day of each month, for the first
six (6) months following the Opening Date and on or before the fifteenth (15th)
day of each month thereafter, Operator shall furnish Owner with an unaudited
operating statement for the prior calendar month detailing (i) Statistical Data,
(ii) Gaming Revenue Data (broken down by departmental or revenue source by line
item), (iii) Gaming Operating Expense Data (broken down by departmental or
expense source by line item) (iv) Food & Beverage Department Data, (v) Other
Income Data, (vi) Overhead Departments Data, (vii) Fixed Charges, (viii) Gross
Operating Profit, and (ix) Net Income or Loss, including management fees and
other amounts paid to Operator. Any adjustment required to make up an
underpayment or to refund an overpayment of the monthly payments to Operator, as
revealed in any monthly operating statement, shall be made by way of an
adjustment in the payment during the month following the furnishing of said
monthly operating statement. Likewise, any adjustments predicated on the annual
audited statements for the Complex, will be made during the first month
following completion of the annual audit.
4.07 Bank Accounts.
(a) Operator shall establish at reputable financial institution(s)
reasonably approved by Owner such Complex bank accounts as Operator deems
necessary for the operation of the Complex. The accounts shall be styled "name
of Complex-type of account" (e.g., operations, payroll), and all bank accounts
shall provide that Operator's designees shall be the only parties authorized to
draw upon said accounts. At least thirty (30) days prior to the Opening Date,
Owner shall deposit an amount no less than Two Million Five Hundred Thousand and
No/100 Dollars ($2,500,000.00) into the operating bank account, as designated by
Operator, to serve as a minimum bank account to use as the Complex's initial
operating capital in accordance with the approved Budgets. After the Opening
Date, Operator shall deposit, not less frequently than monthly, any cash on hand
in excess of its reasonably anticipated operating capital needs for the next
thirty (30) days and of any reserves required hereunder in such bank accounts or
other depositories as may be designated by Owner. It is understood that Operator
shall maintain funds at the Complex and shall make payments therefrom as the
same are usually and customarily made in the hospitality and gaming industry.
(b) During the Term hereof, Owner shall furnish to Operator true and
correct copies of all property tax statements and insurance policies and all
financing documents (including notes and mortgages) relating to the Complex.
Without in any way diminishing Owner's responsibility hereunder, Operator shall
be authorized, if Owner so requests in writing, to pay from the Complex bank
accounts the amounts indicated by said statements and/or documents, provided
sufficient funds are in such Complex accounts.
4.08 Concessions. Operator shall have the exclusive right to consummate,
in the name of and for the benefit of Owner, arrangements and leases with
concessioners, licensees, tenants and
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other users of any commercial space in the garage or with respect to a gift
shop, beauty shop or the like in the hotel or pavilion, at then-prevailing
commercially reasonable rates.
4.09 Expenses.
(a) All costs, expenses, funding of operating deficits and working
capital, and other obligations and liabilities hereunder ("Owner's Financial
Obligations") shall be the sole and exclusive responsibility and obligation of
Owner, except for those instances herein where it is expressly and specifically
stated that such item shall be for the accounts of Operator. It is understood
that statements herein indicating that Operator shall "furnish," "provide" or
otherwise supply, present or contribute items or services hereunder shall not be
interpreted or construed to mean that Operator is liable or responsible to fund
or pay for such items or services, except in those specific instances mentioned
above.
(b) With respect to Owner's Financial Obligations, the same shall be
funded and/or paid for as follows: (i) First, from monies which may be available
in the Complex accounts maintained by Operator hereunder; and (ii) Second, if
such Complex accounts maintained by Operator hereunder do not contain monies
sufficient to fund and/or pay Owner's Financial Obligations, from monies which
shall be deposited by Owner in such Complex accounts within fifteen (15) days
after request therefor by Operator in writing. If such monies are not so
deposited by Owner (and Operator's affiliate that is a joint venturer in Owner
has tendered its required share of such requested capital) in the amounts
requested by Operator within such fifteen (15) day period, Operator shall have
the right, but not the obligation, to terminate this Agreement upon thirty (30)
days prior written notice to Owner and, in the event of two (2) consecutive such
defaults in any calendar year, upon five (5) days prior written notice to Owner.
It is understood that Owner shall have the opportunity to cure such default by
depositing such monies during the respective thirty (30) day or five (5) day
notice period. It is agreed that any such termination shall not cause or create
any liability, responsibility, duty or obligation by Operator to Owner, and
Owner shall be deemed to have waived any rights or remedies it may have with
respect to such termination. In the event (x) EBITDA (as hereafter defined) less
capital expenditures, interest expense and scheduled amortization of principal
for indebtedness owing under the first mortgage financing and equipment
financing obtained by Owner prior to the Opening Date, if any, and taxes ("Cash
Flow") for the Complex is in excess of $1 for the immediately preceding twelve
months and (y) Operator elects to terminate this Agreement in accordance with
this Section 4.09(b), in addition to any and all other payments and monies owed
to Operator, including without limitation, accrued charges with respect to
insurance procured by Operator for Owner in accordance with Article Six and
accrued and unpaid Basic Management Fees (as hereafter defined) and Complex
Incentive Fees (as hereafter defined), Owner shall be obligated to pay to
Operator an amount equal to two (2) times the sum of the Basic Management Fees
and Complex Incentive Fees payable by Owner for the immediately preceding fiscal
year of Owner.
(c) It is understood and agreed that Operator shall have no obligation or
duty to fund and/or pay for any of Owner's Financial Obligations.
4.10 Budgets.
(a) Operator shall be obligated to furnish Owner with the following
budgets substantially in the form of Exhibit "C" to this Agreement (collectively
"Budgets") during the Term hereof:
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(i) A pre-opening budget ("Pre-Opening Budget") at least ninety (90)
days prior to the Opening Date, which Pre-Opening Budget shall detail all
costs and expenses reasonably anticipated by Operator for the actions
described in Section 2.01.
(ii) A commencement budget ("Opening Budget") at least sixty (60)
days prior to the Opening Date to be updated within thirty (30) days after
the Opening Date, which Opening Budget shall detail all costs, expenses
and reserves reasonably anticipated by Operator, or contemplated in this
Agreement, during the remainder of the first calendar year of the Term of
this Agreement, including but not limited to, working capital, initial
operating equipment and supplies, expenditures for recruiting, training,
advertising and promotion and other similar costs and expenses.
(iii) An annual budget ("Annual Budget") at least forty-five (45)
days prior to the end of the first calendar year in which the Complex
opened and each succeeding calendar year of the Term hereunder. Each
Annual Budget shall detail all costs, expenses on a line item basis and
reserves reasonably anticipated by Operator, or contemplated in this
Agreement, for the next succeeding year. Annual Budgets may be amended
from time to time, after submission by Operator to Owner of such
amendments.
(b) Operator makes no guarantee, warranty or representation whatsoever in
regard to Budgets, same being intended as reasonable estimates only.
(c) With respect to any deficits which may arise as a result of operations
hereunder, Owner shall be obligated to fund and pay such deficits which are not
covered by Complex income within fifteen (15) days after written request
therefor by Operator. If Owner fails or delays in furnishing funds to cover
deficits as aforesaid (by failure to approve or delay in approving Budgets in a
timely manner or otherwise), Operator shall have no responsibility or liability
therefor, and Owner shall indemnify and hold harmless Operator with respect to
any liability, however arising, which may arise out of or relate to, directly or
indirectly, such failure or delay in funding such obligations.
(d) All Budgets submitted by Operator to Owner under this Section 4.10
shall (i) be prepared generally in accordance with GAAP, (ii) be presented
substantially in the format of the operating statements required of Operator
pursuant to Section 4.06(c) of this Agreement, (iii) include detailed business
and market plans, and (iv) be subject to Owner's prior express approval, which
approval shall not be unreasonably withheld or unduly delayed. For any period
during which Owner and Operator are unable to agree on any given Budget, Owner
and Operator shall be deemed to have agreed to the applicable Budget for the
immediately preceding period, plus 5% for each line item thereof. If thirty (30)
days have elapsed during any period for which Owner and Operator are unable to
agree on a Budget, Owner and Operator hereby appoint Arthur Andersen & Co. (or
any other independent accounting firm with gaming and hotel experience, as
mutually agreed by Owner and Operator) as an independent arbiter which shall
determine the appropriate Budget no later than four (4) weeks after its receipt
of written notice of such a dispute. The arbiter's Budget shall be binding upon
Owner and Operator. All expenses incurred as a result of the invocation of such
independent
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arbiter provision shall be borne solely by the Owner, subordinated to the
payment of all fees and expenses due to or accrued for the benefit of Operator
pursuant to this Agreement. The provisions of this Section 4.10(d) are to be
carried out in tandem with, and not as an alternative for, the arbitration
provisions of Section 13.07 of this Agreement.
(e) The foregoing notwithstanding, Operator may incur expenses in excess
of the amounts set forth in the Budgets provided:
(i) the actual total expenditures for the operating department
within which any given expense is allocable will not exceed one hundred
ten percent (110%) of the total budgeted expenditures for such operating
department approved in the then-applicable Budget; or
(ii) such expenditure is expressly authorized in this Agreement; or,
(iii) Operator obtains Owner's prior approval of such expenditure,
which approval shall not be unreasonably withheld or unduly delayed; or,
(iv) such expenditure is warranted by increased levels of business;
or,
(v) such expenditure is required to meet emergency conditions and
Owner is promptly advised thereof; or,
(vi) subject to the terms of Section 4.11 of this Agreement,
additional expenditures are incurred by reason of the occurrence of an
event or events not reasonably foreseeable by Operator; or,
(vii) subject to the terms of Section 4.11 of this Agreement, such
expenditure is caused by the occurrence of an event or events outside
Operator's reasonable control.
4.11 Owner Opportunity to Discuss with Operator. The Owner shall have the
right to call a meeting with Operator in the event: (a) the Adjusted EBITDA
Margin (as defined in Section 11.02 of this Agreement) for Owner for two
consecutive fiscal quarters is less than 75% of the Average Adjusted Competitor
EBITDA Margin (as defined in Section 11.02 of this Agreement); or (b) EBITDA (as
defined in Section 11.02 of this Agreement) for the Owner for two consecutive
fiscal quarters is less than 75% of that set forth in the Annual Budget; or (c)
EDITDA for the Owner is less than $1 for two consecutive fiscal quarters; or (d)
in the event of a cash call; or (e) the Owner is unable to make a payment due
under the Project Financing. The Operator shall attend, and shall cause the
General Manager or the Chief Financing Officer of the Complex and the
representative of Operator or its affiliate serving on Owner's management
committee to attend, the meeting scheduled pursuant to this Section 4.11 and
Owner shall be entitled to withhold Basic Management Fee payments due to
Operator until such parties attend such meeting.
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4.12 Delivery of Notices. Operator shall promptly deliver to Owner any
written citation, notification or other written communication from any
regulatory entity that alleges or relates to any violation or alleged violation
of any applicable law, rule or regulation with respect to the Complex or
Operator's operation thereof.
ARTICLE FIVE
COMPENSATION OF OPERATOR
5.01 Forms of Compensation. For and in consideration of the services
rendered by Operator pursuant to this Agreement, Owner agrees to pay to Operator
(a) the Basic Management Fee (as defined below), (b) the Complex Incentive Fee
(as defined below) and (c) all reimbursables set forth elsewhere in this
Agreement.
5.02 Basic Management Fee defined. The term "Basic Management Fee" shall
mean a fee equal to two percent (2%) of the gross revenues from casino
operations, hotel operations and all other Complex facilities and amenities
managed by the Operator, including without limitation, all revenues and proceeds
from business interruption or other loss of income insurance, less promotional
allowances and less the items set forth below ("Complex Net Revenues"):
(a) Any gratuities, or service charges added to a customer's bill or
statement in lieu of gratuities, which are payable to Complex employees;
(b) An amount equal to all credits or refunds made to customers, guests or
patrons;
(c) All sums and credits received in settlement of claims for loss or
damage of FF&E or to the physical plant of the Complex;
(e) Any and all income from the sale of FF&E and any capital assets;
(f) Any compensation payments for claims against third parties arising out
of or during the course of the operation of the Complex; and
(g) Investment income.
The Basic Management Fee shall (i) be computed monthly before the payment
of any and all gaming, income, franchise, federal, state or municipal taxes, and
(ii) be paid monthly in arrears on the tenth (10th) day of each month. The Basic
Management Fee shall be included in all operating statements which Operator
furnishes to Owner hereunder, and adjusted annually in accordance with the
audited financial statements for the Complex.
5.03 Complex Incentive Fee defined. The term "Complex Incentive Fee" shall
mean a fee equal to the sum of (a) 5% of EBITDA in excess of $25 million and up
to $35 million, (b) 7% of EBITDA in excess of $35 million and up to $40 million
and (c) 10% of EBITDA in excess of $40 million. For the purpose of computing the
Complex Incentive Fee, the term "EBITDA" shall equal Complex Net Revenues, less
all Complex operating expenses (including the Basic
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Management Fee payable to Operator as set forth in Section 5.02 of this
Agreement) calculated in accordance with GAAP; provided, however, that the
following shall not be deducted from Complex Net Revenues:
(a) Depreciation and amortization of the Complex, FF&E or other assets of
the Complex;
(b) Lease payments for the Complex;
(c) Payments with respect to capital or operating leases;
(d) Financing costs, including bank or insurance company interest charges,
principal payments and other debt services;
(e) Amortization of pre-opening expenses;
(f) Capital expenditures, including replacement of FF&E except for normal
maintenance and repairs;
(g) The Complex Incentive Fee provided in this Section 5.03;
(h) All franchise, federal, state or municipal taxes; or
(i) Any unusual or extraordinary items.
With respect to each fiscal year of Owner during the Term of this
Agreement, commencing with the first calendar quarter of any fiscal year of
Owner during which the EBITDA for the elapsed portion of such fiscal year
exceeds $25 million and for each calendar quarter of such fiscal year
thereafter, that portion of the Complex Incentive Fee which has accrued but
remains unpaid shall be paid by Owner to Operator in arrears on the fifteenth
(15th) day of the first month immediately succeeding any such calendar quarter.
If for any fiscal year the aggregate amount of quarterly installments paid to
Operator shall be more or less than the annual Complex Incentive Fee payable for
such fiscal year, then, by way of year-end adjustment within fifteen (15) days
after delivery of such audited statements to Owner, Operator shall either pay
into the Complex operating account for the benefit of Owner pursuant to this
Agreement the amount of the overpayment, or shall withdraw from the Complex
operating account the amount of any underpayment, as the case may be.
5.04 Losses. Losses in any year shall be borne exclusively by Owner and
shall not reduce the amount of any compensation which Operator may be entitled
to receive hereunder for any prior, present, or subsequent years. No part of
such losses shall be charged against, recaptured out of or otherwise serve to
diminish or affect the EBITDA of the Complex for prior, present, or subsequent
years.
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ARTICLE SIX
INSURANCE AND INDEMNITY
6.01 Property Insurance. Operator shall procure and maintain, and Owner
shall pay for, from the Opening Date (or such earlier date mutually agreed to by
Owner and Operator) and thereafter at all times during the Term hereof property
insurance, equal to at least one hundred percent (100%) of the insurable value
thereof on a replacement cost basis, or such lesser amount to which Operator,
subject to the terms of Section 6.03 of this Agreement, may determine, against
loss or damage to the Complex and its contents from fire, boiler explosion and
such other extended coverage risks and casualties as Operator shall deem
necessary. Operator shall also procure and maintain, and Owner shall pay for,
business interruption insurance against loss or damage by fire and other hazards
customarily included in an extended coverage endorsement, including riot, civil
commotion and insurrection, all of said business interruption insurance to be
effective from the Opening Date and during the Term hereof. Such liability and
property insurance coverage shall list Operator as an additional insured, with a
right to thirty (30) days prior written notice in the event of cancellation or
modification of coverage.
6.02 Liability Insurance/Miscellaneous Coverages. Subject to the terms of
Section 6.03 of this Agreement, Operator shall procure and maintain, and Owner
shall pay for, during the Term hereof, the following insurance, which insurance
shall list Operator and Operator's subsidiaries, affiliates, officers,
directors, agents, servants, workmen, and employees (all collectively referred
to herein as "Operator") as additional insured, with a right to thirty (30) days
prior written notice in the event of cancellation or modification of coverage:
(a) Comprehensive General Liability Insurance at a limit of at least $1
million per occurrence/$2 million aggregate, including, but not limited to,
liquor liability and innkeepers liability coverage to protect against theft of
or damage to guests' property;
(b) Automobile Liability and Physical Damage Insurance for at least $1
million combined single limit to include broad form drive other car coverage;
(c) Comprehensive Crime Insurance including, but not limited to, Employee
Dishonesty and Depositor's Forgery Coverages;
(d) Worker's Compensation Insurance and Employer's Liability, including
the Maritime Employers Liability Endorsement, U.S.L.& H., and similar insurances
as may be required by law;
(e) Group Benefits Insurance including major medical and hospitalization
for Complex employees;
(f) Fiduciary Liability Insurance, as required by the Employment
Retirement Income Security Act of 1974 covering pension and benefit plans, in a
limit sufficient to cover the assets at risk;
(g) Marine Hull and Machinery and Property Insurance in an amount equal to
at least 100% of the agreed insurable value including all gaming equipment
thereof on a replacement cost basis;
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(h) Marine Business Interruption Insurance against loss of profits
measured by net income of the Owner;
(i) Builder's Risk Insurance, if required, including delayed opening
coverage;
(j) Protection and Indemnity coverage, if required, including Jones Act,
in an amount of at least $1 million with Excess Protection and Indemnity
coverage in an amount of not less than $25 million;
(k) Vessel Pollution Insurance, if required;
(l) Media/Memorabilia Professional Liability Insurance affording
protection for liabilities which may arise from the use and display of Hollywood
themed media and memorabilia at the Complex of at least $2 million;
(m) Any insurance which Owner or Operator may be required to obtain
pursuant to any franchise covering the Complex;
(n) Umbrella (Excess Liability) Insurance in an amount of not less than
$100 million;
(o) Any other insurance required by the terms of the Project Financing;
and
(p) Insurance against such other insurable risks as may reasonably be
required.
6.03 Insurance Standards and Requirements.
(a) It is agreed that all insurance hereunder shall fully and adequately
protect Owner and Operator, and shall meet or exceed any requirements of
applicable laws, rules or regulations, insurance underwriters, or other third
parties having the right to determine insurance requirements for the Complex.
Owner and Operator shall each approve all insurance required for the Complex
with respect to amount and types of coverage, and the terms and conditions
thereof; provided that, in making determinations hereunder with respect to
insurance, Owner and Operator shall take into account Operator's advice derived
from its experience as a casino and hotel manager. Insurance procured hereunder
shall be placed with reputable, financially sound insurance companies acceptable
to Owner and Operator, and shall be obtained in the name of Owner or Operator
(as agent for Owner), as the parties may mutually agree. All insurance hereunder
shall name Operator and Owner as co-insureds and/or additional insureds. If
Owner should refuse or delay in approving the procuring or maintaining of
insurance which Operator reasonably deems to be advisable to obtain for the
Complex, Operator shall have (i) the right, upon five (5) days prior written
notice to Owner, to procure such insurance in Operator's own name but at Owner's
sole cost and expense, and (ii) the right to terminate this Agreement upon sixty
(60) days prior written notice to Owner, unless such insurance is procured by
Owner within such notice period.
(b) Operator shall submit to Owner each year a summary of the insurance
coverage maintained by Operator with respect to the Complex, certified by an
officer of Operator, and Owner shall have thirty (30) days thereafter to give
its comments thereon to the other. If Operator receives no written comments from
Owner within said period, the insurance program shall be deemed approved for
that year.
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6.04 Indemnity. Owner agrees:
(a) To indemnify and hold Operator free and harmless from any liability
for injury or death to persons or damage or destruction of property due to any
cause whatsoever, either in or about the Complex or elsewhere, as a result of
the performance of this Agreement by Operator, its agents, workmen, servants,
officers, directors or employees, irrespective of whether caused, wholly or
partially, by the negligence of Operator, its agents, officers, directors or
employees; and,
(b) To reimburse Operator upon demand for any money or other property
which Operator is required to pay out for any reason whatsoever in performing
its duties hereunder or as a consequence thereof, whether the payment is
required by law to settle labor claims, for operating expenses or any other
charges or debts incurred or assumed by Operator or any other party, or
judgments, settlements, or expenses in defense of any claim, civil or criminal
action, proceeding, charge, or prosecution made, instituted or maintained
against Operator or Owner, jointly or severally, because of the condition or use
of the Complex, or acts or failures to act of Operator, its employees, officers,
directors or agents, Owner, its employees, officers or agents, or arising out of
or based upon any law, regulation, requirement, contract or award; and,
(c) To defend any claim, action, suit or proceeding brought against
Operator or Owner, jointly or severally, arising out of or connected with any of
the foregoing, and to hold harmless and fully indemnify Operator from any
judgment, loss or settlement on account thereof, regardless of the jurisdiction
in which any such claims, actions, suits or proceedings may be brought.
(d) Notwithstanding the foregoing, Owner shall not be liable to indemnify
and hold Operator harmless from any liability described above which results from
the gross negligence or willful misconduct of Operator, its agents, employees,
officers or directors.
6.05 Operator Insurance. Any insurance provide by Operator under this
Article Six may be effected under policies of blanket insurance which cover
other properties of Operator's affiliated entities, and the pro rata portion of
such premiums shall be charged and allocated to the Complex on the same basis as
allocated to other participating operations of Operator's affiliated entities.
Any policies of insurance maintained by Operator pursuant to the provisions of
this Section 6.05 may contain deductible provisions in such amounts as are
maintained with respect to other operations of Operator's affiliated entities,
taking into account local standards and practices. Further, in lieu of all or a
part of comprehensive public liability insurance and worker's compensation and
employer's liability insurance under clauses (a) and (d) of Section 6.02, any or
all of the risks covered by such insurance may be self-insured or self-assumed
by the Owner under a self-insurance or assumption of risk program similar to
those in effect at other operations of affiliates of Operator, up to such
amounts as such risks are assumed or self-insured at other operations of
Operator's affiliated entities.
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ARTICLE SEVEN
GROUP SERVICES BY OPERATOR
7.01 Group Services. Operator shall provide to the Complex, from other
offices or casinos managed by Operator or its affiliates or subsidiaries, the
following services:
(a) General Administrative Service, in connection with:
(i) Operation:
Quality Control and Inspection;
General Supervision;
Supervision of Employee Hiring and Training;
Sales Coordination;
Coordination of a System-wide Preventive Maintenance
Program;
Coordination of Advertising and Promotional Program;
Renovating and Redecoration of Complex;
Purchasing of Furnishings and Equipment.
(ii) Accounting:
Coordination of the Accounting System, and the
procuring of a Computer Program (Software) for the
same;
General Supervision of Accounting Reports;
Internal Audits.
(b) Specific services, whereby personnel might be loaned to the Complex as
may be deemed reasonable by Operator from other hotel and/or casinos from time
to time for the Complex's benefit.
7.02 Costs of Services. The cost of the services referred to in Section
7.01 shall be reimbursed to Operator as a Complex operating expense on a direct
cost basis. Such costs for services include:
(a) Actual out-of-pocket expenses (excluding salary and other
compensation) for the personnel necessary to coordinate the above services
directly attributable to the Complex operation, including, without limitation,
telecommunication and travel expenses; and
(b) In the case of specific services described in Section 7.01(b), the
actual pro rata compensation cost and out-of-pocket reimbursable
telecommunication and travel expenses of personnel while loaned to the Complex
for its sole benefit.
In the event employees of the Owner at the Complex are loaned to Operator
or Operator's affiliated entities, for their sole benefit (as opposed to that of
the Complex), the actual pro rata compensation cost and out-of-pocket
reimbursable telecommunication and travel expenses of such loaned personnel
shall be reimbursed to the Owner by Operator or such Operator affiliated entity.
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7.03 Software.
(a) Software. Operator and Owner acknowledge that, through the experience
of Operator's affiliated entities, Operator has developed or directed the
development of data processing computer software for hotel and casino operations
(the "Software"). As part of the services furnished by Operator under this
Agreement, Operator shall procure for the Complex Operator's data processing
computer software for the operation of the Complex from Operator's affiliates.
The cost and expense of such Software and any ordinary course updates thereto
shall be deemed to be included within the Basic Management Fee; provided,
however, special requests for Software specially developed for the Complex shall
be procured by the Operator at Owner's sole cost and expense. In addition, Owner
agrees that Operator shall purchase, at Owner's sole cost and expense, the
necessary data processing hardware equipment to use the computer software in the
operation of the Complex. Owner further agrees that, as an operating expense of
the Complex and at Owner's sole cost and expense, Operator shall procure such
installation, training, retraining and maintenance assistance from Operator's
affiliates as Operator, in its sole discretion, deems advisable. For purposes of
this Section 7.03(a), the term "Owner's cost and expense" is defined as a cost
which is cost competitive in the marketplace with other comparable available
date processing software and hardware.
(b) Title to the Software. Owner hereby acknowledges that the exclusive
right of ownership in the Software, as well as any subsequent improvements,
modifications or updates to the Software, vests solely in Operator. Owner hereby
disclaims any right to ownership, possession or use of the Software and related
materials. Owner hereby acknowledges the unique proprietary nature of the
Software and does hereby covenant that Owner shall maintain the strict
confidential nature of the Software and related materials provided for use
pursuant to this Agreement and Owner shall not disseminate such Software or
related materials to any other person or entity without the express written
consent of Operator thereto. Owner hereby further covenants that it shall not,
and it shall not suffer any other person or entity to, violate the provisions of
this Section 7.03(b), which Owner hereby consents shall be enforceable in
equity, in a summary fashion, by Operator or its assignees without proof of harm
other than an unauthorized disclosure.
(c) Return of the Software. Upon termination of this Agreement, for
whatever reason, Owner shall, within sixty (60) days of such termination,
discontinue the use of the Software and/or related materials and certify to
Owner that (i) the use of the Software and related materials has been
discontinued, (ii) all originals and copies of the Software have been returned
to Operator, and (iii) no person or entity has retained any portion, in original
or duplicate, of the Software or related material. The provisions of Sections
7.03(b) and 7.03(c) of this Agreement shall survive any termination of this
Agreement.
7.04 Intellectual Property. Operator shall procure for the Complex and
maintain during the Term of this Agreement the use of the "Hollywood Casino"
name and related trademarks and trade dress, including those marks which may
from time to time be developed and implemented in operating Hollywood Casino
establishments in the United States (the "Intellectual Property") to the extent
that the use of such additional marks are appropriate (as determined by the
Operator) for use at the Complex. The cost and expense of such Intellectual
Property shall be deemed to be included within the Basic Management Fee. Usage
of the Intellectual Property during the Term of this Agreement shall be governed
by a license agreement to be entered into by and between Operator and Owner. In
the event of any termination of this Agreement by Owner in accordance
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with Section 11.02 of this Agreement, Owner shall have the option to continue
the term of the foregoing license agreement for a term not to exceed ninety (90)
days provided Owner pays to the owner of such marks an annual royalty fee equal
to 1% of Complex Net Revenues. Operator shall at all times during the Term of
this Agreement operate the Complex (including all gaming facilities) with the
Intellectual Property and shall not, in any manner, operate the Complex
(including all gaming facilities) in or under any other theme, style or motif
without the express written consent of the Owner.
7.05 Memorabilia. Operator shall procure for the Complex, at the cost of
purchase plus delivery to the Complex, certain items of memorabilia in keeping
with the "Hollywood Casino" theme that will be either affixed to the Complex so
as to become a fixture or so unique to the Complex that there is no intention to
move such memorabilia to any other "Hollywood Casino" property (the "Owner
Memorabilia"). The Owner Memorabilia shall be owned by the Owner and the cost of
which shall be included in the Budgets and shall satisfy the terms of Section
4.10 of this Agreement. In addition, Operator and/or its affiliates from time to
time will procure the use of certain other moveable memorabilia which
periodically may be transferred by and between various "Hollywood Casino"
properties (the "Non-Owner Memorabilia"). Owner agrees and acknowledges that
Owner shall have no right to, title in or interest in the Non-Owner Memorabilia.
Upon termination of this Agreement, for whatever reason, Owner shall, within the
earlier to occur of expiration of the license agreement referred to in the last
sentence of Section 7.04 of this Agreement or sixty (60) days from termination
of this Agreement, certify to Operator that all NonOwner Memorabilia has been
returned to Operator.
ARTICLE EIGHT
DAMAGE TO AND DESTRUCTION OF THE COMPLEX
8.01 Owner to Restore. Owner agrees that, under the circumstances set
forth in the provisions of this Article Eight, to repair, restore, rebuild or
replace any insured damage to, or impairment or destruction of the Complex from
fire or other casualty. If Owner is obligated hereunder to undertake such work
and shall fail to do so, Operator may, but shall not be obligated to, undertake
or complete such work for the account of Owner and shall be entitled to be
repaid therefor, and proceeds of insurance shall be made available to Operator.
8.02 Limitation on Restoration. If the Complex shall be totally destroyed
or substantially destroyed during the Term of this Agreement by fire or other
casualty and (a) the insurance required by Article Six of this Agreement shall
have been maintained, and (b) the cost of repairing, restoring, rebuilding and
replacing the same shall exceed one hundred percent (100%) of the proceeds of
the insurance collectible by Owner for and on account thereof, Owner shall have
the right and option, upon notice served upon Operator within sixty (60) days
after such fire or other casualty, to terminate this Agreement. If the cost of
repairing, restoring, rebuilding or replacing the damage, impairment or
destruction resulting from such fire or other casualty shall be less than one
hundred percent (100%) of the proceeds of the insurance collectible by Owner,
Owner shall repair, restore, rebuild or replace such damage, impairment or
destruction, unless and to the extent that Owner and Operator shall otherwise
agree. If Owner fails to undertake such work within ninety (90) days after a
fire or other casualty, or shall fail to complete the same diligently, Operator,
without prejudice to its rights to repair, restore, rebuild or replace such
damage, impairment or destruction for and on behalf of Owner and its rights and
remedies upon undertaking any such work provided for in this Article, may at its
election, terminate this Agreement upon notice to Owner.
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ARTICLE NINE
CONDEMNATION
9.01 Total Condemnation. If the whole of the Complex shall be taken or
condemned in any eminent domain, condemnation, compulsory acquisition or like
proceeding by any competent authority for any public or quasi-public use or
purpose, or if such a portion hereof shall be taken or condemned so as to make
it imprudent or unfeasible, in Operator's reasonable opinion, to use the
remaining portion as a Complex of type and class immediately preceding such
taking or condemnation, then, in either of such events, Operator, in its sole
discretion, may determine that the Term of this Agreement shall cease and
terminate as of the date of such taking or condemnation, and, in any such event,
each of Operator, with respect to its interest in this Agreement, and Owner,
with respect to the value of its constituent partners' interest in Owner, shall
seek a valuation of such respective interest, and share in such award
proportionally in accordance with such valuations.
9.02 Partial Condemnation. If only a part of the Complex shall be taken or
condemned and the taking or condemnation of such part does not make it
unfeasible or imprudent, in Operator's reasonable opinion, to operate the
remainder as a Complex of the type and class immediately preceding such taking
or condemnation, this Agreement shall not terminate, but out of the award to
Owner, so much thereof as shall be reasonable necessary to repair any damage to
the Complex, or any part thereof, or to alter or modify the Complex, or any part
thereof, so as to render the Complex a complete and satisfactory architectural
unit as a Complex of the same type and class as it was immediately preceding the
taking or condemnation shall be used by Owner for that purpose. The balance of
the award, after deduction of the sum necessary for restoration, shall be fairly
and equitably apportioned between Owner and Operator so as to compensate
Operator for any loss of income resulting from or as the result of the taking or
condemnation.
ARTICLE TEN
RELATIONSHIP AND AUTHORITY
The provisions of this Agreement relating to the Basic Management Fees and
Complex Incentive Fees payable hereunder is included solely for the purpose of
providing a method whereby the said fees can be measured and ascertained.
Operator and Owner shall not be construed as joint venturers or partners of each
other and neither shall have the power to bind or obligate the other except as
set forth in this Agreement. Operator is, however, clothed with such additional
authority and powers as agent of Owner as may be necessary to carry out the
spirit and intent of this Agreement.
ARTICLE ELEVEN
TERMINATION
11.01 Reciprocal Termination. Notwithstanding any other provision of this
Agreement to the contrary, each party shall have the right to terminate this
Agreement on forty-five (45) days prior written notice (or such lesser period
mandated by the Board) to the other in the event such other party shall cause,
commit or suffer to exist with respect to:
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(a) A material breach of this Agreement which is not cured within the
aforementioned forty-five (45) day period of written notice thereof;
(b) The institution of any statute, regulation, rule or ruling rendering
the conduct of gaming in the United States or at the Complex
illegal;
(c) The Board shall deem Operator unsuitable;
(d) Service mark registrations No. 1,851,759 or 1,903,858 for "Hollywood
Casino" shall be rescinded by the U. S. Patent and Trademark Office.
or a court of competent jurisdiction shall have entered a final
non-appealable order enjoining or otherwise preventing the Operator
from utilizing the "Hollywood Casino" mark at the Complex; or
(e) HWCC-Louisiana, Inc. or its assignee or transferee ("HWCC") fails to
contribute the lesser of (i) the portion of capital for which it is
obligated under the terms of the Master Agreement dated October____,
1997, by and among New Orleans Paddlewheels, Inc., Shreveport
Paddlewheels, Inc., Sodak Gaming, Inc. and HWCC (the "Master
Agreement") or the Amended and Restated Joint Venture Agreement of
QNOV and (ii) the amount of capital contributed at such time by
Sodak Gaming, Inc., its affiliate or their assignee or transferee.
11.02 Owner's Right to Terminate. If, beginning with the second full
fiscal year after the Opening Date, for any two (2) consecutive fiscal years,
Adjusted EBITDA Margin (as defined below) for the Complex is less than
seventy-five percent (75%) of the Average Adjusted Competitor EBITDA Margin (as
defined below), Owner may terminate this Agreement by providing Operator with
ninety (90) days prior written notice, and Operator shall be deemed to have
waived any rights or remedies it may have with respect to such termination,
other than those set forth in this Agreement.
The "Adjusted EBITDA Margin" shall be (i) EBITDA divided by Complex Net
Revenues, multiplied by (ii) the Hotel Adjustment Factor. In calculating the
Adjusted EBITDA Margin for any riverboat gaming operation with gaming taxes
calculated according to a formula different from that to which the Complex is
subject, the Adjusted EBITDA Margin for such other riverboat gaming operation
shall be calculated as if the gaming taxes for such operation were calculated
according to the same formula to which the Complex is subject.
The "Average Adjusted Competitor EBITDA Margin" shall be the median of the
EBITDA Margins that are publicly available for all riverboat gaming operations
in the Bossier City/Shreveport market. In the event there is an even number of
riverboat gambling operations, the mean shall be the average of the two middle
Adjusted Competitor EBITDA Margins.
The "Hotel Adjustment Factor" shall be the quotient of (i) 100 minus the
number of increments of 100 hotel rooms (rounded to the nearest hundredth) at
such riverboat gaming operation, divided by (ii) 100.
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11.03 Operator's Right to Terminate Under Certain Circumstances.
Notwithstanding any other provision of this Agreement to the contrary, Operator
shall have the right to terminate this Agreement upon written notice to the
Owner in the event of the occurrence of any of the events or circumstances
described in Sections 4.09(b), 11.05, 12.02, or 13.13 of this Agreement.
11.04 Operator's and Owner's Right to Terminate for License Issues.
(a) Notwithstanding any other provision of this Agreement to the contrary,
each of Operator and Owner shall have the right to terminate this Agreement upon
written notice to the other in the event of the occurrence of any event or the
existence of any facts with respect to the ownership or management of the
Complex which, in the terminating party's good faith opinion, would jeopardize
any gaming license or application for gaming license of such terminating party
or its affiliated entities anywhere in the United States or Canada. Within
twenty (20) days after notice of termination under this Section 11.04 is given,
the party receiving such notice shall give a notice (a "Buy/Sell Notice") to the
terminating party and to the terminating party's accountants of its election to
either sell all (but not less than all) of the non-terminating party's (or its
affiliate's) interest in the Owner (and in this Agreement, with respect to the
Operator) to the terminating party (or its affiliate) or to buy all (but not
less than all) of the terminating party's (or its affiliate's) interest in the
Owner (and in this Agreement, with respect to the Operator), in either case at a
purchase price mutually agreed upon by such parties or at the fair market value
of such interest in the Owner (and in the Management Agreement, with respect to
the Operator) as determined by an appraiser selected by the terminating party
and reasonably acceptable to the non-terminating party.
(b) Without limiting reasonableness to such circumstances, a determination
made by the terminating party referred to in Section 11.04(a) of this Agreement
shall be deemed to be reasonable if based upon: (i) any written communication
from a gaming regulatory authority of the applicable state; or (ii) written
evidence that, if true, the terminating party's participation in, or involvement
with, this Management Agreement and/or Operator's management of the Complex
would violate any law, rule or regulation administrated by any gaming regulatory
authority, so long as such evidence is not induced in bad faith by its
recipient.
(c) The closing of any transfer of an interest in Owner (or in the
Management Agreement, with respect to the Operator) under this Section 11.04
shall take place at the principal office of the Owner or such other place as may
be agreed upon by the Operator and Owner on the first business day that is at
least ten (10) days after the date on which the purchase price is determined
under Section 11.04(a) of this Agreement, or such other date as may be agreed by
the Operator and the Owner.
(d) Notwithstanding any provision of this Agreement to the contrary, any
transfer of an interest in the Owner or this Agreement is subject to the prior
approval of the Board and all other applicable authorities.
11.05 Operator's Right to Fund Necessary Funds or Terminate. Upon the
failure of Owner to furnish the funds required for Operator to properly manage
the Complex as contemplated herein or the failure of Owner to either compensate
or reimburse Operator as stipulated in this Agreement, Operator shall have the
right, but not the obligation, to either (a) advance the necessary funds to the
Owner as a loan, which loan will bear interest at a market rate of interest plus
400 basis points, or (b) terminate this Agreement (but only if such failure is
not solely as a result of any
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failure on the part of Operator's affiliate that is a joint venturer of the
Owner to fund its applicable portion of such funds), said termination to become
effective upon the expiration of the notice period otherwise provided in this
Agreement, unless cured by Owner within such period. In the event Operator
elects to exercise its rights under clause (a) of the preceding sentence, Owner
will, if requested by Operator, execute and deliver a negotiable promissory note
in form and substance satisfactory to Operator evidencing such obligation. In
the event (i) Cash Flow for the Complex is in excess of $1 for the immediately
preceding fiscal quarter and (ii) Operator elects to exercise its rights under
clause (b) of the preceding sentence, (x) it is agreed that any such termination
shall not cause or create any liability, responsibility, duty or obligation by
Operator to Owner, and Owner shall be deemed to have waived any rights or
remedies it may have with respect to such termination and (y) in addition to any
and all other payments and monies owed to Operator, including without
limitation, accrued charges with respect to insurance procured by Operator for
Owner in accordance with Article Six and accrued and unpaid Basic Management
Fees and Complex Incentive Fees, Owner shall be obligated to pay to Operator an
amount equal to two (2) times the sum of the Basic Management Fees and Complex
Incentive Fees payable by Owner for the immediately preceding twelve months of
Owner.
11.06 Termination Buy-Out Offer. In the event of a termination of this
Agreement in accordance with the provisions of Sections 11.01 (other than
Section 11.01(b) at any time and Section 11.01(e) at any time prior to the
Opening Date), 11.03 (other than with respect to a termination under Section
13.13 where an approval described therein is not granted or is revoked or
suspended because of unsuitability on the part of Operator or its affiliates),
or 11.05, Owner will be deemed to have made an offer on the part of the Owner
and/or its constituent partners (other than Operator) to purchase Operator's or
affiliate's interest in Owner (the "Termination Buy-out Offer") for an amount
equal to (a) if Owner is terminating as a result of Operator's breach of
Sections 11.01(a), (c), (d) or (e) (with respect to Section 11.01(e), only after
the Opening Date), the lesser of Appraised Value (as defined below) or book
value of such interest, and (b) in the case of all other instances of
termination under Sections 11.01 (other than Section 11.01(b) at any time and
Section 11.01(e) at any time prior to the Opening Date), 11.02, 11.03 (other
than with respect to a termination under Section 13.13 where an approval
described therein is not granted or is revoked or suspended because of
unsuitability on the part of Operator or its affiliates) or 11.05, the Appraised
Value of such interest. Operator, in its sole and absolute discretion, may elect
to accept or reject the Termination Buy-out Offer. If Operator elects to accept
the Termination Buy-out Offer, it shall notify Owner in writing within thirty
(30) days of the giving of a notice of termination of this Agreement. The
closing of, and payment to Operator for, such Termination Buy-out Offer shall
occur no later than the effective date of Operator's termination as manager of
the Complex. The "Appraised Value" of Operator's ownership interest in Owner
will be determined by an independent investment banking firm of national
standing chosen by Operator. All costs (including investment banking fees)
attributable to obtaining the foregoing investment banking valuation shall be
borne by the Owner and shall not reduce the payment due to Operator. If any
party disputes the Appraised Value as determined above, it may retain a second
independent investment banking firm of national standing to perform a second
valuation. The average of the initial valuation and any such subsequent
valuation shall be the Appraised Value and shall be binding on all parties. All
costs (including investment banking fees) attributable to obtaining any
subsequent investment banking valuation shall be paid solely by the party
requesting such additional valuation.
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ARTICLE TWELVE
SUCCESSORS AND ASSIGNS
12.01 Assignments by Operator. Owner's consent shall not be required for
Operator to assign this Agreement or its rights and interest in the operation of
the Complex to any entity in which Operator, either directly or indirectly
maintains a controlling interest and such assignment shall serve to fully
relieve and discharge Operator from any further duties or obligations pursuant
to this Agreement. In addition, Owner's consent shall not be required for
Operator to collaterally assign this Agreement or its rights and interest in the
operation of the Complex to any entity as security for indebtedness. Except as
hereinabove provided, neither Operator nor Owner shall assign this Agreement or
in any manner sell, assign or transfer its rights and interests in the Complex
without the prior written consent of the non-assigning party. It is understood
and agreed that any consent granted by the non-assigning party to any such
assignment shall not be deemed a waiver of the covenant herein contained against
assignment in any subsequent case.
12.02 Transfers by Owner. Any assignment, transfer or disposition by Owner
or any of its constituent partners of any interest in this Agreement or the
Complex, whether voluntary or involuntary, shall require that the assignee,
purchaser or recipient thereunder attorn to and be bound by this Agreement. In
addition, no assignment, transfer or other disposition of any interest in this
Agreement or the Complex shall be permitted if, in the good faith opinion of the
Operator, any such proposed assignment, transfer or disposition would
jeopardize, restrict, limit or create a right of cancellation of any approval,
consent or licensing of Operator or its affiliates by any gaming authorities or
other regulatory authorities. Owner agrees to notify Operator in writing at
least sixty (60) days prior to any such contemplated assignment, transfer or
disposition. In the event of a breach by Owner of the obligations set forth in
this Section 12.02, Operator shall have the right, in its sole and absolute
discretion, to elect to terminate this Agreement upon ninety (90) days prior
written notice to Owner and it is agreed that any such termination shall not
cause or create any liability, responsibility, duty or obligation by Operator to
Owner, and Owner shall be deemed to have waived any rights or remedies it may
have with respect to such termination. In the event of Operator's election to
terminate this Agreement in accordance with the preceding sentence, in
additional to any and all other payments and monies owed to Operator, including
without limitation, accrued charges with respect to insurance procured by
Operator for Owner in accordance with Article Six and accrued and unpaid Basic
Management Fees and Complex Incentive Fees, Owner shall be obligated to pay to
Operator an amount equal to two (2) times the sum of the Basic Management Fees
and Complex Incentive Fees payable by Owner for the immediately preceding fiscal
year of Owner.
12.03 Assigns Bound. Subject to the provisions of this Agreement regarding
and/or restricting sale or assignments as set forth elsewhere in this Agreement,
the terms, provisions, covenants, undertakings, agreements, obligations and
conditions of this Agreement shall be binding upon and shall inure to the
benefit of the successors in interest and the assigns of the parties hereto with
the same effect as if mentioned in each instance where the party hereto is named
or referred to, except that no assignment, transfer pledge, mortgage, lease or
sublease by or through Operator or by or through Owner, as the case may be, in
violation of the provision of this Agreement shall vest any rights in the
assignee, transferee, mortgagee, pledge, lessee, sublessee or occupant.
24
<PAGE>
ARTICLE THIRTEEN
GENERAL PROVISIONS
13.01 Best Evidence. This Agreement shall be executed in original and
"Xerox" or photostatic copies and each copy bearing original signatures of the
parties hereto in ink shall be deemed an original.
13.02 Amendment or Modification. This Agreement may not be amended or
modified except by a writing signed by all parties hereto.
13.03 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Louisiana in effect on the date of the execution
of this Agreement. Notwithstanding the foregoing, this Agreement shall, as
required, be governed by and construed in accordance with the Louisiana Gaming
Control Act and the rules and regulations of the Louisiana Gaming Control Board
promulgated thereunder.
13.04 Interpretation. The preamble recitals of this Agreement are
incorporated into and made a part of this Agreement; titles of Sections and
Articles are for convenience only and are not to be considered a part of this
Agreement. All references to years shall mean a year commencing as of the first
day of January of each year. All references to the singular shall include the
plural and all references to gender shall, as appropriate, include other
genders.
13.05 Severability. In the event any one or more provisions of this
Agreement is judicially declared null and void or otherwise unenforceable, the
remainder of this Agreement shall survive, unless such survival vitiates the
intent of the parties hereto.
13.06 Prohibition on Recordation/Covenant of Disclosure.
(a) Operator hereby covenants and agrees that it shall take no action, nor
authorize or suffer any one to take any action, the result of which would be to
cause this Agreement, or a memorandum thereof, to be filed of record against the
realty of the Complex. This covenant prohibiting recordation shall not apply to
the filing of a judgment lien by reason of an action or cause of action arising
from this Agreement or the breach thereof.
(b) Owner hereby covenants and agrees that it shall disclose the
existence, terms, provisions and conditions of this Agreement to any and all
prospective purchasers and mortgagees of the realty of the Complex.
13.07 Arbitration. Any dispute, controversy or claim arising out of or
related to this Agreement, shall be resolved in the following manner; provided,
however, that any dispute, controversy or claim arising out of or related to the
intellectual property rights of Operator (or Operator's parent, subsidiary or
affiliates) will not be subject to arbitration. The parties hereto shall refer
the matter to their chief executive officers for the negotiation of a mutually
satisfactory resolution. If no such resolution is reached, then at any time
after fifteen (15) days following the date the matter was referred to the chief
executive officers of the parties, either party hereto may notify the other of
its intention to have the claim finally settled by confidential arbitration in
Denver, Colorado, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with the Federal Rules of
Civil Procedure and Evidence
25
<PAGE>
applicable thereto. This agreement to arbitrate shall be specifically
enforceable in any court of competent jurisdiction.
13.08 Force Majeure. With the exception of payment obligations imposed
under this Agreement (which obligations are not subject to suspension,
extinguishment or cancellation as a consequence of this Section 13.08 or
otherwise), the parties to this Agreement shall be excused from the performance
of any obligation under this Agreement in the event such performance is hindered
or prevented by strike, boycott, lockout or other labor trouble; and storm,
fire, earthquake or Act of God; any riot, civil disturbance, or any act of war
or of the public enemy; the shortage, unavailability or disruption in the supply
of labor, materials, fuels or the disruption of postal, electrical, telephone or
other utility service; any present or future governmental law, ordinance, order
rule or regulation; or any other cause or contingency beyond the respective
parties' control, but only during such time as such party is unable due to a
specified reason herein to perform its obligations hereunder.
13.09 Waiver. None of the terms of this Agreement, including this Section
13.09, or any term, right or remedy hereunder shall be deemed waived unless such
waiver is in writing and signed by the party to be charged therewith and in no
event by reason of any failure to assert or delay in asserting any such term,
right or remedy or similar term, right or remedy hereunder.
13.10 General Warranties. Each party hereto warrants and represents to the
other as follows:
(a) Each party has or will diligently pursue all necessary governmental
licenses and permits required to satisfy its obligations under this Agreement;
and,
(b) Each party has the right, power, title and authority to enter into
this Agreement.
13.11 Parol. This Agreement constitutes the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and this Agreement supersedes any prior understandings, agreements, or
undertakings.
13.12 Effectiveness of Agreement. This Agreement shall be rendered void
and of no further force or effect if the Board fails to grant the Approval (as
defined in the Master Agreement).
13.13 Regulatory Approvals. This Agreement is subject to the approval of
Operator's participation as manager of the Complex by the gaming authorities in
the States of Illinois, Mississippi and New Jersey or any other jurisdiction in
which either Operator or any of Operator's affiliated entities has a gaming
license, or an application for a gaming license, if any such approvals are
required. In the event that any of such approvals are not obtained, or are
revoked or suspended, Operator shall have the right to terminate this Agreement.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
QUEEN OF NEW ORLEANS AT THE HILTON
JOINT VENTURE
By:_____________________________
Name:________________________
Title:_________________________
[HOLLYWOOD CASINO CORPORATION OR ITS
AFFILIATE]
By:_____________________________
Name:________________________
Title:_________________________
Exhibits:
A - Description of Complex
B- Technical Services Agreement
C- Form of Budgets
27
<PAGE>
EXHIBIT "A"
Tentative site plan showing proposed Hollywood Casino(R) project and existing
Harrah's complex.
Exhibit "A" - Page 1
<PAGE>
EXHIBIT "B"
TECHNICAL SERVICES AGREEMENT
THIS TECHNICAL SERVICES AGREEMENT (the "Agreement") is executed as of the
____ day of October, 1997, by and between QUEEN OF NEW ORLEANS AT THE HILTON
JOINT VENTURE, a Louisiana joint venture ("Owner") and [HOLLYWOOD CASINO
CORPORATION OR ITS AFFILIATE], a [Delaware] corporation ("HCC").
RECITALS:
A. Owner is or will become (i) the lessee of those certain premises
located on or adjacent to the Red River in the City of Shreveport, State of
Louisiana owned by the City of Shreveport and more particularly described on
Exhibit "A" which is attached hereto and made a part hereby by reference (the
"Property"), and (ii) owner in fee of a pavilion, hotel, parking garages and
other facilities to be located on the Property and a riverboat to be located in
a coffer dam on the Property which shall be licensed to conduct gaming activity
thereon (collectively referred to as the "Project"); and
B. The Owner has undertaken to construct, develop and operate the Project;
and
C. The Owner wishes to be advised by HCC in regard to the planning and
project coordination during the construction of the Project and the pre-opening
period as described herein, pursuant to the terms and provisions hereof; and
D. The Project must be built in accordance with fixed plans and
specifications, in accordance with minimum standards recommended by HCC and set
by the Owner (the "Standards"); and
E. HCC and its affiliates have ample experience in the planning and
overall project coordination during the construction and pre-opening of casino
properties in accordance with the Standards and desire to undertake the duties
described herein pursuant to the terms and provisions hereof. Sodak Gaming, Inc.
("Sodak") has experience in casino design and layout, gaming equipment and the
purchasing and expediting of all furniture and equipment and desires to have an
opportunity to consult with HCC with respect thereto.
AGREEMENTS
In consideration of the premises and the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Technical Services. During the Pre-Opening Period (as hereinafter
defined), HCC shall perform the following services for the Owner (the "Technical
Services"):
(a) Advising the Owner in the selection of the architects and other
consultants to prepare the plans and specifications and in the planning and
general coordination of the Project in accordance with the plans and
specifications and the Standards;
<PAGE>
(b) Assisting in the completion of the necessary financial and legal
documentation for securing the financing for the Project from the appropriate
institutions;
(c) Representing the Owner to the architects in the design and planning of
the Project;
(d) Guiding the architects in their coordination of the interrelationship
between the engineering, civil engineering, interior design, equipping and, in
general, overall coordination of the work on the Project;
(e) Supervising the equipping of the Project, including, without
limitation, the preparation of budgets, quantities and specifications, and the
procurement and installation thereof;
(f) Supervising the furnishing of the Project, including, without
limitation, the formation of budgets, and the coordination of the installation
of furnishings in accordance with the requirements and the Standards;
(g) Coordinating the work of the contractors, architects, designers and
suppliers named by the Owner;
(h) Making available to the Owner, on a regular basis, information that
HCC has with respect to prices of equipment, provisions and supplies for the
Project and the progress of construction; and
(j) Purchasing, or causing to be purchased, furniture, fixtures and
equipment for the Project. It is agreed that HCC may contract with third parties
for such purchases; provided, however, that the Owner shall be obligated to pay
such fees or charges under such contracts. Sodak shall be afforded the
opportunity by HCC to present a proposal for providing and/or financing gaming
related equipment and other furniture, fixtures and equipment for the Project
and HCC agrees to consult with Sodak with respect to such proposal.
2. Place of Performance of Technical Services. It is anticipated that the
Technical Services will be performed at HCC's headquarters in Dallas, Texas or
otherwise in the United States. It is anticipated, however, in order to perform
certain aspects of the Technical Services, that HCC personnel may travel to the
Project periodically during the Pre-Opening Period. During visits to the
Project, HCC will perform inspections during construction as it considers
appropriate in order to determine whether the Project is being constructed in
accordance with the Standards and, upon substantial completion of the Project,
HCC will participate in the final acceptance inspection of the Project with
other appropriate consultants and contractors, and will assist such consultants
and contractors in the preparation of a list of deficiencies that require
correction.
3. Pre-Opening Period. As used herein, the term (a) "Pre-Opening Period"
shall mean the period commencing on the effective date hereof (the "Effective
Date") and continuing until the date of substantial completion of the Project
(including the installation of all equipment, accessories and supplies) to the
satisfaction of the Owner and HCC (the "Project Completion Date").
4. Remuneration. As remuneration for services rendered by HCC for the
Owner as described herein, the Owner shall reimburse HCC on a monthly basis for
all bona-fide expenses
- 2 -
<PAGE>
incurred by HCC during the Pre-Opening Period as enumerated and approved in the
Pre-Opening Budget (as defined in the Management Services Agreement of even date
herewith between Owner and HCC) (including, without limitation, communication
expenses, travel expenses (including transportation, lodging, food, tips,
business meals, etc.), office lease expenses, secretarial services, and all
other reasonable incidental expenses directly relating to the performance of
this Agreement) (collectively, the "Reimbursable Expenses"); provided, however,
that all such expenses must be justified by the appropriate records. The
following shall not be included as Reimbursable Expenses: (i) any loss which
occurs and which would normally be covered by standard form fire and extended
coverage insurance if such loss is, in fact, recovered by HCC through its or the
Owner's insurance carrier; (ii) salaries of officers of HCC; and (iii)
administrative or general overhead expenses of HCC's main office. Trade
discounts, rebates and refunds and returns from the sale of surplus materials
and equipment shall accrue to the Owner, and HCC shall make provisions so that
they can be secured.
5. No Guaranty. It is specifically agreed that HCC shall neither guarantee
nor assume responsibility for prices, delivery dates, the supplies of third
parties, the quality of supplies, goods, equipment or services, budgets, or
completion dates or plans, and that HCC is acting as agent of the Owner
hereunder to coordinate the work on the Project. However, HCC shall use its best
efforts to obtain the best results for the Owner which may be feasible or
practical.
6. Termination. Unless earlier terminated according to the terms of the
succeeding sentence, this Agreement shall remain in effect through the
expiration of the Pre-Opening Period. Notwithstanding any other provision of
this Agreement to the contrary, each party shall have the right to terminate
this Agreement on forty-five (45) days prior written notice to the other in the
event such other party shall cause, commit or suffer to exist with respect to:
(a) A material breach of this Agreement which is not cured within the
period of written notice thereof; or
(b) The institution of any statute, regulation, rule or ruling rendering
the conduct of gaming in the United States or at the Complex illegal.
7. Indemnification. The Owner shall indemnify and hold HCC harmless with
respect to any claim, demand, expense or litigation relating to or arising from
the provision of services hereunder (including labor claims) and for damage to
or destruction of property, or injury or death to persons which may relate to or
arise out of HCC's rendering services under this Agreement, unless such damage,
destruction, injury or death is caused solely by the gross negligence or willful
misconduct of HCC. The Owner and HCC shall each name the other party, its
officers, directors, employees and agents, as a co-insured in any insurance
which the Owner may procure with respect to work on the Project and operation of
the Complex, and shall obtain a waiver of subrogation against the other party,
its officers, directors, employees and agents.
8. Notice of Non-Compliance. HCC shall have the responsibility of
notifying the Owner in writing within a reasonable time of any material
deficiencies or non-compliance of any third party of which HCC becomes aware
with respect to the design, engineering and construction requirements and the
furniture, fixture and equipment installations of the Project, and HCC shall
implement the Owner's directives with respect thereto.
- 3 -
<PAGE>
9. Execution of Contracts by Owner. Except as provided in Paragraph 1(j)
above, the Owner shall execute all contracts and agreements with third parties
relating to the performance by HCC of its duties hereunder.
10. Storage. The Owner agrees, at its own expense, to provide adequate
facilities and personnel as necessary for the temporary safe storage of
furniture, fixtures and equipment, and/or the receipt and installation thereof.
11. Assignments. Owner's consent shall not be required for HCC to assign
this Agreement to any entity in which Hollywood Casino Corporation, a Delaware
corporation, either directly or indirectly maintains a controlling interest and
such assignment shall serve to fully relieve and discharge HCC from any further
duties or obligations pursuant to this Agreement. In addition, Owner's consent
shall not be required for HCC to collaterally assign this Agreement or its
rights and interest in the operation of the Complex to any entity as security
for indebtedness. Except as hereinabove provided, neither HCC nor Owner shall
assign this Agreement or in any manner sell, assign or transfer its rights and
interests in the Complex without the prior written consent of the non-assigning
party. It is understood and agreed that any consent granted by the non-assigning
party to any such assignment shall not be deemed a waiver of the covenant herein
contained against assignment in any subsequent case. Subject to the provisions
of this Agreement regarding and/or restricting sale or assignments as set forth
elsewhere in this Agreement, the terms, provisions, covenants, undertakings,
agreements, obligations and conditions of this Agreement shall be binding upon
and shall inure to the benefit of the successors in interest and the assigns of
the parties hereto with the same effect as if mentioned in each instance where
the party hereto is named or referred to, except that no assignment, transfer
pledge, mortgage, lease or sublease by or through HCC or by or through Owner, as
the case may be, in violation of the provision of this Agreement shall vest any
rights in the assignee, transferee, mortgagee, pledge, lessee, sublessee or
occupant.
12. Agency. In taking any action pursuant to this Agreement, HCC shall act
only as the appointed agent or representative of the Owner; and nothing in this
Agreement shall be construed as creating a tenancy, partnership, joint venture
or any other relationship between the parties hereto, except that of principal
and agent. All debts and liabilities incurred by HCC in the course of performing
its duties hereunder shall be the debts and obligations of the Owner only, and
HCC shall not be liable therefor, except as specifically stated to the contrary
herein. All costs, expenses, obligations and liabilities hereunder shall be the
sole and exclusive responsibility and obligation of the Owner, except for those
instances herein where it is expressly and specifically stated that such item
shall be for the account of HCC. It is understood that statements herein
indicating that HCC shall "furnish," "provide" or otherwise supply, present or
contribute items or services hereunder shall not be interpreted or construed to
mean that HCC is liable or responsible to fund or pay for such items or
services, except in those instances mentioned above.
13. Final Agreement. This Agreement and any attached exhibits, schedules
or riders set forth all the promises, agreements, conditions and understandings
between the parties hereto with respect to the subject matter hereof. There are
no other oral or written promises, agreements, conditions or understandings
between them. Except as otherwise provided herein, no subsequent alteration,
amendment, change or addition to this Agreement shall be binding upon the
parties unless in writing and signed by them.
- 4 -
<PAGE>
14. No Waiver. No delay or failure by any party to exercise any right
under this Agreement, and no partial or single exercise thereof, shall
constitute a waiver of that or any other right unless otherwise expressly
provided herein.
15. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
16. Partial Invalidity. If any provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be held
void, unenforceable or invalid, then the remainder of this Agreement or the
application of such provision to persons or circumstances other than those as to
which it is held void, unenforceable or invalid shall not be affected thereby,
and each provision of this Agreement shall be valid and enforced to the fullest
extent permitted by law.
17. Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing and shall be: (a)
personally delivered; (b) transmitted by United States certified or registered
mail, postage prepaid, return receipt requested, or by commercial courier or
express service; or (c) transmitted by telecopier, telegraphic, telex or cable
communication to the party to whom such notice, request, consent or other
communication is being given at the address of such party set forth below, or at
such other address as any party may designate by written notice to the other
parties:
(i) If to the Owner, to it at:
The Queen of New Orleans at the Hilton Joint Venture
__________________________________
__________________________________
__________________________________
Attention:__________________________
(ii) If to HCC, to it at:
Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
Attention: President
All notices, requests, consents and other communications shall be
effective or deemed delivered upon (A) the date of receipt if delivered
personally, (B) the earlier to occur of the actual receipt thereof by the
addressee or three (3) days after the date of deposit if transmitted by mail or
commercial courier or express service or (C) the date of transmission with
confirmed answerback if transmitted by telecopier, telegraphic, telex or cable
communication.
18. Attorneys' Fees. In any action or proceeding brought by any party
against any other party under this Agreement, the prevailing party shall be
entitled to recover from the other party attorneys' fees, investigation costs,
and other legal expenses and court costs incurred by such party in such action
or proceeding as the court may find to be reasonable.
- 5 -
<PAGE>
19. Governing Law. This Agreement shall be governed by the terms and
provisions hereof and the internal laws of the State of Louisiana, as the same
may exist from time to time.
20. Time of the Essence. Time is and shall be of the essence of this
Agreement and of each term and provision hereof.
21. Gender, etc. Unless the context otherwise requires, words of any
gender used in this Agreement shall be held and construed to include any other
gender, and words in the singular shall be held and construed to include the
plural.
- 6 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be duly executed by its duly authorized officers as of the day and year first
above written.
OWNER
QUEEN OF NEW ORLEANS AT
THE HILTON JOINT VENTURE
By:___________________________
Name:_________________________
Title:__________________________
HCC
[HOLLYWOOD CASINO
CORPORATION OR ITS AFFILIATE]
By:____________________________
Name:__________________________
Title:__________________________
- 7 -
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF COMPLEX
Not available. To be provided upon execution of the technical services
agreement.
- 8 -
<PAGE>
EXHIBIT "C"
FORM OF BUDGETS
Not available at this time. To be provided at a later date.
<PAGE>
EXHIBIT 11.1
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE (LOSSES) INCOME
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Calculation of losses:
Net (loss) income before
extraordinary items $ (14,930,000) $(55,293,000) $ 6,520,000 $ 1,744,000 $ 528,000
Preferred stock dividend
requirements -- -- -- -- (79,000)
-------------- ------------ ------------ ------------ ------------
Net (loss) income to common
stockholders before
extraordinary items (14,930,000) (55,293,000) 6,520,000 1,744,000 449,000
Extraordinary items (215,000) -- (23,808,000) 126,000 (13,069,000)
-------------- ------------ ------------ ------------ ------------
Net (loss) income to common
stockholders $ (15,145,000) $(55,293,000) $(17,288,000) $ 1,870,000 $(12,620,000)
============== ============ ============ ============ ============
Calculation of number of shares:
Weighted average shares
outstanding used for basic
per share calculation 24,833,000 24,721,000 24,602,000 23,490,000 16,971,000
Weighted average options
outstanding (1) -- -- 248,000 575,000 1,047,000
Weighted average warrants
outstanding (1) -- -- -- 786,000 4,793,000
-------------- ------------ ------------ ------------ ------------
Weighted average shares
outstanding used for diluted
per share calculation 24,833,000 24,721,000 24,850,000 24,851,000 22,811,000
============== ============ ============ ============ ============
Basic per share data:
Net (loss) income to common
stockholders before
extraordinary items $ (0.60) $ (2.24) $ 0.27 $ 0.07 $ 0.03
Extraordinary items (0.01) -- (0.97) 0.01 (0.77)
-------------- ------------ ------------ ------------ ------------
Net (loss) income to common
stockholders $ (0.61) $ (2.24) $ (0.70) $ 0.08 $ (0.74)
============== ============ ============ ============ ============
Diluted per share data:
Net (loss) income to
common stockholders
before extraordinary items $ (0.60) $ (2.24) $ 0.26 $ 0.07 $ 0.02
Extraordinary items (0.01) -- (0.96) 0.01 (0.57)
-------------- ------------ ------------ ------------ ------------
Net (loss) income to common
stockholders $ (0.61) $ (2.24) $ (0.70) $ 0.08 $ (0.55)
============== ============ ============ ============ ============
</TABLE>
(1) Not included for loss periods as the effect would be antidilutive.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF HOLLYWOOD CASINO CORPORATION
<TABLE>
<CAPTION>
State
Name Address Organized
<S> <C> <C>
Hollywood Casino - Aurora, Inc. 13455 Noel Road Illinois
Suite 2200, LB48
Dallas, TX 75240
HWCC - Aurora Management, Inc. 13455 Noel Road Illinois
Suite 2200, LB48
Dallas, TX 75240
HWCC - Tunica, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
HWCC Development Corp. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
HWCC - Louisiana, Inc. 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, TX 75240
HWCC - Argentina, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
Hollywood Management, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
HWCC - Golf Course Partners, Inc. 13455 Noel Road Delaware
Suite 2200, LB48
Dallas, TX 75240
HWCC - Aviation, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
HWCC - Shreveport, Inc. 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, TX 75240
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hollywood Casino Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-11163.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HOLLYWOOD CASINO CORPORATION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000888245
<NAME> HOLLYWOOD CASINO CORPORATION
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 38,156 21,488
<SECURITIES> 0 0
<RECEIVABLES> 3,935 4,833
<ALLOWANCES> 1,188 1,693
<INVENTORY> 1,454 1,620
<CURRENT-ASSETS> 60,694 39,995
<PP&E> 237,261 235,240
<DEPRECIATION> 66,099 49,740
<TOTAL-ASSETS> 277,602 308,229
<CURRENT-LIABILITIES> 31,394 33,818
<BONDS> 219,261 223,764
0 0
0 0
<COMMON> 2 2
<OTHER-SE> (17,625) 45,142
<TOTAL-LIABILITY-AND-EQUITY> 277,602 308,229
<SALES> 0 0
<TOTAL-REVENUES> 267,757 530,580
<CGS> 0 0
<TOTAL-COSTS> 185,055 423,738
<OTHER-EXPENSES> 45,558 84,311
<LOSS-PROVISION> 20,376 21,772
<INTEREST-EXPENSE> 28,409 55,989
<INCOME-PRETAX> (11,641) (55,230)
<INCOME-TAX> 3,289 63
<INCOME-CONTINUING> (14,930) (55,293)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (215) 0
<CHANGES> 0 0
<NET-INCOME> (15,145) (55,293)
<EPS-PRIMARY> (.61) (2.24)
<EPS-DILUTED> (.61) (2.24)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF HWCC - TUNICA,
INC. AND SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000927801
<NAME> HWCC - TUNICA, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 11,851 9,321
<SECURITIES> 0 0
<RECEIVABLES> 2,215 1,985
<ALLOWANCES> 705 622
<INVENTORY> 660 672
<CURRENT-ASSETS> 20,658 13,163
<PP&E> 117,678 115,068
<DEPRECIATION> 31,760 22,275
<TOTAL-ASSETS> 118,727 116,620
<CURRENT-LIABILITIES> 9,647 12,276
<BONDS> 85,198 85,134
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 23,882 19,210
<TOTAL-LIABILITY-AND-EQUITY> 118,727 116,620
<SALES> 0 0
<TOTAL-REVENUES> 107,263 94,524
<CGS> 0 0
<TOTAL-COSTS> 76,560 72,063
<OTHER-EXPENSES> 15,679 16,913
<LOSS-PROVISION> 498 539
<INTEREST-EXPENSE> 10,699 9,225
<INCOME-PRETAX> 3,827 (4,216)
<INCOME-TAX> (845) 0
<INCOME-CONTINUING> 4,672 (4,216)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,672 (4,216)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
