<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6 (e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S)240.14a-12
Hollywood Casino Corporation
--------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Hollywood Casino Corporation
--------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
-----------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------
3) Filing Party:
---------------------------------------------------------
4) Date Filed:
-----------------------------------------------------------
<PAGE>
HOLLYWOOD CASINO CORPORATION
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1998
To the Stockholders of
Hollywood Casino Corporation
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Hollywood
Casino Corporation (the "Company") will be held at the Westin Hotel, 13340
Dallas Parkway, in the City of Dallas, Texas 75240 on the 28th day of May 1998,
at 10:30 a.m. (local time) for the following purposes:
1. To elect two (2) directors to hold office until their respective
successors have been duly elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as the independent
public accountants of the Company for fiscal year 1998.
3. To transact any and all other business that may properly come before the
meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on April 15, 1998, as
the Record Date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting or any adjournments(s) thereof. Only stockholders
of record at the close of business on the Record Date are entitled to notice of,
and to vote at, such meeting. The stock transfer books will not be closed. A
list of stockholders entitled to vote at the Annual Meeting will be available
for examination at the offices of the Company for 10 days prior to such meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO PROMPTLY
MARK, SIGN, DATE AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED,
SELF-ADDRESSED, STAMPED ENVELOPE SO THAT YOUR SHARES OF STOCK MAY BE REPRESENTED
AND VOTED IN ACCORDANCE WITH YOUR WISHES AND IN ORDER THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED AT THE ANNUAL MEETING. YOUR PROXY WILL BE RETURNED TO YOU
IF YOU SHOULD BE PRESENT AT THE ANNUAL MEETING AND SHOULD REQUEST SUCH RETURN OR
IF YOU SHOULD REQUEST SUCH RETURN IN THE MANNER PROVIDED FOR REVOCATION OF
PROXIES ON THE INITIAL PAGE OF THE ENCLOSED PROXY STATEMENT. PROMPT RESPONSE BY
OUR STOCKHOLDERS WILL REDUCE THE TIME AND EXPENSE OF PROXY SOLICITATION.
BY ORDER OF THE BOARD OF DIRECTORS,
William D. Pratt, Secretary
Dallas, Texas
April 28, 1998
1
<PAGE>
HOLLYWOOD CASINO CORPORATION
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1998
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement and the accompanying Proxy are being mailed to the
stockholders of Hollywood Casino Corporation (the "Company") on or about April
28, 1998, in connection with the solicitation of Proxies by the Board of
Directors of the Company to be voted at the Annual Meeting of Stockholders of
the Company to be held on May 28, 1998 (the "Annual Meeting"), at the time and
place and for the purposes set forth in the accompanying Notice of Annual
Meeting, and at any adjournment(s) thereof.
The accompanying form of Proxy is designed to permit each holder of the
Company's common stock, par value $.0001 per share ("Common Stock"), to vote for
or withhold voting for any or all of the nominees for election as directors of
the Company listed under Proposal 1 and to authorize the proxies to vote in
their discretion with respect to any other proposal brought before the Annual
Meeting. When a stockholder's executed and dated proxy card specifies a choice
with respect to a voting matter, the shares will be voted accordingly. If no
such specifications are made, such Proxy will be voted by those persons named in
the Proxy at the Annual Meeting: FOR the election of the nominees specified
under the caption "Election of Directors" in Proposal 1 and FOR the action
specified in Proposal 2.
The Company encourages the personal attendance of stockholders at its annual
meetings, and giving of a Proxy does not preclude the right to vote in person
should any stockholder giving the Proxy so desire. Any stockholder of the
Company giving a Proxy has the right to revoke his or her Proxy at any time
prior to the voting thereof either in person at the Annual Meeting or by giving
written notice to the Company addressed to Mr. William D. Pratt, Secretary,
Hollywood Casino Corporation, Two Galleria Tower, Suite 2200, 13455 Noel Road,
LB 48, Dallas, Texas 75240; however, no such revocation shall be effective
until such notice of revocation has been received by the Company at or prior to
the Annual Meeting.
In addition to the solicitation of Proxies by use of the mail, officers and
regular employees of the Company may solicit the return of Proxies by personal
interview, telephone and telegraph. Such officers and employees will not be
additionally compensated, but will be reimbursed for out-of-pocket expenses.
Brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward solicitation materials to the beneficial owners of stock.
The cost of preparing, printing, assembling, and mailing the Notice of Annual
Meeting, this Proxy Statement, the form of Proxy enclosed herewith and any
additional material, the cost of forwarding solicitation material to the
beneficial owners of stock and other costs of solicitation are to be borne by
the Company.
2
<PAGE>
PURPOSES OF THE MEETING
At the Annual Meeting, the stockholders of the Company will consider and vote
on the following matters:
1. The election of two (2) directors to hold office until their respective
successors have been duly elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as the independent public
accountants of the Company for fiscal year 1998.
3. Such other and further business as may properly come before the meeting or
any adjournment(s) thereof.
VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
GENERAL
The Board of Directors of the Company has fixed the close of business on
April 15, 1998, as the record date (the "Record Date") for the Annual Meeting.
Only holders of record on the Record Date are entitled to notice of, and to vote
at, the Annual Meeting or any adjournment(s) thereof. On the Record Date there
were 24,949,976 shares of Common Stock issued and outstanding, all of which are
entitled to vote. The Common Stock is the only class of stock entitled to vote
at the Annual Meeting. Holders of the Company's Common Stock of record as of
the Record Date will be entitled to one (1) vote per share on all matters to be
acted upon at the Annual Meeting. The presence, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of Common Stock
entitled to vote at the Annual Meeting or any adjournment(s) thereof is
necessary to constitute a quorum to transact business. In accordance with
Delaware law, a stockholder entitled to vote for the election of directors can
withhold authority to vote for certain nominees for director. Abstentions are
counted for purposes of determining a quorum to conduct business, but are
ignored in vote tabulation, thereby increasing the number of votes necessary to
effectuate any proposal. The inspectors of election will treat shares referred
to as "broker non-votes" (i.e., shares held by brokers or nominees as to which
they have no discretionary power to vote on a particular matter and have
received no instructions from the beneficial owners or persons entitled to vote
thereon), if any, as shares that are present for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has indicated on the Proxy that it does not have
discretionary authority to vote, those shares will be treated as not entitled to
vote with respect to that matter (even though those shares may be entitled to
vote on other matters). Broker non-votes will have no effect on determining the
outcome of the election of the director or the proposal to ratify the
appointment of the accountants.
All shares of Common Stock will vote as a single class. Neither the
Company's Certificate of Incorporation nor its Bylaws provide for cumulative
voting rights.
REGULATION
Holders of Class A Common Stock may be subject to certain regulatory
restrictions on ownership. The Illinois Gaming Board and Mississippi Gaming
Commission may require persons holding Class A Common Stock to be investigated
and licensed or found suitable to hold such stock. The gaming laws and
regulations of other jurisdictions in which the Company may seek or obtain
licenses may also contain restrictions on the ability of a person or group to
acquire or hold Class A Common Stock or may require regulatory approval.
Finally, the federal Merchant Marine Act of 1936 and the federal Shipping Act of
1916 and applicable regulations thereunder contain provisions designed to
present persons who are not
3
<PAGE>
citizens of the United States, as defined therein, from holding in the aggregate
more than 25% of the outstanding shares of Class A Common Stock. A holder of
Class A Common Stock who cannot legally hold such shares, or who exposes the
Company to a risk of loss of a license or other regulatory risks, may be
required to sell his or her shares of Class A Common Stock to a qualified buyer
or to the Company at the price prescribed by law or, if no price is prescribed,
at the fair market value (defined in the Company's Certificate of
Incorporation).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on filings with the Securities and Exchange Commission, no persons,
other than certain directors of the Company, are known who beneficially owned
more than 5% of the outstanding Common Stock as of the Record Date.
SECURITY OWNERSHIP OF MANAGEMENT
The following information pertains to the Common Stock beneficially owned by
each director and by each executive officer named under "Remuneration of
Directors and Executive Officers" and by all current directors and officers of
the Company as a group as of the Record Date:
Shares of Percentage of
Common Stock Outstanding
Beneficially Common
Beneficial Owner Owned (a) Stock
- ---------------- -------------- ------------
Jack E. Pratt.................. 5,581,594 (b) 22.1%
Edward T. Pratt, Jr............ 956,748 (c) 3.8%
William D. Pratt............... 3,762,230 (d) 15.1%
Edward T. Pratt III............ 2,832,621 (e) 11.2%
Richard D. Knight.............. 80,999 *
Theodore H. Strauss............ 15,500 (f) *
James A. Colquitt.............. 12,500 (f) *
Oliver B. Revell III........... 10,000 (f) *
All directors and officers as
a group (9 individuals)...... 13,264,192 (g) 51.8%
- -----------------------------
* Less than 1%
(a) Except as otherwise described, each individual has the sole power to vote
and dispose of the Common Stock beneficially owned by him.
(b) Beneficial ownership is attributable to the following: (i) C. A. Pratt
Partners, Ltd., a Texas limited partnership of which Jack E. Pratt is the
General Partner, owns 1,282,123 shares (5.1%) of the outstanding stock of
the Company, (ii) J.E. Pratt Co. No. 1, a Texas general partnership of which
Mr. Pratt is the Managing General Partner, owns 1,799,387 shares (7.2%) of
the outstanding stock of the Company, (iii) the W.D. Pratt Family Trust, for
which Mr. Pratt is the Managing Trustee, owns 1,003,867 shares (4%) of the
outstanding stock of the Company, (iv) the MEP Family Partnership and the
CLP Family Partnership, both Texas general partnerships for which Mr. Pratt
is the Managing General Partner, own 14,000 and 7,000 shares, respectively,
less than 1% of the outstanding stock of the Company and (v) 458,888 shares
(1.8%) of the outstanding common stock of the Company held by Mr. Pratt as
custodian for his minor children. Also includes options to
4
<PAGE>
purchase 300,000 shares of common stock of the Company exercisable within 60
days under the Hollywood Casino Corporation 1996 Long-Term Incentive Plan
(the "1996 Plan").
(c) Beneficial ownership is attributable to E.T. Pratt Co. No. 1, a Texas
general partnership of which Edward T. Pratt, Jr. is the Managing General
Partner, which owns 926,748 shares (3.7%) of the outstanding stock of the
Company.
(d) Beneficial ownership is attributable to the following: (i) W.D. Pratt Co.
No. 1, a Texas general partnership of which William D. Pratt is the Managing
General Partner, owns 290,830 shares (1.2%) of the outstanding stock of the
Company, (ii) the J.E. Pratt Family Trust I, for which Mr. Pratt is the
Managing Trustee, owns 3,441,650 shares (13.8%) of the outstanding stock of
the Company and (iii) WDP Jr. Family Trust, for which Mr. Pratt is the
Managing Trustee, owns 9,750 shares, less than 1% of the outstanding stock
of the Company.
(e) Beneficial ownership is attributable to the E. Pratt Family Trust, of which
Edward T. Pratt III is the Managing Trustee, which owns 2,076,013 shares
(8.3%) of the outstanding stock of the Company. Also includes options to
purchase 300,000 shares of Common Stock of the Company exercisable within 60
days under the 1996 Plan.
(f) Includes 12,500 shares of Common Stock of the Company for each of Messrs.
Strauss and Colquitt and 10,000 shares of Common Stock of the Company for
Mr. Revell subject to options exercisable within 60 days of the date hereof
under the Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan
(the "Directors' Plan").
(g) Includes 635,000 shares of Common Stock of the Company subject to options
exercisable within 60 days of the date hereof.
ELECTION OF DIRECTORS
The Amended and Restated Articles of Incorporation of the Company provide
that the Board of Directors shall consist of not fewer than three (3) members
and that the number of directors shall be determined by resolution of the Board
of Directors at any meeting. By action of the Board of Directors, the number of
directors comprising the Board of Directors has been set at seven (7). The
Board of Directors is divided into three classes of approximately equal size,
and directors are elected for staggered three-year terms. The class standing
for reelection at the Company's annual stockholders meeting in 1998 consists of
Messrs. Edward T. Pratt, Jr. and William D. Pratt; 1999 consists of Messrs. Jack
E. Pratt, Edward T. Pratt III and Theodore H. Strauss; and 2000 consists of
Messrs. James A. Colquitt and Oliver B. Revell III.
Unless otherwise directed on any duly executed and dated Proxy, it is the
intention of the persons named in such Proxy to nominate and to vote the shares
represented by such Proxy for the election of the
5
<PAGE>
nominees listed in the table below for the office of director of the Company to
hold office until their respective successors have been duly elected and
qualified:
Year First
Became a
Name and Age Director Present Offices Held in the Company
------------ ---------- ------------------------------------
Edward T. Pratt, Jr. (74) 1990 Vice Chairman of the Board, Vice
President, Treasurer and Director
William D. Pratt (69) 1990 Executive Vice President, Secretary,
General Counsel and Director
The Board of Directors does not contemplate that any of the above-named
nominees for director will refuse or be unable to accept election as a director
of the Company, or be unable to serve as a director of the Company. Should any
of them become unavailable for nomination or election or refuse to be nominated
or to accept election as a director of the Company, then the person or persons
voting the Proxy will vote the shares represented by such Proxy for the election
of such other person or persons as may be nominated or designated by the Board
of Directors. Each nominee, so far as the Board can determine, is willing to
serve and intends to serve the entire term if elected. If elected as a director
of the Company, each director will hold office until his respective successor
has been duly elected and qualified.
BUSINESS EXPERIENCE FOR PAST FIVE YEARS
The following information summarizes the business experience during at least
the past five years of each person nominated to be a director of the Company:
Mr. Edward T. Pratt, Jr. has held his positions with the Company since 1990
and has served for more than five years as Treasurer and Vice Chairman of the
Board of Directors of Greate Bay Casino Corporation ("GBCC", formerly known as
Pratt Hotel Corporation), which, until December 31, 1996, was an approximately
80% owned subsidiary of the Company. Mr. Pratt also served until January 2,
1998 as Vice Chairman of the Board of Directors of GB Holdings, Inc. and of GB
Property Funding Corp. and as a Director of Greate Bay Hotel and Casino, Inc.
("GBHC"), all wholly owned subsidiaries of GBCC. On January 5, 1998, each of
the previously named GBCC subsidiaries filed petitions for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of New Jersey.
William D. Pratt has held his positions with the Company since 1990 and has
served as Executive Vice President, Secretary, General Counsel and Director of
GBCC for more than five years. Mr. Pratt also served until January 2, 1998 as
Executive Vice President, General Counsel and Secretary of GB Holdings, Inc. and
of GB Property Funding Corp. and as a director of GBHC. On January 5, 1998,
these three GBCC subsidiaries filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code.
REQUIRED VOTE
Assuming the presence of a quorum, the affirmative vote of the holders of at
least of a plurality of the issued and outstanding shares of Common Stock
present, in person or by proxy, at the Annual Meeting is necessary for the
election of directors. The Directors have informed the Company that they intend
to vote all of their shares of Common Stock in favor of the nominees, and,
because the Directors own or beneficially own 51.5% of the outstanding Common
Stock, election of the nominees is assured.
6
<PAGE>
RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
BOARD MEETINGS AND COMMITTEES
Non-employee directors of the Company receive an annual fee of $50,000 for
service on the Board of Directors as well as grants of stock options as more
fully described at "Remuneration of Directors and Executive Officers - Stock
Option Plans - The Hollywood Casino Corporation 1996 Non-Employee Director Stock
Plan" below. The Board of Directors of the Company held four regular and three
special meetings during the year ended December 31, 1997. All directors
attended at least 75% of all meetings of the Board of Directors and committees
thereof for which they were eligible to serve.
The Board of Directors of the Company has Audit, Compensation and Stock
Option Committees, but does not have a standing nominating committee. The Board
of Directors does not have a nominating committee because the Board of Directors
as a whole functions in this capacity. The Board of Directors will consider
nominees recommended by a stockholder. The Company's Certificate of
Incorporation provides that a stockholder may nominate a director at the Annual
Meeting if written notice is delivered to the Company by the tenth day following
the date the Notice of the Annual Meeting was mailed. No additional
compensation or fees are paid to directors for attending Audit, Compensation and
Stock Option Committee meetings.
AUDIT COMMITTEE. The Audit Committee has the duty to (i) recommend annually
to the Board of Directors the independent public accountants to be engaged to
audit the books, records and accounts of the Company for the ensuing year; (ii)
arrange the details for the engagement of the independent public accountants,
including the remuneration to be paid; (iii) review with the Company's
independent public accountants, as well as the Company's controller and other
appropriate personnel, the Company's general policies and procedures with
respect to audits and accounting and financial controls and the general
accounting and reporting principles that should be applied in preparing the
Company's financial statements; (iv) meet with the independent public
accountants as required and review with them the Company's interim and year-end
financial statements, any certification, report or opinion that the independent
public accountants propose to render in connection with such statements, and any
other appropriate matter; and (v) make such reports and recommendations to the
Board of Directors in connection with the foregoing as it shall deem appropriate
or as the Board of Directors may request, and take such action thereon as the
Board of Directors may direct it to take. The Audit Committee is comprised of
Messrs. James A. Colquitt, Oliver B. Revell III and Edward T. Pratt, Jr. Mr.
Revell succeeded Mr. Theodore H. Strauss on the Audit Committee effective
September 12, 1997. The Audit Committee met four times during 1997.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of Directors
has the duty to review the compensation of the Company's executive officers.
The Compensation Committee is comprised of Messrs. William D. Pratt, James A.
Colquitt and Theodore H. Strauss. Mr. Jack E. Pratt also served on the
Compensation Committee prior to May 30, 1997. The Compensation Committee met
once during 1997. The report of the Compensation Committee appears in this
Proxy Statement under the heading "Remuneration of Directors and Executive
Officers."
STOCK OPTION COMMITTEE. The Stock Option Committee of the Board of Directors
has the duty to review the granting of stock options to key officers and
employees of the Company. The Stock Option Committee is comprised of Messrs.
Theodore H. Strauss and James A. Colquitt. The Stock Option Committee met once
during 1997.
7
<PAGE>
FAMILY RELATIONSHIPS
Messrs. Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt are brothers
(the "Pratt Brothers"). Mr. Edward T. Pratt III, President and Chief Operating
Officer of the Company, is the son of Mr. Edward T. Pratt, Jr. There is no
other family relationship between any of the directors and any executive
officers of the Company or its subsidiaries or affiliates.
CERTAIN RELATIONSHIPS
See "Transactions with Management" for certain transactions between directors
and the Company or its subsidiaries or affiliates.
MANAGEMENT
Certain information is set forth below concerning the directors, executive
officers and certain key employees of the Company. For a discussion of other
activities of certain of the directors and officers and certain entities with
which they are affiliated, see "Transactions with Management."
Name Age Position
---- --- --------
Jack E. Pratt (1)....................... 71 Chief Executive Officer and
Chairman of the Board of
Directors of the Company
Edward T. Pratt, Jr. (2)................ 74 Vice President, Treasurer and
Vice Chairman of the Board of
Directors of the Company
William D. Pratt (2).................... 69 Executive Vice President,
Secretary, General Counsel and
Director of the Company
Edward T. Pratt III (3)................. 42 President, Chief Operating
Officer and Director of
the Company
James A. Colquitt (4)................... 79 Director of the Company
Theodore H. Strauss (5)................. 73 Director of the Company
Oliver B. Revell III (6)................ 59 Director of the Company
Charles F. LaFrano III (7).............. 43 Vice President of Finance of
the Company
Richard D. Knight (8)................... 50 Executive Vice President -
Operations of the Company;
Executive Vice President and
Chief Operating Officer of
Hollywood Casino - Aurora, Inc.
("HCA") and HWCC - Tunica, Inc.
("HCT"), both wholly owned
subsidiaries of the Company
- ----------------------------
(1) Mr. Jack E. Pratt has been Chief Executive Officer and Chairman of the Board
of the Company since 1993. From 1990 to May 1995, he also served as
President of the Company. Mr. Pratt also served as Chairman of the Board of
Directors and Chief Executive Officer of GBCC for more than five years prior
to his resignation from such positions on January 2, 1998. Mr. Pratt served
as Chairman of the Board of Directors and Chief Executive Officer of GB
Holdings, Inc. and GBHC and as
8
<PAGE>
Chairman of the Board of Directors, President and Chief Executive Officer of
GB Property Funding Corp. until January 2, 1998. On January 5, 1998, these
three GBCC subsidiaries filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of New Jersey.
(2) See "Election of Directors - Business Experience for Past Five Years" for
certain information with respect to Messrs. Edward T. Pratt, Jr. and William
D. Pratt.
(3) Mr. Edward T. Pratt III has served on the Board of Directors of the Company
since 1992. From 1992 to July 1993, he served as Vice President of the
Company; from July 1993 to May 1995, he served as Executive Vice President
of the Company; and in May 1995, Mr. Pratt was elected President and Chief
Operating Officer of the Company. Mr. Pratt served as Executive Vice
President-Development and Corporate Affairs of GBCC for more than 5 years
until November 1995 when he was elected President and Chief Operating
Officer of GBCC. He also served until January 2, 1998 as President, Chief
Operating Officer and a director of GB Holdings, Inc.; as Executive Vice
President and a director of GB Property Funding Corp.; and as a director of
GBHC. On January 5, 1998, these three GBCC subsidiaries filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code.
(4) Mr. James A. Colquitt is self-employed as an insurance consultant and was
elected to the Board of Directors of the Company in December 1995. Until
1983, Mr. Colquitt was Chairman of the Board of Colquitt, Owens & Stephens,
a general insurance agency based in Marietta, Georgia. From 1986 until
November 1995, Mr. Colquitt served on the Board of Directors of GBCC.
(5) Mr. Theodore H. Strauss has served on the Board of Directors of the Company
since 1993. Mr. Strauss has been a Senior Managing Director of Bear,
Stearns & Co. Inc., a leading national investment banking firm, for more
than five years. He also serves on the Board of Directors of Clear Channel
Communications and Sizeler Property Investors. Bear, Stearns & Co. Inc.
served as an underwriter with respect to the October 1995 offering of Senior
Secured Notes by the Company.
(6) Mr. Oliver B. Revell III was elected to fill an existing vacancy on the
Board of Directors on September 12, 1997. Mr. Revell has been President of
Revell Group International, a security consulting business, since September
1994. From May 1991 until September 1994, Mr. Revell was a special Agent in
Charge for the Federal Bureau of Investigation.
(7) Mr. Charles F. LaFrano III has served as Vice President of Finance of the
Company since 1994 and has served as Vice President of GBCC for more than
five years. Mr. LaFrano also served until January 2, 1998 as Vice President
and Assistant Secretary of GB Holdings, Inc. and GB Property Funding Corp.
On January 5, 1998, these GBCC subsidiaries filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code.
(8) Richard D. Knight was elected Executive Vice President of Operations of the
Company in May 1995. He has also served as Executive Vice President and
Chief Operating Officer of HCA since 1992 and of HCT since 1994. Mr. Knight
was also elected President of GBHC on December 10, 1997 and Chief Executive
Officer and a director of GBHC on January 2, 1998. He was also elected
President, Chief Executive Officer and a director of both GB Holdings, Inc.
and GB Property Funding Corp. on January 2, 1998. On January 5, 1998, these
three GBCC subsidiaries filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code. Mr. Knight has over 20 years of casino
operating experience and was previously employed as a senior operating
officer within the Bally organization, serving most recently as Senior Vice
President of Bally's Park Place, Inc. in Atlantic City, New Jersey from 1991
to 1992.
9
<PAGE>
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors, officers and certain stockholders to file with
the Securities and Exchange Commission an initial statements of beneficial
ownership and certain statements of changes in beneficial ownership of equity
securities of the Company. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to the Company during the year ended December 31
1997 and through March 31, 1998 and of Forms 5 and amendments thereto furnished
with respect to the year ended December 31, 1997, the Company has determined
that J. E. Pratt Family Trust I was late in the filing of an initial statement
of beneficial ownership; J. E. Pratt Family Trust and William D. Pratt Family
Trust were each late once in filing a statement of change in beneficial
ownership for one and two transactions, respectively; and Jack E. Pratt was late
twice in filing a statement of change in beneficial ownership, involving a total
of three transactions.
10
<PAGE>
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries, to or on
behalf of the Company's Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company determined as of the end of
the last fiscal year (hereafter referred to as the named executive officers) for
the fiscal years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------------------- COMPENSATION
OTHER ANNUAL AWARDS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS COMPENSATION (2)
--------------------------- ---- -------- -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Pratt (3) 1997 $643,235 $228,476 $ - 150,000 $ 33,920
Chief Executive 1996 646,770 - 14,000 150,000 279,984
Officer and Chairman of the 1995 565,998 205,000 14,000 - 211,772
Board of the Company
Edward T. Pratt III (3) 1997 423,840 228,476 - 150,000 3,500
President and Chief Operating 1996 426,167 - - 150,000 1,980
Officer of the Company 1995 325,897 118,000 - - 1,980
Edward T. Pratt, Jr. (3) 1997 324,312 101,545 - - 3,500
Vice President, Treasurer and 1996 325,891 - 18,500 - 171,150
Vice Chairman of the Board of 1995 284,001 62,000 18,500 - 43,396
the Company
William D. Pratt 1997 294,195 101,545 - - 11,547
Executive Vice President, 1996 295,811 - 14,000 - 215,208
Secretary and General Counsel 1995 242,499 53,000 13,000 - 66,508
of the Company
Richard D. Knight (4)
Executive Vice President - 1997 459,838 67,170 - - 3,500
Operations of the Company, 1996 459,114 50,000 - - 1,980
Executive Vice President and 1995 378,888 80,000 - - 1,980
Chief Operating Officer of HCA
and HCT
</TABLE>
- --------------------------
(1) Represents directors' fees for service as a director to a subsidiary of
GBCC.
(2) Includes matching contributions by the Company to The Hollywood Casino
Corporation and Subsidiaries Retirement Savings Plan on behalf of the named
executive officer. See also "Employee Retirement Savings Plan" below.
Amounts set forth above for Messrs. Jack E. Pratt, Edward T. Pratt, Jr. and
William D. Pratt also include pension benefit accruals on their behalf. See
also "Employment Contracts" below.
11
<PAGE>
(3) Mr. Jack Pratt held and Messrs. Edward Pratt, Jr., William D. Pratt and
Edward T. Pratt III concurrently hold the positions as officers of GBCC
described under the caption "Management." GBCC reimburses the Company for
that portion of salary, bonus and other compensation which relates to
services provided to GBCC. Of the salary, bonus and all other compensation
amounts reported above, the following tabulation presents amounts which
relate to services which the Messrs. Pratt provided to the Company:
ALL OTHER
SALARY BONUS COMPENSATION
---------- ---------- --------------
Jack E. Pratt
1997 $ 434,709 $ 228,476 $ 16,960
1996 386,823 - 139,992
1995 454,930 133,250 105,886
Edward T. Pratt, Jr.
1997 185,839 101,545 1,750
1996 191,417 - 85,575
1995 202,941 31,000 21,698
William D. Pratt
1997 150,268 101,545 5,774
1996 172,188 - 107,604
1995 201,792 26,500 33,254
Edward T. Pratt III
1997 230,927 228,476 1,750
1996 284,579 - 990
1995 274,031 100,300 990
(4) During 1997, GBCC reimbursed the Company for a portion of Mr. Knight's
salary based on certain overhead allocation agreements existing between the
Company and GBCC (see "Transactions with Management"). Of the amounts
reported above, the following amounts relate to services provided by Mr.
Knight to the Company: Salary - $356,943, bonus - $67,170, all other
compensation - $3,500.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Hollywood Casino Corporation 1996 Long-Term Incentive Plan
(the "1996 Plan") to the named executive officers. No grants of stock options
under the Hollywood Casino Corporation 1992 Stock Option Plan (the "1992 Plan")
were made to the named executive officers during the fiscal year ended December
31, 1997.
12
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS MARKET PRICE APPRECIATION
OPTIONS/ GRANTED TO EXERCISE PRICE ON FOR OPTION TERM
SAR'S EMPLOYEES OR BASE DATE OF EXPIRATION ---------------------
NAME GRANTED (a) IN FISCAL YEAR PRICE GRANT DATE 5% 10%
---- ----------- -------------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack E. Pratt 150,000 50.0 $2.81 $2.81 9/11/02 $116,556 $257,559
Edward T. Pratt III 150,000 50.0 2.81 2.81 9/11/02 116,556 257,559
Edward T. Pratt, Jr. - - - - - - -
William D. Pratt - - - - - - -
Richard D. Knight - - - - - - -
</TABLE>
- ---------------------
(a) Options granted "at market" on the date of grant and first become
exercisable six months from the date of grant.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named executive
officers, concerning options granted under the 1992 Plan and the 1996 Plan
during the last fiscal year and unexercised options held as of the end of the
fiscal year:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
1992 PLAN AND 1996 PLAN
-----------------------
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
FY-END (MARKET PRICE OF
VALUE REALIZED NUMBER OF UNEXERCISED SHARES AT FY-END ($1.84)
SHARES (MARKET PRICE AT OPTIONS AT FY END LESS EXERCISE PRICE)
ACQUIRED EXERCISE LESS -------------------------- --------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Pratt......... - $ - 150,000 150,000 $ - $ -
Edward T. Pratt III... 50,000 95,283 190,008 150,000 73,741 -
Edward T. Pratt, Jr... - - - - - -
William D. Pratt...... - - - - - -
Richard D. Knight..... - - - - - -
</TABLE>
13
<PAGE>
EMPLOYMENT CONTRACTS
Jack E. Pratt, Chairman of the Board and Chief Executive Officer of the
Company, Edward T. Pratt, Jr., Vice Chairman of the Board, Vice President and
Treasurer of the Company, and William D. Pratt, Executive Vice President,
Secretary and General Counsel of the Company, are under employment contracts
with the Company and have provided services to GBCC pursuant to intercompany
allocation agreements ratified by the respective Boards of Directors of the
Company and GBCC. Their employment contracts were executed during October 1989
and originally expired on December 31, 1994, but have subsequently been extended
by amendment through December 31, 2001 with respect to Jack E. Pratt and to
December 31, 2000 with respect to Edward T. Pratt, Jr. and William D. Pratt.
Services to GBCC will continue to be provided pursuant to intercompany
allocation agreements. The terms of the contracts may be extended again by
mutual agreement of the parties and the extended term, or any further extension
thereof, will be followed immediately by a four-year period as consultants to
the Company. Upon expiration of the consulting term, each of the Pratt Brothers
will be entitled to receive a lifetime pension benefit and his designated
beneficiary is entitled to receive a death benefit, throughout the term of the
employment, consulting and pension benefit periods.
The terms of the employment contracts provide for an annual base salary in
the first year for Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt of
$350,000, $223,000 and $191,000, respectively, subject to annual review and
increase by the Compensation Committee of the Board of Directors of the Company.
Compensation under the consulting and pension benefit provisions of the
employment contracts of each of the Pratt Brothers will be 75% of the average of
his three highest annual salaries during the employment term of the contract.
The death benefit is derived by multiplying a Pratt Brother's highest annual
salary during his employment term by 50% and such benefit will be paid annually
to his designated beneficiary for a period of ten years after his death. The
estimated annual pension benefit payable to Jack E. Pratt, Edward T. Pratt, Jr.
and William D. Pratt is currently $484,000, $244,000 and $221,000, respectively.
Edward T. Pratt III, President and Chief Operating Officer of the Company, is
under an employment contract dated as of May 1, 1996 in such capacities
continuing through April 30, 2000 unless sooner terminated by either party. The
terms of Mr. Pratt's agreement provide for a minimum annual base salary
effective January 1, 1996 of $425,000, subject to annual review and increase by
the Compensation Committee of the Board of Directors of the Company. In the
event of a change in control of the Company, the agreement provides that if Mr.
Pratt's employment were to be terminated, he would receive the greater of the
remaining compensation under his employment contract or three times his then
annual base salary, payable in a lump sum or in equal monthly installments over
the applicable period.
Richard D. Knight, Executive Vice President of Operations of the Company and
Executive Vice President and Chief Operating Officer of HCA and HCT, is under an
employment contract, as amended on December 31, 1997, in such capacities
continuing through December 31, 2000 unless sooner terminated by either party.
The terms of Mr. Knight's agreement provide for an annual base salary of
$456,500, subject to annual review and adjustment. In the event of a change in
control of the Company, the agreement provides that if Mr. Knight's employment
were to be terminated, he would receive the greater of the remaining
compensation under his employment contract or two times his then annual base
salary, payable in a lump sum or in equal monthly installments over the
applicable period.
14
<PAGE>
STOCK OPTION PLANS
The Hollywood Casino Corporation 1996 Long-Term Incentive Plan. During 1996,
the stockholders of the Company approved the adoption of the Hollywood Casino
Corporation 1996 Long-Term Incentive Plan (the "1996 Plan"). The Company has
reserved 3,000,000 shares of its Class A Common Stock for grants of nonqualified
stock options, stock options qualified for special tax treatment under the
Internal Revenue Code and restricted stock awards (collectively, "awards") to
employees of the Company and its subsidiaries.
Awards under the 1996 Plan, together with the exercise price, vesting
schedule and restrictions and conditions, if any, are determined by a Committee
of the Board of Directors of the Company. However, any common stock acquired
pursuant to an award to a director, executive officer or 10% or greater
stockholder of the Company must be held by that participant for at least six
months from the date of the award, unless the Committee determines that a
disposition would not violate the federal securities laws. The exercise price
must be at least 100% (or at least 110% in the case of incentive stock options
granted to certain employees who own greater than 10% of the outstanding Common
Stock of the Company) of the fair market value of the Common Stock on the date
of grant and may be paid in cash or in shares of the Company's Common Stock
valued at fair market value on the date of exercise.
No participant in the 1996 Plan may receive awards during any fiscal year
covering an aggregate of more than 150,000 shares of Common Stock. The grant of
incentive stock options is also subject to a $100,000 calendar year limit. Upon
termination of a participant's employment for any reason, the participant will
forfeit the nonvested portions of all awards he or she holds. Awards which have
not yet vested are not transferable or assignable other than by will or by the
laws of descent and distribution. The 1996 Plan also provides that in the event
of a "Change in Control", as such term is defined in the 1996 Plan, all
unmatured installments of awards will become fully accelerated and exercisable
in full.
The Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan.
During 1996, the stockholders of the Company approved the adoption of the
Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan (the
"Directors' Plan"). The Company has reserved 150,000 shares of its Class A
Common Stock for grants of nonqualified stock options to directors who are not
employees of the Company ("outside directors") in order to attract and retain
such individuals and encourage their performance.
Under the Directors' Plan, an option to purchase 10,000 shares of Common
Stock was granted to each outside director upon adoption of the Directors' Plan
in 1996. Each person becoming an outside director subsequent to adoption of the
Directors' Plan will automatically receive an option to purchase 10,000 shares
on the date that person becomes a director. Additionally, outside directors
will receive a nonqualified option to purchase 2,500 shares of Common Stock on
January 15 of each year. The exercise price for all options under the
Directors' Plan is 100% of the fair market value of the Common Stock on the date
of grant and may be paid in cash or in shares of the Company's Common Stock
valued at fair market value on the date of exercise. An outside director may
also elect to receive all or part of his or her retainer fee in the form of
Common Stock of the Company based on the market value of the Common Stock as of
the end of the period for which such fee applies. Common Stock received in lieu
of a retainer fee is fully vested upon receipt.
Options granted under the Directors' Plan extend for ten years from and may
be exercised any time after six months from the date of grant. Upon termination
of a participant's service as a director due to death or total disability,
outstanding options may be exercised for a period of 12 months after such
termination unless the original expiration date of the option is sooner. Upon
termination of a participant's service as a director for reason of retirement,
outstanding options may be exercised for a period of three
15
<PAGE>
months after such retirement. Options granted under the Directors' Plan are not
transferable or assignable other than by will or by the laws of descent and
distribution.
The 1992 Hollywood Casino Corporation Stock Option Plan. During 1992, the
Company reserved 1,197,000 shares of Class B Common Stock for the purpose of
establishing the Hollywood Casino Corporation 1992 Stock Option Plan (the "1992
Plan") for its key executives. After the consummation of the Company's initial
public offering in June 1993 all stock options outstanding under the 1992 Plan
became exercisable for Class A Common Stock and any options granted under the
1992 Plan after that date are to purchase Class A Common Stock.
Options granted under the 1992 Plan vest in equal annual installments over a
period of three years. In the event of the death, disability or retirement of a
participant in the 1992 Plan, the participant's options will accelerate and be
exercisable in full. If the participant's employment with the Company is
terminated for cause (as defined in the 1992 Plan), the options held by that
participant shall automatically terminate. Options granted under the 1992 Plan
are not assignable except by will, the laws of descent and distribution or
pursuant to qualified domestic relations order. The 1992 Plan provides that if
any person or group (other than certain members of the Pratt family) becomes the
beneficial owner of 51% or more of the total voting power of each class of the
Company's capital stock (subject to certain exceptions), the vesting of all
outstanding options will accelerate and be exercisable in full. The exercise of
incentive stock options granted under the 1992 Plan is subject to a $100,000
calendar-year limit for each option holder based on the fair market value of the
Company's Common Stock at the time the option was granted.
The exercise price of options granted under the Company Plan may be paid in
cash or in shares of Class A Common Stock valued at fair market value on the
date of exercise.
EMPLOYEE RETIREMENT SAVINGS PLAN
During 1993, the Company adopted The Hollywood Casino Corporation and
Subsidiaries Retirement Savings Plan (the "Savings Plan"), a qualified defined
contribution plan for the benefit of all of the Company's employees who satisfy
certain eligibility requirements. The Savings Plan is qualified under the
requirements of section 401(k) of the Code allowing participating employees to
benefit from the tax deferral opportunities provided therein. All employees of
the Company who have completed one year of service, as defined, and who have
attained the age of 21, are eligible to participate in the Savings Plan.
The Savings Plan provides for a matching contribution by the Company based
upon certain criteria, including levels of participation by the Company's
employees. The Company accrued matching contributions totaling approximately
$559,000 for the year ended December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company is
comprised of Messrs. William D. Pratt, James A. Colquitt and Theodore H.
Strauss. Jack E. Pratt also served on the Compensation Committee prior to May
30, 1997. Jack E. Pratt and William D. Pratt also serve as executive officers
of the Company and William D. Pratt also serves as an executive officer and
director of GBCC. Jack E. Pratt also serves on the Compensation Committee of
GBCC as did William D. Pratt until May 21, 1997. Mr. Strauss is senior managing
director of Bear, Stearns & Co. Inc., which served as underwriters with respect
to the October 1995 offering of $210 million of Senior Secured Notes by the
Company.
16
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee believes that the Company's continued growth in
the casino industry is directly attributable to the caliber and commitment of
its officers, senior management and key operational managers. Attracting and
retaining executives capable of sustaining and managing the Company's growth
over the long term are fundamental to building stockholder value and are among
the Company's highest priorities. As a reflection of such high priority, the
Company retained the Performance and Compensation Management Consulting Practice
of KPMG Peat Marwick (the "Consultant") in 1995 and 1996 to conduct a review and
analysis of the Company's executive compensation policy and provide the Company
with recommendations for such policy (the "Consultant's Report").
It is the Compensation Committee's overall goal to develop executive
compensation policies that are consistent with, and linked to, strategic
business objectives and Company values. The Compensation Committee approves the
design of, assesses the effectiveness of, and administers executive compensation
programs in support of Company compensation polices. The Compensation Committee
also reviews and approves all salary arrangements and other recommendations for
executives, evaluates executive's performance, and considers other matters.
The Consultant's recommendations contained in the Consultant's Report
affirmed the Company's existing executive compensation policy that executive
compensation should consist of three components: a base salary commensurate with
each executive's respective scope of responsibilities and level of personal
performance and competitive with the base salary offered to executives of
similar caliber and responsibilities in comparable gaming companies and other
relevant industries; an annual incentive compensation program rewarding
exceptional financial and operational performance as measured against
predetermined criteria and taking into account prevailing operational,
financial, competitive, regulatory and other constraints; and a stock option
program tying executive compensation to long-term share price appreciation.
Adjustments to base salaries are driven primarily by individual performance.
Individual performance is evaluated based on sustained levels of individual
contribution to the Company. When evaluating individual performance, the
Compensation Committee considers the executive's efforts in promoting Company
values; continuing management training and development; improving quality;
developing relationships with customers, suppliers and employees; demonstrating
leadership abilities among coworkers; and other goals.
The 1997 executive incentive compensation plan of the Company (the "1997
Incentive Compensation Plan"), which was approved by the independent members of
the Compensation Committee effective as of March 18, 1997, promotes the
Company's pay-for-performance philosophy by providing executives with direct
financial incentives in the form of annual cash bonuses to achieve Company,
business unit and individual performance goals. The 1997 Incentive Compensation
Plan provides that a bonus will be awarded to certain key executives of the
Company and its subsidiaries designated by management if certain specific pre-
determined company or business unit financial goals set by management at the
beginning of the fiscal year 1997 are achieved by such executives during the
fiscal year 1997. Notwithstanding the foregoing, (i) except as provided in item
(ii) below, no bonus payouts will be made under the 1997 Incentive Compensation
Plan if any minimum threshold performance goal set by management is not
achieved, (ii) the Compensation Committee may award a bonus to a participant in
the 1997 Incentive Compensation Plan in amounts not to exceed 25% of annual base
salary if the performance goal is not met due to circumstances beyond the
reasonable control of such participant and the Compensation Committee determines
that such a bonus is merited and (iii) maximum bonus payouts will be 200% of
targeted payouts for superior performance relative to target forecast numbers.
The targets established in the 1997 Incentive Compensation Plan are considered
by the Compensation Committee to be achievable, but to require stretch
performance from each executive.
17
<PAGE>
Long-term incentives are provided to executives pursuant to the Company's
stock option plans. In 1996 the Board of Directors of the Company adopted, and
the stockholders of the Company ratified, the Hollywood Casino Corporation 1996
Long-Term Incentive Plan (the "1996 Long-Term Incentive Plan"). The 1996
Long-Term Incentive Plan is administered by a committee (the "Plan Committee")
consisting of Messrs. James A. Colquitt and Theodore H. Strauss who are also
members of the Compensation Committee. The purpose of the 1996 Long-Term
Incentive Plan is to attract and retain key executives by the grant of awards to
such executives (such as stock options and restricted stock) which provide them
with proprietary interest in the Company which will only appreciate in value if
the price of the stock of the Company increases. The Plan Committee's objective
is to provide executives with long-term incentive award opportunities that are
on par with grants made within the Company's industry and are reflective of
performance. Long-term incentive award guidelines have been developed based on
the same method used in establishing bonus award guidelines. Practices of
comparable companies have been adapted for use at the Company with the actual
percent granted varying by position within the Company.
The Compensation Committee believes that the compensation program for the
executives of the Company is comparable with the compensation program provided
by comparable companies and serves the best interests of the stockholders of the
Company. The Compensation Committee also believes that performance pay is
appropriately linked to individual performance, annual financial performance of
the Company and stockholder value.
Mr. Jack E. Pratt is Chairman of the Board and Chief Executive Officer of the
Company and also previously served as Chairman of the Board and Chief Executive
Officer of Greate Bay Casino Corporation ("GBCC") which, prior to December 31,
1996, was a direct approximately 80% owned subsidiary of the Company, until his
resignation from his positions with GBCC on January 2, 1998. Pursuant to an
employment agreement with GBCC dated as of September 21, 1989, as amended (the
"Pratt Employment Agreement"), which the Company assumed effective as of January
1, 1996 and which is described in the Company's Form 10-K for the fiscal year
ended December 31, 1997, and certain services agreements between the Company and
subsidiaries of GBCC (the "Services Agreements") described in the Company's Form
10-K for the fiscal year ended December 31, 1997, Mr. Pratt performed services
in the fiscal year 1997 for the Company and GBCC which allocated the cost of
such services as provided in the Services Agreements. Effective as of January
1, 1998, the Company extended the expiration date of the Pratt Employment
Agreement from December 31, 2000 to December 31, 2001.
In light of previous decisions of the Board of Directors of the Company and
its Compensation Committee, the minimum annual base salary of Mr. Pratt under
the Employment Agreement was set at $645,000 effective as of January 1, 1996 and
there have been no adjustments to such annual base salary since January 1, 1996.
In accordance with the terms of the Services Agreements, the Company's portion
of such annual base salary during 1997 was $434,709. Based on the computation
of the 1997 operating results of the Company and the application of the
methodology of the 1997 Incentive Compensation Plan to such 1997 operating
results, the independent members of the Compensation Committee awarded a bonus
to Mr. Jack E. Pratt in the amount of $228,476 on February 9, 1998. In
addition, in order to encourage long-term performance, the Plan Committee
awarded to Mr. Pratt under the 1996 Long-Term Incentive Plan the grant of a
non-qualified stock option to purchase 150,000 shares of the Class A Common
Stock of the Company at the fair market value of such stock on September 11,
1997 (i.e., $2.8125 per share).
Federal income tax legislation has limited the deductibility of certain
compensation paid to the Chief Executive Officer and covered employees to the
extent the compensation exceeds $1,000,000. Performance-based compensation and
certain other compensation, as defined, are not subject to the deduction
limitation. It is not currently anticipated that any covered employee could
earn annual compensation in excess of the one million dollar definition under
existing or proposed compensation plans. The Company continually reviews its
compensation plans to minimize or avoid potential adverse effects of this
legislation. The Compensation Committee will consider recommending such steps
as may be
18
<PAGE>
required to qualify either annual or long-term incentive compensation for
deductibility if that appears appropriate at some time in the future.
This report and the accompanying stock price performance graph are provided
for general informational purposes only pursuant to regulations under the
Securities Exchange Act of 1934. No information contained in this report or the
accompanying graph shall be deemed to be filed in whole or in part for purposes
under the Securities Act or the Securities Exchange Act of 1934, or incorporated
by reference into any filing made thereunder.
Compensation Committee
Theodore H. Strauss
James A. Colquitt
William D. Pratt
19
<PAGE>
STOCK PRICE PERFORMANCE
The graph set forth below compares the stock price performance of the Company
with those of the Dow Jones Equity Market Index and the Dow Jones Index for the
Casino Industry for the period since the Company's Common Stock became publicly
traded (May 28, 1993). The Company has not paid dividends over such period of
time; however, the comparative equity market and industry data assumes
reinvestment of dividends. The stock price performance shown below may not be
indicative of future stock price performance. (Table substituted for graph).
Hollywood Casino Corporation
Stock Price Performance
(May 28, 1993 = 100)
Hollywood
Equity Casino Casino
Date Index Index Corporation
- -------------------- ------ ------ -----------
May 28, 1993 100.0 100.0 100.0
June 30, 1993 100.4 99.9 135.9
September 30, 1993 103.2 129.8 92.2
December 31, 1993 105.2 117.9 79.7
March 31, 1994 101.2 102.2 70.3
June 30, 1994 101.4 78.2 42.2
September 30, 1994 106.2 87.8 42.2
December 30, 1994 106.0 90.5 35.9
March 31, 1995 116.3 117.1 35.2
June 30, 1995 127.5 131.0 55.5
September 29, 1995 138.0 126.2 43.8
December 29, 1995 145.9 120.1 26.6
March 29, 1996 154.1 146.4 21.5
June 28, 1996 160.7 170.5 43.0
September 30, 1996 166.0 141.7 30.5
December 31, 1996 179.5 131.0 23.4
March 31, 1997 183.7 112.6 21.9
June 30, 1997 214.9 123.7 18.8
September 30, 1997 232.8 144.0 18.0
December 31, 1997 240.4 115.2 11.5
20
<PAGE>
TRANSACTIONS WITH MANAGEMENT
GREATE BAY CASINO CORPORATION. As a result of the distribution by the
Company of the stock it owned in GBCC to the Company's stockholders on December
31, 1996, GBCC is no longer a consolidated subsidiary. GBCC, however, remains
approximately 36% owned by the Pratt Family and GBCC and the Company have a
number of common officers and directors.
During 1990, the Company acquired approximately $38.8 million of unsecured
notes (the "PCPI Notes") issued by PCPI Funding Corp., a subsidiary of GBCC. As
part of a refinancing in February 1994 of virtually all of GBCC's casino-related
outstanding debt, a newly formed subsidiary of GBCC issued approximately $40.5
million discounted principal amount of new deferred interest notes (the "PPI
Funding Notes") in exchange for the $38.8 million principal amount of PCPI Notes
held by the Company. The increased principal amount of the new notes included a
call premium on the exchange ($1.7 million) equal to 4 1/2% of the principal
amount of PCPI Notes exchanged; such premium was paid to all third parties
holding PCPI Notes.
It was anticipated that one of the Company's primary methods of collection
with respect to the PPI Funding Notes would be through the utilization of tax
net operating losses generated in prior years by GBCC. As GBCC is no longer a
consolidated subsidiary for federal income tax purposes, this means of
collection is no longer available to the Company. At December 31, 1997, the
Company evaluated the collectability of the PPI Funding Notes. Such evaluation
was based, in part, on the Company's determination of the potential for
repayment of the PPI Funding Notes by means of the available cash and noncash
assets of PPI Funding Corp. 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 subsidiary on January 5, 1998. The
Company concluded that a write down of its receivable in the amount of $15.7
million together with the establishment of a valuation allowance in the amount
of $18 million was necessary to reduce the carrying amount of the PPI Funding
Notes to their estimated realizable value of $12.3 million. Management
anticipates that this balance will be realized through a combination of asset
acquisitions and repayments from GBCC.
Since May 1992, GBCC has borrowed funds from the Company for various
purposes. As of December 31, 1996, the outstanding balance on such borrowings
was $6.8 million. Of the amounts borrowed, $250,000 is due on demand, or if no
demand is made, on April 1, 1998. Such borrowing from the Company bears
interest at the rate of 14% per annum, payable semiannually. The remaining $6.5
million was borrowed from the Company during 1996 on a demand basis with
interest at the rate of 13 3/4% per annum payable quarterly commencing October
1, 1996. Interest receivable in connection with such borrowings amounted to
$839,000 at December 31, 1997. Payment of interest on borrowings from the
Company is subject to the approval of New Jersey gaming authorities.
Hollywood Casino - Aurora, Inc. ("HCA"), a wholly owned subsidiary of the
Company, was organized for the purpose of developing and owning a riverboat
gaming facility in Aurora, Illinois, (the "Aurora Casino") which commenced
operations on June 17, 1993. Prior to the acquisition discussed in the
following paragraph, GBCC received, pursuant to a services agreement, a base
services fee equal to 5% of operating revenues (as defined in the agreement)
subject to a maximum of $5.5 million annually, and an incentive fee equal to 10%
of gross operating profit (as defined in the agreement to generally include all
revenues, less expenses other than depreciation, interest, amortization and
taxes). HCA incurred management fees of $2.7 million prior to April 1, 1997.
As of April 1, 1997, a subsidiary of the Company acquired the general
partnership interest in the limited partnership which holds the management
contract on the Aurora Casino from a subsidiary of
21
<PAGE>
GBCC. As general partner, the Company receives 99% of the first $84,000 of net
income earned by the partnership each month and 1% of any income earned above
such amount. The Company issued to the GBCC subsidiary a five-year note in the
original amount of $3.8 million, assigned $7.6 million principal amount of PPI
Funding Notes (see above) and assigned certain accrued interest receivable in
exchange for the general partnership interest. The $3.8 million 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 Company's share of
quarterly cash distributions, as defined, from the limited partnership. The
Company incurred interest expense amounting to $383,000 during the year ended
December 31, 1997 and has accrued interest payable to GBCC of $41,000 at
December 31, 1997.
HWCC - Tunica, Inc. ("HCT"), a wholly owned subsidiary of the Company,
completed construction of a dockside gaming facility in Tunica County,
Mississippi (the "Tunica Casino") which commenced operations in August 1994.
Pursuant to a ten-year consulting agreement with HCT, GBCC receives monthly
consulting fees of $100,000.
The Company and its subsidiaries share certain general and administrative
costs with GBCC. Net allocated costs and fees charged to GBCC amounted to $1.8
million during the year ended December 31, 1997. A receivable in the amount of
$156,000 in connection with such allocated costs and fees was due to the Company
at December 31, 1997.
Various subsidiaries of GBCC provide certain marketing and other
administrative services to casino facilities owned by the Company. The casino
facilities are billed for such services at either the direct or allocated cost
of providing the services. Such charges amounted to $827,000 during the year
ended December 31, 1997.
A subsidiary of GBCC provides computer-related services to the Company's
casino facilities. The GBCC subsidiary has an agreement with one casino
facility through December 31, 1999; such agreement provides for the sale of
computer hardware and information systems equipment and the licensing of
software necessary to operate the facility. The casino pays prices and fees in
amounts and on terms and conditions that the subsidiary provides to unrelated
third parties as well as a fixed license and consulting fee of $33,600 per
month. The subsidiary is also reimbursed for its direct costs and expenses
incurred under this agreement. The GBCC subsidiary also provides similar
services and hardware to another casino facility which it charges for direct
costs and expenses. Total charges to the two casinos amounted to $664,000
during the year ended December 31, 1997. Payables to the GBCC subsidiary at
December 31, 1997 totalled $55,000.
OTHER. In September 1994, a subsidiary of the Company entered into an
agreement with an entity owned by a relation to the Pratt Brothers to manage the
operation and maintenance of a company-owned aircraft and to make such aircraft
available for charters by third parties. The aircraft was sold during March
1997 with the Company realizing a gain of the sale of approximately $460,000.
The Company also occasionally charters aircraft from the maintenance company.
Charter fees, expenses and commissions totaling $268,000 were paid to the
maintenance company during the year ended December 31, 1997.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee and subject to ratification by
the stockholders at the Annual Meeting, the Board of Directors has appointed
Arthur Andersen LLP ("Andersen") to serve as the independent public accountants
of the Company for its fiscal year ending December 31, 1998. Andersen, which has
served as the independent public accountants of the Company since 1990, follows
a policy of rotating the engagement partner every seven years. Other partners
and non-partner personnel are rotated on a periodic basis. Representatives of
Andersen are expected to be present at the Annual
22
<PAGE>
Meeting to make a statement or to respond to questions. If the appointment of
Andersen is not ratified by the stockholders, the Board of Directors will
appoint other independent public accountants based upon the recommendation of
the Audit Committee.
The affirmative vote of a majority of the votes cast on this proposal shall
constitute ratification of the appointment of Andersen.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL
YEAR 1998.
OTHER BUSINESS
The Board of Directors knows of no other business that may properly be, or
that is likely to be, brought before the Annual Meeting. If, however, any other
business should properly be presented to the Annual Meeting, the persons named
in the accompanying Proxy will vote the Proxy as in their discretion they may
deem desirable.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended,
stockholders may present proposals for inclusion in the Company's proxy
statement for consideration at its Annual Meeting of Stockholders by submitting
proposals to the Company in a timely manner. In order to be so included for the
1999 Annual Meeting, stockholder proposals must be received by the Company by
January 8, 1999, and must otherwise comply with the requirements of Rule 14a-8.
23
<PAGE>
COPIES OF THE ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
The Annual Report on Form 10-K covering the Company's year ended December 31,
1997, including audited financial statements, is enclosed herewith. The Form
10-K does not form any part of the materials for the solicitation of Proxies.
The enclosed Form 10-K does not include all exhibits required to be filed with
the Securities and Exchange Commission. However, these exhibits are listed in
Part III of the enclosed Form 10-K, and the Company will furnish, for a minimal
charge, any such exhibit to each stockholder upon written request. Written
requests for exhibits should be directed to Investor Relations, Hollywood Casino
Corporation, Two Galleria Tower, Suite 2200, 13455 Noel Road, LB 48, Dallas,
Texas 75240.
BY ORDER OF THE BOARD OF DIRECTORS
William D. Pratt, Secretary
April 28, 1998
Dallas, Texas
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE ANNUAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
24
<PAGE>
HOLLYWOOD CASINO CORPORATION
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack E. Pratt and Edward T. Pratt III as
proxies, with the power to appoint their substitutes, and hereby authorizes them
to represent and vote as designated below, all of the shares of the Common Stock
of Hollywood Casino Corporation (the "Company") held of record by the
undersigned on April 15, 1998, at the Annual Meeting of Stockholders to be held
on May 28, 1998, or any adjournment(s) thereof.
1. PROPOSAL TO ELECT AS CLASS II DIRECTORS OF THE COMPANY THE FOLLOWING PERSONS
TO HOLD OFFICE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS OR UNTIL THEIR
SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED.
FOR ALL nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
--- ---
below.
Edward T. Pratt, Jr. William D. Pratt
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
-------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR FISCAL YEAR 1998.
FOR AGAINST ABSTAIN
----- ----- -----
- --------------------------------------------------------------------------------
(please sign on the other side)
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES UNDER PROPOSAL 1 AND FOR THE ACTION UNDER
PROPOSAL 2.
Dated: , 1998
----------------------------
----------------------------------------
Signature
----------------------------------------
Signature if Held Jointly
Please execute this Proxy as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full name by the president or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
