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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, 1999
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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
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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
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par Value
Preferred Stock Purchase Rights
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Title of each class
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 March
27, 2000, was $44,651,137. 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 March 27, 2000, 24,953,476 shares of Class A Common
Stock, $.0001 par value per share, were outstanding.
As of March 27, 2000, 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 23, 2000 - Part
III.
HWCC-Tunica, Inc. meets the conditions set forth in General Instruction
(I)(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 casino and entertainment facility in Aurora, Illinois
approximately 35 miles west of downtown Chicago (the "Aurora Casino"), and a
casino, hotel and entertainment complex in Tunica County, Mississippi located
approximately 30 miles south of Memphis, Tennessee (the "Tunica Casino"). Both
the Aurora Casino and Tunica Casino feature the Company's unique 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. In
addition, the Company has a license to own and operate and is currently
constructing a destination gaming resort to be located in Shreveport, Louisiana,
approximately 180 miles east of Dallas, Texas (the "Shreveport Casino").
Approximately 46% of HCC's outstanding common shares are listed and traded on
the American Stock Exchange under the symbol "HWD". The remaining outstanding
HCC common shares are owned by Jack E. Pratt, Edward T. Pratt, Jr. and William
D. Pratt and by certain general partnerships and trusts controlled by the Pratts
and by other family members.
HCC owns all of the outstanding common stock of Hollywood Casino - Aurora,
Inc. ("HCA"), HWCC - Tunica, Inc. ("HCT"), HWCC-Louisiana, Inc. ("HCL") and
HWCC-Shreveport, Inc. ("HCS"). 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 to acquire and complete the Tunica
Casino. HCL is a Louisiana corporation formed by HCC in 1993 to pursue gaming
opportunities in Louisiana. HCL effectively owns and is currently constructing
the Shreveport Casino. HCS is a Louisiana corporation formed by HCC in 1997
which will hold the management contract for the Shreveport Casino.
In April 1999, the Company entered into a voting agreement with Greate Bay
Casino Corporation ("GBCC") and certain of its wholly owned subsidiaries,
including PRT Funding Corp. ("PRT Funding") and Pratt Casino Corporation
("PCC"), and the holders of substantially all of the $85 million of unsecured
senior notes issued by PRT Funding and guaranteed by PCC (the "PRT Funding
Notes") which were in default. Under the terms of the voting agreement, the
Company was to purchase the stock of PCC from GBCC for nominal consideration and
fund the payment of PCC's obligations as part of a debt restructuring of PRT
Funding, PCC and other subsidiaries of PCC. When acquired by HCC, PCC's assets
were to consist of its limited partnership interest in Pratt Management, L.P.
("PML"), which held the management contract for the Aurora Casino, and its
consulting agreement for the Tunica Casino. PCC's liabilities were to consist
of a new $40.3 million obligation payable in satisfaction of the PRT Funding
Notes. Prior to December 31, 1996, GBCC was an approximately 80% owned
subsidiary of HCC. On December 31, 1996, HCC distributed the GBCC common stock
it owned to its shareholders and GBCC ceased to be an HCC subsidiary.
PCC and PRT Funding filed for protection under Chapter 11 of the United
States Bankruptcy Code on May 25, 1999 with the above transactions included as
part of a pre-negotiated plan of reorganization. Such plan was confirmed by the
United States Bankruptcy Court for the District of Delaware in October 1999. At
such time, HCC completed its acquisition of PCC and settled PCC's obligations.
The acquisition and subsequent termination of the management contract and
consulting agreement resulted in a fourth quarter charge to expense by the
Company in the amount of $40.4 million since, for financial reporting purposes,
no asset value was attributed to the contracts when acquired.
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HCC had acquired the general partnership interest in PML effective April 1,
1997 from another subsidiary of GBCC. As discussed above, HCC acquired the
remaining limited partnership interest in PML when it acquired PCC in October
1999, at which time the Aurora Casino management contract was terminated.
Accordingly, PML is reflected as a consolidated subsidiary of HCC for the period
from April 1, 1997 to October 14, 1999. For such period, the remaining limited
partnership interest was held by PCC and was reflected on the accompanying
consolidated financial statements as a minority interest.
In September 1998, a joint venture (the "Shreveport Partnership") in which
HCL was a partner received approval to develop, own and operate the Shreveport
Casino. HCL originally planned to develop the Shreveport Casino with two joint
venture partners and would have had an interest of approximately 50%. HCL's 50%
investment in the joint venture ($2.5 million) was reflected on the accompanying
consolidated balance sheet at December 31, 1998 as an investment in
unconsolidated affiliate.
On March 31, 1999, HCL entered into a definitive agreement with one of the
joint venture partners to acquire its interest in the Shreveport Partnership.
The acquisition price was $2.5 million (the amount the joint venture partner
contributed to the project), $1,000 of which was paid at closing with the
remainder to be paid six months after the opening of the Shreveport Casino. The
revised structure of the joint venture received approval by the Louisiana Gaming
Control Board (the "LGCB") on April 20, 1999. As a result, HCL now has an
effective 100% ownership interest in the Shreveport Casino with the remaining
joint venture partner holding a 10% residual interest in the event the project
is ever sold. The joint venture partner's interest is included in minority
interest on the accompanying consolidated balance sheet at December 31, 1999 in
the amount of $2 million. The acquisition was accounted for under the purchase
method of accounting. Accordingly, effective with the April 23, 1999 closing of
HCL's acquisition of the additional joint venture interest, the Shreveport
Partnership is consolidated in the financial statements of HCC. The acquired
company had no significant operating activities prior to the acquisition date.
The Company's casinos use casino information technology developed by Advanced
Casino Systems Corporation ("ACSC"), a subsidiary of GBCC. The technology
includes table game and slot machine monitoring systems that enable the casinos
to track and rate patron play through the use of a casino player's card. These
systems provide management with the key characteristics of patron play as slot
machines and table games are connected with its data base monitoring system.
When patrons use the casino player's card at slot machines or table games, the
information is immediately available to management and allows management to
implement marketing programs to recognize and reward patrons during their visits
to the casino. Such promotions and complimentaries are generally provided
through direct mail programs and specialized invitations and include food, hotel
accommodations, special player events, retail merchandise, sweepstake giveaways
and "cash-back" programs based on slot machine patrons' gross wagering.
Management believes that its ability to reward customers on a same-visit basis
is valuable in developing a loyal base of higher value patrons. The casino
system also enables the Company's properties to capture and maintain patron
information necessary in implementing its casino player's card and other
database marketing programs. In addition, ACSC's systems allow management to
monitor, analyze and control the granting of gaming credit, promotional expenses
and other marketing costs.
Management uses the databases to focus marketing efforts on patrons who have
been identified as higher value patrons. Management believes that the process
of identifying higher value patrons, encouraging participation in its casino
player's card program and tailoring promotions and special events to cater to
this market segment enhances the profitability of the Company's casinos.
The Company 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 HCC's gaming facilities and the
casino player's card program, the database capabilities are used to direct
market to these patrons in an attempt to convert them into higher value patrons.
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During 1998, the Company began implementing a strategic plan that consisted
of: (1) refinancing its outstanding public indebtedness, (2) maintaining strong
market positions in Aurora and Tunica, (3) expanding the Aurora Casino, (4)
developing the Shreveport Casino and (5) acquiring the management and consulting
contracts with respect to the Aurora Casino and Tunica Casino in order to
terminate the Company's obligation to pay fees to GBCC. Management believes
that its successful execution of this plan to date and the anticipated
completion of the plan will enhance HCC's operating performance and simplify its
organizational structure.
HCC successfully completed the refinancing of its outstanding public
indebtedness in May 1999. The Company's continuing efforts with respect to the
second, third and fourth points of the strategic plan are discussed below under
the captions "Aurora Casino", "Tunica Casino" and "Shreveport Casino." The
acquisition of the management and consulting contracts was completed in October
1999, as discussed above.
The principal executive offices of HCC are located at Two Galleria Tower,
Suite 2200, 13455 Noel Road, Dallas, Texas 75240, telephone (972) 392-7777.
The Aurora Casino
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The Aurora Casino commenced operations in June 1993. The Aurora Casino's
primary market is the affluent suburbs north and west of Chicago. Approximately
5.9 million adults live within a 50-mile radius and approximately 8.5 million
adults live within a 100-mile radius of Chicago. The facility is easily
accessible from major highways, can be reached by train from downtown Chicago in
approximately 50 minutes and is approximately 30 miles from both O'Hare
International and Midway airports.
The Aurora Casino's two riverboat casinos contain an aggregate of
approximately 29,550 square feet of gaming space with approximately 1,000 slot
machines and approximately 55 table games. The Aurora Casino also includes an
approximately 64,000 square foot, land-based pavilion featuring a glass-domed,
four-story atrium with two upscale lounges, the award-winning Fairbanks(R)
gourmet steakhouse, The Hollywood Epic Buffet(R), a 1950's-style diner, a
high-end customer lounge and a private, intimate dinning room, called the "Gold
Room," for premium players. The Aurora Casino's two parking garages provide
convenient access for approximately 1,340 cars. The Aurora Casino also offers
retail items at the Hollywood Casino Studio Store/SM/ a highly-themed shopping
facility that offers movies on video, soundtrack compact discs and logo
merchandise from major Hollywood studios.
The Aurora Casino was the first of HCC's properties to feature the
distinctive Hollywood theme. Management believes that the use of the Hollywood
theme throughout the Aurora Casino's gaming, dining and entertainment facilities
provides a uniquely entertaining atmosphere for patrons and encourages both
initial and repeat visits. The Aurora Casino also includes themed gaming areas
featuring slot machines with custom graphics and the use of movie star
look-alikes to entertain guests.
The Aurora Casino is located near the Paramount Arts Center. This
1,900-seat, art deco-style theater was completely renovated by the City of
Aurora in 1992. The Aurora Casino uses the Paramount Theater to provide
headliner entertainment for customers. Entertainers booked at the Paramount have
included Tom Jones, Ann-Margret, The Temptations, Willie Nelson, Engelbert
Humperdinck, Paul Anka, Bill Cosby, The Beach Boys, Aretha Franklin, Kenny
Rogers, Frankie Valli, Julio Iglesias and Lou Rawls.
The Chicago gaming market is the fourth largest gaming market in the United
States after Las Vegas, Atlantic City and the Connecticut Native American
casinos. Based on published reports, the Aurora Casino generated 10.8% of total
gaming revenues in the Chicago gaming market with only 9.2% of the market's
gaming positions, resulting in the Aurora Casino capturing 117.5% of its "fair
share" of the market's gaming revenues in 1999. The casinos that operate in the
Chicago gaming market include four Illinois casinos, including the Aurora
Casino, and five northern Indiana casinos located within 50 miles of downtown
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Chicago. The Chicago gaming market experienced a significant increase in gaming
revenues due to the increase in capacity from the opening of the five northern
Indiana riverboats in 1996 and 1997 and from the advent of dockside gaming in
Illinois in 1999 (see below). In 1999, the Chicago gaming market generated
approximately $1.8 billion in gaming revenues, an increase of approximately
16.9% over 1998.
On June 25, 1999, the Governor of Illinois signed into law legislation passed
by the Illinois legislature allowing dockside gaming for existing licensees. As
a result of this legislation, the Aurora Casino's riverboats no longer cruise,
but are operating as dockside gaming facilities. The Aurora Casino's patrons
are now able to freely enter and exit the docked riverboats during its operating
hours.
The Aurora Casino Expansion. The Aurora Casino currently operates two
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riverboat casinos, City of Lights I and City of Lights II, with approximately
29,550 combined square feet of gaming space. City of Lights I is significantly
larger than City of Lights II. Management believes that the operating results
of the Aurora Casino have been limited by the small size of City of Lights II.
Management originally planned to replace the smaller and less spacious City of
Lights II with a larger, newly constructed riverboat. As a result of the recent
legislation, plans now call for the replacement of both City of Lights I and
City of Lights II with a new dockside facility which will feature a 50,000
square foot main gaming level with high ceilings and wide aisles for customer
comfort. Plans for the new dockside facility also currently provide for a
25,000 square foot mezzanine level that will include a poker room, a 150-seat
1950's-style diner, a 30-seat walk-up delicatessen and a 200-seat show lounge.
Management believes that the $40 million in proceeds from HCC's May 1999 issue
of the Senior Secured Notes (see "Properties - The Aurora Casino" below)
designated for the development of a new riverboat casino together with funds
from operations will be sufficient for the estimated $60-65 million cost to
develop the dockside gaming facility. Construction of the dockside casino is
expected to begin as soon as possible following receipt of required regulatory
approvals and the resolution of the litigation described below. The new
dockside facility is expected to be completed and opened approximately 14 months
after the commencement of construction.
The Company intends to build the new dockside casino in two halves, which
will be connected to form a single dockside casino. The Company is now
considering proceeding with the construction of the first half of the dockside
casino prior to final resolution of the litigation described below. If the
Company proceeds with this approach, it would attempt to place all of its gaming
positions on the first half of the dockside casino and would not develop the
second half of the facility until the litigation is resolved.
A complaint was filed in late 1999 in an Illinois state court concerning the
constitutionality of a portion of the legislation that enabled dockside gaming
in Illinois. Although the constitutional challenge centers on the relocation of
one of the existing gaming licenses, a finding that such portion of the
legislation is unconstitutional could result in a finding that all or a portion
of the legislation, including dockside gaming, is invalid. Pending the
resolution of this litigation, the Company's planned dockside expansion of the
Aurora Casino has been delayed. If the state court rules that all or a portion
of the legislation is invalid, management believes that it may be able to
continue to operate its existing riverboats on a dockside basis pending a final
resolution of the litigation. If the provisions in question are found to be
unconstitutional after all appeals, and the entire legislation is invalidated
and it appears that the Illinois legislature will not pass new legislation
enabling dockside gaming, then the Company would likely modify its expansion
plans for the Aurora Casino. Under this scenario, the Company would likely
proceed with the development of a new, larger riverboat to replace City of
Lights II.
Pending resolution of the litigation and without regard to its decision of
whether to build the first half of the dockside casino, management is
implementing a plan to connect its two existing riverboats with a new casino
barge. The project will cost approximately $3.5 million to complete, including
approximately $1.3 million in docking facilities that can be used by the new
dockside casino should it be built. Construction of the barge is expected to
commence as soon as the necessary approvals are obtained and is expected to open
in mid-July of 2000. The casino barge will allow patrons to move freely between
the two existing boats and
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will enable management to reconfigure its casino space for increased patron
comfort. Management believes that the reconfigured facility will significantly
enhance its current operations until the Company is able to replace its existing
riverboats with the new dockside facility.
Casino Credit. Casino operations are conducted on both a credit and a cash
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basis. Gaming debts arising at the Aurora Casino in accordance with applicable
regulations are enforceable under Illinois law. For the year ended December 31,
1999, gaming credit extended to customers accounted for less than 2% of overall
wagering. At December 31, 1999, gaming receivables amounted to $1.6 million
before allowances for uncollectible gaming receivables which amounted to
$836,000. Management of the Aurora Casino believes that the allowances for
uncollectible gaming receivables are adequate.
Employees and Labor Relations. At December 31, 1999 there were
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approximately 1,600 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 commenced operations in August 1994. Tunica County is the
closest gaming jurisdiction to, and is easily accessible from, the Memphis
metropolitan area. Approximately 4.9 million adults live within a 200-mile
radius of Tunica County, approximately 900,000 of whom reside within 50 miles of
Memphis. In addition, Memphis hosts more than 8 million visitors each year.
The Tunica market has become a regional destination resort, attracting customers
from markets such as Nashville, Atlanta, St. Louis, Little Rock and Tulsa. The
Tunica Casino is accessible to its customers via Highway 61 and Interstate 55.
The Tunica Casino features a 54,000 square foot, single level casino with
approximately 1,500 slot machines and approximately 50 table games. The Tunica
Casino's 506-room hotel and 123-space recreational vehicle park provide
overnight accommodations for its patrons. The casino includes the highly-themed
Adventure Slots(R) gaming area, featuring special effects, multimedia displays
of memorabilia from famous adventure motion pictures and over 200 slot machines.
Additional entertainment amenities provided by the Tunica Casino include its
award-winning Fairbanks gourmet steakhouse, The Hollywood Epic Buffet, a
1950's-style diner, public and private entertainment lounges, a themed bar
facility, an indoor pool and showroom, banquet and meeting facilities. Also, in
November 1998, the Tunica Casino opened an 18-hole championship golf course
adjacent to the facility through a joint venture with Harrah's Entertainment,
Inc. and Boyd Gaming Corporation. The Tunica Casino also offers parking for
1,883 cars.
The Company's Hollywood theme is utilized throughout the Tunica Casino, which
is designed to resemble a large motion picture sound stage complete with
catwalks and movie-set style lighting. In addition, numerous movie props and
pieces of motion picture memorabilia are displayed throughout the facility. In
1998, the Tunica Casino installed one of its largest and most dramatic
memorabilia pieces--a 28-foot long model ship used in the filming of the Academy
Award(R) winning movie Titanic, which is depicted sinking into the Atlantic
Ocean. The Tunica Casino also provides headliner entertainment for its
customers. Entertainers who have performed at the Tunica Casino include The
Commodores, Collin Raye and The Smothers Brothers.
The Tunica Casino has historically been one of the leading operators in the
Tunica gaming market. Based on published market information for 1999, the Tunica
Casino generated 8.7% of the total gaming revenues in the Tunica gaming market
with 8.8% of the market's gaming positions, resulting in the Tunica Casino
capturing approximately 98.5% of its "fair share" of the market's gaming
revenues, despite intensified competition and a hold percentage for table games
significantly below historical averages. There are currently ten casinos
operating in the Tunica market, including the Tunica Casino. The market has
rapidly become the fifth largest gaming market in the United States after Las
Vegas, Atlantic City, the
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Connecticut Native American casinos and Chicago, generating approximately $1.2
billion in gaming revenues in 1999.
The Tunica Casino is located in a cluster with gaming facilities operated by
Harrah's Entertainment, Inc., Boyd Gaming Corporation and Isle of Capri Casinos,
Inc. The casinos have named their cluster "Casino Strip" in order to establish
a marketing identity for the cluster. Three of the four properties operate a
free shuttle bus service between their casinos and have also conducted joint
marketing activities including a billboard campaign and radio advertising.
Furthermore, the four properties conduct joint special events to attract
customers to the cluster.
In 1998, management launched a $13 million upgrade which it believes has
enhanced the Tunica Casino's position as one of the highest quality facilities
in the Tunica gaming market. The improvement program included adding 255 new
state of the art slot machines, replacing an additional 136 slot machines,
expanding the number of recreational vehicle parking spaces and upgrading all
of the Tunica Casino's hotel rooms and suites. Additional improvements were
the opening of an 18-hole championship golf course, development of a new VIP
check-in and private entertainment lounge to enhance the level of service
provided to the Tunica Casino's premium gaming patrons and enhancements to all
public areas and the facility's exterior.
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 targeting the local day-trip market and by
utilizing its hotel rooms, recreational vehicle park and golf course 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 player's card
program and tailor promotions and special events to cater to this market
segment.
Management believes that the Tunica Casino's unique theme has broad patron
appeal and distinguishes the Tunica Casino from its competitors. Additionally,
the nature of the theming permits for periodic and cost effective updating which
management believes stimulates repeat visits.
Casino Credit. Casino operations are conducted on both a credit and a cash
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basis. Gaming debts arising at the Tunica Casino in accordance with applicable
regulations are enforceable under Mississippi law. During 1999, gaming credit
extended to customers accounted for 1.4% of overall wagering. At December 31,
1999, gaming receivables amounted to $3.3 million before allowances for
uncollectible gaming receivables amounting to $990,000. Management believes
that the allowances for uncollectible gaming receivables are adequate.
Employees and Labor Relations. At December 31, 1999, there were
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approximately 1,300 employees at the Tunica Casino, none of whom are represented
under collective bargaining agreements. Management considers its labor
relations to be good.
The Shreveport Casino
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In September 1998, the Shreveport Partnership received approval to develop,
own and operate the Shreveport Casino. The destination resort is currently
designed to include a 405-room, all suite, art deco-style hotel, and a three-
level dockside casino. The resort is also designed to include a large land-
based pavilion housing numerous restaurants and entertainment amenities, an 85-
foot wide seamless entrance to the casino from the land-based pavilion on all
three levels, which will give it the feel of a land-based casino, and over
40,000 square feet of retail space. Management plans to have the retail space
developed by a group that includes the principal developer of Beale Street in
Memphis, Tennessee. The Shreveport Casino will feature the Company's unique
Hollywood theme, which will be utilized throughout the resort. The project is
on schedule for its targeted opening in early November 2000.
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The Shreveport Casino will be located next to an existing dockside gaming
facility operated by Harrah's which together will form the first cluster in the
Shreveport/Bossier City market. Once completed, the Shreveport Casino will be
the fifth casino operating in the Shreveport/Bossier City gaming market. The
four existing operators generated approximately $641.5 million in gaming
revenues in 1999, an increase of approximately 7.1% over 1998.
The principal target markets for the Shreveport Casino will be patrons from
the Dallas/Ft. Worth Metroplex and East Texas. There are approximately 7.2
million adults who reside within 200 miles of Shreveport/Bossier City.
Management believes that the location of HCC's executive offices in Dallas will
result in a competitive advantage in attracting customers to the Shreveport
Casino from these markets.
The Shreveport Casino is owned by the Shreveport Partnership, which is in
turn owned by HCL. HCL and the Shreveport Partnership are not subject to the
limitations imposed by the terms of the indenture governing HCC's Senior Secured
Notes. HCS will operate the Shreveport Casino under a management agreement with
the Shreveport Partnership. The management agreement provides that the
Shreveport Partnership will pay a management fee to HCS of 2% of net revenues
plus an increasing percentage (5-10%) of the Shreveport Casino's annual earnings
before interest, taxes, depreciation and amortization ("EBITDA") above $25
million.
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 and other forms of legalized gaming in the United States and other
jurisdictions. Legalized gambling is currently permitted in various forms
throughout the United States, in several Canadian provinces, as well as on
Native American reservations in certain states including Louisiana and
Mississippi. 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.
The Aurora Casino
The Illinois Riverboat Gambling Act (the "Riverboat Act") and the rules
promulgated by the Illinois Gaming Board under the Riverboat Act authorize only
ten owner's licenses for riverboat gaming operations in Illinois and permit a
maximum of 1,200 gaming positions 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.
One licensed site ceased gaming operations in July 1997. The holder of that
license was allowed under the legislation that permitted dockside gaming to
apply to the Illinois Gaming Board to relocate its license. The license holder
has made such an application and management believes that this license will
likely be relocated and will commence operations at a new site in Rosemont,
Illinois, which is within the Aurora Casino's principal market. 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 40 miles southwest of downtown Chicago, and a third is in Elgin,
Illinois, approximately 20 miles from Aurora, 40 miles from downtown Chicago and
amid the affluent northern and western suburbs. In addition, the Aurora Casino
competes directly with five riverboat operations opened since 1996 in
northwestern Indiana within 50 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.
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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. In addition, three casinos in
the Detroit, Michigan area have opened or are nearing completion. Native
American tribes are seeking to open casino facilities in northwestern Indiana,
Michigan and Wisconsin 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 ten casinos
operating in north Tunica County and Coahoma County. Within the Casino Strip
cluster, the Tunica Casino competes with Sam's Town, Harrah's Mardi Gras and,
since July 1999, Isle of Capri. A three casino cluster called "Casino Center"
consists of Binion's Horseshoe, Sheraton Casino and Goldstrike Casino and 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. In addition, Lady Luck operates a casino in Coahoma County which
is located approximately 40 miles south of the Casino Strip cluster.
During July 1996, Grand Casinos opened a casino complex immediately north of
Casino Center with 140,000 square feet of gaming space including approximately
3,240 slot machines and 120 table games. Three hotels with an aggregate of 1,366
rooms, a conference center and a golf course are currently available and other
amenities are scheduled for later completion. The opening of this casino space,
the largest in Mississippi, increased casino capacity in Tunica County by 24%.
Management believes the shortage of hotel rooms in the Tunica market was a
restriction to growth in prior years. However, a number of casino operations
have completed and opened hotel facilities from 1996 through the present.
During 1997 and early 1998, the Goldstrike Casino completed a 31-story, 1,200-
room hotel tower and Binion's opened a 300-room hotel tower. Sheraton Casino
also completed construction of 150 hotel rooms. The total current number of
hotel rooms in Tunica County has increased to approximately 5,700 rooms from
1,250 at the end of 1995, an increase of more than 350%. The additional hotel
capacity has made the Casino Center increasingly competitive in attracting
overnight visitors.
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.
Although management does not believe that the Tunica Casino faces significant
competition from casinos outside of the Tunica gaming market, legalized gaming
operations are established in and around Mississippi, including 12 casinos on
the Gulf Coast. Beau Rivage, a large casino complex, opened on the Gulf Coast
in March 1999 and could potentially compete for customers with the casinos in
the Tunica gaming market. In addition, 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, and by statute cannot vote
on such issue again until 2004. 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.
The Shreveport Casino
Upon the anticipated completion of the Shreveport Casino in early November
2000, the facility will compete directly with Binion's Horseshoe, Harrah's, the
Isle of Capri and Casino Magic in the
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Shreveport/Bossier City market. Some of these competitors have higher profile
brand names in the Shreveport/Bossier City market and greater financial
resources than HCC. There can be no assurance that the Shreveport Casino will be
able to effectively compete against these four established casinos, three of
which have been in operation since 1994, or that the Shreveport/Bossier City
market is large enough to allow more than four casinos to operate profitably.
Furthermore, the fifteenth and final riverboat gaming license available in
Louisiana could ultimately be granted in, or one or more of the current
operators in other parts of Louisiana could relocate to, the Shreveport/Bossier
City market which would directly increase competition in the market.
Also, there can be no assurance that the Shreveport Casino will be able to
effectively compete against any other future gaming operations that Louisiana or
other authorities may authorize in the gaming market in which it will operate.
For example, in 1997, the Louisiana legislature adopted legislation permitting
up to 15,000 square feet of slot machine gaming at pari-mutual wagering
facilities located in parishes in Louisiana that approve slot machine gaming in
a referendum election. Shortly thereafter, a referendum election was held that
approved slot machine gaming at Louisiana Downs, which is located in Bossier
City, approximately nine miles from the site of the Shreveport Casino.
Management believes slot machine gaming at Louisiana Downs could commence
sometime later this year. The Shreveport Casino will also face competition from
other forms of gaming, such as state-sponsored lotteries and video lottery
terminals, pari-mutual betting on horse and dog racing and bingo parlors, as
well as other forms of entertainment in Louisiana and other places from which it
will draw customers.
Casino Regulation
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Illinois
The Riverboat Act currently authorizes dockside riverboat gaming on navigable
streams within or forming a boundary of the State of Illinois except for Lake
Michigan. 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
----------------
operation to hold an owner's license issued by the Illinois Gaming Board. The
Aurora Casino's owner's license was renewed in 1999 and expires in December
2000. 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. 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 may be
renewed for successive periods of up to four years 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's rules
and any conditions placed on a prior license renewal. 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. 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.
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Applicants for and holders of an owner's license are required to obtain
formal prior approval from the Illinois Gaming Board for changes proposed in the
following areas; (1) key persons, (2) type of entity, (3) equity and debt
capitalization of the entity, (4) investors and/or debt holders, (5) source of
funds, (6) economic development plans or proposals, (7) riverboat capacity or
significant design change, (8) gaming positions, (9) anticipated economic
impact, or (10) agreements, oral or written, relating to the acquisition or
disposition of property (real or personal) of a value greater than $1 million.
A holder of an owner's license is allowed to make distributions to its
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: (1)
cash flow, casino cash and working capital requirements, (2) debt service
requirements and covenants associated with financial instruments, (3)
requirements for repairs, maintenance and capital improvements, (4) employment
or economic development requirements of the Riverboat Act and (5) a licensee's
financial projections.
The Illinois Gaming Board will require a business entity or personal
disclosure form and approval as a key person for any business entity or
individual with an ownership interest or voting rights of more than 5% in a
licensee, the trustee of any trust holding such ownership interest or voting
rights, the directors of the licensee and its chief executive officer, president
and chief operating officer, as well as any other individual or entities deemed
by the board to hold a position or a level of ownership, control or influence
that is material to the regulatory concerns and obligations of the board. Each
key person must file, on an annual basis, a disclosure affidavit, updated
personal and background information, and updated tax and financial information.
Key persons are required to promptly disclose to the board any material changes
in status or information previously provided to the board and to maintain their
suitability as key persons. In order for the board to identify potential key
persons, each holder of an owner's license is required to file a table of
organization, ownership and control with the Illinois Gaming Board to identify
the individuals or entities that through direct or indirect means manage, own or
control the interests and assets of the licensee. Based upon findings from an
investigation into the character, reputation, experience, associations, business
probity and financial integrity of a key person, the Illinois Gaming Board may
enter an order upon the licensee to require economic disassociation of a key
person. Each licensee is required to provide a means for the economic
disassociation of a key person in the event such disassociation is required.
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
-------------------------------
maximum bet or per patron loss and licensees may set any maximum or minimum bets
or other limits on wagering. No person under the age of 21 is permitted to
wager. 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. A licensee may
conduct riverboat gambling regardless of whether it conducts excursion cruises.
A licensee may permit the continuous ingress and egress of passengers for the
purpose of gambling.
A $2 per person admission tax is imposed on the owner of a riverboat
operation. Such admission tax for the Aurora Casino amounted to $6.1 million,
$6.6 million and $7.2 million , respectively, during 1999, 1998 and 1997.
Additionally, a wagering tax is imposed on the adjusted gross receipts, as
defined in the Riverboat Act. This gaming tax increased significantly in 1998.
The tax rate changed from a flat 20% to graduated rates ranging from 15% to 35%.
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 $54.3
million, $42.4 million and $30.7 million, respectively, for the years 1999, 1998
and 1997.
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
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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 the license, or other action for any act or failure
to act by the 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 regulations 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 and counties in which gaming has been approved by the voters.
An amendment to the Mississippi Constitution has been proposed for adoption
through the initiative and referendum process which, if a sufficient number of
signatures are gathered to place the matter on the ballot and if adopted by the
voters of the state, would prohibit gaming in Mississippi.
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
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
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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 need to be renewed
periodically. The ownership license for the Tunica Casino has been renewed
through October 18, 2001. 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 (1) pays the unsuitable person any distributions or
interest upon any securities of HCT or any payments or distribution of any kind
whatsoever, (2) recognizes the exercise, directly or indirectly, of any voting
rights in its securities by the unsuitable person, or (3) 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 ten 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.
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 and its
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affiliates have 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 on a percentage of the gross gaming revenues
received by a casino operation and on the number of slot machines and 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% and annual license fees
based on the number of gaming devices on board. Tunica County imposes a fee of
4% on adjusted gross gaming revenues. Gaming taxes for the Tunica Casino
amounted to $12.2 million, $11.7 million and $11.9 million during 1999, 1998 and
1997, respectively. Gross gaming taxes paid to the state are allowed as a
credit against Mississippi state income tax liability.
During January 1999, the Mississippi Commission adopted a regulation
requiring that new casino applicants invest a minimum of 100% of the higher of
the appraised value of their casino or the construction cost of their casino in
land-based facilities. These facilities shall include any of the following: the
construction of a minimum of 250 hotel rooms for each casino, a theme park, golf
courses, marinas, a tennis complex, entertainment facilities or any other
facility approved by the Mississippi Commission. The regulation will apply to
all new casino projects.
Louisiana
The ownership and operation of a riverboat gaming vessel is subject to the
Louisiana Riverboat Economic Development and Gaming Control Act (the "Louisiana
Act"). As of May 1, 1996, gaming activities are regulated by the Louisiana
Gaming Control Board (the "LGCB"). The LGCB is responsible for issuing gaming
licenses and enforcing the laws, rules and regulations relative to riverboat
gaming activities. The LGCB is empowered to issue up to 15 licences to conduct
gaming activities on a riverboat of new construction in accordance with
applicable law. However, no more than six licenses may be granted to riverboats
operating from any one parish.
The laws and regulations of Louisiana seek to prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; establish and maintain responsible accounting practices and
procedures; maintain effective control over the financial practices of
licensees, including establishing procedures for reliable record keeping and
making periodic reports to the LGCB; prevent cheating and fraudulent practices;
provide a source of state and local revenues through fees; and ensure that
gaming licensees, to the extent practicable, employ and contract with Louisiana
residents, women and minorities.
The Louisiana Act specifies certain restrictions and conditions relating to
the operation of riverboat gaming, including but not limited to the following:
(1) in parishes bordering the Red River, which includes the site for the
Shreveport Casino, gaming may be conducted dockside; however, in all other
authorized locations gaming is not permitted while a riverboat is docked, other
than for forty-five minutes between excursions, unless dangerous weather or
water conditions exist as certified by the riverboat's master; (2) each round
trip riverboat cruise may not be less than three nor more than eight hours in
duration, subject to specified exceptions; (3) agents of the LGCB are permitted
on board at any time during gaming operations; (4) gaming devices, equipment and
supplies may be purchased or leased only from permitted suppliers; (5) gaming
may only take place in the designated gaming area while the riverboat is upon a
designated river or waterway; (6) gaming equipment may not be possessed,
maintained, or exhibited by any person on a riverboat except in the specifically
designated gaming area, or a secure area used for inspection, repair, or storage
of such equipment; (7) wagers may be received only from a person present on a
licensed riverboat; (8) persons under 21 are not permitted on gaming vessels;
(9) except for slot machine play, wagers may be made only with tokens, chips, or
electronic cards purchased from the licensee aboard a riverboat; (10)
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licensees may only use dockside facilities and routes for which they are
licenced and may only board and discharge passengers at the riverboat's licensed
berth; (11) licensees must have adequate protection and indemnity insurance;
(12) licensees must have all necessary federal and state licenses, certificates
and other regulatory approvals prior to operating a riverboat; and (13) gaming
may only be conducted in accordance with the terms of the license, the Louisiana
Act and the rules and regulations adopted by the LGCB.
No person may receive any percentage of the profits from the Shreveport
Casino without first being found suitable. In September 1998, HCC, its
officers, key personnel, partners and persons holding a 5% or greater interest
in HCS were found suitable by the LGCB. A gaming license is deemed to be a
privilege under Louisiana law and as such may be denied, revoked, suspended,
conditioned or limited at any time by the LGCB. In issuing a license, the LGCB
must find that the applicant is a person of good character, honesty and
integrity and that the applicant is a person whose prior activities, criminal
record, if any, reputation, habits and associations do not pose a threat to the
public interest of the State of Louisiana or to the effective regulation and
control of gaming, or create or enhance the dangers of unsuitable, unfair or
illegal practices, methods, and activities in the conduct of gaming or the
carrying on of business and financial arrangements in connection therewith. The
LGCB will not grant any licenses unless it finds that:
. the applicant is capable of conducting gaming operations, which means that
the applicant can demonstrate the capability, either through training,
education, business experience, or a combination of the above, to operate
a gaming casino;
. the proposed financing of the riverboat and the gaming operations is
adequate for the nature of the proposed operation and from a source
suitable and acceptable to the LGCB;
. the applicant demonstrates a proven ability to operate a vessel of
comparable size, capacity and complexity to a riverboat in its application
for a license so as to ensure the safety of its passengers;
. the applicant designates the docking facilities to be used by the
riverboat;
. the applicant shows adequate financial ability to construct and maintain a
riverboat;
. the applicant submits a detailed plan of design of the riverboat in its
application for a license;
. the applicant has a good faith plan to recruit, train and upgrade
minorities in all employment classifications; and
. the applicant is of good moral character.
The LGCB may not award a license to any applicant who fails to provide
information and documentation to reveal any fact material to qualifications or
who supplies information which is untrue or misleading as to a material fact
pertaining to the qualification criteria; who has been convicted of or pled nolo
contendere to an offense punishable by imprisonment of more than one year; who
is currently being prosecuted for or regarding whom charges are pending in any
jurisdiction of an offense punishable by more than one year imprisonment; or if
any holder of 5% or more in the profits and losses of the applicant has been
convicted of or pled guilty or nolo contendere to an offense which at the time
of conviction is punishable as a felony.
The transfer of a license is prohibited. The sale, assignment, transfer,
pledge, or disposition of securities which represent 5% or more of the total
outstanding shares issued by a holder of a license is subject to prior LGCB
approval. A security issued by a holder of a license must generally disclose
these restrictions.
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The failure of a licensee to comply with the requirements set forth above may
result in the suspension or revocation of that licensee's gaming license.
Additionally, if the LGCB finds that the individual owner or holder of a
security of a corporate licensee or intermediary company or any person with an
economic interest in a licensee is not qualified under the Louisiana Act, the
LGCB may require, under penalty of suspension or revocation of the license, that
the person not receive dividends or interest on securities of the corporation;
exercise directly or indirectly a right conferred by securities of the
corporation; receive remuneration or economic benefit from the licensee; or
continue in an ownership or economic interest in the licensee.
A licensee must periodically report the following information to the LGCB,
which is not confidential and is to be available for public inspection: the
licensee's net gaming proceeds from all authorized games; the amount of net
gaming proceeds tax paid; and all quarterly and annual financial statements
presenting historical data that are submitted to the LGCB, including annual
financial statements that have been audited by an independent certified public
accountant.
The LGCB has adopted rules governing the method for approval of the area of
operations and the rules and odds of authorized games and devices permitted, and
prescribing grounds and procedures for the revocation, limitation or suspension
of licenses and permits.
On April 19, 1996, the Louisiana legislature adopted legislation requiring
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit licensed riverboat gaming, licensed video poker
gaming, and licensed land-based gaming in Louisiana parishes. The applicable
local election took place on November 5, 1996, and the voters in the parishes in
which riverboats are currently located voted to continue licensed riverboat
gaming. However, it is noteworthy that the current legislation does not provide
for any moratorium on future elections on gaming.
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.
Marine operation employees of the Company may be subject to the Jones Act
which, among other things, exempts those employees from state limits on workers'
compensation awards.
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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.
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
- ----------------------
Management maintains a proactive business development strategy in order to
enhance the Company's long-term growth. The Company is currently pursuing
various development opportunities, including those in jurisdictions which are
considering legalizing gaming.
ITEM 2. PROPERTIES
The Aurora Casino
- -----------------
The Aurora Casino consists of two, four-level riverboats, City of Lights I
and City of Lights II, which have combined casino space of approximately 29,550
square feet and approximately 1,200 gaming positions. The complex also includes
a four-story, approximately 64,000 square foot land based pavilion and two
parking garages under capital lease agreements.
The first parking garage contains approximately 31,000 square feet of office
space of which approximately 22,600 square feet are currently being used for
administrative offices. 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 under renewal options for an additional 67
years. The second garage, completed in 1996, has approximately 500 parking
spaces and includes approximately 1,500 square feet of retail space. The
facility is owned by a governmental agency and operated by HCA pursuant to a
lease with an initial term expiring in 2026 with the right to extend the lease
for up to 20 additional years.
The Aurora Casino is currently pledged as collateral to the extent of
approximately $66 million (subject to future borrowings on HCA's intercompany
note to HCC up to a maximum of $108 million) with respect to the Senior Secured
Notes in the face amount of $360 million issued by HCC on May 19, 1999. The
Senior Secured Notes consist of $310 million of 11.25% notes due May 1, 2007 and
$50 million of floating rate notes due May 1, 2006. The current interest rate
on the floating rate notes is 12.41% per annum and is reset semiannually.
The Tunica Casino
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The Tunica Casino consists of a 60,000 square foot, single level casino with
54,000 square feet of gaming space, 506 hotel rooms and suites and support
facilities that include two restaurants, a buffet, an arcade and a gift shop,
banquet space, an enclosed pool and atrium, a showroom and administrative
offices. The Tunica Casino also includes a 123-space recreational vehicle park
and surface lots with 1,883 parking spaces.
The ground lease for the Tunica Casino has an initial term of five years from
the date gaming operations commenced with options to extend the lease for nine
successive five-year terms. Rent during the
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<PAGE>
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 Casino
covers approximately 70 acres, there is sufficient land for future expansion
should circumstances warrant an expansion.
Substantially all of the assets of the Tunica Casino are pledged as
collateral for HCC's Senior Secured Notes discussed above.
The Shreveport Casino
- ---------------------
The Shreveport Casino is currently being constructed on a site in Shreveport,
Louisiana, approximately 180 miles east of Dallas, Texas. When completed, the
Shreveport Casino will include the largest dockside riverboat casino in its
gaming market with approximately 1,370 slot machines and 75 table games on three
levels. The casino will be attached to a 170,000 square foot pavilion by
85-foot wide seamless entrances and will feature 20-foot high ceilings on all
three levels, providing patrons with the feel of a "land based" casino. The
casino interior will feature the Hollywood theme. The pavilion will house three
restaurants, a highly themed entertainment lounge and a premium players' club,
as well as meeting rooms, retail shopping and other amenities. The hotel
currently under construction will offer 380 single room suites and 25 multiple
room suites, all in an art deco style. An eight story parking garage and two
parking lots will provide spaces for approximately 2,000 cars within one block
of the facility. In addition, a 42,000 square foot dining and entertainment
promenade is being developed by third parties across the street from the
pavilion and adjacent to the parking garage. The developers have announced plans
to develop approximately 55,000 square feet of additional restaurant, retail and
entertainment space adjacent to the promenade. Construction of the Shreveport
Casino is on schedule for its targeted opening date in early November 2000.
The ground lease for the Shreveport Casino has an initial term ending on the
tenth anniversary of the opening of the Shreveport Casino with options to renew
on the same terms for up to an additional 40 years and with further renewals
available at prevailing rates and terms. Base rental payments under the lease
are $10,000 per month during the construction period increasing to $450,000 per
year upon opening and continuing at that amount for the remainder of the initial
ten-year lease term. In addition to base rent, the Shreveport Casino will pay
monthly percentage rent of not less than $500,000 per year equal to 1% of
monthly adjusted gross revenues and the amount, if any, by which monthly parking
facilities net income exceeds the parking income credit, as all such terms are
defined in the ground lease.
Substantially all of the assets of the Shreveport Casino other than assets
secured by up to $35 million in furniture, fixtures and equipment financing are
pledged as collateral for $150 million of 13% First Mortgage Notes with
contingent interest ("the Shreveport First Mortgage Notes") issued by the
Shreveport Partnership during August 1999 and guaranteed by HCL. The Shreveport
First Mortgage Notes are nonrecourse to HCC. Contingent interest on the
Shreveport First Mortgage Notes will be equal to 5% of the Shreveport Casino's
cash flow, as defined, for the prior two fiscal quarters up to a maximum of $5
million for any four consecutive fiscal quarters.
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. The Company also holds
one land parcel in the Houston, Texas area for resale.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Planet Hollywood Litigation
- ---------------------------
In 1996, Planet Hollywood International, Inc. and Planet Hollywood (Region
IV), Inc. filed a complaint in the United States District Court for the Northern
District of Illinois, Eastern Division, against HCC and certain of its
subsidiaries and affiliates seeking (1) a declaratory judgment that it was
entitled to use the name "Planet Hollywood" for a casino and (2) damages. In
its complaint, Planet Hollywood alleged, among other things, that HCC had, in
operating the Hollywood Casino concept, infringed on their trademark, service
mark and trade dress and had engaged in unfair competition and deceptive trade
practices. HCC, its subsidiaries and affiliates filed counterclaims seeking (1)
a declaratory judgment that Planet Hollywood was not entitled to use the name
"Planet Hollywood" for a casino and (2) damages. The counterclaims alleged,
among other things, that Planet Hollywood had, through its planned use of its
mark in connection with casino services, infringed on HCC's service marks and
trade dress and had engaged in unfair competition. The trial commenced on July
19, 1999 and was completed on July 26, 1999. On August 25, 1999, HCC and the
other defendants filed a motion to dismiss the declaratory judgment claims of
all parties asserting, among other things, that as a result of Planet
Hollywood's reported deteriorating financial condition and perceived inability
to enter into the casino business, there was no longer any actual case or
controversy. On October 12, 1999, Planet Hollywood (Region IV), Inc. filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. On December 3, 1999 the judge entered a judgment in favor of HCC with
respect to the damage claims brought by Planet Hollywood and granted HCC's
motion to dismiss the declaratory judgment claims of all parties. Planet
Hollywood has filed a notice of appeal of the judgment with the Seventh Circuit
Court of Appeals.
Other Litigation
- ----------------
On October 8, 1998, HCC filed a complaint in the District Court of Dallas
County, Texas against Arthur Andersen LLP, HCC's former independent accountants,
and selected partners alleging negligent advice and breach of contract with
respect to the tax consequences resulting from the spin-off of GBCC's stock to
HCC's shareholders on December 31, 1996. The lawsuit is currently in the
discovery stage with a trial currently scheduled to begin in September 2000.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, the Company did not submit any matters to
a vote of security holders through the solicitation of proxies or otherwise.
19
<PAGE>
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. HCC's common stock trades on the American Stock
Exchange under the Symbol HWD. Prior to 1999, HCC's stock 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.
Period High Low
------ ------- -------
1999
First Quarter $ 1.56 $ 1.00
Second Quarter 1.97 1.03
Third Quarter 3.25 1.25
Fourth Quarter 4.63 2.38
1998
First Quarter $ 2.31 $ 1.41
Second Quarter 2.13 1.66
Third Quarter 1.94 1.16
Fourth Quarter 1.56 0.97
As of March 27, 2000, there were approximately 500 holders of record of
HCC's voting common stock.
HCC has not paid cash dividends on its common stock in the past and has no
plans to pay cash dividends on its common stock in the foreseeable future. See
Note 3 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 paid dividends amounting to $12,000,000 during 1999; all such dividends
were paid to HCC.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Hollywood Casino Corporation and Subsidiaries
- ---------------------------------------------
The following tables present selected financial data for HCC and its
subsidiaries and are qualified in their entirety by the consolidated financial
statements and accompanying footnotes appearing elsewhere in this Form 10-K.
The data as of December 31, 1999 and 1998, and for the years ended December 31,
1999, 1998 and 1997, have been derived from the audited consolidated financial
statements of HCC presented in Item 8.
<TABLE>
<CAPTION>
Statement of Operations Data: Year Ended December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues...................................... $307,377 $268,760 $267,757 $530,580 $539,943
-------- -------- -------- -------- --------
Expenses:
Departmental.................................... 221,969 197,836 185,753 426,769 396,157
General and administrative...................... 19,239 17,778 16,790 37,169 36,914
Management and consulting fees.................. 939 1,200 3,927 - -
Depreciation and amortization................... 15,673 16,562 18,901 40,836 40,955
Development and preopening...................... 1,787 779 1,480 1,065 6,765
Termination of management and consulting
agreements.................................... 40,389 - - - -
Write down of assets............................ 13,322 - 19,678 22,141 -
-------- -------- -------- -------- --------
Total expenses................................ 313,318 234,155 246,529 527,980 480,791
-------- -------- -------- -------- --------
(Loss) income from operations................... (5,941) 34,605 21,228 2,600 59,152
-------- -------- -------- -------- --------
Non-operating income (expenses):
Interest income................................. 7,868 2,844 1,896 3,101 3,708
Interest expense................................ (45,540) (30,260) (30,437) (59,090) (55,558)
Tax settlement costs............................ - (1,087) - - -
Equity in losses of unconsolidated affiliate.... (141) - - - -
(Loss) gain on disposal of assets................ (567) (61) 552 (1,841) (514)
-------- -------- -------- -------- --------
Total non-operating expenses, net............ (38,380) (28,564) (27,989) (57,830) (52,364)
-------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
and other items................................. (44,321) 6,041 (6,761) (55,230) 6,788
Income tax provision.............................. (1,196) (816) (5,359) (63) (268)
-------- -------- -------- -------- --------
Income (loss) before extraordinary and other
items........................................... (45,517) 5,225 (12,120) (55,293) 6,520
Minority interest in earnings of Limited
Partnership..................................... (5,801) (6,494) (5,012) - -
-------- -------- -------- -------- --------
(Loss) income before extraordinary item........... (51,318) (1,269) (17,132) (55,293) 6,520
Extraordinary item:
Early extinguishment of debt,
net of related tax benefits (1)................ (30,353) (336) (215) - (23,808)
-------- -------- -------- -------- --------
Net (loss) income................................. $(81,671) $ (1,605) $(17,347) $(55,293) $(17,288)
======== ======== ======== ======== ========
Basic (loss) income per common share:
(Loss) income before extraordinary item......... $ (2.05) $ (.05) $ (.69) $ (2.24) $ .27
Extraordinary item.............................. (1.22) (.01) (.01) - (.97)
-------- -------- -------- -------- --------
Net (loss) income........................... $ (3.27) $ (.06) $ (.70) $ (2.24) $ (.70)
======== ======== ======== ======== ========
Diluted (loss) income per common share:
(Loss) income before extraordinary item......... $ (2.05) $ (.05) $ (.69) $ (2.24) $ .26
Extraordinary item.............................. (1.22) (.01) (.01) - (.96)
-------- -------- -------- -------- --------
Net (loss) income............................. $ (3.27) $ (.06) $ (.70) $ (2.24) $ (.70)
======== ======== ======== ======== ========
Balance Sheet Data: December 31,
----------------------------------------------------------
1999 1998 1997(1) 1996(1) 1995
-------- -------- -------- -------- --------
(in thousands)
Total assets...................................... $525,817 $270,740 $276,218 $308,158 $514,463
Total debt, including capital
lease obligations............................... 538,458 227,529 226,922 232,046 496,847
Shareholders' (deficit) equity.................... (74,157) 7,512 9,117 38,836 (57,233)
</TABLE>
(1) Includes the following items: (i) for 1999, costs associated with the May
1999 issuance of the Senior Secured Notes, (ii) for 1998 and 1997, costs
associated with HCC's mandatory redemption of outstanding debt, net of
related tax benefit and (iii) for 1995, costs associated with the October
1995 issuance of public indebtedness by HCC.
21
<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 accompanying footnotes appearing
elsewhere in this Form 10-K. HCA and HCT commenced operations on June 17, 1993
and August 8, 1994, respectively. The data as of December 31, 1999 and 1998 and
for the years ended December 31, 1999, 1998 and 1997 have been derived from the
audited financial statements of HCA and HCT presented in Item 8.
HOLLYWOOD CASINO-AURORA, INC.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $197,250 $162,947 $160,307 $163,391 $152,508
-------- -------- -------- -------- --------
Expenses:
Departmental.......................... 137,086 118,459 108,653 114,006 102,780
General and administrative............ 12,758 14,136 14,673 14,645 14,406
Depreciation and amortization......... 7,050 7,350 7,491 8,834 9,172
Termination of management contract.... 37,000 - - - -
-------- -------- -------- -------- --------
Total expenses...................... 193,894 139,945 130,817 137,485 126,358
-------- -------- -------- -------- --------
Income from operations................... 3,356 23,002 29,490 25,906 26,150
-------- -------- -------- -------- --------
Non-operating income (expense):
Interest income....................... 533 112 156 205 306
Interest expense...................... (6,145) (6,046) (6,847) (6,704) (6,493)
(Loss) gain on disposal of assets..... (510) 4 134 - -
-------- -------- -------- -------- --------
Total non-operating expense, net.... (6,122) (5,930) (6,557) (6,499) (6,187)
-------- -------- -------- -------- --------
(Loss) income before income taxes and
extraordinary item..................... (2,766) 17,072 22,933 19,407 19,963
Income tax provision..................... (367) (6,559) (8,419) (6,883) (7,554)
-------- -------- -------- -------- --------
(Loss) income before extraordinary item.. (3,133) 10,513 14,514 12,524 12,409
Extraordinary item....................... - - - - (989)
-------- -------- -------- -------- --------
Net (loss) income........................ $ (3,133) $ 10,513 $ 14,514 $ 12,524 $ 11,420
======== ======== ======== ======== ========
Balance Sheet Data:
December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
Total assets............................. $111,759 $100,310 $104,071 $107,449 $ 93,196
Total debt, including capital lease
obligations............................ 87,907 54,248 58,972 65,430 55,829
Shareholder's equity..................... 6,047 28,720 28,948 28,033 25,549
</TABLE>
22
<PAGE>
HWCC-TUNICA, INC.
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues........................... $110,122 $105,773 $107,263 $ 94,524 $ 94,416
-------- -------- -------- -------- --------
Expenses:
Departmental.......................... 84,882 79,328 77,058 72,602 63,842
General and administrative............ 5,679 5,813 5,769 5,962 5,711
Depreciation and amortization......... 7,066 8,123 9,916 10,906 10,356
Termination of consulting
agreement........................... 3,329 - - - -
-------- -------- -------- -------- --------
Total expenses...................... 100,956 93,264 92,743 89,470 79,909
-------- -------- -------- -------- --------
Income from operations................. 9,166 12,509 14,520 5,054 14,507
-------- -------- -------- -------- --------
Non-operating income (expenses):.......
Interest income....................... 340 587 281 835 637
Interest expense...................... (10,308) (10,937) (10,980) (10,060) (10,792)
Equity in losses of unconsolidated
affiliate........................... (141) - - - -
(Loss) gain on disposal of assets..... (57) (65) 6 (45) (505)
-------- -------- -------- -------- --------
Total non-operating expenses,
net................................ (10,166) (10,415) (10,693) (9,270) (10,660)
-------- -------- -------- -------- --------
(Loss) income before income taxes and
extraordinary items................... (1,000) 2,094 3,827 (4,216) 3,847
Income tax benefit (provision)......... 323 (689) 845 - 694
-------- -------- -------- -------- --------
(Loss) income before extraordinary
items................................ (677) 1,405 4,672 (4,216) 4,541
Extraordinary items, net of tax
benefit............................... - - - - (9,614)
-------- -------- -------- -------- --------
Net (loss) income...................... $ (677) $ 1,405 $ 4,672 $ (4,216) $ (5,073)
======== ======== ======== ======== ========
Balance Sheet Data:
December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
Total assets........................... $112,398 $120,461 $118,727 $116,620 $122,240
Total debt, including capital lease
obligations.......................... 90,140 85,798 85,683 86,645 88,340
Shareholder's equity................... 12,610 25,287 23,882 19,210 23,426
</TABLE>
23
<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, results of operations, cash flows, 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
Net revenues of HCC for 1999 reflect an increase of $38.6 million (14.4%)
from the $268.8 million generated during 1998. The 1999 increase was realized
by improved net revenues at the Aurora Casino of $34.3 million and at the Tunica
Casino of $4.3 million. Net revenues for the year ended December 31, 1998 were
$268.8 million, an increase of less than 1% over net revenues of $267.8 million
in 1997. The 1998 increase reflects improved net revenues at the Aurora Casino
which more than offset declines at the Tunica Casino.
The combination of a 14.4% increase in net revenues during 1999 over the
prior year and only a 10.9% increase in operating expenses, exclusive of the
costs of terminating the management and consulting contracts ($40.4 million) and
the write downs of assets ($13.3 million), results in HCC's income from ongoing
operations improving by $13.2 million (38%) to $47.8 million in 1999 from $34.6
million in 1998. The 1998 decline in income from ongoing operations of $6.3
million (15.4%) compared to 1997 reflects the slight increase in net revenues
offset by a $7.3 million (3.2%) increase in operating expenses other than asset
write downs. The increase in ongoing operating expenses primarily resulted from
increased gaming taxes at the Aurora Casino as well as from higher marketing and
promotional expenses in response to increased competition at both the Aurora
Casino and the Tunica Casino.
Aurora Casino
General
Income from operations at the Aurora Casino, adjusted to exclude management
fees ($7.7 million) and costs associated with the termination of its management
contract ($37 million), amounted to $48.1 million for the year ended December
31, 1999 compared to $31.9 million and $39.1 million, respectively, during 1998
and 1997. The 1999 increase results primarily from the 21.9% improvement in
casino revenues largely attributable to dockside gaming while volume based
operating expense increases were held to only 12.1%. Net revenues for 1999 were
the highest annual net revenues generated by the Aurora Casino since its
opening. As a result of regulatory changes, dockside gaming began at the Aurora
Casino on June 26, 1999, eliminating prior cruising requirements and enabling
patrons to enter and exit the boats without restrictions. Management anticipates
that this higher level of gaming revenues will continue in future periods and
has announced plans to construct a new dockside facility to capitalize on the
regulatory change (see "Liquidity and Capital Resources - Capital Expenditures
and Other Investing Activities"). The 1998 decrease from the prior year is
primarily due to an increase in the Illinois wagering tax rate which took effect
on January 1, 1998. The new tax structure consists of a graduated tax rate
system with rates ranging from 15% to 35% based on total adjusted gross
receipts. For the years ended December 31, 1998 and 1997, the Aurora Casino
paid or accrued wagering taxes of $42.4 million and $30.7 million, respectively.
The 1998 operating income decrease is also attributable to increased competition
from the opening in northern Indiana of two riverboat gaming operations during
April and August 1997. These two operations added approximately 3,700 new
gaming positions to the Chicago market area, an increase of nearly 35%.
24
<PAGE>
Gaming Operations
The following table sets forth certain unaudited financial and operating data
for the Aurora Casino for the years ended December 31, 1999, 1998 and 1997.
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
(in thousands, except percentages)
Revenues:
Table games $ 44,428 $ 42,942 $ 47,206
Slot machines 143,539 111,192 105,413
Poker revenues 2,641 2,270 1,346
---------- ---------- ----------
Total $ 190,608 $ 156,404 $ 153,965
========== ========== ==========
Table games:
Gross wagering (drop) (1) $ 252,678 $ 247,911 $ 273,689
Hold percentages (2) 17.6% 17.3% 17.3%
Slot machines:
Gross wagering (handle) (1) $2,474,986 $1,983,873 $1,866,687
Hold percentages (2) 5.8% 5.6% 5.7%
- -----------------------
(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 game drop and
slot machine handle increased by $495.9 million (22.2%) during 1999 compared to
1998. The increase reflects increased patron volume, primarily as a result of
the June 1999 implementation of dockside gaming previously discussed. Although
dockside gaming spurred revenue growth in the second half of 1999, gross
wagering improvement was seen in all quarters of 1999. Aggressive marketing
efforts begun in 1998 helped increase overall wagering by 18.2% in the first
half of 1999 compared to the first half of 1998.
Total gross wagering at the Aurora Casino increased by $91.4 million (4.3%)
during 1998 compared to 1997. The increase resulted from the continuation of
aggressive marketing and promotional programs introduced in the second quarter
of 1998 to recapture market share in the Chicago area. Declines in gross
wagering during the 1998 first quarter resulted from reductions in patron volume
due to changes in the Aurora Casino's cruising schedule. In an effort to reduce
unprofitable operations in response to the increased wagering tax discussed
above, the smaller of the Aurora Casino's two riverboats ceased operating
daytime cruises on weekdays during January and February; however, all cruises
resumed in March. Increased competition in the Chicago market due to the
opening of two new casinos in northern Indiana in April and August 1997 also
limited growth in casino wagering.
Revenues
Casino revenues increased $34.2 million (21.9%) during 1999 compared to 1998
due primarily to the significant increases in gross wagering. The 1999 increase
reflects the 2% and 24.8% increases in drop and handle, respectively, coupled
with increases in the respective hold percentages. Poker revenues did not
change significantly in 1999 from 1998.
Casino revenues increased slightly (1.6%) during 1998 compared to 1997.
Table game revenues decreased $4.3 million (9%) during 1998 compared to 1997
reflecting the 9.4% decrease in drop. Slot machine revenues during 1998
increased $5.8 million (5.5%) compared to 1997 reflecting the 6.3% increase
25
<PAGE>
in slot wagering partially offset by the decline in the slot machine hold
percentage to 5.6% from 5.7%. Casino revenues were also favorably impacted by
the introduction of poker during the second quarter of 1997, which generated
casino revenues of $2.3 million during 1998 compared to $1.3 million during
1997.
Food and beverage revenues increased $789,000 (5.7%) in 1999 from the 1998
results due primarily to increased patron volume. Food and beverage revenues
did not change significantly during 1998 compared to 1997.
Other revenues increased $456,000 (16.2%) in 1999 compared to 1998 reflecting
increases in parking fees and commission revenues. Other revenues increased
$897,000 (46.7%) during 1998 compared to 1997 primarily due to management's
decision to reinstate valet and parking garage fees in 1998 which had been
eliminated during 1997 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 62.8%, 60.6% and 60.7%, respectively, during the years ended
December 31, 1999, 1998 and 1997. The 1999 increase reflects increases in
promotional activities as part of the Aurora Casino's marketing efforts; the
1998 change is not significant.
Departmental Expenses
Casino expenses increased $18.9 million (16.8%) during 1999 compared to 1998.
Such increase results primarily from additional gaming taxes associated with the
increase in casino revenues as well as to the higher marketing expenses
previously discussed. Casino expenses increased $10.1 million (9.9%) during
1998 compared to 1997 primarily due to the wagering tax increase previously
discussed. Higher marketing costs, partially offset by reductions in payroll
costs, also contributed to the 1998 increase. Gaming taxes imposed by the State
of Illinois are determined using a graduated tax rate applied to the licensee's
gaming revenues. The Aurora Casino expenses such gaming taxes based on its
anticipated annual effective tax rate.
Food and beverage expenses did not change significantly during 1999 compared
to 1998 or during 1998 compared to 1997. During 1999, higher costs associated
with the increased patron volume and slightly higher food and beverage costs
were offset by increased allocations to casino expenses as part of the Aurora
Casino's promotional activities.
Other expenses decreased $218,000 (16.4%) during 1999 compared to 1998 and by
$309,000 (18.8%) during 1998 compared to 1997 reflecting reductions during both
years in personnel and other non-departmental operating expenses.
Tunica Casino
General
The Tunica Casino earned income from operations, adjusted to exclude
consulting fees payable to a subsidiary of GBCC ($939,000) and costs associated
with the termination of its consulting agreement ($3.3 million), of $13.4
million in 1999 compared to $13.7 million in 1998 and $15.7 million in 1997.
The declines in both 1999 and 1998 from the prior year periods are due to lower
than expected table game hold percentages and to increases in marketing and
other promotional expenses as a result of competitive pressures. The increased
competition has resulted primarily from the opening of approximately 1,700 new
hotel rooms by other casino operators during the fourth quarter of 1997 and
early 1998, the opening of an additional 600 rooms in the second quarter of 1999
and from marketing promotions instituted by other casino operators.
26
<PAGE>
Gaming Operations
The following table sets forth certain unaudited financial and operating data
for the Tunica Casino for the years ended December 31, 1999, 1998 and 1997.
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
(in thousands, except percentages)
Casino Revenues:
Table games $ 13,458 $ 13,658 $ 15,083
Slot machines 87,914 81,801 81,404
Poker revenues 940 1,000 1,019
---------- ---------- ----------
Total $ 102,312 $ 96,459 $ 97,506
========== ========== ==========
Table games:
Gross wagering (drop) (1) $ 81,810 $ 76,366 $ 78,115
Hold percentage (2) 16.5% 17.9% 19.3%
Slot machines:
Gross wagering (handle) (1) $1,637,809 $1,555,316 $1,595,645
Hold percentage (2) 5.4% 5.3% 5.1%
- ----------------------------
(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 $87.9 million (5.4%) during 1999 compared to 1998.
Slot machine handle increased by $82.5 million (5.3%) and table game drop
increased by $5.4 million (7.1%) during 1999 compared to 1998. Management
believes such increases are attributable to the implementation of a new, more
aggressive marketing campaign designed to reposition the Tunica Casino within
the Tunica gaming market. Such marketing efforts have been supplemented with
increased use of the Tunica Casino's jointly owned golf course and the addition
of headliner entertainment to attract higher value patrons. Improvement in slot
machine handle has also resulted from a significant increase in the number of
slot machines available and from management's program of updating machines to
enhance the patron's gaming experience. Patron volume declined slightly during
1999 compared to 1998 indicating that the Tunica Casino has been successful in
attracting higher value patrons.
Total gross wagering at the Tunica Casino decreased by $42.1 million (2.5%)
during 1998 compared to 1997. The decreased patron volume is directly
attributable to increased competition in the Tunica market. Slot machine handle
decreased by $40.3 million (2.5%) and table game drop decreased by $1.8 million
(2.2%) during 1998 compared to 1997.
Revenues
Casino revenues increased $5.9 million (6.1%) during 1999 compared to 1998.
Table game revenues decreased 1.5% during 1999 as the increase in table drop
discussed above was negated by a decline in the table game hold percentage to
16.5% during 1999 from 17.9% during 1998. The 14.8% and 13.3% table game hold
percentages during the third and fourth quarters, respectively, of 1999 were the
lowest two quarters since the opening of the Tunica Casino and represent an
overall decrease of 4.7 percentage points compared to the prior year six-month
period. Slot machine revenue increased $6.1 million (7.5%) during 1999 compared
to 1998 reflecting the increase in gross wagering discussed above coupled with
an increase in the slot machine hold percentage to 5.4% in 1999 from 5.3% in
1998. Poker revenues decreased by 6% during 1999 compared to 1998.
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Casino revenues decreased $1 million (1.1%) during 1998 compared to 1997.
Table game revenues decreased 9.4% during 1998 due to the previously discussed
decline in table drop coupled with an overall decline in the hold percentage to
17.9% in 1998 from 19.3% in 1997. Slot machine revenues did not change
significantly during 1998 compared to the prior year as the change in gross
wagering was virtually offset by the impact of the change in the slot machine
hold percentage. Poker revenues decreased 1.9% during 1998 compared to the
prior year primarily from a reduction in the number of poker tables from ten to
six during the period.
Rooms revenue increased $1.1 million (11.4%) during 1999 compared to 1998.
Hotel occupancy rates declined to 85.5% in 1999 compared to 89.7% in 1998 due to
increased competition for overnight patrons resulting from the completion and
opening of an additional 600 guest rooms early in the second quarter of 1999.
Accordingly, the improvement in room revenues resulted from an increase in the
average daily room rate to $64 during 1999 from $55 during 1998. Rooms revenue
decreased $265,000 (2.7%) during 1998 compared to 1997 due to increased
competition for overnight patrons. Hotel occupancy rates decreased as a result
of additional competition to approximately 82% in the first quarter of 1998
from approximately 88% during the same period of 1997. Occupancy rates at the
Tunica Casino for the second, third and fourth quarters of 1998 rebounded to
approximately 92% (compared to 93% during the corresponding period of 1997) as
the market began to absorb the additional hotel room capacity. Occupancy rates
during the period from September through December 1998 were also negatively
impacted by rooms being taken out of service for maintenance and upgrading. The
addition of recreational vehicle parking spaces has also contributed to the
increases in rooms revenue. Additions of 51 and 22 parking spaces,
respectively, were made to the RV Park at the Tunica Casino in 1998 and 1997
bringing the current total number of parking spaces to 123.
Food and beverage revenues did not change significantly in 1999 compared to
1998. Food and beverage revenues increased $719,000 (5%) during 1998 compared
to 1997 as a result of increases in both food prices and in the number of dining
patrons resulting from increased promotional activities. Other revenues
increased $169,000 (12.3%) and $209,000 (18%), respectively, during 1999 and
1998 compared to the prior years due to increased patron volume using such
services.
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 71.4% in 1999 from 63.9% during 1998 and 61.2% in 1997.
The 1999 increase is the result of higher complimentary room and food and
beverage costs due to increased marketing efforts and increased competition for
overnight guests. The 1998 increase results from increased complimentary food
and beverage and other services due to increased marketing efforts.
Departmental Expenses
Casino expense increased $6.6 million (9.1%) during 1999 compared to 1998
reflecting the implementation of marketing programs. Casino expense increased
by $2.8 million (4.1%) during 1998 compared to 1997 as a result of additional
promotional activities instituted during the third quarter of 1998 in response
to competitive pressures.
Rooms expense decreased $591,000 (33.7%) in 1999 compared to 1998 reflecting
the increased allocations to the casino department of hotel costs associated
with marketing programs. Rooms expense did not change significantly during 1998
compared to 1997.
Food and beverage expense decreased by $219,000 (5.6%) and other
departmental expenses decreased by $199,000 (14.9%) during 1999 compared to the
prior year primarily due to increased allocations to the casino department.
Food and beverage expenses decreased by $402,000 (9.3%) during 1998 compared to
1997 despite increases in food and beverage revenues during the 1998 period as
discussed above. Such decrease results from the previously noted increase in
marketing activities with respect to food and beverage programs, the costs of
which are allocated to casino expenses. The decrease in other expenses during
1998 compared to 1997 was not significant from a monetary amount.
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HCC Consolidated
- ----------------
The operating expenses of HCC, exclusive of the Aurora Casino and the Tunica
Casino consist primarily of general and administrative expenses, preopening
costs associated with the Shreveport Casino and expenses incurred in connection
with the pursuit of additional gaming venues.
General and Administrative
General and administrative expenses increased by $1.5 million (8.2%) during
1999 compared to 1998. Such expenses at the Aurora Casino (net of management
fees) decreased by 4.5% during 1999 primarily as a result of a reduction in
legal and professional fees. The Tunica Casino experienced an increase in
general and administrative expenses (net of consulting fees) of 2.8% during 1999
compared to the prior year primarily as a result of increases in personnel costs
and professional fees. The remaining corporate general and administrative
expense increase of $1.6 million (19.9%) during 1999 results from increases in
corporate overhead costs, primarily legal fees and personnel costs. General and
administrative expenses increased $866,000 (5.5%) during 1998 compared to 1997.
Increases in such costs at the Aurora Casino of 3.9% and at the Tunica Casino of
1% were not significant; the remaining increase of $622,000 in corporate
overhead costs resulted primarily from increases in professional fees.
Depreciation and Amortization
Depreciation and amortization expense decreased by $889,000 (5.4%) in 1999
compared to 1998 and by $2.3 million (12.4%) in 1998 compared to 1997. The
decreases results primarily from certain operating equipment at the Aurora
Casino and Tunica Casino becoming fully depreciated.
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. Development costs increased by $167,000 (21.4%) in 1999 compared to
the prior year primarily due to additional costs incurred with respect to
potential gaming opportunities in Mexico and Massachusetts. The $701,000
(47.4%) decrease in 1998 development costs compared to 1997 reflects an
unusually high level of spending in 1997 not repeated in the current year.
Preopening Costs
Preopening costs are the start up costs associated with the development of
the Shreveport Casino which, in accordance with existing accounting
pronouncements, are required to be expensed as incurred. Such costs include,
among other things, organizational costs, marketing and promotional costs,
hiring and training of new employees and other operating costs incurred prior to
the opening of the project.
Termination of Management and Consulting Agreements
In connection with the acquisition of PCC in October 1999 (see "Liquidity and
Capital Resources -Pratt Casino Corporation Acquisition" below), HCC was able to
terminate the outstanding management agreement for the Aurora Casino and
consulting agreement for the Tunica Casino. As part of its strategic plan, HCC
sought to terminate these agreements in order to eliminate fees paid to GBCC,
enhance future operating performance and simplify its organizational structure.
The acquisition of the agreements required that HCC satisfy certain obligations
of PCC amounting to $40.3 million. As no asset value was attributed to the
management and consulting agreements for financial reporting purposes when
acquired and terminated, the $40.3 million payment, together with net expenses
from the acquisition amounting to $60,000, were charged to expense in 1999.
Expenses incurred under the management and consulting agreements amounted to
$6.7 million, $7.7 million and $8.9 million, respectively, during 1999 (prior to
the October termination date), 1998 and 1997.
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Write Down of Assets
In connection with a refinancing of its indebtedness in 1994, GBCC issued
$40.5 million discounted principal amount (face amount of $110.6 million) 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 GBCC and its subsidiaries. As a result of HCC's
distribution of GBCC stock at December 31, 1996 to its shareholders, GBCC's tax
net operating losses are no longer available for utilization in HCC's
consolidated tax returns. Due 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 took a write down during 1997 reducing the
carrying amount of the PPI Funding Notes to an estimated realizable value of
$12.3 million. This remaining estimated net realizable balance was fully
reserved in 1999 as the acquisition of PCC by HCC in October 1999 terminated the
Aurora Casino management contract and Tunica Casino consulting agreement. These
agreements provided a source of funds to GBCC which is now no longer available.
In addition, ACSC, which is GBCC's only remaining operating subsidiary,
experienced a loss from operations in 1999, further reducing cash flows
available for repayment of the PPI Funding Notes.
For the same reasons, HCC wrote down the interest receivable balance
associated with certain demand notes from GBCC by $1 million during 1999. The
remaining combined receivable balance of the notes and interest of $7.5 million
at December 31, 1999 reflects management's best estimate of the value of the
collateral associated with such obligations.
During November 1995, HCC loaned $10 million of the proceeds from its October
1995 debt offering to an unaffiliated gaming company in the form of two $5
million notes. 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, which were paid in April
1998. The $4 million difference between the $10 million carrying amount of the
notes receivable and the agreed upon settlement was reflected as a write down of
the notes receivable during 1997.
Interest Income
Interest income increased $5 million (176.7%) during 1999 compared to 1998
reflecting interest on the unexpended cash proceeds of HCC's issue of Senior
Secured Notes on May 19, 1999 and Hollywood Casino Shreveport's debt issue on
August 10, 1999 (see "Liquidity and Capital Resources - Financing Activities").
Interest income increased $948,000 (50%) during 1998 compared to 1997 as a
result of more cash being available for investment purposes during 1998.
Interest Expense
Interest expense increased by $15.3 million (50.5%) during 1999 compared to
the prior year due primarily to the increase in HCC's long-term indebtedness
from the May 1999 issuance of the Senior Secured Notes and the August 1999
issuance of $150 million of 13% First Mortgage Notes with respect to the
Shreveport Casino. Although the issuance of the Senior Secured Notes increased
HCC's indebtedness to a face value of $360 million from a face value of $204.7
million, the effective interest rate fell to 11.27% from 13.75%. The interest
rate on $50 million of the Senior Secured Notes is equal to the six-month LIBOR
rate plus 6.28% and is reset semiannually. On November 1, 1999, the interest
rate on such notes increased to 12.41% from 11.36%, effectively increasing the
Company's annual interest expense by $525,000. A portion of the interest on the
13% First Mortgage Notes is being capitalized during the construction period
($1.1 million during 1999). Interest expense did not change significantly
during 1998 compared to 1997.
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(Loss) Gain on Disposal of Assets
During 1999, the Aurora Casino wrote off costs associated with its planned
construction of a new, larger boat to replace the smaller of its two current
boats. The advent of dockside gaming in June 1999 resulted in new plans to
construct a dockside casino facility (see "Liquidity and Capital Resources -
Capital Expenditures and Other Investing Activities"). The 1998 loss results
primarily from the sale of certain slot machines at the Tunica Casino as part of
its program to update such equipment; the 1997 gain resulted primarily from the
sale of a company-owned aircraft.
Income Taxes
Management believes that it is more likely than not that future consolidated
taxable income of HCC (primarily from the Aurora Casino and the Tunica Casino)
will be sufficient to utilize 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 net
deferred tax assets of $5.2 million as of December 31, 1999.
Sales by HCC or existing stockholders of common stock can cause a "change of
control", as defined in Section 382 of the Internal Revenue Code of 1986, as
amended, 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.
Tax Settlement Costs
Tax settlement costs of $1.1 million in 1998 represent costs incurred arising
from and directly related to HCC's tax treatment of the spin-off of GBCC.
Minority Interest in Earnings of Limited Partnership
The minority interest in the earnings of the limited partnership which held
the management contract for the Aurora Casino decreased by $693,000 (10.7%)
during 1999 compared to 1998. As a result of the acquisition and termination of
the management contract, such minority interest was not incurred subsequent to
October 13, 1999 (see "Liquidity and Capital Resources - Pratt Casino
Corporation Acquisition" below). For the period prior to the termination of the
management contract, the minority interest increased by $618,000 (11.9%)
compared to the same partial year period during 1998. This increase results
primarily from increases in the management fees paid by the Aurora Casino to the
limited partnership as a result of improved operating revenues and profits on
which such fees are based, coupled with a slight decline in the limited
partnership's operating expenses during 1999. The minority interest increased
by $1.5 million (30%) in 1998 compared to 1997 as the minority interest came
into effect on April 1, 1997 following the acquisition of the general
partnership interest in PML by HCC. For the period from April 1, 1998 through
December 31, 1998 (a period comparable to the 1997 post-acquisition date),
minority interest decreased by $438,000 (8.7%) compared to 1997 reflecting the
decrease in the Aurora Casino's operating profits due to the increase in gaming
taxes previously discussed.
Extraordinary Item
During May 1999, HCC completed the refinancing of its outstanding 12.75% debt
obligations. The extraordinary loss from early retirement of debt includes the
premium paid and redemption fees associated with the debt retired together with
the write off of related unamortized financing costs.
Prior to May 1999, HCC was required to make an offer to purchase not more
than $2.5 million in principal amount of its then outstanding 12.75% Senior
Secured Notes at each semiannual interest payment date. During 1998, HCC made
two redemption offers and redeemed $2.8 million of the notes resulting in an
extraordinary loss of $336,000. During 1997, HCC made one such offer and
redeemed $2.5 million of
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the notes. The 1997 redemption resulted in an extraordinary loss of $326,000,
reduced by an estimated income tax benefit of $111,000.
Year 2000 Compliance
At the beginning of the year 2000, computer programs that had date sensitive
software might have recognized a date using "00" as the year 1900 rather than
2000. Such an error could have resulted in a system failure or miscalculations
which might have caused disruptions of operations including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
In preparation for the Year 2000, management conducted a program to prepare
the Company's computer systems and applications as well as its non-information
technology (embedded microchip) systems. The two major information technology
systems identified as not Year 2000-compliant were replaced. The cost of
acquiring, testing and converting HCC's systems was less than $1 million. The
majority of these costs were included in capital expenditures (see "Liquidity
and Capital Resources - Capital Expenditures and Other Investing Activities"
below).
As a result of its planning and implementation efforts, HCC experienced no
significant disruptions to any of its computer systems and non-information
technology systems and management believes that all such systems have
successfully responded to the Year 2000 change. The Company also encountered no
significant Year 2000 problems with its vendors or suppliers. Management is
continuing to monitor the Company's systems and communicate with its suppliers
and vendors to ensure that any latent Year 2000 problems that might arise are
promptly addressed.
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.
Market Risk
The Company has $50 million of floating rate Senior Secured Notes outstanding
(see "Liquidity and Capital Resources - Financing Activities" below). Interest
on the floating rate notes is at the LIBOR rate plus 6.28% and is reset
semiannually. Accordingly, an increase in the LIBOR rate of 1% would increase
interest expense by $500,000 per year. Management has also secured a commitment
to finance the lease of furniture, fixtures and equipment for the Shreveport
Casino. The $30 million commitment includes variable interest to be reset
quarterly. Accordingly, an increase in the underlying base rate of 1% would
increase interest expense by $300,000 per annum. Management believes that the
Company has no other material market risks.
Seasonality and Other Fluctuations
Historically, the Aurora Casino's operations have experienced some
seasonality due to severe winter weather. 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.
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LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
The operations of the Aurora Casino and Tunica Casino continue to be HCC's
primary sources of liquidity and capital resources. The Aurora Casino
contributed approximately $3.4 million of cash flow from operations during 1999
after deducting the payment of $9.8 million of management fees. The Tunica
Casino provided $4.2 million of cash from operations during 1999 after deducting
the payment of $939,000 of consulting fees to GBCC. Operating cash flows at the
Aurora Casino and Tunica Casino were negatively impacted during 1999 by
expenditures of $37 million and $3.3 million, respectively, for the acquisition
and termination of their management and consulting agreements. HCC's other
sources of funds include interest income earned on temporary investments ($3.4
million). In addition to operating expenses at the Aurora Casino and the Tunica
Casino, uses of operating cash by HCC during 1999 included preopening costs with
respect to the Shreveport Casino ($841,000), costs to pursue development
opportunities ($946,000) and corporate overhead costs ($9.5 million).
During 1999, consolidated cash flow provided by operations ($3.4 million),
from the redemption of short-term investments ($3.9 million), from the sale of
assets ($4 million) and from equipment financing ($1.4 million) were used by
HCC, together with available cash, to fund capital expenditures (exclusive of
Shreveport Casino project costs) of $11.6 million, to repay third party
indebtedness (other than HCC's 12.75% Senior Secured Notes) of $2.8 million, to
make payments under capital lease obligations of $893,000 and to pay
distributions amounting to $7.9 million to PCC as limited partner in PML. As a
result of the acquisition of PCC discussed below, distributions to PCC were
discontinued during October 1999. Shreveport Casino project costs have, for the
most part, been funded with proceeds from borrowings (see "Liquidity and Capital
Resources - Capital Expenditures and Other Investing Activities") and from HCC's
available cash.
The Internal Revenue Service recently completed its examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994. The
additional current federal income tax obligation resulting from such examination
is included in current federal income taxes payable on the accompanying
consolidated balance sheet at December 31, 1999. HCC's consolidated net
deferred tax asset has also been adjusted to reflect the results of the tax
audit. The Internal Revenue Service is continuing its examination of the
consolidated federal income tax returns of HCC for 1995 and 1996. Management
believes that it will have adequate capital resources to meet the additional tax
payments, if any, resulting from such examinations.
Pratt Casino Corporation Acquisition
On April 28, 1999, the Company entered into a voting agreement with GBCC and
certain of its wholly owned subsidiaries, including PRT Funding and PCC, and the
holders of substantially all of the $85 million of senior notes issued by PRT
Funding and guaranteed by PCC which were in default. Under the terms of the
voting agreement, the Company was to purchase the stock of PCC from GBCC for
nominal consideration and fund the payment of PCC's obligations as part of a
debt restructuring of PRT Funding, PCC and other subsidiaries of PCC. When
acquired by HCC, PCC's assets were to consist of its limited partnership
interest in PML and its consulting agreement with the Tunica Casino and its
liabilities were to consist of a new $40.3 million obligation payable in
satisfaction of the PRT Funding Notes. The funds necessary to satisfy such
obligation were obtained as part of the May 1999 refinancing and were placed in
escrow for such purpose.
In order to complete the Restructuring, PCC and PRT Funding filed for
protection under Chapter 11 of the United States Bankruptcy Code on May 25, 1999
with the above transactions included as part of a pre-negotiated plan of
reorganization. The plan of reorganization was confirmed by the bankruptcy
court in October 1999. At such time, HCC completed its acquisition of PCC and
settled PCC's obligations.
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Financing Activities
During May 1999, HCC completed the refinancing of its outstanding 12.75%
Senior Secured Notes through a private debt offering of $310 million of 11.25%
Senior Secured Notes due May 1, 2007 and $50 million of floating rate Senior
Secured Notes due May 1, 2006 (collectively, the "Senior Secured Notes").
Interest on the floating rate notes is equal to the six-month LIBOR rate plus
6.28% and is reset semiannually. Effective November 1, 1999, the interest rate
increased to 12.41% from an initial rate of 11.36% per annum. In addition to
refinancing existing debt, the Company used proceeds from the debt offering to
fund a portion of the Company's equity investment in the Shreveport Casino and,
during October 1999, to acquire the management and consulting contracts on the
Aurora and Tunica casinos. The Company also plans to use proceeds from the
debt offering to finance construction of a new, dockside gaming facility at the
Aurora Casino (see "Liquidity and Capital Resources - Capital Expenditures and
Other Investing Activities"), and, to the extent available, for working capital
purposes. Interest on the Senior Secured Notes is payable semiannually on May 1
and November 1 commencing on November 1, 1999. The Senior Secured Notes are
unconditionally guaranteed on a senior secured basis by HCT and HCS and may be
guaranteed by certain future subsidiaries of HCC. Neither HCA nor HCL are
guarantors. The Senior Secured Notes and related guarantees are secured by,
among other things, (1) substantially all of the assets of HCT and future
guarantors, (2) a lien not to exceed approximately $108 million on substantially
all of the assets of HCA, (3) a pledge of the capital stock of certain
subsidiaries of HCC and (4) the collateral assignment of the management contract
for the Shreveport Casino.
The fixed rate Senior Secured Notes are redeemable at the option of HCC any
time on or after May 1, 2003 at 107% of the then outstanding principal amount,
decreasing to 104.666%, 102.333% and 100%, respectively, on May 1, 2004, 2005
and 2006. The Company may also redeem up to 35% of the fixed rate Senior
Secured Notes at a redemption price of 111.25% plus accrued interest at any time
prior to May 1, 2002 with the proceeds from an offering of the HCC's common
stock if net proceeds to the Company from any such offering are at least $20
million.
The floating rate Senior Secured Notes may be redeemed at the option of HCC
at any time at an initial redemption price of 105% plus accrued interest with
the redemption premium decreasing by 1% on May 1 of each year beginning May 1,
2000.
The indenture for 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,
HCS or any future guarantor; or enter into certain transactions with affiliates.
On August 10, 1999 the Shreveport Partnership issued $150 million of 13%
First Mortgage Notes due 2006 with contingent interest, the net proceeds of
which, together with capital contributions from HCL and $30 million of
furniture, fixture and equipment financing for which a commitment has been
obtained, will provide the approximately $230 million of funds necessary to
build, equip and open the Shreveport Casino (see "Liquidity and Capital
Resources - Capital Expenditures and Other Investing Activities"). The
Shreveport First Mortgage Notes are non-recourse to HCC. Fixed interest on the
Shreveport First Mortgage Notes is payable semiannually on February 1 and August
1 of each year commencing on February 1, 2000. In addition, contingent interest
will be payable on each interest payment date after the opening of the
Shreveport Casino. The amount of the contingent interest will be equal to 5% of
the Shreveport Casino's cash flow, as defined, for the prior two fiscal quarters
up to a maximum of $5 million for any four consecutive fiscal quarters. The
notes are collateralized by a first priority security interest in substantially
all of the Shreveport Partnership's existing and future assets other than
furniture, fixtures and equipment for which up to $35 million of financing has
been or will be obtained as well as by a pledge of the common stock of the HCC
subsidiaries which hold the partnership interests.
The Shreveport First Mortgage Notes are redeemable at the option of the
Shreveport Partnership any time on or after August 1, 2003 at 106.5% of the then
outstanding principal amount, decreasing to 103.25%
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on August 1, 2004 and 100% on or after August 1, 2005. Up to 35% of the original
aggregate amount of the Shreveport First Mortgage Notes may also be redeemed at
any time or prior to August 1, 2002 with proceeds of contributions to the
Shreveport Partnership made by HCC from certain offerings of equity securities
by HCC.
The indenture for the Shreveport First Mortgage Notes contains various
provisions limiting the ability the Shreveport Partnership to borrow money, pay
dividends, make investments, pledge or sell its assets or enter into mergers or
consolidations. The indenture also limits the ability of certain HCC
subsidiaries which guarantee the debt to acquire additional assets, become
liable for additional obligations or engage in any business activities other
than holding the partnership interests or acting as managing general partner of
the Shreveport Partnership.
During September 1998, HCA entered into a bank loan agreement to borrow up to
$2 million on an unsecured basis. Borrowings under the agreement are payable in
36 monthly installments including interest at the rate of 7.5% per annum. HCA
borrowed $2 million under the agreement during October 1998. During May 1999,
HCA borrowed an additional $750,000 from the bank on an unsecured basis to be
repaid over 60 months. Interest on such loan is at 7.5% per annum.
HCT had a $1.3 million bank credit facility available to borrow against
through September 30, 1998. Outstanding borrowings on the line of credit
($278,000 at December 31, 1999) are being repaid in monthly installments over 36
months and accrue interest at the rate of 8.875% per annum.
Prior to October 14, 1999, HCC was the general partner in the limited
partnership which held the Aurora management agreement, having acquired such
interest in April 1997. HCC's original acquisition price for the general
partnership interest included a note in the amount of $3.8 million and the
assignment of $13.8 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 approximated the
general partner's share of partnership distributions which were made to HCC
prior to the liquidation of the general partnership in October 1999. Effective
November 1, 1999, HCC continues to make monthly payments of principal and
interest totaling $83,000 which, together with additional quarterly principal
payments of $21,000 beginning in January 2000, will approximate HCC's payment
obligations while the management contract was in effect.
As of December 31, 1999, HCC's scheduled maturities of long-term debt and
payments under capital leases during 2000 are approximately $3.6 million and
$2.5 million, respectively.
Capital Expenditures and Other Investing Activities
Aurora Casino -
Capital expenditures at the Aurora Casino during 1999 were $5.1 million;
management anticipates spending $3.6 million during 2000 toward its ongoing
capital improvements program. Significant projects planned for 2000 include new
slot machines, renovations to restaurants and other departmental expenditures.
In addition, the Company is currently finalizing plans to replace the Aurora
Casino's two riverboats with a newly constructed, permanently moored dockside
casino. As currently planned, the new facility will significantly increase
passenger capacity and provide a premier gaming and entertainment facility for
the Aurora Casino's patrons. The new facility is projected to cost
approximately $60-65 million and will require a construction period of 14
months. Construction of the dockside casino is expected to begin as soon as
possible following receipt of required regulatory approvals and the resolution
of certain litigation as described below. Upon the finalization of plans, the
receipt of all required approvals and the resolution of the litigation, the
Aurora Casino will amortize the remaining net book value of its existing
riverboats (approximately $30.9 million at December 31, 1999) over the estimated
14-month construction period prior to the boats being removed from service. As
a result, depreciation expense during 2000 could be significantly greater than
during 1999. Approximately $40 million of the estimated $60-65 million in
project
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costs for the proposed dockside facility were obtained from HCC's debt offering
completed in May 1999 with the remainder to come from operating cash flow.
The Company intends to build its new dockside casino in two halves, which
will be connected to form a single dockside casino. The Company is considering
proceeding with the construction of the first half of the dockside casino prior
to the final resolution of the litigation described below. If the Company
proceeds with this approach, it would attempt to place all of its gaming
positions on the first half of the dockside casino and would not develop the
second half of the facility until the litigation is resolved.
A complaint was filed in late 1999 in an Illinois state court concerning the
constitutionality of a portion of the legislation that enabled dockside gaming
in Illinois. Although the constitutional challenge centers on the relocation of
one of the existing gaming licenses, a finding that such portion of the
legislation is unconstitutional could result in a finding that all or a portion
of the legislation, including dockside gaming, is invalid. Pending the
resolution of this litigation, the Company's planned dockside expansion of the
Aurora Casino has been delayed. If the state court rules that all or a portion
of the legislation is invalid, management believes that it may be able to
continue to operate its existing riverboats on a dockside basis pending a final
resolution of the litigation. If the provisions in question are found to be
unconstitutional after all appeals, and the entire legislation is invalidated
and it appears that the Illinois legislature will not pass new legislation
enabling dockside gaming, then the Company will likely modify its expansion
plans for the Aurora Casino. Under this scenario, the Company would proceed with
the development of a new, larger riverboat to replace the smaller of its two
existing riverboats.
Pending resolution of the litigation and without regard to its decision of
whether to build the first half of the dockside casino, management is
implementing a plan to connect its two existing riverboats with a new casino
barge. The project will cost approximately $3.5 million to complete, including
approximately $1.3 million in docking facilities that can be used by the new
dockside casino should it be built. Construction of the new barge is expected
to commence as soon as the necessary approvals are obtained and is expected to
open in mid-July of 2000. The casino barge will allow patrons to move freely
between the two existing boats and will enable management to reconfigure its
casino space for increased patron comfort. Management believes that the
reconfigured facility will significantly enhance its current operations until
the Company is able to replace its existing riverboats with the new dockside
facility.
Tunica Casino -
Capital expenditures at the Tunica Casino during 1999 amounted to $6.4
million; management anticipates spending $4 million during 2000. Expenditures
during 1999 were part of a two-year capital improvement plan which included the
upgrading of hotel accommodations and public areas, the replacement of certain
slot machines, the development of a new VIP check-in and private entertainment
lounge, upgrades to hotel rooms, the completion of an 18-hole championship golf
course and the expansion of the recreational vehicle parking area. Projects
planned for 2000 include updating slot machines, upgrades to marketing systems,
renovations to hotel suites and other departmental expenditures.
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, which opened in November 1998, have totalled
approximately $2.1 million.
Shreveport Casino -
In September 1998, the Shreveport Partnership received approval to develop,
own and operate a Hollywood-themed hotel and casino complex on the Red River in
Shreveport, Louisiana. HCL originally planned to develop the Shreveport Casino
with two partners in a joint venture in which HCL would have had an interest of
approximately 50%. On March 31, 1999, HCL entered into a definitive agreement
with one of the joint venture partners to acquire its interest in the Shreveport
Partnership for $2.5 million (the amount the joint venture partner contributed
to the project), $1,000 of which was paid at closing with the remainder
36
<PAGE>
to be paid six months after the opening of the Shreveport Casino. The revised
structure of the joint venture received approval by the Louisiana Gaming Control
Board on April 20, 1999. As a result, effective as of April 23, 1999, HCL has an
effective 100% ownership interest in the Shreveport Casino with the remaining
joint venture partner holding a 10% residual interest in the event the project
is sold.
The total estimated cost of the Shreveport Casino is approximately $230
million, of which approximately $34.8 million has been spent as of December 31,
1999. HCL has contributed approximately $49 million as an equity investment in
the project with the other joint venture partner having contributed $1 million
to the project with the proceeds of a loan from HCL. The loan accrues interest
at the rate of prime commencing with the opening of the Shreveport Casino and
will be payable monthly. Principle on the loan is payable on the tenth
anniversary of the opening of the Shreveport Casino. The joint venture partner
was also given credit for an additional $1 million capital contribution upon the
closing of the Shreveport First Mortgage Notes and payment of the $5 million
obligation discussed below. The credit was in recognition of guarantees
provided by an affiliate of the partner which were necessary for the Shreveport
Partnership to obtain approval of its license. The $2 million equity interest
of the partner is reflected as minority interest on the consolidated financial
statements of HCC.
In addition to the capital contributions, other construction and preopening
costs, estimated at $180 million, are being funded by the Shreveport First
Mortgage Notes which are non-recourse to HCC (see "Liquidity and Capital
Resources - Financing Activities") and by $30 million of furniture, fixture and
equipment financing for which a commitment letter has been obtained. In
addition, HCC has agreed to contribute up to an additional $5 million in equity
to the Shreveport Casino under certain circumstances which include cost overruns
or delays. Construction of the Shreveport Casino began in August 1999 with a
planned opening date in early November 2000.
The former partners of the Shreveport Partnership's predecessor conducted
riverboat gaming operations in New Orleans until October 1997. In connection
with their proposed change in site to Shreveport, the former partners negotiated
a settlement with the City of New Orleans to pay $10 million with respect to
claims asserted by the City in connection with the relocation. During September
1998, the current partners and the former partners of the Shreveport Partnership
entered into a Compromise Agreement with the City of New Orleans under which it
was agreed that one of the former partners would pay $5 million to the City with
the former partners being released from any further relocation claims. The
current partners agreed that the Shreveport Casino would pay the City of New
Orleans $5 million upon securing financing for construction of their project
(the Shreveport Casino); such payment was made in August 1999. In addition, the
current partners agreed that the Shreveport Casino would reimburse the former
partner $2 million of the amount it paid to the City; such repayment is to be
made upon the earlier of the termination of construction of the Shreveport
Casino or in monthly installments of $200,000 commencing with the opening of the
Shreveport Casino.
Other -
HCC continues to pursue several additional potential gaming opportunities.
HCC intends to finance any future ventures with cash flow from operations,
together with third party financing, including non-recourse project financing.
37
<PAGE>
Conclusion
Management anticipates that HCC's funding requirements for its operating
activities will continue to be satisfied by existing cash and cash generated by
the Aurora Casino and Tunica Casino. Proceeds from the Senior Secured Notes
have been used to fund a portion of HCC's equity investment in the Shreveport
Casino and for the acquisition of the management and consulting agreements for
the Aurora Casino and Tunica Casino. The remaining proceeds are expected to be
used for the planned expansion of the Aurora Casino. Construction financing for
the planned Shreveport Casino has been provided from the August 1999 issuance of
project specific, non-recourse financing, together with capital contributions
and equipment financing. In the absence of construction overruns, management
believes that, once the Shreveport Casino opens, cash flow from operations will
be sufficient to meet its liquidity and capital resource needs for the next 24
months.
38
<PAGE>
ITEM 8. INDEX TO FINANCIAL STATEMENTS
Page
----
Hollywood Casino Corporation and Subsidiaries:
Independent Auditors' Report............................................... 40
Consolidated Balance Sheets as of December 31, 1999
and 1998................................................................. 41
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997................................... 43
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) for the Three Years Ended December 31, 1999.................... 44
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997................................... 45
Notes to Consolidated Financial Statements................................. 46
Hollywood Casino-Aurora, Inc.
Independent Auditors' Report............................................... 75
Balance Sheets as of December 31, 1999 and 1998............................ 76
Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997......................................... 78
Statement of Changes in Shareholder's Equity for the
Three Years Ended December 31, 1999...................................... 79
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997......................................... 80
Notes to Financial Statements.............................................. 81
HWCC-Tunica, Inc.
Independent Auditors' Report............................................... 93
Consolidated Balance Sheets as of
December 31, 1999 and 1998................................................ 94
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997.................................... 96
Consolidated Statement of Changes in Shareholder's Equity for the
Three Years Ended December 31, 1999....................................... 97
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................................... 98
Notes to Consolidated Financial Statements................................. 99
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1999 and 1998, 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, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Hollywood Casino Corporation and subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
February 25, 2000
40
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $115,351,000 $ 42,118,000
Short-term investments - 3,905,000
Receivables, net of allowances of
$1,826,000 and $1,468,000, respectively 5,489,000 2,368,000
Inventories 1,714,000 1,385,000
Deferred income taxes 1,776,000 890,000
Refundable deposits and other
current assets 2,617,000 1,908,000
Due from affiliates, net of valuation allowances 7,705,000 8,893,000
------------ ------------
Total current assets 134,652,000 61,467,000
------------ ------------
Investment in unconsolidated affiliates 1,957,000 4,581,000
------------ ------------
Property and Equipment:
Land 7,948,000 7,812,000
Buildings and improvements 122,122,000 120,060,000
Riverboats and barges 40,367,000 40,166,000
Operating equipment 85,728,000 77,192,000
Construction in progress 44,331,000 3,227,000
------------ ------------
300,496,000 248,457,000
Less - accumulated depreciation
and amortization (92,958,000) (80,642,000)
------------ ------------
Net property and equipment 207,538,000 167,815,000
------------ ------------
Cash restricted for construction projects 147,310,000 -
------------ ------------
Other Assets:
Deferred financing costs 15,256,000 4,792,000
Land rights 7,047,000 7,250,000
Due from affiliates, net of valuation allowances - 12,359,000
Land held for sale, net of valuation allowances 2,216,000 6,232,000
Other assets 9,841,000 6,244,000
------------ ------------
Total other assets 34,360,000 36,877,000
------------ ------------
$525,817,000 $270,740,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
41
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 4,538,000 $ 7,914,000
Accounts payable 15,293,000 4,578,000
Accrued liabilities -
Salaries and wages 6,019,000 5,023,000
Interest 16,784,000 4,872,000
Gaming and other taxes 2,586,000 1,613,000
Insurance 2,890,000 2,940,000
Other 4,330,000 4,503,000
Federal income taxes payable 3,234,000 -
Other current liabilities 2,749,000 3,311,000
------------- -------------
Total current liabilities 58,423,000 34,754,000
------------- -------------
Long-Term Debt 514,959,000 199,667,000
------------- -------------
Capital Lease Obligations 18,961,000 19,948,000
------------- -------------
Other Noncurrent Liabilities 5,631,000 5,755,000
------------- -------------
Commitments and Contingencies
Minority Interest 2,000,000 3,104,000
------------- -------------
Shareholders' (Deficit) Equity:
Common Stock -
Class A common stock, $.0001 par value per share;
50,000,000 shares authorized; 24,950,000
shares issued and outstanding 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 216,928,000 216,926,000
Accumulated deficit (291,087,000) (209,416,000)
------------- -------------
Total shareholders' (deficit) equity (74,157,000) 7,512,000
------------- -------------
$ 525,817,000 $ 270,740,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
42
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $292,920,000 $252,863,000 $251,471,000
Rooms 10,457,000 9,386,000 9,651,000
Food and beverage 29,834,000 28,810,000 28,533,000
Other 4,819,000 4,229,000 3,270,000
------------ ------------ ------------
338,030,000 295,288,000 292,925,000
Less - promotional allowances (30,653,000) (26,528,000) (25,168,000)
------------ ------------ ------------
Net revenues 307,377,000 268,760,000 267,757,000
------------ ------------ ------------
Expenses:
Casino 210,023,000 184,589,000 171,623,000
Rooms 1,161,000 1,752,000 1,835,000
Food and beverage 8,533,000 8,778,000 9,210,000
Other 2,252,000 2,717,000 3,085,000
General and administrative 19,239,000 17,778,000 16,790,000
Management and consulting fees 939,000 1,200,000 3,927,000
Depreciation and amortization 15,673,000 16,562,000 18,901,000
Development 946,000 779,000 1,480,000
Preopening 841,000 - -
Termination of management and consulting agreements 40,389,000 - -
Write down of assets 13,322,000 - 19,678,000
------------ ------------ ------------
Total expenses 313,318,000 234,155,000 246,529,000
------------ ------------ ------------
(Loss) income from operations (5,941,000) 34,605,000 21,228,000
------------ ------------ ------------
Non-operating income (expenses):
Interest income 7,868,000 2,844,000 1,896,000
Interest expense, net of capitalized interest
of $1,052,000 in 1999 (45,540,000) (30,260,000) (30,437,000)
Tax settlement costs - (1,087,000) -
Equity in losses of unconsolidated affiliate (141,000) - -
(Loss) gain on disposal of assets (567,000) (61,000) 552,000
------------ ------------ ------------
Total non-operating expenses, net (38,380,000) (28,564,000) (27,989,000)
------------ ------------ ------------
(Loss) income before income taxes, extraordinary
and other items (44,321,000) 6,041,000 (6,761,000)
Income tax provision (1,196,000) (816,000) (5,359,000)
------------ ------------ ------------
(Loss) income before extraordinary and other items (45,517,000) 5,225,000 (12,120,000)
Minority interest in earnings of Limited Partnership (Note 1) (5,801,000) (6,494,000) (5,012,000)
------------ ------------ ------------
Loss before extraordinary item (51,318,000) (1,269,000) (17,132,000)
Extraordinary item:
Loss on early extinguishment of debt, net of
related tax benefit in 1997 (30,353,000) (336,000) (215,000)
------------ ------------ ------------
Net loss $(81,671,000) $ (1,605,000) $(17,347,000)
============ ============ ============
Basic and diluted net loss per common share:
Loss before extraordinary item $ (2.05) $ (.05) $ (.69)
Extraordinary item (1.22) (.01) (.01)
------------ ------------ ------------
Net loss $ (3.27) $ (.06) $ (.70)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
43
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For the Three Years Ended December 31, 1999
<TABLE>
<CAPTION>
Class A
Common Stock Additional
------------------ Paid-in Accumulated
Shares Amount Capital Deficit
---------- ------ ------------ --------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 24,760,000 $2,000 $229,298,000 $(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 - - - (17,347,000)
---------- ------ ------------ -------------
BALANCE, December 31, 1997 24,910,000 2,000 216,926,000 (207,811,000)
Exercise of stock options 40,000 - - -
Net loss - - - (1,605,000)
---------- ------ ------------ -------------
BALANCE, December 31, 1998 24,950,000 2,000 216,926,000 (209,416,000)
Grant of stock options to non-
employee directors - - 2,000 -
Net loss - - - (81,671,000)
---------- ------ ------------ -------------
BALANCE, December 31, 1999 24,950,000 $2,000 $216,928,000 $(291,087,000)
========== ====== ============ =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this consolidated statement.
44
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (81,671,000) $ (1,605,000) $(17,347,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item 30,353,000 336,000 215,000
Depreciation and amortization, including accretion of debt discount 16,135,000 17,581,000 19,801,000
Write down of assets 13,322,000 - 19,678,000
Loss (gain) on disposal of assets 567,000 61,000 (552,000)
Minority interest in earnings of Limited Partnership 5,801,000 6,494,000 5,012,000
Grant of stock options 2,000 - -
Equity in losses of unconsolidated affiliate 141,000 - -
Provision for doubtful accounts 804,000 756,000 698,000
Deferred income tax provision (benefit) (3,403,000) 81,000 592,000
Increase in receivables (3,993,000) (377,000) (305,000)
Increase in accounts payable and accrued expenses 23,871,000 2,035,000 116,000
Increase (decrease) in federal taxes payable 3,234,000 (6,878,000) 4,678,000
Net change in other current assets and liabilities (1,390,000) 41,000 (1,107,000)
Net change in other noncurrent assets and liabilities (342,000) (1,774,000) 134,000
------------- ------------ ------------
Net cash provided by operating activities 3,431,000 16,751,000 31,613,000
------------- ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (49,758,000) (12,037,000) (5,101,000)
Collections on notes receivable - 6,000,000 -
Proceeds from sale of assets 3,959,000 129,000 12,487,000
Increase in cash from acquisition 1,525,000 - -
Loan to joint venture partner (1,000,000) - -
Short-term investments 3,905,000 (29,000) (3,876,000)
Investments in unconsolidated affiliates (45,000) (2,553,000) (2,000,000)
Increase in cash from purchase of limited partnership interest - - 451,000
Increase in cash restricted for construction projects (147,310,000) - -
------------- ------------ ------------
Net cash (used in) provided by investing activities (188,724,000) (8,490,000) 1,961,000
------------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 493,474,000 2,687,000 601,000
Deferred financing costs (17,134,000) (248,000) (24,000)
Repayments of long-term debt (210,006,000) (2,334,000) (8,548,000)
Payments on capital lease obligations (893,000) (861,000) (1,976,000)
Investment by joint venture partner 1,000,000 - -
Limited partnership distributions (7,915,000) (5,646,000) (4,856,000)
------------- ------------ ------------
Net cash provided by (used in) financing activities 258,526,000 (6,402,000) (14,803,000)
------------- ------------ ------------
Net increase in cash and cash equivalents 73,233,000 1,859,000 18,771,000
Cash and cash equivalents at beginning of year 42,118,000 40,259,000 21,488,000
------------- ------------ ------------
Cash and cash equivalents at end of year $ 115,351,000 $ 42,118,000 $ 40,259,000
============= ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
45
<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 54% of the issued and outstanding stock of HCC is owned by Jack E.
Pratt, Edward T. Pratt, Jr. and William D. Pratt (the "Pratt Brothers"), by
certain general partnerships and trusts controlled by the Pratt Brothers and by
other family members (collectively, the "Pratt Family").
HCC owns all of the outstanding common stock of Hollywood Casino - Aurora,
Inc. ("HCA"), HWCC - Tunica, Inc. ("HCT"), HWCC-Louisiana, Inc. ("HCL") and
HWCC-Shreveport, Inc. ("HCS"). HCA is an Illinois corporation organized during
1990 which owns and operates a riverboat gaming operation with approximately
30,000 square feet of gaming space together with docking and other entertainment
facilities under the service mark Hollywood Casino(R) in Aurora, Illinois
approximately 35 miles west of downtown Chicago (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 approximately 30 miles south of Memphis, Tennessee (the "Tunica
Casino"). The Aurora Casino and the Tunica Casino commenced operations in June
1993 and August 1994, respectively. HCL is a Louisiana corporation formed by
HCC in 1993 to pursue gaming opportunities in Louisiana which is currently
constructing a destination gaming resort including a dockside casino, all suite
hotel and other entertainment facilities in Shreveport, Louisiana approximately
180 miles east of Dallas, Texas (the "Shreveport Casino"). HCS is a Louisiana
corporation formed by HCC in 1997 which will hold the management contract for
the Shreveport Casino.
The Company believes that its two currently operating gaming facilities
derive a significant amount of their gaming revenues from patrons living in the
surrounding areas. Competition within the Company's gaming markets is intense
and management believes that this competition will continue or intensify in the
future.
Prior to December 31, 1996, HCC also owned approximately 80% of the common
stock of Greate Bay Casino Corporation ("GBCC"), 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").
Prior to October 14, 1999, HCC was the general partner in Pratt Management
L.P. ("PML"), having acquired such interest in April 1997 from PPI Corporation,
a wholly owned subsidiary of GBCC. PML held the management contract on and
earned management fees from the Aurora Casino and incurred operating and other
expenses with respect to its management thereof. As general partner, HCC
received 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 was held by Pratt Casino Corporation ("PCC"), which until
its acquisition by HCC in October 1999, was a wholly owned subsidiary of GBCC.
For those periods that PCC was owned by GBCC, the limited partnership interest
was reflected on the accompanying consolidated financial statements as a
minority interest. PCC also had a consulting contract with the Tunica Casino
(see Note 7).
On April 28, 1999, HCC entered into a voting agreement with GBCC and certain
of its wholly owned subsidiaries, including PCC and PRT Funding Corp. ("PRT
Funding"), and the holders of substantially all of the $85,000,000 of unsecured
senior notes (the "PRT Funding Notes") issued by PRT Funding which were in
default. The PRT Funding Notes were guaranteed by PCC. Under the terms of the
voting agreement, HCC was to purchase the stock of PCC from GBCC for nominal
consideration and fund the payment of
46
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PCC's obligations as part of a debt restructuring of PRT Funding, PCC and other
subsidiaries of PCC. When acquired by HCC, PCC's assets were to consist of its
limited partnership interest in PML and its consulting contract for the Tunica
Casino and its liabilities were to consist of a new $40,329,000 obligation
payable in satisfaction of the PRT Funding Notes.
In order to complete the restructuring, PCC and PRT Funding filed for
protection under Chapter 11 of the United States Bankruptcy Code on May 25, 1999
with the above transactions included as part of a pre-negotiated plan of
reorganization. Such plan was confirmed by the United States Bankruptcy Court
for the District of Delaware in October 1999. At such time, HCC completed its
acquisition of PCC and settled PCC's obligations. The acquisition and
subsequent termination of the management contract and consulting agreement
resulted in a fourth quarter charge to expense by the Company in the amount of
$40,389,000 as no asset value was attributed to such contracts for financial
reporting purposes when acquired.
The accompanying consolidated financial statements also reflect HCT's
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 was completed and opened
for play in November 1998.
In September 1998, a joint venture in which HCL was a partner (the
"Shreveport Partnership") received approval to develop, own and operate the
Shreveport Casino. HCL originally planned to develop the Shreveport Casino with
two partners in a joint venture in which it would have had an interest of
approximately 50%. HCL's 50% investment in the joint venture ($2,500,000) was
reflected on the accompanying consolidated balance sheet at December 31, 1998 as
an investment in unconsolidated affiliate.
On March 31, 1999, HCL entered into a definitive agreement with one of the
joint venture partners to acquire its interest in the Shreveport Partnership.
The acquisition price was $2,500,000 (the amount the joint venture partner
contributed to the project), $1,000 of which was paid at closing with the
remainder to be paid six months after the opening of the Shreveport Casino. The
revised structure of the joint venture received approval by the Louisiana Gaming
Control Board (the "LGCB") on April 20, 1999. As a result, HCL now has an
effective 100% ownership interest in the Shreveport Casino with the remaining
joint venture partner holding a 10% residual interest in the event the project
is ever sold. The joint venture partner's interest is included in minority
interest on the accompanying consolidated balance sheet at December 31, 1999 in
the amount of $2,000,000. The acquisition was accounted for under the purchase
method of accounting. Accordingly, effective with the April 23, 1999 closing of
HCL's acquisition of the additional joint venture interest, the Shreveport
Partnership is included in the consolidated financial statements of HCC. The
acquired company had no significant operating activities prior to the
acquisition date.
The $150,000,000 Shreveport First Mortgage Notes (see Note 3), together with
$49,000,000 of capital contributions from HCL, a $1,000,000 capital contribution
from HCL's joint venture partner made with funds loaned by HCL and $30,000,000
in furniture, fixture and equipment financing for which a commitment letter has
been obtained (see Note 10) are expected to provide the estimated $230,000,000
needed to construct and open the Shreveport Casino. In addition, HCC has agreed
to contribute up to an additional $5,000,000 in equity to the Shreveport Casino
under certain circumstances which include cost overruns or delays. As currently
planned, the Shreveport Casino will consist of a three-level dockside casino
with approximately 1,370 slot machines and 75 table games; a 405-room, all
suite, art deco-style hotel; and approximately 42,000 square feet of restaurant
and entertainment facilities. Construction began in August 1999 with a planned
opening date in early November 2000.
47
<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 providing 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, the calculation of basic and diluted earnings per share does
not reflect the retroactive adjustment for the bonus element of the Rights
Agreement.
(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, for periods subsequent to April 23, 1999, the
accounts of the Shreveport Partnership. 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.
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 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
48
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
beverage and other operating departments to the casino department during the
years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
----------- ----------- -----------
Rooms $ 2,742,000 $ 1,940,000 $ 1,870,000
Food and beverage 22,613,000 20,887,000 19,894,000
Other 1,394,000 1,431,000 1,061,000
----------- ----------- -----------
$26,749,000 $24,258,000 $22,825,000
=========== =========== ===========
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.
Cash restricted for construction project -
Cash restricted for construction project consists of investments in
government securities which are to be used for specified purposes and which were
purchased with net proceeds from the Shreveport First Mortgage Notes (see Note
3) as required by the indenture for the Shreveport First Mortgage Notes. Such
restricted cash includes (1) funds to be used for construction which are subject
to meeting certain conditions prior to their disbursement, (2) funds to be used
to make the first three semiannual interest payments with respect to the
Shreveport First Mortgage Notes and (3) funds to be used to complete and open
the Shreveport Casino in the event the construction funds in (1) above are not
sufficient. Interest earned, but not yet received, on such investments is
included in interest receivable on the accompanying consolidated balance sheet
at December 31, 1999. Upon receipt, interest is included in cash restricted for
construction project.
At December 31, 1999, cash restricted for construction project is comprised
of the following:
Construction reserve $ 114,964,000
Interest reserve 27,275,000
Completion reserve 5,071,000
--------------
$ 147,310,000
==============
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 $804,000, $756,000 and $698,000 were made during the years
ended December 31, 1999, 1998 and 1997, respectively.
Inventories -
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market.
49
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
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:
Buildings and improvements 10-40 years
Riverboats and barges 25-40 years
Operating equipment 3-15 years
Interest costs related to property and equipment acquisitions are capitalized
during the construction period and amortized over the useful lives of the
related assets.
Costs associated with the construction of the Shreveport Casino are being
deferred. Construction costs, including the applicable interest on the
construction financing of $1,052,000 at December 31, 1999, are being capitalized
and, commencing with the opening of the Shreveport Casino, will be amortized
over the estimated useful lives of the resulting assets. Capitalized costs will
be allocated to the individual components of property and equipment when such
assets are ready to be placed in service.
Deferred financing costs -
The costs of issuing long-term debt, including all underwriting, licensing,
legal and accounting fees, have been deferred and are being amortized over the
term of the related debt issue using the straight-line method which approximates
the effective interest method. Amortization of such costs was $1,510,000,
$952,000 and $963,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, and is included in depreciation and amortization expense on the
accompanying consolidated statements of operations. Deferred financing costs,
net of accumulated amortization, amounting to $4,182,000, $62,000 and $68,000,
respectively were written off during 1999 and 1998 and 1997, with respect to the
reacquisition of outstanding debt. An additional $978,000 of deferred financing
costs were written off in 1999 with respect to the acquisition of PCC.
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 events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. Long-lived assets held for sale are carried at the lower of
carrying amount or fair value less cost to sell.
During 1999, a parcel of real property was sold at a price approximating its
net book value; accordingly, no gain or loss was recognized on the sale. Land
held for sale is shown net of valuation allowances of $3,084,000 and $3,432,000,
respectively, on the accompanying consolidated balance sheets at December 31,
1999 and 1998.
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
50
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
merits of individual claims and historical claims experience; accordingly, HCC's
ultimate liability may differ from the amounts accrued.
Income taxes -
HCC accounts for income taxes using the liability method which 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.
Preopening costs -
Preopening costs include, among other things, organizational costs, marketing
and promotional costs, hiring and training of new employees and other operating
costs which have been incurred with respect to the Shreveport Casino. Such
costs are accounted for under the provisions of Statement of Position 98-5
issued by the American Institute of Certified Public Accountants which requires
that such costs be expensed as incurred.
Interest expense -
Interest expense includes the accretion of debt discount amounting to
$491,000, $1,019,000 and $900,000 during the years ended December 31, 1999, 1998
and 1997, respectively.
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 10); such amortization commenced with the
opening of the Tunica Casino. Management presently intends to renew the ground
lease at least through the estimated 40-year useful life of the facility.
Accumulated amortization of such land rights amounted to $1,398,000 and
$1,195,000, respectively, at December 31, 1999 and 1998.
Employee Stock Options -
HCC follows 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 6.
Net (loss) income per common share -
Earnings per share is presented for both earnings per common share assuming
no dilution (basic earnings per share) and earnings per common share assuming
full dilution (diluted earnings per share). Basic (loss) earnings per common
share is calculated by dividing the net (loss) income by the weighted average
number of shares of common stock outstanding. Diluted (loss) earnings per
common share is calculated for
51
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 potential common shares outstanding. All potential common shares 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.
The weighted average number of shares of common stock outstanding used for
the calculation of both basic and diluted loss per share before extraordinary
item and basic and diluted net loss per share was 24,949,976 for 1999,
24,946,359 for 1998 and 24,833,393 for 1997. No potential common shares were
included in the calculation of diluted earnings per share for the years ended
December 31, 1999, 1998 and 1997 as the inclusion of such shares would have been
antidilutive due to the net losses from continuing operations incurred in all
years. The weighted average number of shares excluded was 2,057,266 in 1999,
973,059 in 1998 and 535,296 in 1997.
Recent Accounting Pronouncement -
In June 1998, the Financial Accounting Standards Board issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which has been amended to be effective for fiscal years beginning after
June 15, 2000. SFAS 133 requires, among other things, that derivatives be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives may, depending on circumstances, be recognized in earnings or
deferred as a component of shareholders' equity until a hedged transaction
occurs. The Company does not believe the adoption of SFAS 133 will have a
significant impact on its financial position or results of operations.
Reclassifications -
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1999 consolidated financial statement
presentation.
52
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Long-Term Debt and Pledge of Assets
Substantially all of HCC's assets are pledged in connection with its long-
term indebtedness. The obligations of HCL and its subsidiaries are non-recourse
to HCC.
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Indebtedness of HCC:
11.25% Senior Secured Notes, due 2007 (a) $310,000,000 $ -
Floating rate Senior Secured Notes, due 2006 (a) 50,000,000 -
12.75% Senior Secured Notes, due 2003, net of discount
of $7,013,000 at December 31, 1998 (b) - 200,199,000
Promissory note due to affiliate (Note 7) 2,033,000 2,836,000
------------ ------------
362,033,000 203,035,000
------------ ------------
Indebtedness of HCA:
Promissory note to bank (c) 1,952,000 1,900,000
------------ ------------
Indebtedness of HCT :
Equipment loans (d) 2,488,000 1,291,000
Bank credit facility (e) 278,000 462,000
------------ ------------
2,766,000 1,753,000
------------ ------------
Indebtedness of HCL which is non-recourse to HCC:
13% Shreveport First Mortgage Notes, with contingent
interest, due 2006 (f) 150,000,000 -
Other, net of discount of $241,000 at
December 31, 1999(g) 1,759,000 -
------------ ------------
151,759,000 -
------------ ------------
Total indebtedness 518,510,000 206,688,000
Less - current maturities (3,551,000) (7,021,000)
------------ ------------
Total long-term debt $514,959,000 $199,667,000
============ ============
</TABLE>
- -------------------------
(a) During May 1999, HCC completed the refinancing of its outstanding 12.75%
senior secured notes (see (b) below) through a debt offering of
$310,000,000 of 11.25% Senior Secured Notes due May 1, 2007 and $50,000,000
of floating rate Senior Secured Notes due May 1, 2006 (collectively, the
"Senior Secured Notes"). Interest on the floating rate notes is equal to
the six-month LIBOR rate plus 6.28% and is reset semiannually. Interest on
the floating rate notes was adjusted from an initial rate of 11.36% to
12.41% per annum effective November 1, 1999. In addition to refinancing
existing debt, the Company has used proceeds from the debt offering to fund
a portion of its equity investment in the Shreveport Casino (see Note 1)
and, during October 1999, to acquire the management and consulting
contracts on the Aurora Casino and Tunica Casino (see Note 1). The Company
also plans to use proceeds from the debt offering to finance construction
of a new, dockside gaming facility at the Aurora Casino and, to the extent
available, for working capital purposes. Interest on the Senior Secured
Notes is payable semiannually on May 1 and November 1
53
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
commencing on November 1, 1999. The Senior Secured Notes are
unconditionally guaranteed on a senior secured basis by HCT and HCS and may
be guaranteed by certain future subsidiaries of HCC. Neither HCA nor HCL
are guarantors. The Senior Secured Notes and related guarantees are secured
by, among other things, (1) substantially all of the assets of HCT and
future guarantors, (2) a lien not to exceed approximately $108,000,000 on
substantially all of the assets of HCA, (3) a pledge of the capital stock
of certain subsidiaries of HCC and (4) the collateral assignment of the
management contract for the Shreveport Casino.
The fixed rate Senior Secured notes are redeemable at the option of HCC any
time on or after May 1, 2003 at 107% of the then outstanding principal
amount, decreasing to 104.666%, 102.333% and 100%, respectively, on May 1,
2004, 2005 and 2006. The Company may also redeem up to 35% of the fixed
rate Senior Secured Notes at a redemption price of 111.25% plus accrued
interest at any time prior to May 1, 2002 with the proceeds from an
offering of HCC's common stock if net proceeds to the Company from any such
offering are at least $20 million.
The floating rate Senior Secured Notes may be redeemed at the option of HCC
at any time at an initial redemption price of 105% plus accrued interest
with the redemption premium decreasing by 1% on May 1 of each year
beginning May 1, 2000.
The indenture for 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, HCS or any future guarantor; or enter
into certain transactions with affiliates. The indenture also requires
certain financial reporting information (see Note 14).
(b) During October 1995, HCC issued $210,000,000 of 12.75% Senior Secured Notes
(the "12.75% Senior Secured Notes") due November 1, 2003, discounted to
yield 13.75% per annum. Interest on the 12.75% Senior Secured Notes was
payable semiannually on May 1 and November 1 of each year. Commencing with
the November 1, 1997 interest payment date and at each subsequent interest
payment date, HCC was required to make an offer to purchase not more than
$2,500,000 in principal amount of the 12.75% Senior Secured Notes at a
price of 106.375% of the principal amount tendered. A total of $5,288,000
of 12.75% Senior Notes were purchased by the Company. The remaining 12.75%
Senior Secured Notes were repaid in May 1999 with a portion of the proceeds
of the Senior Secured Notes (see (a) above).
(c) During September 1998, HCA entered into a bank loan agreement to borrow up
to $2,000,000 on an unsecured basis. Borrowings under the agreement are
payable in 36 monthly installments including interest at the rate of 7.5%
per annum. HCA borrowed $2,000,000 under the agreement during October
1998.
On May 19, 1999, HCA borrowed an additional $750,000 from the bank on an
unsecured basis. The loan is payable in monthly installments of $15,000
including interest at the rate of 7.5% per annum.
(d) The equipment loans are payable monthly including interest at effective
rates ranging from 8.5% to 12.9% per annum and mature at various dates
between 1999 and 2002.
54
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(e) HCT had a bank credit facility in the amount of $1,300,000 available to
borrow against through September 30, 1998. HCT borrowed $541,000 under the
credit facility during 1998 at the rate of 8.875% per annum. Borrowings
under the credit facility are to be repaid in monthly installments over a
period of 36 months and are collateralized by equipment purchased with the
loan proceeds. The credit facility was not renewed by HCT.
(f) During August 1999, the partnership formed to develop the Shreveport Casino
issued $150,000,000 of 13% First Mortgage Notes, with contingent interest
(the "Shreveport First Mortgage Notes"), which are non-recourse to HCC.
Interest on the Shreveport First Mortgage Notes is payable semiannually on
February 1 and August 1 of each year commencing in February 2000. In
addition, contingent interest will be payable on each interest payment date
after the opening of the Shreveport Casino. The amount of the contingent
interest will be equal to 5% of the Shreveport Casino's cash flow, as
defined, for the prior two fiscal quarters up to a maximum of $5,000,000
for any four consecutive fiscal quarters. The notes are collateralized by
a first priority secured interest in substantially all of the partnership's
existing and future assets other than furniture, fixtures and equipment for
which up to $35,000,000 of financing has been or will be obtained as well
as by a pledge of the common stock of the HCC subsidiaries which hold the
partnership interests.
The Shreveport First Mortgage Notes are redeemable at the option of the
partnership at any time on or after August 1, 2003 at 106.5% of the then
outstanding principal amount, decreasing to 103.25% on August 1, 2004 and
100% on or after August 1, 2005. Up to 35% of the original aggregate
amount of the Shreveport First Mortgage Notes may also be redeemed at any
time prior to August 1, 2002 with proceeds of contributions to the
partnership made by HCC from certain offerings of equity securities by HCC.
The indenture for the Shreveport First Mortgage Notes contains various
provisions limiting the ability of the partnership to borrow money, pay
dividends, make investments, pledge or sell its assets or enter into
mergers or consolidations. The indenture also limits the ability of
certain HCC subsidiaries which guarantee the debt to acquire additional
assets, become liable for additional obligations or engage in any business
activities other than holding the partnership interests or acting as
managing general partner of the partnership.
(g) The former partners of the Shreveport Partnership's predecessor conducted
riverboat gaming operations in New Orleans prior to October 1997. In
connection with their proposed change in site to Shreveport, the former
partners negotiated a settlement with the City of New Orleans to pay
$10,000,000 with respect to claims asserted by the City in connection with
the relocation. During September 1998, the current partners and former
partners of the Shreveport Partnership entered into a Compromise Agreement
with the City of New Orleans under which it was agreed that one of the
former partners would pay $5,000,000 to the City with the former partners
being released from any further relocation claims. The current partners
agreed that the Shreveport Casino would pay the City of New Orleans
$5,000,000 upon securing financing for construction of their project (the
Shreveport Casino); such payment was made in August 1999. In addition, the
current partners agreed that the Shreveport Casino would, contingent on
securing financing, reimburse the former partner $2,000,000 of the amount
it paid to the City; such repayment is to be made upon the earlier of the
termination of construction of the Shreveport Casino or in monthly
installments of $200,000, without interest, commencing with the opening of
the Shreveport Casino. The $2,000,000 liability, net of a discount
55
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in the original amount of $308,000, and the associated project costs were
recorded upon the issuance of the Shreveport First Mortgage Notes in August
1999.
Scheduled payments of long-term debt as of December 31, 1999 are set forth
below:
2000 $ 3,551,000
2001 4,361,000
2002 597,000
2003 168,000
2004 74,000
Thereafter 510,000,000
------------
Total $518,751,000
============
Interest paid, net of amounts capitalized, amounted to $33,991,000,
$29,161,000 and $29,479,000, respectively, during the years ended December 31,
1999, 1998 and 1997.
(4) Leases
Capital leases -
HCA leases two parking garages under capital lease agreements. The first
lease has an initial 30-year term ending in June 2023 with the right to extend
the term under renewal options for an additional 67 years. Rental payments
through June 2012 equal the City of Aurora's financing costs related to its
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 7.625% per annum. The second lease has an initial term ending in September
2026 with the right to extend the lease for up to 20 additional years. Rental
payments during the first 15 years equal the lessor's debt service costs related
to the industrial revenue bond issue used to finance a portion of the
construction costs of the parking garage. The remaining construction costs were
funded by HCA. In addition, HCA pays 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 the lessor's North Island Center banquet and meeting
facilities. HCA is also responsible for additional rent, consisting of costs
such as maintenance costs, insurance premiums and utilities arising out of its
operation of both parking garages.
HCA also leased certain equipment under capital lease agreements which
provided for interest at the rate of 11.2% per annum and expired in 1998. HCT
previously leased certain gaming equipment under capital lease agreements.
The original cost of HCA's parking garages is included in buildings on the
accompanying consolidated balance sheets at both December 31, 1999 and 1998 in
the amount of $27,358,000. Assets under capital leases with an original cost of
$7,013,000 and $7,260,000, respectively, are included in operating equipment on
the accompanying consolidated balance sheets at December 31, 1999 and 1998.
Amortization expense with respect to these assets amounted to $983,000,
$1,281,000 and $2,042,000 during the years ended December 31, 1999, 1998 and
1997, respectively. Accumulated amortization at December 31, 1999 and 1998 with
respect to these assets amounted to $11,541,000 and $10,805,000, respectively.
56
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum lease payments under capital lease obligations as of
December 31, 1999 are as follows:
2000 $ 2,483,000
2001 2,532,000
2002 2,643,000
2003 2,660,000
2004 2,677,000
Thereafter 18,739,000
------------
Total minimum lease payments 31,734,000
Less amount representing interest (11,786,000)
------------
Present value of future
minimum lease payments 19,948,000
Current capital lease obligation (987,000)
------------
Long-term capital lease obligation $ 18,961,000
------------
Operating Leases -
Other than the ground leases for the Tunica Casino and Shreveport Casino
discussed in Note 10, HCC and its subsidiaries also lease property and operating
equipment under various lease agreements accounted for as operating leases.
Although most of the operating lease agreements are either cancellable or have
initial terms of one year or less, certain other lease agreements expire at
various dates through the year 2008 and several contain automatic renewals
unless notice of termination is given. Some of the operating leases also
include contingent rental payments based on levels of use; such contingent
rentals have not been significant. Exclusive of the ground leases, total rental
expense amounted to $2,401,000, $1,416,000 and $1,381,000, respectively, during
the years ended December 31, 1999, 1998 and 1997.
Future minimum lease payments as of December 31, 1999 under operating
leases having an initial or remaining noncancelable lease term in excess of one
year are as follows:
2000 $ 666,000
2001 656,000
2002 388,000
2003 82,000
2004 75,000
Thereafter 287,000
----------
$2,154,000
==========
57
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Income Taxes
Components of HCC's provision for income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Current income tax (provision):
Federal $(3,359,000) $ - $(4,678,000)
State (1,240,000) (735,000) (200,000)
Deferred income tax benefit (provision):
Federal 10,948,000 731,000 9,289,000
State 44,000 (103,000) (205,000)
Change in valuation allowance (7,589,000) (709,000) (9,565,000)
------------ ---------- ------------
$(1,196,000) $(816,000) $(5,359,000)
=========== ========= ===========
</TABLE>
Total federal income tax payments of $338,000 and $7,253,000, respectively,
were made during the years ended December 31, 1999 and 1998; no such payments
were made during the year ended December 31, 1997. State tax payments of
$900,000, $797,000 and $683,000, respectively, were made during the years ended
December 31, 1999, 1998 and 1997.
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,
--------------------------------------
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Calculated income tax benefit $ 27,362,000 $ 268,000 $ 4,003,000
Valuation allowance change (7,589,000) (709,000) (9,565,000)
Acquisition of management contracts (13,712,000) - -
Lobbying costs (121,000) (98,000) (168,000)
Disallowance of meals and
entertainment (86,000) (64,000) (76,000)
State income taxes, net of federal benefit (789,000) (553,000) (267,000)
Utilization of net operating loss carryforwards
and other (6,261,000) 340,000 714,000
------------ --------- -----------
Tax provision as shown on
consolidated statements of operations $ (1,196,000) $(816,000) $(5,359,000)
============ ========= ===========
</TABLE>
At December 31, 1999, HCC and its subsidiaries have net operating loss
carryforwards ("NOL's") for federal income tax purposes totaling approximately
$48,000,000, none of which begin to expire until the year 2019. Additionally,
HCC and its subsidiaries have alternative minimum and other tax credits
available totaling $6,273,000 and $613,000, respectively. Alternative minimum
tax credits do not expire and none of
58
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the other tax credits begin to expire until the year 2010. Existing accounting
pronouncements require that the tax benefit of such NOL's and tax credit
carryforwards, 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 NOL's
and 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 the
Tunica Casino) will be sufficient to utilize a portion of the net deferred tax
assets. Accordingly, valuation allowances have been established which result in
net deferred tax assets of $5,246,000 and $1,843,000 at December 31, 1999 and
1998, respectively.
The components of the net deferred tax asset and classification on the
accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,359,000 $ 1,305,000
Valuation and other allowances 1,303,000 8,241,000
Alternative minimum tax credit 6,273,000 4,913,000
Investment and jobs tax credits 627,000 415,000
Basis in limited partnership - 2,890,000
Other liabilities and accruals 4,392,000 4,145,000
Benefits accrual 1,720,000 1,711,000
Other 1,526,000 724,000
------------ ------------
Total deferred tax assets 32,200,000 24,344,000
------------ ------------
Deferred tax liabilities:
Depreciation and amortization (6,201,000) (8,610,000)
Basis in debt obligations - (727,000)
------------ ------------
Total deferred tax liabilities (6,201,000) (9,337,000)
------------ ------------
Net deferred tax asset 25,999,000 15,007,000
Valuation allowance (20,753,000) (13,164,000)
------------ ------------
$ 5,246,000 $ 1,843,000
============ ============
Classified as:
Current deferred income tax asset $ 1,776,000 $ 890,000
Other assets 4,043,000 1,524,000
Other noncurrent liabilities (573,000) (571,000)
</TABLE>
No deferred tax benefit was attributed to the extraordinary items in 1999
and 1998. The deferred tax benefit attributed to the extraordinary loss on early
extinguishment of debt in 1997 was $111,000.
59
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 utilization of
its loss carryforwards.
The Internal Revenue Service recently completed its examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994. The
additional estimated current federal income tax obligation resulting from such
examination is included in current federal income taxes payable on the
accompanying consolidated balance sheet at December 31, 1999. HCC's
consolidated net deferred tax asset has also been adjusted to reflect the
results of the tax audit. The Internal Revenue Service is continuing its
examination of the consolidated federal income tax returns of HCC for 1995 and
1996. Management believes that the results of such examination will not have a
material adverse effect on the consolidated financial position or results of
operations of HCC.
(6) 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 A Common Stock of which 653,000 and 147,006,
respectively, remain available for future grant as of December 31, 1999.
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 500,000
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.
All options granted through December 31, 1999 under both the 1996 Plan and the
1992 Plan have been granted at an exercise price equal to the fair market value
as of the date of the grant. As of December 31, 1999, options to purchase
2,347,000 shares remain outstanding under the 1996 Plan, of which over 51% are
at an exercise price of $1.25 per share. An additional 48% have exercise prices
ranging from $1.75 per share to $3.13 per share; the remaining options have an
exercise price of $5.25 per share. Options outstanding under the 1996 plan have
60
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a weighted average exercise price of $1.87 and a weighted average remaining
contractual life of 56 months. As of December 31, 1999, no options are
outstanding under the 1992 Plan.
The following table lists the combined activity of the 1996 Plan and the 1992
Plan:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- ------------------
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 1,090,000 $ 2.51 660,008 $ 2.86 410,008 $ 2.54
Options cancelled (27,000) 1.25 (50,000) 2.06 - -
Options granted 1,284,000 1.30 520,000 1.83 300,000 2.81
Options exercised - - (40,008) .0006 (50,000) .0006
---------- -------- ---------- --------
Outstanding options
at end of year 2,347,000 $ 1.86 1,090,000 $ 2.51 660,008 $ 2.86
========== ======== ========== ========
Exercisable options
at end of year 1,956,400 $ 1.91 920,000 $ 2.62 360,008 $ 2.90
</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
100,000 remain available for future grant as of December 31, 1999. 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 a Committee of the Board
of Directors. As of December 31, 1999, 50,000 shares remain outstanding at a
weighted average exercise price of $1.64 per share.
61
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table lists the activity of the Directors' Plan:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997
----------------- -------------------- -----------------
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 42,500 $ 1.72 35,000(1) $ 4.93 20,000 $ 6.25
Options granted 7,500 1.19 7,500 1.56 15,000 3.17
Options exercised - - - - - -
------- -------- ------- -------- ------- --------
Outstanding options at
end of year 50,000 $ 1.64 42,500 $ 1.72 35,000 $ 4.93
======= ======== ======= ======== ======= ========
Exercisable options at
end of year 50,000 $ 1.64 42,500 $ 1.72 25,000 $ 5.78
</TABLE>
- ---------------
(1) During June 1998, the Board of Directors authorized the repricing of options
to purchase 35,000 shares of common stock granted during 1996 and 1997 to
non-employee directors of the Company. The exercise price was adjusted to
$1.75 per share, the fair market value as of the date of the repricing; all
of the repriced options are fully vested. No shareholder owning 1% or more
of the Company's common stock participated in the repricing.
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 years ended December 31, 1999,
1998 and 1997 would have increased by approximately $214,000, $136,000 and
$251,000, respectively, increasing both basic and diluted net loss per common
share for each year by $.01.
The fair value of each option grant was estimated on the date of grant
using a method approximating the Black-Scholes option pricing model. The
assumptions applied are set forth below:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
---------- ---------- -------
<S> <C> <C> <C>
Risk free interest rate 4.8% 5.4% 5.3%
Dividend yield - - -
Expected life 1-5 years 1-4 years 1 year
Volatility 54.8% 45.5% 57.6%
Weighted average fair value $ .33 $ .42 $ .70
</TABLE>
62
<PAGE>
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, 1999, 1998 and
1997 were $25,000, $4,000 and $18,000, respectively. Obligations accrued under
the agreements at December 31, 1999 and 1998 amounted to $5,058,000 and
$5,033,000, respectively, and are included in other noncurrent liabilities on
the accompanying consolidated balance sheets.
Employee Retirement Savings Plan -
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code covering all of its employees who meet certain eligibility
requirements as to age and period of employment. The plan allows employees to
contribute up to 15% of their salary on a pre-tax basis (subject to statutory
limitations) and invest such monies in a choice of mutual funds on a tax-
deferred basis. The Company matches a portion of the participating employees'
contributions to the plan and may, from time to time, make additional
discretionary contributions. For the years ended December 31, 1999, 1998 and
1997, HCC made company contributions to the plan totaling $652,000, $778,000 and
$559,000, respectively.
(7) Transactions with Related Parties
GBCC and its Subsidiaries -
HCC had loans outstanding to GBCC amounting to $6,750,000 as of both
December 31, 1999 and 1998. The loans consist of a $6,500,000 demand note issued
in the third quarter of 1996 with interest at the rate of 13.75% per annum
payable quarterly commencing October 1, 1996 and an additional $250,000 note
which became due on April 1, 1998 for which payment has not been received. The
$250,000 note continues to bear interest at the rate of 14% per annum, payable
semiannually. Effective as of January 1, 1999, interest earned on the
outstanding obligations from GBCC is being fully reserved for the same reasons
as discussed below with respect to the PPI Funding Notes. In addition, interest
receivable on the notes was reserved by an additional $1,000,000 during 1999.
Interest income earned on loans and advances to GBCC amounted to $942,000 and
$977,000, respectively, during the years ended December 31, 1998 and 1997.
Interest receivable amounting to $781,000, net of a valuation allowance of
$1,942,000, and $1,781,000 is included in due from affiliates on the
accompanying consolidated balance sheets at December 31, 1999 and 1998,
respectively.
In connection with its April 1, 1997 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 of PPI
Funding Notes (see below) and $350,000 accrued interest due from GBCC to PPI
Corporation. The $3,800,000 note was 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
63
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
distributions, as defined, from PML. The note payable to PPI was amended as of
the October 1999 acquisition of PCC (Note 1) to provide for monthly installments
of $83,000 including interest and additional quarterly principal payments of
$21,000 beginning January 1, 2000. HCC incurred interest expense with respect
to the note amounting to $348,000, $439,000 and $383,000, respectively, during
the years ended December 31, 1999, 1998 and 1997. Accrued interest of $24,000
and $34,000 with respect to the note is included in interest payable on the
accompanying consolidated balance sheets at December 31, 1999 and 1998,
respectively.
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 15.5%
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 14.875% 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. Such assignment 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 was
anticipated that GBCC's equity ownership of GBHC would be significantly reduced
in the reorganization under Chapter 11 and, as a consequence, HCC forgave
$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 during 1996 which reduced the
carrying amount of the PPI Funding Notes to their estimated realizable value of
$35,597,000 at December 31, 1996. As a result of the 1997 forgiveness of debt
discussed above, the carrying amount of the PPI Funding Notes was further
reduced to an estimated realizable value of $12,322,000 which was reflected on
the accompanying consolidated balance sheet at December 31, 1998.
The remaining estimated net realizable balance of $12,322,000 was fully
reserved in 1999 as the acquisition of PCC by HCC in October 1999 terminated the
Aurora Casino management contract and Tunica Casino consulting agreement. These
agreements provided a source of funds to GBCC which is now no longer available.
In addition, ACSC, which is GBCC's only remaining operating subsidiary,
experienced a loss from operations in 1999, further reducing cash flows
available for repayment of the PPI Funding Notes.
64
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
HCT incurred a monthly consulting fee of $100,000 pursuant to a consulting
agreement with PCC prior to its termination on October 12, 1999. Such fees
amounted to $939,000, $1,200,000 and $1,200,000, respectively, during 1999, 1998
and 1997.
Advanced Casino Systems Corporation ("ACSC"), a subsidiary of GBCC,
provides computer, marketing and other administrative services to HCC and its
subsidiaries. Computer services provided include hardware, software, and
operator support and, for the most part, such services are billed by ACSC at its
direct costs plus expenses incurred. ACSC and HCT entered into a Computer
Services Agreement dated as of January 1, 1994 and renewed through December 31,
1999 to provide such services and to 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
parties. HCT also paid ACSC a fixed license fee of $33,600 per month through
December 31, 1999. ACSC also provided services to HCA through HCA's management
agreement with PML. The service agreements with PML and HCT terminated on
October 13 and December 31, 1999, respectively. ACSC continues to provide
services to HCT and HCA on an as needed basis at third party consulting rates
while negotiations for new service agreements continue. ACSC's billings to HCC
and its subsidiaries for products and services during the years ended December
31, 1999, 1998 and 1997 amounted to $1,285,000, $1,147,000 and $809,000,
respectively. At December 31, 1999 and 1998, unpaid charges of $106,000 and
$122,000, respectively, are included in due to affiliates on the accompanying
consolidated balance sheets.
HCC allocates certain general and administrative costs to GBCC and its
subsidiaries pursuant to services agreements. Such allocated costs and fees
amounted to $610,000, $974,000 and $1,843,000, respectively, during the years
ended December 31, 1999, 1998 and 1997. Receivables from GBCC and its
subsidiaries in the amount of $20,000 and $172,000 are included in due from
affiliates on the accompanying consolidated balance sheets at December 31, 1999
and 1998, respectively.
During 1998, the Company determined that it should revise its tax treatment
of the spin-off of the stock of GBCC which occurred on December 31, 1996. As a
result of the revised tax treatment for the spin-off of GBCC stock to HCC's
shareholders, shareholders of the Company on the distribution date would also
have been required to revise their method of reporting the distribution received
on their separate federal income tax returns. The Company committed to assume
the obligation for additional federal income taxes owed by its shareholders
arising from the revised tax treatment. Consequently, the Company reached an
agreement with the Internal Revenue Service to settle such obligations on behalf
of its shareholders, exclusive of the Pratt Family, for $100,000 and to issue
new tax reporting forms to the Pratt Family. Such forms required the Pratt
Family members to amend their federal income tax returns for 1996 resulting in
substantial additional tax obligations totaling approximately $790,000. The
shareholder obligations assumed by the Company are included in other accrued
liabilities on the accompanying consolidated balance sheet at December 31, 1998;
all of these obligations were settled during 1999.
Shreveport Partnership -
In accordance with the amended and restated partnership agreement, HCL
loaned $1,000,000 to its joint venture partner which it used to make a
$1,000,000 capital contribution to the Shreveport Partnership.
65
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The loan accrues interest at the rate of prime commencing with the opening of
the Shreveport Casino and will be payable monthly. Principal on the loan is
payable on the tenth anniversary of the opening of the Shreveport Casino. The
loan, net of a discount of $64,000 at December 31, 1999, is included in other
noncurrent assets on the accompanying consolidated balance sheet. The joint
venture partner was also given credit for an additional $1,000,000 capital
contribution upon the closing of the Shreveport First Mortgage Notes and payment
of the $5,000,000 obligation as discussed in Note 3(g). The credit was in
recognition of guarantees provided by an affiliate of the joint venture partner
which were necessary for the Shreveport Partnership to obtain approval of its
development plans. The $2,000,000 equity interest of the joint venture partner
is included in minority interest on the accompanying consolidated financial
statements of HCC at December 31, 1999.
For so long as it remains a joint venture partner, HCL's joint venture
partner will receive, among other things, an amount equal to 1% of "complex net
revenues" of the Shreveport Casino, as defined, which approximates net revenues.
Such payment is in exchange for the assignment by the partner of its interest in
the partnership to HCL.
The Shreveport Partnership has also entered into an agreement with HCL's
joint venture partner to provide certain marine services for so long as it
remains a joint venture partner. The Marine Services Agreement became effective
on September 22, 1998 and, in addition to the reimbursement of the partner for
its direct expenses incurred, the Shreveport Casino will pay a monthly fee of
$30,000 effective with its opening. No payments have been made under the
agreement as of December 31, 1999.
Other
HCC has occasionally chartered aircraft from an entity owned by a member of
the Pratt family. Charter fees, expenses and commissions amounted to $20,000 and
$268,000, respectively, during the years ended December 31, 1998 and 1997.
(8) State Gaming Regulations
Riverboat gaming operations in Illinois are subject to regulatory control
by the Illinois Gaming Board. Illinois law requires that HCA maintain its
Owners' License in order to operate. HCA's Owners' License was renewed by the
Illinois Gaming Board in December 1999 for a period of one year to December
2000. Management intends to request renewal of HCA's Owners' License at the
appropriate time in 2000 and anticipates that such renewal will be approved in
December 2000. 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 until
October 2001. Although not currently operating, HCL and the Shreveport
Partnership are subject to regulatory control by the LGCB and must maintain all
required licenses. The ownership license for the Shreveport Casino was renewed
in October 1999 for a period of five years.
66
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
(9) Litigation
Planet Hollywood Litigation -
In 1996, Planet Hollywood International, Inc. and Planet Hollywood (Region
IV), Inc. filed a complaint in the United States District Court for the Northern
District of Illinois, Eastern Division, against HCC and certain of its
subsidiaries and affiliates seeking (1) a declaratory judgment that it was
entitled to use the name "Planet Hollywood" for a casino and (2) damages. In
its complaint, Planet Hollywood alleged, among other things, that HCC had, in
operating the Hollywood Casino concept, infringed on their trademark, service
mark and trade dress and had engaged in unfair competition and deceptive trade
practices. HCC, its subsidiaries and affiliates filed counterclaims seeking (1)
a declaratory judgment that Planet Hollywood was not entitled to use the name
"Planet Hollywood" for a casino and (2) damages. The counterclaims alleged,
among other things, that Planet Hollywood had, through its planned use of its
mark in connection with casino services, infringed on HCC's service marks and
trade dress and had engaged in unfair competition. The trial commenced on July
19, 1999 and was completed on July 26, 1999. On August 25, 1999, HCC and the
other defendants filed a motion to dismiss the declaratory judgment claims of
all parties asserting, among other things, that as a result of Planet
Hollywood's reported deteriorating financial condition and perceived inability
to enter into the casino business, there was no longer any actual case or
controversy. On October 12, 1999, Planet Hollywood (Region IV), Inc. filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. On December 3, 1999 the judge entered a judgment in favor of HCC with
respect to the damage claims brought by Planet Hollywood and granted HCC's
motion to dismiss the declaratory judgment claims of all parties. Planet
Hollywood has filed a notice of appeal of the judgment with the Seventh Circuit
Court of Appeals.
Other Litigation -
On October 8, 1998, HCC filed a complaint in the District Court of Dallas
County, Texas against Arthur Andersen LLP, HCC's independent accountants, and
selected partners alleging negligent advice and breach of contract with respect
to the tax consequences resulting from the spin-off of GBCC's stock to HCC's
shareholders on December 31, 1996. The lawsuit is currently in the discovery
stage with a trial currently scheduled to begin in September 2000.
Third parties could assert obligations against the Shreveport Partnership
for liabilities that have arisen or that might arise against its predecessor or
the partners of its predecessor with respect to any period prior to September
22, 1998, the date on which HCL and its partners acquired their interests in the
Shreveport Partnership. Management believes that in the event such a claim
arises, it would be adequately covered under either existing indemnification
agreements with the former partners or insurance policies maintained by the
partnership's predecessor or its partners.
67
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
HCC and its subsidiaries are parties in various 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.
(10) Commitments and Contingencies
Ground Leases -
HCT entered into a ground lease covering 70 acres of land on which the
Tunica Casino was constructed. The ground lease was 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. The lease is currently in its first five-
year renewal term. Obligations under the ground lease 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. HCT expensed $4,138,000, $3,899,000 and $3,935,000,
respectively, during the years ended December 31, 1999, 1998 and 1997 in
connection with the ground lease.
In May 1999, the Shreveport Partnership entered into a ground lease with
the City of Shreveport for the land on which the Shreveport Casino will be
built. The term of the lease began when construction commenced and will end on
the tenth anniversary of the date the Shreveport Casino opens. The Shreveport
Partnership has options to renew the lease on the same terms for up to an
additional forty years. The lease may be further renewed after that time at
prevailing rates and terms for similar leases. The City of Shreveport may
terminate the lease as a result of, among other things, a default by the
Shreveport Partnership under the lease or the failure to substantially complete
construction within the time period established by the LGCB. The Shreveport
Partnership may terminate the lease at any time if the operation of the
Shreveport Casino becomes uneconomic. Base rental payments under the lease are
$10,000 per month during the construction period increasing to $450,000 per year
upon opening and continuing at that amount for the remainder of the initial ten-
year lease term. During the first five-year renewal term, the annual base rental
will be $402,500. Subsequent renewal period base rental payments will increase
by 15% during each of the next four five-year renewal terms with no further
increases. In addition to the base rent, the Shreveport Partnership will pay
monthly percentage rent of not less than $500,000 per year equal to 1% of
monthly adjusted gross revenues and the amount, if any, by which monthly parking
facilities net income exceeds the parking income credit, as all such terms are
defined in the lease agreement. The Shreveport Casino made payments totaling
$56,000 during the year ended December 31, 1999 in connection with the ground
lease. Such payments have been capitalized as part of the construction costs of
the Shreveport Casino.
Shreveport Casino Lease Commitment -
The Shreveport Partnership has entered into a lease commitment agreement
with a third party lessor for up to $30,000,000 to be used to acquire furniture,
fixtures and equipment for the Shreveport Casino. Borrowings under the lease
commitment may be made monthly during the construction period in amounts of at
least $5,000,000 and will accrue interest at the rate of LIBOR plus 4%. During
the construction period, the Shreveport Partnership will only pay interest on
outstanding borrowings as well as a fee of .5% per
68
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
annum on the undrawn portion of the commitment. Upon opening of the Shreveport
Casino, the outstanding borrowings will become payable quarterly including
interest over a three year period to fully amortize the loan. The lease will be
treated as a capital lease for financial reporting purposes. Borrowings under
the lease commitment will be collateralized by the furniture, fixtures and
equipment purchased. The lease agreement will contain certain covenants
substantially similar to those included in the indenture for the Shreveport
First Mortgage Notes (see Note 3).
(11) Third Party Notes Receivable
During 1995, HCC loaned $10,000,000 to an unaffiliated gaming company in
the form of two $5,000,000 notes. 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, which were paid
in April 1998. The $4,000,000 difference between the $10,000,000 carrying amount
of the notes receivable and the agreed upon settlement was reflected as a write
down of the notes receivable during 1997 and is included in write down of assets
on the accompanying consolidated statement of operations.
(12) Supplemental Cash Flow Information
As a result of the acquisition of a joint venture partner's interest in the
Shreveport Partnership during April 1999 (see Note 1), the joint venture became
a consolidated subsidiary of HCC. The acquisition of the joint venture interest
and consolidation of the joint venture resulted in the assumption of liabilities
as follows:
Fair value of non-cash assets acquired $ 1,523,000
Cash acquired 1,525,000
Contingent liability for purchase (2,499,000)
Preacquisition earnings attributable to joint venture
partner (46,000)
Cash paid for capital stock (1,000)
-----------
Liabilities assumed $ 502,000
===========
The issuance of a note to a former partner of the predecessor to the
partnership developing the Shreveport Casino at a discounted face amount of
$1,692,000 (see Note 3(g)) and the associated project costs have been excluded
from the accompanying consolidated statement of cash flows for the year ended
December 31, 1999 as a non-cash transaction.
The additional $1,000,000 credit given to HCL's remaining joint venture
partner as an additional contribution to the Shreveport Partnership (see Note 7)
and the corresponding addition to construction in progress have been excluded
from the accompanying consolidated statement of cash flows for the year ended
December 31, 1999 as a non-cash transaction.
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 was expensed during 1997.
69
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Also during the second quarter of 1997, HCC acquired the general
partnership interest in PML (see Notes 1 and 7). 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:
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
===========
(13) 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 amount approximates fair value
-------------------------
because of the short maturity of these instruments.
Short-term investments - The carrying amount approximates fair value
----------------------
because of the short maturity of these investments.
Restricted cash and cash restricted for construction project - The carrying
------------------------------------------------------------
amount approximates fair value because of the short maturity of these
investments.
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.
70
<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, 1999 December 31, 1998
-------------------------- -------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $115,351,000 $115,351,000 $ 42,118,000 $ 42,118,000
Short-term investments - - 3,905,000 3,905,000
Cash restricted for construction
project 147,310,000 147,310,000 - -
Notes receivable - affiliates 6,750,000 6,750,000 6,750,000 6,750,000
PPI Funding Notes - - 12,322,000 12,322,000
Financial Liabilities
Interest payable $ 16,784,000 $ 16,784,000 $ 4,872,000 $ 4,872,000
11.25% Senior Secured Notes 310,000,000 320,850,000 - -
Floating rate Senior Secured
Notes 50,000,000 50,625,000 - -
13% Shreveport First Mortgage
Notes 150,000,000 160,500,000 - -
12 .75% Senior Secured Notes - - 207,212,000 220,681,000
Equipment loans 2,488,000 2,514,000 1,291,000 1,335,000
Bank debt 1,952,000 1,936,000 1,900,000 1,900,000
Bank credit facility 278,000 278,000 462,000 462,000
Note payable - affiliate 2,033,000 2,033,000 2,836,000 2,972,000
Other debt 1,759,000 1,748,000 - -
</TABLE>
(14) Unrestricted Subsidiaries (Unaudited)
Under the terms of the indenture to the Senior Secured Notes (see Note 3),
certain subsidiaries and investees of HCC have been designated as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries generally do not provide credit
support for the Senior Secured Notes and obligations of Unrestricted
Subsidiaries are non-recourse to HCC. Unrestricted Subsidiaries of HCC during
1999 consisted of HCL and its subsidiaries; HWCC-Holdings, Inc.; HWCC-Golf
Course Partners, Inc.; and PML. The following presentation
71
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
summarizes the financial position and results of operations of the Company
reflecting its Unrestricted Subsidiaries under the equity method of accounting.
Such information is not intended to be a presentation in conformity with
generally accepted accounting principles and is included for purposes of
complying with certain reporting requirements as contained in the indenture to
the Senior Secured Notes.
<TABLE>
<CAPTION>
Condensed Balance Sheet
December 31, 1999
(amounts in thousands)
<S> <C> <C> <C>
Current Assets: Current Liabilities:
Cash and cash items $ 93,020 Current maturities of long-
Accounts receivable, net of allowance term debt and capital leases $ 4,138
of $1,826 4,048 Accounts payable and accrued
Inventories 1,714 liabilities 28,429
Prepaid expenses and other current assets 3,754 Other current liabilities 5,983
---------
Due from affiliates 7,705 38,550
-------- ---------
110,241 Long-term debt 363,600
-------- ---------
Investment in and advances to Capital lease obligations 18,961
---------
Unrestricted Subsidiaries 49,039 Other noncurrent liabilities 5,631
-------- ---------
Property and equipment, net of
accumulated depreciation and Shareholder's deficit:
amortization of $92,956 164,809 Common stock 2
--------
Additional paid-in capital 216,928
Other Assets: Accumulated deficit (291,087)
---------
Deferred finance costs 10,328
Other assets 18,168 (74,157)
-------- ---------
28,496
--------
$352,585 $ 352,585
======== =========
</TABLE>
72
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Statement of Operations
Year Ended December 31, 1999
(amounts in thousands)
Net revenues $307,377
--------
Expenses:
Departmental expenses 221,969
General and administrative 18,153
Management and consulting fees 8,669
Depreciation and amortization 15,378
Development 732
Termination of management and consulting agreement 40,389
Write down of assets 13,322
--------
Total expenses 318,612
--------
Loss from operations (11,235)
Non-operating expense, net (35,355)
--------
Loss before taxes, extraordinary and other items (46,590)
Provision for taxes (1,195)
--------
Loss before extraordinary and other items (47,785)
Equity in losses of unrestricted subsidiaries (3,533)
--------
Loss before extraordinary item (51,318)
Extraordinary item - loss from early
extinguishment of debt (30,353)
--------
Net loss $(81,671)
========
73
<PAGE>
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------
First Second Third Fourth
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Net revenues $69,773,000 $ 76,151,000 $82,948,000 $ 78,505,000
=========== ============ =========== ============
Net income (loss) $ 330,000 $(28,131,000) $ 1,102,000 $(54,972,000)
=========== ============ =========== ============
Basic net income (loss) per
common share (1) $ .01 $ (1.13) $ .05 $ (2.20)
=========== ============ =========== ============
Diluted net income (loss) per common
share (1) $ .01 $ (1.12) $ .04 $ (2.20)
=========== ============ =========== ============
Year ended December 31, 1998:
Net revenues $63,807,000 $ 66,353,000 $70,848,000 $ 67,752,000
=========== ============ =========== ============
Net income (loss) $ 69,000 $ 145,000 $ (204,000) $ (2,023,000)
=========== ============ =========== ============
Basic and diluted net income
(loss) per common share (1) $ .00 $ .01 $ .01 $ (.08)
=========== ============ =========== ============
</TABLE>
- --------------------
(1) Earnings per share is calculated separately for each quarter and the full
year. Accordingly, annual earnings per share will not necessarily equal the
total of the interim periods.
74
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1999 and 1998,
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, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Casino - Aurora, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
February 25, 2000
75
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,148,000 $ 9,718,000
Accounts receivable, net of allowances
of $836,000 and $655,000, respectively 1,036,000 1,128,000
Inventories 845,000 606,000
Deferred income taxes 1,809,000 1,540,000
Due from affiliates 1,956,000 428,000
Prepaid expenses and other current assets 714,000 1,010,000
------------ ------------
Total current assets 28,508,000 14,430,000
------------ ------------
Property and Equipment:
Land improvements 3,167,000 3,167,000
Buildings and improvements 46,205,000 46,205,000
Riverboats 37,843,000 37,642,000
Operating equipment 39,898,000 37,192,000
Construction in progress 1,625,000 615,000
------------ ------------
128,738,000 124,821,000
Less - accumulated depreciation and amortization (47,717,000) (41,114,000)
------------ ------------
Net property and equipment 81,021,000 83,707,000
------------ ------------
Other Assets 2,230,000 2,173,000
------------ ------------
$111,759,000 $100,310,000
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
76
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------- ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,794,000 $ 6,517,000
Accounts payable 1,857,000 2,199,000
Accrued liabilities -
Salaries and wages 2,758,000 2,300,000
Interest 1,769,000 1,058,000
Gaming and other taxes 1,129,000 981,000
Insurance 1,051,000 965,000
Other 2,115,000 1,374,000
Due to affiliates 218,000 2,109,000
Other current liabilities 1,479,000 993,000
------------ ------------
Total current liabilities 14,170,000 18,496,000
------------ ------------
Long-Term Debt 67,152,000 27,783,000
------------ ------------
Capital Lease Obligations 18,961,000 19,948,000
------------ ------------
Deferred Income Taxes 5,429,000 5,363,000
------------ ------------
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 25,541,000 25,541,000
(Accumulated deficit) retained earnings (19,509,000) 3,164,000
------------ ------------
Total shareholder's equity 6,047,000 28,720,000
------------ ------------
$111,759,000 $100,310,000
============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
77
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $190,608,000 $156,404,000 $153,965,000
Food and beverage 14,560,000 13,771,000 14,213,000
Other 3,272,000 2,816,000 1,919,000
------------ ------------ ------------
208,440,000 172,991,000 170,097,000
Less - promotional allowances (11,190,000) (10,044,000) (9,790,000)
------------ ------------ ------------
Net revenues 197,250,000 162,947,000 160,307,000
------------ ------------ ------------
Expenses:
Casino 131,143,000 112,272,000 102,127,000
Food and beverage 4,829,000 4,855,000 4,885,000
Other 1,114,000 1,332,000 1,641,000
General and administrative 12,758,000 14,136,000 14,673,000
Termination of management contract 37,000,000 - -
Depreciation and amortization 7,050,000 7,350,000 7,491,000
------------ ------------ ------------
Total expenses 193,894,000 139,945,000 130,817,000
------------ ------------ ------------
Income from operations 3,356,000 23,002,000 29,490,000
------------ ------------ ------------
Non-operating income (expense):
Interest income 533,000 112,000 156,000
Interest expense (6,145,000) (6,046,000) (6,847,000)
(Loss) gain on disposal of assets (510,000) 4,000 134,000
------------ ------------ ------------
Total non-operating expense, net (6,122,000) (5,930,000) (6,557,000)
------------ ------------ ------------
(Loss) income before income taxes (2,766,000) 17,072,000 22,933,000
Income tax provision (367,000) (6,559,000) (8,419,000)
------------ ------------ ------------
Net (loss) income $ (3,133,000) $ 10,513,000 $ 14,514,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
78
<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, 1999
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
---------------------- Paid-in (Accumulated
Shares Amount Capital Deficit)
------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 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
Capital contributions - - 1,000,000 -
Net income - - - 10,513,000
Dividends - - - (11,741,000)
------------ -------- ------------ ------------
BALANCE, December 31, 1998 1,501,000 15,000 25,541,000 3,164,000
Net loss - - - (3,133,000)
Dividends - - - (19,540,000)
------------ -------- ------------ ------------
BALANCE, December 31, 1999 1,501,000 $15,000 $25,541,000 $(19,509,000)
============ ======== ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of this statement.
79
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (3,133,000) $ 10,513,000 $ 14,514,000
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 7,050,000 7,350,000 7,491,000
Provision for doubtful accounts 300,000 273,000 200,000
Loss (gain) on disposal of assets 510,000 (4,000) (134,000)
Deferred income tax (benefit) provision (203,000) 1,018,000 2,183,000
(Increase) decrease in accounts receivable (208,000) 202,000 92,000
Increase in accounts payable and accrued liabilities 2,020,000 261,000 151,000
Net change in intercompany balances (3,419,000) 54,000 395,000
Net change in other current assets and liabilities 543,000 (106,000) 85,000
Net change in other noncurrent assets and liabilities (57,000) (33,000) (120,000)
------------ ------------ ------------
Net cash provided by operating activities 3,403,000 19,528,000 24,857,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (5,109,000) (5,986,000) (2,413,000)
Proceeds from sale of assets 17,000 47,000 173,000
------------ ------------ ------------
Net cash used in investing activities (5,092,000) (5,939,000) (2,240,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 66,757,000 2,000,000 -
Capital contributions - 1,000,000 -
Repayments of long-term debt (32,205,000) (5,863,000) (5,681,000)
Payments on capital lease obligations (893,000) (861,000) (777,000)
Dividends (19,540,000) (11,741,000) (13,599,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 14,119,000 (15,465,000) (20,057,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 12,430,000 (1,876,000) 2,560,000
Cash and cash equivalents at beginning of year 9,718,000 11,594,000 9,034,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 22,148,000 $ 9,718,000 $ 11,594,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
80
<PAGE>
(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
continued to hold a limited partnership interest in the entity which held such
management contract prior to the acquisition of such interest by HCC in October
1999.
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).
On June 17, 1993, the Illinois Gaming Board (the "IGB") issued HCA a
temporary operating permit and the Aurora Casino commenced operations. The IGB
issued HCA an Owner's License on July 20, 1993 pursuant to the Illinois
Riverboat Gambling Act. HCA's current Owner's License was renewed in December
1999 for a period of one year to December 2000. Gaming taxes imposed by the
state of Illinois are determined using a graduated tax rate applied to the
licensee's gaming revenues. HCA expenses such gaming taxes based on its
anticipated annual effective tax rate.
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 Indiana which serve the Chicago area
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.
81
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
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 the accompanying
statements of operations. Costs of complimentaries allocated from the food and
beverage and other operating departments to the casino department during the
years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
----------- ---------- ----------
Food and beverage $ 9,903,000 $8,721,000 $9,057,000
Other 956,000 1,131,000 921,000
----------- ---------- ----------
$10,859,000 $9,852,000 $9,978,000
=========== ========== ==========
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 $300,000, $273,000 and $200,000, respectively, were made
during the years ended December 31, 1999, 1998 and 1997.
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 the estimated useful lives of the assets
as follows:
Land improvements 20 years
Buildings, riverboats and improvements 25-40 years
Operating equipment 3-7 years
82
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
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 events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. HCA does not believe that any such events or 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.
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 $1,182,000, $4,691,000 and $5,394,000 to HCC in
connection with its current federal tax provisions for the years ended December
31, 1999, 1998 and 1997, respectively. For the years ended December 31, 1999,
1998 and 1997, HCA paid state income taxes of $878,000, $781,000 and $682,000,
respectively.
Recent Accounting Pronouncement -
In June 1998, the Financial Accounting Standards Board issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities,"
("SFAS 133"), which has been amended to be effective for fiscal years beginning
after June 15, 2000. SFAS 133 requires, among other things, that derivatives be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives may, depending on circumstances, be recognized in earnings or
deferred as a component of shareholders' equity until a hedged transaction
occurs. HCA does not believe the adoption of SFAS 133 will have a significant
impact on its financial position or results of operations.
83
<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:
December 31, December 31,
1999 1998
------------- -------------
11.25% Promissory note to HCC, due on
May 1, 2007 (a) $66,007,000 $ -
12.75% Promissory note to HCC (b) - 31,507,000
Promissory notes to bank (c) 1,952,000 1,900,000
----------- -----------
Total indebtedness 67,959,000 33,407,000
Less - current maturities (807,000) (5,624,000)
----------- -----------
Total long-term debt $67,152,000 $27,783,000
=========== ===========
- --------------------
(a) The intercompany note was issued as of May 19, 1999 and accrues interest at
the rate of 11.25% per annum. The initial borrowing on the note replaced
the previous intercompany note with HCC described in (b) below. During
October 1999, HCA borrowed an additional $37,000,000 from HCC under the note
agreement to acquire and terminate its management contract (see Note 6).
HCA may borrow up to a total of $108,000,000 under the intercompany note
agreement. Interest on advances is payable semiannually on October 15 and
April 15 of each year. The intercompany note is pledged as security with
respect to HCC's $360,000,000 Senior Secured Notes due in 2006 and 2007.
HCA is not a guarantor of HCC's indebtedness; however, the indebtedness is
secured, in part, by a lien limited to the outstanding principal amount on
the intercompany note to HCC on substantially all of the assets of HCA and
by a pledge of the capital stock of HCA.
(b) The intercompany note accrued interest at the rate of 12 .75% per annum
payable semiannually on October 15 and April 15 of each year and required
semiannual principal repayments of $2,500,000 commencing October 15, 1997
with the balance of the note due November 1, 2003. The note was refinanced
on May 19, 1999 (see (a) above).
(c) During September 1998, HCA entered into a bank loan agreement to borrow up
to $2,000,000 on an unsecured basis. Borrowings under the agreement are
payable in 36 monthly installments including interest at the rate of 7.5%
per annum. HCA borrowed $2,000,000 under the agreement during October 1998.
On May 18, 1999, HCA borrowed an additional $750,000 from the bank on an
unsecured basis. The loan is payable in 60 monthly installments of $15,000
including interest at the rate of 7.5% per annum.
84
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
As of December 31, 1999, future maturities of long-term debt are as
follows:
2000 $ 807,000
2001 747,000
2002 156,000
2003 168,000
2004 74,000
Thereafter 66,007,000
-----------
$67,959,000
===========
Interest paid for the years ended December 31, 1999, 1998 and 1997 amounted
to $5,434,000, $6,180,000 and $6,970,000, respectively.
(4) Leases
Capital Leases -
HCA leases two parking garages under capital lease agreements. The first
lease has an initial 30-year term ending in June 2023 with the right to extend
the term under renewal options for an additional 67 years. Rental payments
through June 2012 equal the City of Aurora's financing costs related to its
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 7.625% per annum. The second lease has an initial term ending in September
2026 with the right to extend the lease for up to 20 additional years. Rental
payments during the first 15 years equal the lessor's debt service costs related
to the industrial revenue bond issue used to finance a portion of the
construction costs of the parking garage. The remaining construction costs were
funded by HCA. In addition, HCA pays 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 the lessor's North Island Center banquet and meeting
facilities. HCA is also responsible for additional rent, consisting of costs
such as maintenance costs, insurance premiums and utilities, arising out of its
operation of both parking garages.
HCA also leased certain equipment under capital lease agreements which
provided for interest at the rate of 11.2% and expired in 1998.
The original cost of HCA's parking garages is included in buildings and
improvements on the accompanying balance sheets at both December 31, 1999 and
1998 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, 1999 and 1998. Amortization expense with
respect to these assets amounted to $983,000, $983,000 and $1,097,000,
respectively, during each of the years ended December 31, 1999, 1998 and 1997.
Accumulated amortization at December 31, 1999 and 1998 with respect to these
assets amounted to $6,974,000 and $5,991,000, respectively.
85
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
Future minimum lease payments under capital lease obligations as of
December 31, 1999 are as follows:
2000 $ 2,483,000
2001 2,532,000
2002 2,643,000
2003 2,660,000
2004 2,677,000
Thereafter 18,739,000
------------
Total minimum lease payments 31,734,000
Less - amount representing interest (11,786,000)
------------
Present value of future minimum lease payments 19,948,000
Current capital lease obligation (987,000)
------------
Long-term capital lease obligation $ 18,961,000
============
Operating Leases -
HCA also leases property and operating equipment under various lease
agreements accounted for as operating leases. Although most of the lease
agreements are either cancellable or have initial terms of one year or less,
certain other lease agreements expire at various dates through the year 2008 and
several contain automatic renewals unless notice of termination is given. Some
of the operating leases also include contingent rental payments based on levels
of use; such contingent rentals have not been significant. Total rental expense
amounted to $983,000, $669,000 and $557,000, respectively, during the years
ended December 31, 1999, 1998 and 1997.
Future minimum lease payments as of December 31, 1999 under operating
leases having an initial or remaining noncancelable lease term in excess of one
year are as follows:
2000 $ 124,000
2001 114,000
2002 107,000
2003 78,000
2004 75,000
Thereafter 287,000
-----------
$ 785,000
===========
86
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(5) Income Taxes
HCA's provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current benefit (provision):
Federal $ 659,000 $(4,856,000) $(5,859,000)
State (1,229,000) (685,000) (377,000)
Deferred benefit (provision):
Federal 158,000 (915,000) (1,978,000)
State 45,000 (103,000) (205,000)
----------- ----------- -----------
$ (367,000) $(6,559,000) $(8,419,000)
=========== =========== ===========
</TABLE>
A reconciliation between the calculated tax provision on income based on
the statutory rates in effect and the effective tax rates for the years ended
December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Calculated income tax benefit (provision)
at statutory rate $ 940,000 $(5,975,000) $(8,027,000)
State income taxes, net of federal benefit (781,000) (512,000) (378,000)
Political contributions and lobbying costs (53,000) (43,000) (67,000)
Adjustments to prior years (430,000) - -
Other (43,000) (29,000) 53,000
--------- ----------- -----------
Tax provision as shown on statements
of operations $(367,000) $(6,559,000) $(8,419,000)
========= =========== ===========
</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.
87
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
The components of HCA's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 306,000 $ 246,000
Other liabilities and reserves 1,576,000 1,420,000
Other 77,000 -
----------- -----------
Total deferred tax assets 1,959,000 1,666,000
----------- -----------
Deferred tax liabilities:
Depreciation and amortization (5,579,000) (5,489,000)
----------- -----------
Net deferred tax liability $(3,620,000) $(3,823,000)
=========== ===========
</TABLE>
Receivables and payables to HCC in connection with the aforementioned tax
allocation agreements at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets $ 1,617,000 $ 1,373,000
Due from affiliates 1,942,000 347,000
Deferred tax liabilities (4,854,000) (4,793,000)
</TABLE>
The Internal Revenue Service recently completed its examination of the
consolidated federal income tax returns of HCC for the years 1993 and 1994 as
they pertain to HCA. The additional expected current tax liability under the
tax allocation agreements resulting from such examination ($997,000) has been
applied against the current federal tax benefit for the year ended December 31,
1999. The net deferred tax liability has also been adjusted to reflect the
results of the tax audit. The Internal Revenue Service is continuing its
examination of the consolidated federal income tax returns of HCC for 1995 and
1996. Management believes that the results of such examination will not have a
material adverse effect on the financial position or results of operations of
HCA.
(6) Transactions with Related Parties
Pursuant to a management services agreement which was terminated in October
1999 (see below), HCA paid base management and incentive fees to Pratt
Management, L.P. ("PML"), a limited partnership. The base management fee was
equal to 5% of operating revenues (as defined in the agreement) subject to a
maximum of $5,500,000 in any consecutive twelve month period. The incentive fee
was equal to 10% of gross operating profit (as defined in the agreement to
generally include all revenues less expenses other than
88
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
depreciation, interest, amortization and income taxes). HCA incurred such fees
totaling $7,730,000, $8,872,000 and $9,609,000, respectively, during the years
ended December 31, 1999, 1998 and 1997. Management and incentive fees payable at
December 31, 1998 amounting to $2,067,000 are included in due to affiliates on
the accompanying balance sheet.
During October 1999, HCC acquired the GBCC subsidiary which held the
limited partnership in PML following the confirmation of the GBCC subsidiary's
plan of reorganization under Chapter 11 of the United States Bankruptcy Code.
When acquired by HCC, the subsidiary's assets consisted of its limited
partnership interest in PML and a consulting agreement with another casino
facility owned by HCC and its liabilities consisted of an obligation to pay
$40,329,000 in satisfaction of the subsidiary's guarantee of an affiliate's debt
issue. HCA borrowed an additional $37,000,000 under its intercompany note with
HCC (see Note 3) to acquire and terminate the management contract. Accordingly,
effective October 13, 1999, HCA will no longer pay a management fee. The
$37,000,000 payment by HCA, which was used by HCC to partially repay the GBCC
subsidiary's $40,329,000 obligation, was recorded by HCA as the cost of
terminating the management contract and is reflected as an expense during the
fourth quarter of 1999 on the accompanying statement of operations.
HCA incurred interest with respect to its promissory note payable to HCC
(see Note 3) amounting to $4,424,000, $4,361,000 and $4,906,000, respectively,
for the years ended December 31, 1999, 1998 and 1997. Interest payable to HCC on
such note amounted to $1,568,000 and $848,000, respectively, at December 31,
1999 and 1998 and is included in accrued interest payable on the accompanying
balance sheets.
HCA has acquired computer software and hardware from GBCC and has been
allocated certain other expenses from HCC and GBCC. In addition, HCA is
reimbursed by HCC and GBCC for certain administrative and other services it
performs on their behalf. Such transactions resulted in net charges to HCA
during the years ended December 31, 1999, 1998 and 1997 totaling $389,000,
$280,000 and $246,000, respectively. At December 31, 1999 and 1998, HCA had net
payables of $57,000 and net receivables of $30,000, respectively, in connection
with such charges.
(7) Illinois Regulatory Matters
Riverboat gaming operations in Illinois are subject to regulatory control
by the Illinois Gaming Board (the "IGB"). Illinois law requires that HCA
maintain its Owners' License in order to operate. HCA's Owner's License was
renewed by the IGB in December 1999 for a period of one year. Management intends
to request renewal of HCA's Owner's License at the appropriate time in 2000 and
anticipates that such renewal will be approved by the IGB in December 2000. 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. Limitation or conditioning or suspension of any gaming
license could, and revocation would, have a materially adverse affect on the
operations of HCA.
89
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO FINANCIAL STATEMENTS (Continued)
(8) Commitments and Contingencies
Planet Hollywood Litigation -
In 1996, Planet Hollywood International, Inc. and Planet Hollywood (Region
IV), Inc. filed a complaint in the United States District Court for the Northern
District of Illinois, Eastern Division, against HCC and certain of its
subsidiaries and affiliates seeking (1) a declaratory judgment that it was
entitled to use the name "Planet Hollywood" for a casino and (2) damages. In
its complaint, Planet Hollywood alleged, among other things, that HCC had, in
operating the Hollywood Casino concept, infringed on their trademark, service
mark and trade dress and had engaged in unfair competition and deceptive trade
practices. HCC, its subsidiaries and affiliates filed counterclaims seeking (1)
a declaratory judgment that Planet Hollywood was not entitled to use the name
"Planet Hollywood" for a casino and (2) damages. The counterclaims alleged,
among other things, that Planet Hollywood had, through its planned use of its
mark in connection with casino services, infringed on HCC's service marks and
trade dress and had engaged in unfair competition. The trial commenced on July
19, 1999 and was completed on July 26, 1999. On August 25, 1999, HCC and the
other defendants filed a motion to dismiss the declaratory judgment claims of
all parties asserting, among other things, that as a result of Planet
Hollywood's reported deteriorating financial condition and perceived inability
to enter into the casino business, there was no longer any actual case or
controversy. On October 12, 1999, Planet Hollywood (Region IV), Inc. filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. On December 3, 1999 the judge entered a judgment in favor of HCC with
respect to the damage claims brought by Planet Hollywood and granted HCC's
motion to dismiss the declaratory judgment claims of all parties. Planet
Hollywood has filed a notice of appeal of the judgment with the Seventh Circuit
District Court of Appeals.
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.
(9) Employee Retirement Savings Plan
HCA participates in a retirement savings plan under Section 401(k) of the
Internal Revenue Code sponsored by HCC which covers all of its employees who
meet certain eligibility requirements as to age and period of employment. The
plan allows employees to contribute up to 15% of their salary on a pre-tax basis
(subject to statutory limitations) and invest such monies in a choice of mutual
funds on a tax-deferred basis. HCA matches a portion of the participating
employees' contributions to the plan and may, from time to time, make additional
discretionary contributions. For the years ended December 31, 1999, 1998 and
1997, HCA made company contributions to the plan totaling $397,000, $473,000 and
$289,000, respectively.
90
<PAGE>
HOLLYWOOD CASINO - AURORA, INC.
(wholly owned by Hollywood Casino Corporation)
NOTES TO 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.
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, 1999 December 31, 1998
------------------------ -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash
equivalents $22,148,000 $22,148,000 $ 9,718,000 $ 9,718,000
Financial Liabilities:
Interest payable $ 1,769,000 $ 1,769,000 $ 1,058,000 $ 1,058,000
11.25% promissory note 66,007,000 68,111,000 - -
12.75% promissory note - - 31,507,000 33,555,000
Promissory notes to bank 1,952,000 1,936,000 1,900,000 1,900,000
</TABLE>
91
<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, 1999
Net revenues $43,393,000 $47,864,000 $53,444,000 $ 52,549,000
=========== =========== =========== ============
Net income (loss) $ 2,956,000 $ 5,190,000 $ 5,761,000 $(17,040,000)
=========== =========== =========== ============
Year Ended December 31, 1998
Net revenues $38,720,000 $40,093,000 $41,712,000 $ 42,422,000
=========== =========== =========== ============
Net income $ 2,458,000 $ 3,061,000 $ 2,782,000 $ 2,212,000
=========== =========== =========== ============
</TABLE>
92
<PAGE>
INDEPENDENT AUDITORS' REPORT
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,
1999 and 1998, 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, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HWCC - Tunica,
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
February 25, 2000
93
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,339,000 $ 16,325,000
Short-term investments - 3,905,000
Accounts receivable, net of allowances of
$990,000 and $813,000, respectively 2,725,000 1,018,000
Inventories 869,000 779,000
Deferred income taxes 1,346,000 1,451,000
Prepaid expenses and other current assets 1,187,000 770,000
Due from affiliates 503,000 149,000
------------ ------------
Total current assets 16,969,000 24,397,000
------------ ------------
Property and Equipment:
Land and improvements 4,781,000 4,645,000
Buildings 76,011,000 73,948,000
Barges 2,524,000 2,524,000
Operating equipment 44,731,000 39,169,000
Construction in progress 134,000 2,612,000
------------ ------------
128,181,000 122,898,000
Less - accumulated depreciation and amortization (44,575,000) (38,910,000)
------------ ------------
Net property and equipment 83,606,000 83,988,000
------------ ------------
Other Assets:
Land rights 7,047,000 7,250,000
Other assets 4,776,000 4,826,000
------------ ------------
Total other assets 11,823,000 12,076,000
------------ ------------
$112,398,000 $120,461,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
94
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,491,000 $ 775,000
Accounts payable 1,081,000 1,638,000
Accrued liabilities -
Salaries and wages 1,569,000 1,685,000
Interest 437,000 476,000
Gaming and other taxes 1,340,000 453,000
Insurance 1,839,000 1,975,000
Other 2,214,000 1,866,000
Other current liabilities 1,168,000 1,283,000
------------ ------------
Total current liabilities 11,139,000 10,151,000
------------ ------------
Long-Term Debt 88,649,000 85,023,000
------------ ------------
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 22,637,000 34,637,000
Accumulated deficit (10,027,000) (9,350,000)
------------ ------------
Total shareholder's equity 12,610,000 25,287,000
------------ ------------
$112,398,000 $120,461,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
95
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Casino $102,312,000 $ 96,459,000 $ 97,506,000
Rooms 10,457,000 9,386,000 9,651,000
Food and beverage 15,274,000 15,039,000 14,320,000
Other 1,542,000 1,373,000 1,164,000
------------ ------------ ------------
129,585,000 122,257,000 122,641,000
Less - promotional allowances (19,463,000) (16,484,000) (15,378,000)
------------ ------------ ------------
Net revenues 110,122,000 105,773,000 107,263,000
------------ ------------ ------------
Expenses:
Casino 78,880,000 72,317,000 69,496,000
Rooms 1,161,000 1,752,000 1,835,000
Food and beverage 3,704,000 3,923,000 4,325,000
Other 1,137,000 1,336,000 1,402,000
General and administrative 5,679,000 5,813,000 5,769,000
Termination of consulting agreement 3,329,000 - -
Depreciation and amortization 7,066,000 8,123,000 9,916,000
------------ ------------ ------------
Total expenses 100,956,000 93,264,000 92,743,000
------------ ------------ ------------
Income from operations 9,166,000 12,509,000 14,520,000
------------ ------------ ------------
Non-operating income (expenses):
Interest income 340,000 587,000 281,000
Interest expense (10,308,000) (10,937,000) (10,980,000)
Equity in losses of unconsolidated
affiliate (141,000) - -
(Loss) gain on disposal of assets (57,000) (65,000) 6,000
------------ ------------ ------------
Total non-operating expenses, net (10,166,000) (10,415,000) (10,693,000)
------------ ------------ ------------
(Loss) income before income taxes (1,000,000) 2,094,000 3,827,000
Income tax benefit (provision) 323,000 (689,000) 845,000
------------ ------------ ------------
Net (loss) income $ (677,000) $ 1,405,000 $ 4,672,000
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
96
<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, 1999
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-in Accumulated
Shares Amount Capital Deficit
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997 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)
Net income - - - 1,405,000
------ ------ ------------ ------------
BALANCE, December 31, 1998 1,000 - 34,637,000 (9,350,000)
Net loss - - - (677,000)
Dividends - - (12,000,000) -
------ ------ ------------ ------------
BALANCE, December 31, 1999 1,000 $ - $ 22,637,000 $(10,027,000)
====== ====== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this consolidated statement.
97
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (677,000) $ 1,405,000 $ 4,672,000
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 7,066,000 8,123,000 9,916,000
Loss (gain) on disposal of assets 57,000 65,000 (6,000)
Provision for doubtful accounts 504,000 483,000 498,000
Equity in losses of unconsolidated affiliate 141,000 - -
Deferred income tax (benefit) provision (133,000) 115,000 (1,071,000)
Increase in accounts receivable (2,565,000) (140,000) (645,000)
Increase (decrease) in accounts payable and accrued
expenses 387,000 256,000 (2,097,000)
Net change in other current assets and
liabilities (622,000) 199,000 232,000
Net change in other noncurrent assets
and liabilities 14,000 (223,000) 488,000
------------ ----------- -----------
Net cash provided by operating
activities 4,172,000 10,283,000 11,987,000
------------ ----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (6,415,000) (5,924,000) (2,635,000)
Short-term investments 3,905,000 (29,000) (3,876,000)
Investment in unconsolidated affiliate (45,000) (53,000) (2,000,000)
Proceeds from sale of assets 55,000 82,000 16,000
------------ ----------- -----------
Net cash used in investing activities (2,500,000) (5,924,000) (8,495,000)
------------ ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 89,680,000 687,000 601,000
Repayments of long-term debt (85,338,000) (572,000) (364,000)
Dividends (12,000,000) - -
Payments on capital lease obligations - - (1,199,000)
------------ ----------- -----------
Net cash (used in) provided by
financing activities (7,658,000) 115,000 (962,000)
------------ ----------- -----------
Net (decrease) increase in cash and cash equivalents (5,986,000) 4,474,000 2,530,000
Cash and cash equivalents at
beginning of year 16,325,000 11,851,000 9,321,000
------------ ----------- -----------
Cash and cash equivalents at
end of year $ 10,339,000 $16,325,000 $11,851,000
============ =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
98
<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 for the purpose of acquiring and completing a
gaming facility in northern Tunica County, Mississippi approximately 27 miles
southwest of Memphis, Tennessee. The facility (the "Tunica Casino") was
completed and commenced operations on August 8, 1994 under the service mark
Hollywood Casino(R). The Tunica Casino currently includes a casino with 54,000
square feet of gaming space, 506 hotel rooms and suites, a 123-space
recreational vehicle park and related amenities. HCT's gaming license has been
renewed by the Mississippi Gaming Commission through October 18, 2001.
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 initial one-third
interest in Tunica Golf Course LLC, a limited liability company organized 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 opened for
business in November 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 sheets at December
31, 1999 and 1998.
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.
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 reflected as current liabilities on the accompanying consolidated
balance sheets. 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
99
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 1999, 1998 and 1997
were as follows:
1999 1998 1997
----------- ----------- -----------
Rooms $ 2,742,000 $ 1,940,000 $ 1,870,000
Food and beverage 12,710,000 12,166,000 10,837,000
Other 438,000 300,000 140,000
----------- ----------- -----------
$15,890,000 $14,406,000 $12,847,000
=========== =========== ===========
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 $504,000, $483,000 and $498,000, respectively, were made
during the years ended December 31, 1999, 1998 and 1997.
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 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
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
100
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
commenced with the opening of the Tunica Casino. Management presently intends to
renew the ground lease at least through the estimated 40-year useful life of the
facility. Accumulated amortization of such land rights amounted to $1,398,000
and $1,195,000, respectively, at December 31, 1999 and 1998.
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 events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. HCT does not believe that any such events or 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 $288,000, $307,000 and
$494,000 during the years ended December 31, 1999, 1998 and 1997, respectively.
HCT paid no state income taxes during 1999, 1998 or 1997.
Recent Accounting Pronouncement -
In June 1998, the Financial Accounting Standards Board issued a new
statement, "Accounting for Derivative Instruments and Hedging Activities,"
("SFAS 133"), which has been amended to be effective for fiscal years beginning
after June 15, 2000. SFAS 133 requires, among other things, that derivatives be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives may, depending on circumstances, be recognized in earnings or
deferred as a component of shareholders' equity until a hedged transaction
occurs. HCT does not believe the adoption of SFAS 133 will have a significant
impact on its financial position or results of operations.
101
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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:
December 31, December 31,
1999 1998
----------- -----------
11.25% Promissory note to HCC due May 1, 2007(a) $87,045,000 $ -
Note payable to HCC (a) 329,000 -
12.75% Promissory notes to HCC (b) - 84,045,000
Equipment loans (c) 2,488,000 1,291,000
Bank credit facility (d) 278,000 462,000
----------- -----------
Total indebtedness 90,140,000 85,798,000
Less - current maturities (1,491,000) (775,000)
----------- -----------
Total long-term debt $88,649,000 $85,023,000
=========== ===========
- --------------------
(a) The intercompany note was issued as of May 19, 1999 and accrues interest at
the rate of 11.25% per annum. The initial borrowing on the note replaced
the previous intercompany notes with HCC (see (b) below). HCT may borrow
up to $87,045,000 under the intercompany note agreement. During October
1999, HCT borrowed the additional $3,000,000 available under the
intercompany note with HCC as well as an additional $329,000 under a new
note agreement with HCC to acquire and terminate its consulting agreement
(see Note 6). Interest on advances is payable semiannually on April 15 and
October 15 of each year. The intercompany note is pledged as security with
respect to HCC's $360,000,000 Senior Secured Notes due in 2006 and 2007
which are unconditionally guaranteed on a senior secured basis by HCT and
by certain other current and future subsidiaries of HCC. HCC's Senior
Secured Notes and related guarantees are secured by, among other things,
(1) substantially all of the assets of HCT and other future guarantors, (2)
a limited lien on substantially all of the assets of another gaming
facility operated by a wholly owned subsidiary of HCC, (3) a pledge of the
capital stock of HCT and certain other subsidiaries of HCC and (4) the
collateral assignment of any future management contracts entered into by
HCC. The limitation on the lien described in (2) above was increased to
$66,007,000 in October 1999; such lien may be further increased as a result
of additional borrowings up to a maximum of $108,000,000.
The indenture for HCC's 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
102
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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; or enter into
certain transactions with affiliates. Dividend payments by HCT to HCC are
not restricted under the terms of the indenture.
(b) The intercompany note accrued interest at the rate of 12.75% per annum
payable semiannually on October 15 and April 15 of each year. The note was
refinanced on May 19, 1999 (see (a) above).
(c) The equipment loans are payable monthly including interest at effective
rates ranging from 8.5% to 12.9% per annum and mature at various dates
between 1999 and 2002. One such loan with a balance of $51,000 at December
31, 1999 and which matures in 2000 does not accrue interest.
(d) HCT had a bank credit facility in the amount of $1,300,000 available to
borrow against until September 30, 1998. HCT borrowed $541,000 under the
credit facility during 1998 at the rate of 8.875% per annum. Borrowings
under the credit facility are to be repaid in monthly installments over a
period of 36 months and are collateralized by equipment purchased with the
loan proceeds. The credit facility was not renewed by HCT.
Scheduled payments of long-term debt as of December 31, 1999 are set forth
below:
2000 $ 1,491,000
2001 1,033,000
2002 242,000
2003 -
2004 -
Thereafter 87,374,000
-----------
Total $90,140,000
===========
Interest paid amounted to $10,347,000, $10,937,000 and $12,766,000,
respectively, during the years ended December 31, 1999, 1998 and 1997.
(4) Leases
Capital Leases -
HCT leased certain gaming and other equipment under capital lease
agreements which provided for interest at rates ranging up to 13.25% per annum
and which expired during 1997. Assets under capital leases with an original
cost of $4,567,000 and $4,814,000, respectively, are included in operating
equipment on the accompanying consolidated balance sheets at December 31, 1999
and 1998. There was no amortization expense with respect to such assets for the
year ended December 31, 1999; amortization expense for the years ended December
31, 1998 and 1997 was $298,000 and $945,000, respectively. Accumulated
amortization at December 31, 1999 and 1998 with respect to these assets amounted
to $4,567,000 and $4,814,000, respectively. No future payment obligations exist
with respect to such capital leases.
103
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating Leases -
HCT also leases property and operating equipment under various lease
agreements accounted for as operating leases. Except for the ground lease (see
Note 8), the lease agreements are either cancellable or have initial terms of
one year or less. A number of the leases contain automatic renewal options
unless notice of termination is given and some include contingent rental
payments based on levels of use; such contingent rentals have not been
significant. Total rental expense amounted to $905,000, $326,000 and $465,000,
respectively, during the years ended December 31, 1999, 1998 and 1997.
(5) Income Taxes
HCT's benefit (provision) for income taxes consists of the following:
Year Ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
Federal income tax benefit (provision):
Current $ 190,000 $(574,000) $ (226,000)
Deferred 54,000 (185,000) (812,000)
Change in valuation allowance 79,000 70,000 1,883,000
--------- --------- ----------
$ 323,000 $(689,000) $ 845,000
========= ========== ==========
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.
A reconciliation between the calculated tax benefit (provision) on (loss)
income based on the statutory rates in effect and the effective tax rates for
the years ended December 31, 1999, 1998 and 1997 follows:
Year Ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
Calculated income tax benefit (provision) $ 340,000 $ (712,000) $(1,301,000)
Valuation allowance change 79,000 70,000 1,883,000
Adjustments to prior years (32,000) - -
Disallowance of meals and entertainment (38,000) (32,000) (43,000)
Other (26,000) (15,000) 306,000
---------- ---------- -----------
Tax benefit (provision) as shown on
statement of operations $ 323,000 $ (689,000) $ 845,000
========== ========== ===========
104
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 1999, HCT has net operating loss carryforwards ("NOL's")
totaling approximately $8,400,000, which do not begin to expire until the year
2010. Additionally, HCT has alternative minimum and other tax credits
available totaling $610,000 and $251,000, respectively. Alternative minimum tax
credits do not expire and none of the other tax credits begin to expire before
the year 2009. Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", requires that the tax benefit of such NOL's and credit
carryforwards, 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 by HCT during 1999 before non-
recurring items and during 1998, and the expectation of future taxable income,
management believes that it is more likely than not that a portion of the NOL's
and deferred tax assets will be utilized. Accordingly, a valuation allowance
has been established which has resulted in the recording of net deferred tax
assets of $2,125,000 and $1,992,000, respectively, at December 31, 1999 and
1998.
The components of HCT's net deferred tax asset are as follows:
December 31,
--------------------------
1999 1998
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 2,868,000 $ 5,221,000
Alternative minimum tax credit carryforward 610,000 800,000
Allowance for doubtful accounts 337,000 277,000
Other liabilities and accruals 1,419,000 1,286,000
----------- -----------
Total deferred tax assets 5,234,000 7,584,000
Deferred tax liabilities:
Depreciation and amortization (688,000) (3,092,000)
----------- -----------
Net deferred tax asset 4,546,000 4,492,000
Valuation allowance (2,421,000) (2,500,000)
----------- -----------
$ 2,125,000 $ 1,992,000
=========== ===========
105
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Receivables from HCC in connection with HCT's federal income taxes are
included in the accompanying consolidated financial statements as follows:
December 31,
--------------------------
1999 1998
---------- ----------
Due from affiliates $ 478,000 $ -
Deferred income taxes 1,346,000 1,451,000
Other noncurrent assets 779,000 541,000
The Internal Revenue Service is examining the consolidated federal income
tax returns of HCC for the years 1993 through 1996. The results of such
examination for 1993 and 1994 with respect to HCT have been finalized resulting
in HCT's net operating loss carryforwards being significantly reduced. However,
the audit findings did not result in additional alternative minimum tax or
regular tax liability under HCT's existing tax allocation agreement with HCC.
The components of HCT's net deferred tax asset have also been adjusted to
reflect the results of the tax audit. The Internal Revenue Service is
continuing its examination of the consolidated federal income tax returns of HCC
for 1995 and 1996.
(6) Transactions with Related Parties
Pursuant to a consulting agreement which was terminated during October 1999
(see below), HCT incurred a monthly consulting fee of $100,000. The consulting
agreement was with Pratt Casino Corporation ("PCC"), an affiliated company.
Such fees amounted to $939,000, $1,200,000 and $1,200,000, respectively, during
each of the years ended December 31, 1999, 1998 and 1997.
During October 1999, HCC acquired PCC following the confirmation of PCC's
plan of reorganization under Chapter 11 of the United States Bankruptcy Code.
When acquired by HCC, PCC's assets consisted of the consulting agreement with
the Tunica Casino and a limited partnership interest in the entity which held
the management contract on another casino facility owned by HCC and its
liabilities consisted of an obligation to pay $40,329,000 in satisfaction of
PCC's guarantee of an affiliate's debt issue. HCT borrowed an additional
$3,329,000 from HCC (see Note 3) to acquire and terminate the consulting
agreement. Accordingly, effective October 13, 1999, HCT no longer pays a
consulting fee. The $3,329,000 payment by HCT, which was used by HCC to
partially repay PCC's $40,329,000 obligation, was recorded by HCT as the cost of
terminating the consulting agreement and is reflected as an expense during the
fourth quarter of 1999 on the accompanying consolidated statement of operations.
HCT and Advanced Casino Systems Corporation ("ACSC"), an affiliated
company, 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 parties. HCT also paid ACSC
a fixed license fee of $33,600 per month and reimburses ACSC for its direct
costs and expenses incurred under the agreement. ACSC has continued to provide
services to HCT since the
106
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999 expiration of the Computer Services Agreement on an as needed
basis at third party consulting rates while negotiations for a new agreement
continue. Since the latter part of 1997, ACSC also performs and bills HCT for
certain administrative and marketing services. Total charges incurred by HCT
amounted to $776,000, $656,000 and $635,000, respectively, for the years ended
December 31, 1999, 1998 and 1997. At December 31, 1999 and 1998, HCT had
payables of $22,000 and $44,000, respectively, included in accounts payable with
respect to such charges.
Prior to 1998, Greate Bay Hotel and Casino, Inc. ("GBHC"), an affiliated
company which owns and operates the Sands Hotel and Casino in Atlantic City, New
Jersey, performed certain administrative and marketing services on behalf of
HCT. During the year ended December 31, 1997, fees charged to HCT by GBHC
totaled $428,000.
HCT is charged for certain legal, accounting, and other expenses incurred
by HCC and its subsidiaries that relate to HCT's business. HCT also bills HCC
and its subsidiaries for services provided to those companies. For the years
ended December 31, 1999, 1998 and 1997, such transactions resulted in net
charges to HCT totaling $150,000, $162,000 and $362,000, respectively. At
December 31, 1999, no intercompany balances remained outstanding; at December
31, 1998, HCT had net receivables of $97,000 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, 2001. 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. During 1999, 1998
and 1997, HCT expensed $4,138,000, $3,899,000 and $3,935,000, respectively, in
connection with the ground lease.
107
<PAGE>
HWCC - TUNICA, INC. AND SUBSIDIARY
(wholly owned by Hollywood Casino Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Planet Hollywood Litigation -
In 1996, Planet Hollywood International, Inc. and Planet Hollywood (Region
IV), Inc. filed a complaint in the United States District Court for the Northern
District of Illinois, Eastern Division, against HCC and certain of its
subsidiaries and affiliates seeking (1) a declaratory judgment that it was
entitled to use the name "Planet Hollywood" for a casino and (2) damages. In
its complaint, Planet Hollywood alleged, among other things, that HCC had, in
operating the Hollywood Casino concept, infringed on their trademark, service
mark and trade dress and had engaged in unfair competition and deceptive trade
practices. HCC, its subsidiaries and affiliates filed counterclaims seeking (1)
a declaratory judgment that Planet Hollywood was not entitled to use the name
"Planet Hollywood" for a casino and (2) damages. The counterclaims alleged,
among other things, that Planet Hollywood had, through its planned use of its
mark in connection with casino services, infringed on HCC's service marks and
trade dress and had engaged in unfair competition. The trial commenced on July
19, 1999 and was completed on July 26, 1999. On August 25, 1999, HCC and the
other defendants filed a motion to dismiss the declaratory judgment claims of
all parties asserting, among other things, that as a result of Planet
Hollywood's reported deteriorating financial condition and perceived inability
to enter into the casino business, there was no longer any actual case or
controversy. On October 12, 1999, Planet Hollywood (Region IV), Inc. filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. On December 3, 1999 the judge entered a judgment in favor of HCC with
respect to the damage claims brought by Planet Hollywood and granted HCC's
motion to dismiss the declaratory judgment claims of all parties. Planet
Hollywood has filed a notice of appeal of the judgment with the Seventh Circuit
Court of Appeals.
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.
(9) Employee Retirement Savings Plan -
HCT participates in a retirement savings plan under Section 401(k) of the
Internal Revenue Code sponsored by HCC which covers all of its employees who
meet certain eligibility requirements as to age and period of employment. The
plan allows employees to contribute up to 15% of their salary on a pre-tax basis
(subject to statutory limitations) and invest such monies in a choice of mutual
funds on a tax-deferred basis. HCT matches a portion of the participating
employees' contributions to the plan and may, from time to time, make additional
discretionary contributions. For the years ended December 31, 1999, 1998 and
1997, HCT made company contributions to the plan totaling $176,000, $203,000 and
$198,000, respectively.
108
<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 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 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 are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------ ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $10,339,000 $10,339,000 $16,325,000 $16,325,000
Short-term investments - - 3,905,000 3,905,000
Financial Liabilities
Interest payable $ 437,000 $ 437,000 $ 476,000 $ 476,000
11.25% Promissory Note to HCC 87,045,000 89,773,000 - -
Note payable to HCC 329,000 340,000 - -
12.75% Promissory notes to HCC - - 84,045,000 89,508,000
Equipment loans 2,488,000 2,514,000 1,291,000 1,335,000
Bank credit facility 278,000 278,000 462,000 462,000
</TABLE>
109
<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, 1999:
Net revenues $26,375,000 $28,287,000 $29,505,000 $25,955,000
=========== =========== =========== ===========
Net income (loss) $ 892,000 $ 733,000 $ 286,000 $(2,588,000)
=========== =========== =========== ===========
Year Ended December 31, 1998:
Net revenues $25,072,000 $26,245,000 $29,126,000 $25,330,000
=========== =========== =========== ===========
Net income (loss) $ 732,000 $ 153,000 $ 639,000 $ (119,000)
=========== =========== =========== ===========
</TABLE>
110
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
HCC filed a complaint on October 8, 1998 in the District Court of Dallas
County, Texas against Arthur Andersen LLP ("Andersen"), HCC's former certifying
accountants, and selected partners alleging negligent advice and breach of
contract with respect to the tax consequences resulting from the spin off of the
stock of Greate Bay Casino Corporation ("GBCC") to HCC's shareholders on
December 31, 1996.
In view of the pending litigation discussed above, the Audit Committee of
the Company's Board of Directors voted on October 16, 1998 to terminate Andersen
as HCC's independent accountants. There were no disagreements with Andersen of
the type which would require disclosure under Item 304 of Regulation S-K.
Andersen's report on the consolidated financial statements of HCC for the past
two years was unqualified.
The Company, with the consideration and approval of its Audit Committee,
engaged the firm of Deloitte & Touche LLP as its new certifying accountants.
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 23,
2000 (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 39.
111
<PAGE>
2. Financial Statement Schedules
Hollywood Casino Corporation and Subsidiaries
---------------------------------------------
-- Independent Auditors' Report
-- 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
Hollywood Casino - Aurora, Inc.
-------------------------------
-- Independent Auditors' Report
-- Schedule II; Valuation and Qualifying Accounts
HWCC-Tunica, Inc.
-----------------
-- Independent Auditors' Report
-- 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
**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 -- Second Amended and Restated Bylaws of HCC.
@@3.4 -- Articles of Incorporation of HCT. (Exhibit 3.1).
@@3.5 -- Bylaws of HCT. (Exhibit 3.2)
+++3.6 -- Third Amended and Restated Joint Venture Agreement of Hollywood Casino
Shreveport by and among Shreveport Paddlewheels, L.L.C., HCS I, Inc.
and HCS II, Inc., dated as of July 21, 1999. (Exhibit 3.1)
+++3.7 -- August 1999 Amendment to Third Amended and Restated Joint Venture
Agreement between Shreveport Paddlewheels, L.L.C., HCS I, Inc. and HCS
II, Inc. (Exhibit 3.2)
+++4.1 -- Indenture among HCC as Issuer, and HWCC-Shreveport, Inc. and HCT as
Guarantors, State Street Bank and Trust Company, as Trustee, dated as
of May 19, 1999. (Exhibit 4.1) and State
+++4.2 -- Security Agreement made by HCC, as Debtor, to State Street Bank and
Trust Company, as Trustee and Secured Party, dated as of May 19, 1999.
(Exhibit 4.2)
+++4.3 -- Stock Pledge Agreement made by HCC, as Pledgor, in favor of State
Street Bank and Trust Company, as Trustee and Secured Party, dated as
of May 19, 1999. (Exhibit 4.3)
+++4.4 -- Trademark Security Agreement made by HCC, as Grantor, to State Street
Bank and Trust Company, as Trustee and Secured Party, dated as of May
19, 1999. (Exhibit 4.4)
+++4.5 -- Escrow and Control Agreement by and among HCC and State Street Bank
and Trust Company, as Trustee and Escrow Agent, dated as of May 19,
1999. (Exhibit 4.5)
+++4.6 -- Control Agreement dated as of May 19, 1999 by and among HCC and State
Bank and Trust Company as Trustee. (Exhibit 4.6)
+++4.7 -- Security Agreement made by HCT, as Debtor, to State Street Bank and
Trust Company, as Trustee and Secured Party, dated as of May 19, 1999.
(Exhibit 4.7)
+++4.8 -- First Leasehold Deed of Trust, Security Agreement, Assignment of
Leases and Rents, Fixture Filing, and Financing Statement made by HCT
in favor of Phillip A. Poitevin, as Trustee for the
112
<PAGE>
benefit of State Street Bank and Trust Company, as Indenture Trustee,
dated as of May 19, 1999. (Exhibit 4.8)
+++4.9 -- First Preferred Ship Mortgage made and given by HCT, as Mortgagor, in
favor of State Street Bank and Trust Company, as Trustee and
Mortgagee (relating to Vessel No. 534006), dated as of May 19, 1999.
(Exhibit 4.9)
+++4.10 -- Intercompany Security Agreement made by HCT, as Debtor, to HCC, as
Secured Party, and collaterally assigned to State Street Bank and
Trust Company, as Trustee, dated as of May 19, 1999. (Exhibit 4.11)
+++4.11 -- Second Leasehold Deed of Trust, Security Agreement, Fixture Filing,
and Financing Statement from HCT, as Grantor, in favor of Jim B.
Tobhill, Trustee, for the benefit of HCC, dated as of May 19, 1999.
(Exhibit 4.12)
+++4.12 -- Collateral Assignment of Second Leasehold Deed of Trust, Security
Agreement, Assignment of Leases and Rents, Fixture Filing and
Financing Statement made by HCC, as Mortgagee and Assignor, in favor
of State Street Bank and Trust Company, as Trustee and Assignee,
dated as of May 19, 1999. (Exhibit 4.13)
+++4.13 -- Assignment of Second Preferred Fleet Mortgage by HCC, as Mortgagee
and Assignor (relating to Vessel No. 534006) in favor of State Street
Bank and Trust Company, as Trustee and Assignee, dated as of May 19,
1999. (Exhibit 4.15)
+++4.14 -- Intercompany Security Agreement dated as of May 19, 1999 made by HCA,
as Debtor, to HCC, as Secured Party, and collaterally assigned to
State Street Bank and Trust Company, as Trustee. (Exhibit 4.17)
+++4.15 -- Collateral Assignment of Mortgage, Leasehold Mortgage, Security
Agreement, Assignment of Leases and Rents, Fixture Filing and
Financing Statement made by HCC, as Mortgagee and Assignor, in favor
of State Street Bank and Trust Company, as Trustee and Assignee,
dated as of May 19, 1999. (Exhibit 4.19)
+++4.16 -- Assignment of First Preferred Fleet Mortgage by HCC, as Mortgagee and
Assignor (relating to Vessel Nos. 993836, 993837 and 1029229) in
favor of State Street Bank and Trust Company, as Trustee and
Assignee, dated as of May 19, 1999. (Exhibit 4.21)
+++4.17 -- Security Agreement made by HWCC-Shreveport, Inc. as Debtor, to State
Street Bank and Trust Company, as Trustee and Secured Party, dated as
of May 19, 1999. (Exhibit 4.22)
+4.18 -- Indenture among Hollywood Casino Shreveport and Shreveport Capital
Corporation ("SCC") as Co-Issuers, and HWCC-Louisiana, Inc. ("HCL"),
HCS I, Inc. and HCS II, Inc., as Guarantors, and State Street Bank
and Trust Company, as Trustee, dated as of August 10, 1999. (Exhibit
4.1)
+4.19 -- Registration Rights Agreement, dated as of August 10, 1999, by and
among Hollywood Casino Shreveport, SCC, the Guarantors named therein
and the Initial Purchasers. (Exhibit 4.2)
+4.20 -- Collateral Assignment of Contracts and Documents dated August 10,
1999 between Casino Shreveport and State Street Bank and Trust
Company, as Trustee. (Exhibit 4.3) Hollywood
+4.21 -- Security Agreement dated August 10, 1999 between Hollywood Casino
Shreveport and State Street Bank and Trust Company, as Trustee.
(Exhibit 4.4)
+4.22 -- Partnership Interest Pledge Agreement dated August 10, 1999 made by
HCS I, Inc. in favor of State Street Bank and Trust Company, as
Trustee and Secured Party. (Exhibit 4.5)
+4.23 -- Cash Collateral and Disbursement Agreement dated August 10, 1999
between Hollywood Casino Shreveport, SCC, First American Title
Insurance Company, as Disbursement Agent and State Street Bank and
Trust Company, as Trustee. (Exhibit 4.6)
4.24 -- First Amendment to Cash Collateral and Disbursement Agreement dated
January 1, 2000 between Hollywood Casino Shreveport, SCC, First
American Title Insurance Company and State Street Bank and Trust
Company.
+4.25 -- Stock Pledge Agreement dated August 10, 1999 made by HCL in favor of
State Street Bank and Trust Company, as Trustee. (Exhibit 4.7)
+4.26 -- Security Agreement dated August 10, 1999 made by SCC, HCL, HCS I,
Inc. and HCS II, Inc. to State Street Bank and Trust Company, as
Trustee and Secured Party. (Exhibit 4.8)
+4.27 -- Security Agreement - Vessel Construction dated August 10, 1999
between Hollywood Casino Shreveport and State Street Bank and Trust
Company, as Trustee. (Exhibit 4.9)
+4.28 -- Mortgage, Leasehold Mortgage and Assignment of Leases and Rents made
by Hollywood Casino Shreveport in favor of State Street Bank and
Trust Company, as Mortgagee, dated August 10, 1999. (Exhibit 4.10)
113
<PAGE>
+4.29 -- Partnership Interest Pledge Agreement dated August 10, 1999 made by
HCS II, Inc. in favor of State Street Bank and Trust Company, as
Trustee and Secured Party. (Exhibit 4.11)
+4.30 -- First Amendment to Security Agreement dated August 10, 1999 between
HWCC-Shreveport, Inc. and State Street Bank and Trust Company, as
Trustee. (Exhibit 4.12)
###9.1 -- Voting Trust Agreement dated as of December 29, 1998 by and among
Jill Pratt LaFerney, formerly Jill A. Pratt, and John R. Pratt and
Jack E. Pratt, Sr. (Exhibit 9.1)
###9.2 -- Voting Trust Agreement dated as of December 29, 1998 by and among
Shawn Denise Bradshaw and Michael Shannon Pratt and William D.
Pratt, Sr. (Exhibit 9.2)
###9.3 -- Voting Trust Agreement dated as of December 29, 1998 by and among
Carolyn S. Hickey, Diana Pratt-Wyatt, formerly Diana L. Heisler,
and Sharon A. Naftel, formerly Sharon R. Nash, and Edward T. Pratt
III. (Exhibit 9.3)
9.4 -- Voting Trust Agreement dated as of December 17, 1999 by and between
Jack E. Pratt, Jr. as Trustee of the J.E. Pratt Gift Trust and Jack
E. Pratt, Sr.
##10.1 -- Sixth Amendment to Employment Agreement dated January 1, 1998,
between HCC and Jack E. Pratt. (Exhibit 10.1)
##10.2 -- Sixth Amendment to Employment Agreement dated January 1, 1998,
between HCC and Edward T. Pratt, Jr. (Exhibit 10.2)
##10.3 -- Sixth Amendment to Employment Agreement dated January 1, 1998,
between HCC and William D. Pratt. (Exhibit 10.3)
10.4 -- Employment Agreement dated January 1, 2000, between HCC and Edward
T. Pratt III.
####10.5 -- Agreement dated as of September 2, 1998 by and among GBHC, GB
Holdings, Inc., and GB Property Funding Corp., on the one hand, and
GBCC, PHC Acquisition Corp., Lieber Check Cashing, LLC, Jack E.
Pratt, William D. Pratt, Edward T. Pratt, Jr. and HCC, on the
other. (Exhibit 10.3)
*10.6 -- Development Agreement dated as of June 4, 1991, between the City of
Aurora, Illinois and HCA. (Exhibit 10.33)
*10.7 -- Parking lease Agreement June 4, 1991, between the City of Aurora,
Illinois and HCA. (Exhibit 10.39)
*10.8 -- Purchase and Sale Agreement dated June 4, 1991, between the City of
Aurora, Illinois and HCA. (Exhibit 10.40)
@10.9 -- Rights Agreement, dated as of May 7, 1993 between HCC and
Continental Stock Transfer & Trust Company, as Rights Agent.
(Exhibit 10.45)
@@@10.10 -- Hollywood Casino Corporation Stock Option Plan. (Exhibit 10.46)
@@10.11 -- 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)
@@10.12 -- 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)
@@10.13 -- Blanket Conveyance, Bill of Sale and Assignment and Assumption
Agreement dated as of May 31, 1994 between SRCT and STP. (Exhibit
10.6)
@@10.14 -- Assignment of Lease and Assumption Agreement dated as of May 31,
1994 between SRCT and STP (relating to Ground Lease). (Exhibit
10.7)
@@@@10.15 -- 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)
#10.16 -- Hollywood Casino Corporation 1996 Long-Term Incentive Plan, as
amended. (Exhibit 10.28)
#10.17 -- Hollywood Casino Corporation 1996 Non-Employee Director Stock Plan.
(Exhibit 10.29)
####10.18 -- Amended and Restated Joint Venture Agreement by and among
Shreveport Paddlewheels, L.L.C., Sodak Louisiana, L.L.C. and HWCC-
Louisiana, Inc. dated July 31, 1998. (Exhibit 10.1)
####10.19 -- September 1998 Amendment to the July Amended and Restated Joint
Venture Agreement. (Exhibit 10.2 )
10.20 -- Employment Agreement dated as of January 1, 2000 by and between HCC
and Paul C. Yates.
###10.21 -- Management and Administrative Services Agreement dated as of
October 1, 1998 by and between HCC and Greate Bay Casino
Corporation.
###10.22 -- Membership Interest Purchase Agreement dated as of March 31, 1999
by and among HWCC-Louisiana, Inc., Sodak Gaming, Inc. and Sodak
Louisiana, L.L.C.
+10.23 -- Amended and Restated Federal Income Tax Sharing Agreement dated
August 10, 1999 by and among HCC, HWCC Development Corporation,
Hollywood Management, Inc., HCT, Golf,
114
<PAGE>
HCA, HWCC-Shreveport, Inc., HWCC-Argentina, Inc., HCL, HWCC
Holdings, Inc., HWCC-Aurora Management, Inc., HWCC-Transportation,
Inc., HCS I, Inc. and HCS II, Inc. (Exhibit 10.16)
++10.24 -- Completion Capital Agreement, dated as of August 10, 1999, by and
among Hollywood Casino Shreveport, HCL, HCS I, Inc., HCS II, Inc.
and HCC. (Exhibit 10.2)
++10.25 -- Manager Subordination Agreement, dated as of August 10, 1999, by
and among State Street Bank and Trust Company, as Trustee, HWCC-
Shreveport, Inc. and Hollywood Casino Shreveport. (Exhibit 10.3)
+10.26 -- Technical Services Agreement, dated as of September 22, 1998, by
and between QNOV and HWCC-Shreveport, Inc. (Exhibit 10.4)
+10.27 -- Vessel Construction Contract, dated July 16, 1999, by and between
Leevac Shipyards, Inc. and Hollywood Casino Shreveport. (Exhibit
10.5)
+10.28 -- Employment Agreement, dated August 4, 1999, by and between HWCC
Development Corporation and Juris Basens. (Exhibit 10.6)
+10.29 -- Compromise Agreement, dated September 15, 1998, by and among Hilton
New Orleans Corporation, New Orleans Paddlewheels, Inc., Queen of
New Orleans at the Hilton Joint Venture and the City of New
Orleans. (Exhibit 10.7)
+10.30 -- Loan and Settlement Agreement, dated January 16, 1998, by and among
New Orleans Paddlewheels, Inc., Shreveport Paddlewheels, L.L.C.,
HCL, Sodak Louisiana L.L.C. and Hilton New Orleans Corporation.
(Exhibit 10.11)
+10.31 -- Retail Space Lease, executed as of June 3, 1999 by and between QNOV
and Red River Entertainment Company, L.L.C. (Exhibit 10.12)
+10.32 -- Ground Lease, dated May 19, 1999, by and between the City of
Shreveport, Louisiana and QNOV. (Exhibit 10.13)
+10.33 -- Marine Services Agreement dated September 22, 1998 between QNOV and
Shreveport Paddlewheels, L.L.C. (Exhibit 10.17)
+10.34 -- Side Agreement dated January 16, 1998 between Queen of New Orleans
at the Hilton Joint Venture, HCL, and Sodak, L.L.C. (Exhibit 10.18)
+10.35 -- Loan Agreement dated August 10, 1999 between Shreveport
Paddlewheels, L.L.C. and HCL. (Exhibit 10.19)
+10.36 -- Promissory note dated August 10, 1999 in the original principal
amount of $1,000,000 made by Shreveport Paddlewheels, L.L.C., as
Borrower to HCL, as Lender. (Exhibit 10.20)
+10.37 -- Security Agreement dated August 10, 1999 made by Shreveport
Paddlehwheels, L.L.C., as Debtor, in favor of HCL, as Secured
Party. (Exhibit 10.21)
+10.38 -- Guaranty Agreement dated August 10, 1999 made by New Orleans
Paddlewheels, L.L.C. in favor of HCL. (Exhibit 10.22)
+10.39 -- Contribution and Assumption Agreement dated July 21, 1999 among
HCL, HCS I, Inc., HCS II, Inc. and Shreveport Paddlewheels, L.L.C.
(Exhibit 10.24)
11.1 -- Statement regarding computation of Per Share Losses.
21.1 -- Subsidiaries of HCC.
27.1 -- Financial Data Schedule of HCC.
27.2 -- Financial Data Schedule of HWCC - Tunica, Inc.
***99.1 -- Petition filed on October 8, 1998 in the District Court of Dallas
County, Texas by Hollywood Casino Corporation and Greate Bay Casino
Corporation ("Plaintiffs") against Arthur Andersen L.L.P., Richard
L. Robbins, Michael E. Gamache, Daniel J. Meehan, and Brent A.
Railsback ("Defendants") (Exhibit 99.1)
- --------------------
* 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 the Form
8-K for HCC as filed with the SEC on October 22, 1998.
115
<PAGE>
@ Incorporated by reference from the exhibit shown in parenthesis to Form S-1
Registration Statement (Registration No. 33-77502) for HCC as filed with
the SEC on April 8, 1994.
@@ 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 to Form S-1
Registration Statement (Registration 33-58732) for HCC 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 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 parenthesis filed in
HCC's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
### 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,
1998.
#### Incorporated by reference to the exhibit shown in parenthesis filed in
HCC's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 as filed with the SEC on November 13, 1998.
+ Incorporated by reference to the exhibit shown in parenthesis included in
Form S-4 Registration Statement of Hollywood Casino Shreveport and
Shreveport Capital Corporation as filed with the SEC on October 8, 1999.
++ Incorporated by reference to the exhibit shown in parenthesis included in
Form S-4 Registration Statement of Hollywood Casino Corporation as filed
with the SEC on August 13, 1999.
+++ Incorporated by reference to the exhibit shown in parenthesis included in
Form S-4 Registration Statement of Hollywood Casino Corporation as filed
with the SEC on July 16, 1999.
(b) Reports on Form 8-K.
On October 22, 1999, the Registrants filed a Report on Form 8-K to announce
the acquisition and termination of management and consulting agreements.
116
<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 March 29, 2000.
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 March 29, 2000
- -------------------------------------- Officer and Director --------------
Jack E. Pratt
/s/ Edward T. Pratt, Jr. Vice President, Treasurer March 29, 2000
- -------------------------------------- and Director --------------
Edward T. Pratt, Jr.
/s/ William D. Pratt Executive Vice President, March 29, 2000
- -------------------------------------- Secretary, General Counsel --------------
William D. Pratt and Director
/s/ Edward T. Pratt III President, Chief Operating March 29, 2000
- -------------------------------------- Officer and Director --------------
Edward T. Pratt III
/s/ Paul C. Yates Executive Vice President March 29, 2000
- -------------------------------------- and Chief Financial Officer --------------
Paul C. Yates
/s/ Charles F. LaFrano III Vice President - Finance and March 29, 2000
- -------------------------------------- Principal Accounting Officer --------------
Charles F. LaFrano III
/s/ James A. Colquitt Director March 29, 2000
- -------------------------------------- --------------
James A. Colquitt
/s/ Theodore H. Strauss Director March 29, 2000
- -------------------------------------- --------------
Theodore H. Strauss
/s/ Oliver B. Revell III Director March 29, 2000
- -------------------------------------- --------------
Oliver B. Revell III
</TABLE>
117
<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 March 29, 2000.
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 March 29, 2000
- ------------------------------------- Officer and Director --------------
Jack E. Pratt
/s/ Edward T. Pratt, Jr. Director March 29, 2000
- ------------------------------------- --------------
Edward T. Pratt, Jr.
/s/ William D. Pratt Executive Vice President, March 29, 2000
- ------------------------------------- Secretary, General Counsel --------------
William D. Pratt and Director
/s/ Edward T. Pratt III President and Director March 29, 2000
- ------------------------------------- --------------
Edward T. Pratt III
/s/ John R. Osborne Vice President of Operations March 29, 2000
- ------------------------------------- --------------
John R. Osborne
/s/ Charles F. LaFrano III Vice President, Assistant March 29, 2000
- ------------------------------------- Secretary and Principal --------------
Charles F. LaFrano III Accounting Officer
</TABLE>
118
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Hollywood Casino Corporation and Subsidiaries
-- Independent Auditors' Report
-- 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.
-- Independent Auditors' Report
-- Schedule II; Valuation and Qualifying Accounts
HWCC-Tunica, Inc.
-- Independent Auditors' Report
-- Schedule II; Valuation and Qualifying Accounts
119
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Hollywood Casino Corporation:
We have audited the consolidated financial statements of Hollywood Casino
Corporation and subsidiaries as of December 31, 1999 and 1998, and for each of
the three years in the period ended December 31, 1999, and have issued our
report thereon dated February 25, 2000 (included elsewhere in this Form 10-K).
Our audits also include the financial statement schedules listed in the index to
financial statement schedules. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Dallas, Texas
February 25, 2000
120
<PAGE>
SCHEDULE I
Page 1
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
Condensed Financial Information of Registrant
Hollywood Casino Corporation
(Parent Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 60,312,000 $ 14,785,000
Accounts receivable 287,000 222,000
Due from affiliates, net of valuation allowance 9,746,000 16,463,000
Deferred federal income taxes 1,584,000 721,000
Other current assets 68,000 31,000
------------ ------------
Total current assets 71,997,000 32,222,000
------------ ------------
Investment in and advances to affiliates 64,995,000 53,924,000
Property and equipment, net 233,000 137,000
Due from affiliates, net of valuation allowance 153,381,000 122,874,000
Land held for sale, net of allowance 2,216,000 6,232,000
Other assets 14,516,000 6,315,000
------------ ------------
$307,338,000 $221,704,000
============ ============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current maturities of long-term debt $ 854,000 $ 5,000,000
Accounts payable and accrued liabilities 2,083,000 4,092,000
Accrued interest payable 8,946,000 4,628,000
Federal income taxes payable 3,234,000 -
------------- ------------
Total current liabilities 15,117,000 13,720,000
------------- ------------
Long-term debt, net of discount in 1998 361,180,000 195,199,000
------------- ------------
Other noncurrent liabilities 5,095,000 5,170,000
------------- ------------
Shareholders' (deficit) equity:
Class A common stock, $.0001 par
value per share, 50,000,000
shares authorized, 24,950,000 shares
issued and outstanding 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 42,947,000 42,945,000
Accumulated deficit (117,003,000) (35,332,000)
------------- ------------
Total shareholders' (deficit) equity (74,054,000) 7,615,000
------------- ------------
$307,338,000 $221,704,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
121
<PAGE>
SCHEDULE I
Page 2
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
Condensed Financial Information of Registrant
Hollywood Casino Corporation
(Parent Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Interest income $ 17,670,000 $ 17,217,000 $ 17,189,000
Other income - 41,000 60,000
------------ ------------ ------------
17,670,000 17,258,000 17,249,000
------------ ------------ ------------
Expenses:
General and administrative 8,065,000 5,509,000 5,021,000
Interest 36,593,000 27,915,000 27,851,000
Depreciation and amortization 1,236,000 1,068,000 1,447,000
Settlement costs - 1,087,000 -
Write down of assets 13,322,000 - 19,678,000
------------ ------------ ------------
Total expenses 59,216,000 35,579,000 53,997,000
------------ ------------ ------------
Loss before income taxes, extraordinary
and other items (41,546,000) (18,321,000) (36,748,000)
Income tax provision - - (4,954,000)
------------ ------------ ------------
Loss before extraordinary
and other items (41,546,000) (18,321,000) (41,702,000)
Extraordinary item:
Loss on early extinguishment of debt,
net of income tax benefit in 1997 (30,353,000) (336,000) (215,000)
------------ ------------ ------------
Loss before other item (71,899,000) (18,657,000) (41,917,000)
Equity in (losses) income of consolidated
subsidiaries (9,772,000) 17,052,000 24,570,000
------------ ------------ ------------
Net loss $(81,671,000) $ (1,605,000) $(17,347,000)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
122
<PAGE>
SCHEDULE I
Page 3
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
Condensed Financial Information of Registrant
Hollywood Casino Corporation
(Parent Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
-------------- ------------ ------------
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 9,997,000 $(6,876,000) $ 4,503,000
------------- ----------- -----------
INVESTING ACTIVITIES:
Net property and equipment additions (217,000) (62,000) (7,000)
Proceeds from sale of assets 3,887,000 - 9,643,000
Collections on notes receivable - 6,000,000 -
Investments in consolidated affiliates (51,478,000) (2,937,000) (1,316,000)
Net (advances to) repayments from affiliates (37,829,000) 3,500,000 4,650,000
------------- ----------- -----------
Net cash (used in) provided by investing activities (85,637,000) 6,501,000 12,970,000
------------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 340,419,000 - -
Repayments of long-term debt (207,339,000) (288,000) (4,650,000)
Deferred financing costs (11,913,000) (248,000) (24,000)
------------- ----------- -----------
Net cash provided by (used in) financing activities 121,167,000 (536,000) (4,674,000)
------------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 45,527,000 (911,000) 12,799,000
Cash and cash equivalents at beginning of year 14,785,000 15,696,000 2,897,000
------------- ----------- -----------
Cash and cash equivalents at end of year $ 60,312,000 $14,785,000 $15,696,000
============= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
123
<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) Guarantees of Registrant
As of December 31, 1999, HCC had not guaranteed any obligations of its
subsidiaries or unconsolidated affiliates.
(2) Scheduled Payments of Long-Term Debt of the Registrant
Scheduled payments of long-term debt outstanding at December 31, 1999 are
set forth below:
2000 $ 854,000
2001 981,000
2002 199,000
2003 -
2004 -
Thereafter 360,000,000
------------
Total $362,034,000
============
(3) Dividends and Distributions
HCC received dividends from its consolidated subsidiaries amounting to
$31,540,000, $11,741,000 and $13,599,000, respectively, during the years ended
December 31, 1999, 1998 and 1997.
(4) Commitments
A consolidated subsidiary of HCC is currently constructing a dockside
casino and hotel facility in Shreveport, Louisiana (the "Shreveport Casino").
HCC has entered into a completion capital agreement providing for the
contribution of up to $5,000,000 in cash if at any time there are insufficient
funds available to enable the Shreveport Casino to be operating by April 30,
2001. In addition, if the Shreveport Casino is not operating by April 30, 2001,
HCC will contribute to the subsidiary on that date $5,000,000 in additional
equity less any amounts previously contributed under the completion capital
agreement.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
124
<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
(5) Supplemental Cash Flow Information
During the fourth quarter of 1999, HCC assumed the $2,160,000 note payable
balance of one of its subsidiaries to an unconsolidated affiliate. The
assumption of the note and adjustment to HCC's investment in the subsidiary is
excluded from the accompanying parent company statement of cash flows as a
noncash transaction.
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 expensed 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.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
125
<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, 1999:
Allowance for doubtful
accounts receivable $ 1,468,000 $ 804,000 $ (446,000) (1) $ - $ 1,826,000
Allowance for affiliate
receivables 22,808,000 6,433,000 - 13,322,000 (2) 42,563,000
Allowance for properties held
for sale 3,432,000 - (348,000) (3) - 3,084,000
----------- ----------- ----------- ----------- -----------
$27,708,000 $ 7,237,000 $ (794,000) $13,322,000 $47,473,000
=========== =========== =========== =========== ===========
Year Ended December 31, 1998:
Allowance for doubtful
accounts receivable $ 1,188,000 $ 756,000 $ (476,000) (1) $ - $ 1,468,000
Allowance for affiliate
receivables 18,000,000 4,808,000 - - 22,808,000
Allowance for notes receivable 4,000,000 - (4,000,000) (1) - -
Allowance for properties held
for sale 3,400,000 - - 32,000 3,432,000
----------- ----------- ----------- ----------- -----------
$26,588,000 $ 5,564,000 $(4,476,000) $ 32,000 $27,708,000
=========== =========== =========== =========== ===========
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
=========== =========== =========== =========== ===========
</TABLE>
- -------------------
(1) Represents net write-offs of uncollectible accounts.
(2) Represents write down of affiliate receivables to estimated net realizable
value.
(3) Represents utilization of allowance in connection with partial sale of land.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
126
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Hollywood Casino - Aurora, Inc.:
We have audited the financial statements of Hollywood Casino - Aurora, Inc. as
of December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999, and have issued our report thereon dated February 25,
2000 (included elsewhere in this Form 10-K). Our audits also include the
financial statement schedule listed in the index to financial statement
schedules. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Dallas, Texas
February 25, 2000
127
<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, 1999:
Allowance for doubtful
accounts receivable $ 655,000 $300,000 $(119,000) (1) $836,000
========== ======== ========= ========
Year Ended December 31, 1998:
Allowance for doubtful
accounts receivable $ 483,000 $273,000 $(101,000) (1) $655,000
========== ======== ========= ========
Year Ended December 31, 1997:
Allowance for doubtful
accounts receivable $1,071,000 $200,000 $(788,000) (1) $483,000
========== ======== ========= ========
</TABLE>
- --------------------
(1) Represents net write-offs of uncollectible accounts.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
128
<PAGE>
INDEPENDENT AUDITORS' REPORT
To HWCC - Tunica, Inc.:
We have audited the consolidated financial statements of HWCC-Tunica, Inc. and
subsidiary as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999, and have issued our report thereon dated
February 25, 2000 (included elsewhere in this Form 10-K). Our audits also
include the financial statement schedule listed in the index to financial
statement schedules. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
Dallas, Texas
February 25, 2000
129
<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, 1999:
Allowance for doubtful
accounts receivable $813,000 $504,000 $(327,000) (1) $990,000
========= ========== ========= ========
Year Ended December 31, 1998:
Allowance for doubtful
accounts receivable $705,000 $483,000 $(375,000) (1) $813,000
========= ========== ========= ========
Year Ended December 31, 1997:
Allowance for doubtful
accounts receivable $622,000 $498,000 $(415,000) (1) $705,000
========= ========== ========= ========
</TABLE>
- --------------------------
(1) Represents net write-offs of uncollectible accounts.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
130
<PAGE>
Exhibit 3.3
SECOND AMENDED AND RESTATED BYLAWS
OF
HOLLYWOOD CASINO CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE - OFFICES...........................................................1
(a) Registered Office and Agent........................................1
(b) Other Offices......................................................1
ARTICLE TWO - MEETING OF STOCKHOLDERS...........................................1
2.1 Annual Meeting.....................................................1
2.2 Special Meeting....................................................1
2.3 Place of Meetings..................................................2
2.4 Notice.............................................................2
2.5 Voting List........................................................2
2.6 Quorum.............................................................2
2.7 Required Vote; Withdrawal of Quorum................................3
2.8 Methods of Voting; Proxies.........................................3
2.9 Record Date........................................................3
2.10 Conduct of Meeting.................................................4
2.11 Inspectors.........................................................5
ARTICLE THREE - DIRECTORS.......................................................5
3.1 Management.........................................................5
3.2 Number; Qualification; Election; Term..............................6
3.3 Change in Number...................................................6
3.4 Removal............................................................6
3.5 Vacancies..........................................................6
3.6 Meetings of Directors..............................................6
3.7 Election of Officers...............................................6
3.8 Regular Meetings...................................................6
3.9 Special Meetings...................................................6
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
3.10 Notice............................................................ 6
3.11 Quorum; Majority Vote............................................. 7
3.12 Procedure......................................................... 7
3.13 Presumption of Assent............................................. 7
3.14 Compensation...................................................... 7
ARTICLE FOUR - COMMITTEES...................................................... 8
4.1 Designation....................................................... 8
4.2 Number; Qualification; Term....................................... 8
4.3 Authority......................................................... 8
4.4 Committee Changes................................................. 8
4.5 Alternate Members of Committees................................... 8
4.6 Regular Meetings.................................................. 8
4.7 Special Meetings.................................................. 8
4.8 Quorum; Majority Vote............................................. 9
4.9 Minutes........................................................... 9
4.10 Compensation...................................................... 9
4.11 Responsibility.................................................... 9
ARTICLE FIVE - NOTICE.......................................................... 9
5.1 Method............................................................ 9
5.2 Waiver............................................................ 9
ARTICLE SIX - OFFICERS.........................................................10
6.1 Number; Titles; Term of Office....................................10
6.2 Removal...........................................................10
6.3 Vacancies.........................................................10
6.4 Authority.........................................................10
6.5 Compensation......................................................10
6.6 Chairman of the Board; Vice Chairman of the Board.................10
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
6.7 Chief Executive Officer............................................11
6.8 President..........................................................11
6.9 Vice Presidents....................................................11
6.10 Treasurer..........................................................11
6.11 Assistant Treasurers...............................................11
6.12 Secretary..........................................................12
6.13 Assistant Secretaries..............................................12
ARTICLE SEVEN - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS 12
7.1 Third-Party Actions................................................12
7.2 Derivative Actions.................................................13
7.3 Determination of Indemnification...................................13
7.4 Right to Indemnification...........................................13
7.5 Advance of Expenses................................................14
7.6 Indemnification Not Exclusive......................................14
7.7 Insurance..........................................................14
7.8 Definition of Certain Terms........................................14
7.9 Liability of Directors.............................................15
7.10 Continuity.........................................................15
ARTICLE EIGHT - CERTIFICATES AND STOCKHOLDERS...................................15
8.1 Certificates of Shares.............................................15
8.2 Replacement of Lost, Stolen, or Destroyed Certificates.............15
8.3 Transfer of Shares.................................................16
8.4 Registered Stockholders............................................16
8.5 Regulations........................................................16
8.6 Legends............................................................16
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
ARTICLE NINE - AFFILIATED TRANSACTIONS..........................................16
9.1 Validity..........................................................16
9.2 Disclosure; Approval; Fairness....................................16
9.3 Nonexclusive......................................................17
ARTICLE TEN - MISCELLANEOUS PROVISIONS..........................................17
10.1 Dividends.........................................................17
10.2 Reserves..........................................................17
10.3 Books and Records.................................................17
10.4 Fiscal Year.......................................................17
10.5 Seal..............................................................18
10.6 Resignations......................................................18
10.7 Securities of Other Corporations..................................18
10.8 Telephone Meetings................................................18
10.9 Action Without a Meeting..........................................18
10.10 Invalid Provisions................................................19
10.11 Mortgages, etc....................................................19
10.12 Headings..........................................................19
10.13 References........................................................19
10.14 Amendments........................................................19
</TABLE>
iv
<PAGE>
SECOND AMENDED AND RESTATED BYLAWS
OF
HOLLYWOOD CASINO CORPORATION
----------------------------
PREAMBLE
These Second Amended and Restated Bylaws are subject to, and governed by,
the General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law") and the Amended and Restated Certificate of Incorporation of
Hollywood Casino Corporation, a Delaware corporation (the "Corporation"). In
the event of a direct conflict between the provisions of these bylaws and the
mandatory provisions of the Delaware General Corporation Law or the provisions
of the certificate of incorporation of the Corporation, such provisions of the
Delaware General Corporation Law or the certificate of incorporation of the
Corporation, as the case may be, will be controlling. The affirmative vote of
the holders of at least 80% of the voting power of all of the then-outstanding
shares of the Voting Stock (as defined in the certificate of incorporation),
voting together as a single class, and the approval of a majority of the
Continuing Directors (as defined in Article 13 of the certificate of
incorporation) shall be required to alter, amend, repeal or adopt any provision
inconsistent with this Preamble.
ARTICLE 1 - OFFICES
1.1 Registered Office and Agent. The registered office and registered
---------------------------
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
-------------
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE 2 - MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
--------------
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
2.2 Special Meeting. Special meetings of the stockholders, for any
---------------
purpose or purposes, unless otherwise prescribed by statute, shall be called as
provided in the certificate of incorporation. A special meeting shall be held on
such date and at such time as shall be designated by the person(s) calling the
meeting and stated in the notice of the meeting or in a duly executed waiver of
notice of such meeting. Only such business shall be transacted at a
1
<PAGE>
special meeting as may be indicated in the notice of such meeting or in a duly
executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
-----------------
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time
------
of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive Officer, the
Secretary, or the officer or person(s) calling the meeting, to each stockholder
of record entitled to vote at such meeting. If such notice is to be sent by
mail, notice is given when deposited in the United States mail, postage prepaid,
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 Voting List. At least ten days before each meeting of stockholders,
-----------
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare and make a complete list of stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. For a period
of at least ten days prior to such meeting, such list shall be kept on file at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting or a duly executed waiver of notice of such
meeting or, if not so specified, at the place where the meeting is to be held
and shall be open to examination by any stockholder, for any purpose germane to
the meeting, during ordinary business hours. Such list shall also be produced
at such meeting and kept at the meeting at all times during such meeting and may
be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares entitled
------
to vote on a matter, present in person or by proxy, shall constitute a quorum at
any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting
2
<PAGE>
from time to time, without notice other than announcement at the meeting (unless
the board of directors, after such adjournment, fixes a new record date for the
adjourned meeting), until a quorum shall be present, in person or by proxy. At
any adjourned meeting at which a quorum shall be present, in person or by proxy,
any business may be transacted which may have been transacted at the original
meeting had a quorum been present; provided that, if the adjournment is for more
than 30 days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at any
-----------------------------------
meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation or any amendment(s) thereto, or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
-------------------------
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by another person or persons duly authorized under
(S) 212 of the Delaware General Corporation Law to act for him as proxy. Each
such proxy shall be filed with the Secretary of the Corporation before or at the
time of the meeting. No proxy shall be valid after three years from the date of
its execution, unless otherwise provided in the proxy. If no date is stated in
a proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders
-----------
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than 60 days and not less than ten days prior to such meeting or
other action. If no record date is fixed:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding
3
<PAGE>
the day on which notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
(a) In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
law or these bylaws, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office in the State of
Delaware, principal place of business, or such officer or agent shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the board of directors and prior action by the board of
directors is required by law or these bylaws, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the board of
directors adopts the resolution taking such prior action.
2.1 Conduct of Meeting. At each meeting of the stockholders, one of the
------------------
following persons, in the order in which they are listed (and in the absence of
the first, the next, and so on), shall serve as chairman of the meeting:
Chairman of the Board, Vice Chairman of the Board (or in the event that there be
more than one Vice Chairman, the Vice Chairmen in the order designated by the
directors, or in the absence of any designation, then in the order of their
tenure), Chief Executive Officer, President, a Continuing Director (as defined
below), Vice Presidents (in the order designated by the board (or, in the
absence of such designation, in the order of their tenure) if more than one) and
Secretary. The Secretary shall keep the records of each meeting of stockholders.
In the absence or inability to act of any such officer, such officer's duties
shall be performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by some person appointed by the
meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the
4
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proper conduct of the meeting, including, without limitation, the establishment
of procedures for the maintenance of order and safety, limitations on the time
allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls.
"Continuing Director" means (i) any member of the board of directors of the
Corporation, while such person is a member of the board, and who was a member of
the board prior to the Effective Time (as defined in the certificate of
incorporation) or (ii) any person who subsequently becomes a member of the
board, while such person is a member of the board, if such person's nomination
for election or election to the board is recommended or approved by a majority
of the Continuing Directors.
2.1 Inspectors. The board of directors may, in advance of any meeting of
----------
stockholders, appoint one or more inspectors to act at such meeting and make a
written report thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and ballots and shall receive votes, ballots, or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots, or consents, determine the
results, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by them, certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. The inspector(s) shall
perform his duties in accordance with (S) 231 of the Delaware General
Corporation Law. On request of the chairman of the meeting, the inspectors
shall make a report in writing of any challenge, request, or matter determined
by them and shall execute a certificate of any fact found by them. No director
or candidate for the office of director shall act as an inspector of an election
of directors. Inspectors need not be stockholders.
ARTICLE 3 - DIRECTORS
3.1 Management. The business and affairs of the Corporation shall be
----------
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all of the powers of the Corporation.
5
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3.2 Number; Qualification; Election; Term. The number of directors which
-------------------------------------
shall constitute the entire board of directors shall be as determined pursuant
to the certificate of incorporation of the Corporation. Except as otherwise
required by law, the certificate of incorporation of the Corporation, or these
bylaws, the directors shall be elected at an annual meeting of stockholders at
which a quorum is present. Nominations for the election of directors shall be
made in accordance with the provisions contained in the certificate of
incorporation of the Corporation. Directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy and entitled
to vote on the election of directors. Each director so chosen shall hold office
for the term provided in the certificate of incorporation of the Corporation
until his successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. None of the directors need be a
stockholder of the Corporation or a resident of the State of Delaware. Each
director must have attained the age of majority.
3.3 Change in Number. No decrease in the number of directors constituting
----------------
the entire board of directors shall have the effect of shortening the term of
any incumbent director.
3.4 Removal. Removal of directors shall be governed by the provisions of
-------
the certificate of incorporation of the Corporation.
3.5 Vacancies. Vacancies and newly-created directorships resulting from
---------
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class shall be filled in
accordance with the provisions of the certificate of incorporation of the
Corporation.
3.6 Meetings of Directors. The directors may hold their meetings and may
---------------------
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 Election of Officers. At the first meeting of the board of directors
--------------------
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.8 Regular Meetings. Regular meetings of the board of directors shall be
----------------
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.9 Special Meetings. Special meetings of the board of directors shall be
----------------
held whenever called by the Chairman of the Board, the Chief Executive Officer,
or any director.
3.10 Notice. The Secretary shall give notice of each special meeting to
------
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend
<PAGE>
such meeting without protesting, prior to or at its commencement, the lack of
notice to him. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
3.11 Quorum; Majority Vote. At all meetings of the board of directors, a
---------------------
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or these bylaws, the act of
a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.
3.12 Procedure. At meetings of the board of directors, business shall be
---------
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
Vice Chairman of the Board (or in the event that there be more than one Vice
Chairman, the Vice Chairmen in the order designated by the directors, or in the
absence of any designation, then in the order of their tenure), if such office
has been filled, and, if not or if the Vice Chairman of the Board is absent or
otherwise unable to act, the Chief Executive Officer shall preside at all
meetings of the board of directors. In the absence or inability to act of any
of the foregoing persons, a chairman shall be chosen by the board of directors
from among the directors present. The Secretary of the Corporation shall act as
the secretary of each meeting of the board of directors unless the board of
directors appoints another person to act as secretary of the meeting. The board
of directors shall keep regular minutes of its proceedings which shall be placed
in the minute book of the Corporation. The board of directors may adopt such
rules and regulations not inconsistent with the provisions of law, the
certificate of incorporation of the Corporation or these bylaws for the conduct
of its meetings and management of the affairs of the Corporation as the board
may deem proper.
3.13 Presumption of Assent. A director of the Corporation who is present
---------------------
at the meeting of the board of directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
3.14 Compensation. Unless otherwise restricted by the certificate of
------------
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special
7
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meetings of the board of directors or any committee thereof; provided, however,
that nothing contained herein shall be construed to preclude any director from
serving the Corporation in any other capacity or receiving compensation
therefor.
ARTICLE 4 - COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
-----------
majority of the entire board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
---------------------------
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased
from time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.
4.3 Authority. Each committee, to the extent expressly provided in the
---------
resolution establishing such committee, shall have and may exercise all of the
powers and authority of the board of directors in the management of the business
and affairs of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at any
-----------------
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The board of directors may designate
-------------------------------
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held
----------------
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
----------------
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
8
<PAGE>
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
---------------------
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, these bylaws or a vote of the specific committee.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
-------
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 Compensation. Unless otherwise restricted by the certificate of
------------
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of any committee of the
board of directors; provided, however, that nothing contained herein shall be
construed to preclude any director from serving the Corporation in any other
capacity or receiving compensation therefor.
4.11 Responsibility. The designation of any committee and the delegation
--------------
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE 5 - NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of the
------
Corporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation, or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given at the time when
the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by overnight courier service shall be deemed
to be delivered and given at the time delivered to such service with all charges
prepaid and addressed as aforesaid. Any notice required or permitted to be
given by telegram, telex, or telefax shall be deemed to be delivered and given
at the time transmitted with all charges prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
------
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled
9
<PAGE>
to such notice, whether before or after the time stated therein, shall be
equivalent to the giving of such notice. Attendance of a stockholder, director,
or committee member at a meeting shall constitute a waiver of notice of such
meeting, except where such person attends for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
ARTICLE 6 - OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
------------------------------
be a President, a Secretary, and such other officers as the board of directors
may from time to time elect or appoint, including a Chairman of the Board, one
or more Vice Chairmen of the Board, a Chief Executive Officer, one or more Vice
Presidents (with each Vice President to have such descriptive title, if any, as
the board of directors shall determine), a Secretary and a Treasurer. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified, until his death, or until he shall resign or shall have
been removed in the manner hereinafter provided. Any two or more offices may be
held by the same person. None of the officers need be a stockholder or a
director of the Corporation or a resident of the State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the board of
-------
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
---------
death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such duties
---------
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall
------------
be fixed from time to time by the board of directors; provided, however, that
the board of directors may delegate the power to determine the compensation of
any officer and agent (other than the officer to whom such power is delegated)
to the Chairman of the Board or the Chief Executive Officer.
6.6 Chairman of the Board; Vice Chairman of the Board. The Chairman of
-------------------------------------------------
the Board, if elected by the board of directors, shall have such powers and
duties as may be prescribed by the board of directors. Such officer shall
preside at all meetings of the stockholders and of the board of directors. Such
officer may sign all certificates for shares of stock of the Corporation. In the
absence of the Chairman of the Board or, in the event of his inability or
refusal to act, the Vice Chairman (or in the event there be more than one Vice
Chairman, the Vice Chairmen in the order designated by the directors, or in the
absence of any designation, then in the order of their tenure) shall perform the
duties of the Chairman of the Board, and when so acting shall have all
10
<PAGE>
the powers of and be subject to all the restrictions upon the Chairman of the
Board. The Vice Chairman shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
6.7 Chief Executive Officer. The Chief Executive Officer shall have
-----------------------
general executive charge, management, and control of the properties and
operations of the Corporation in the ordinary course of its business, with all
such powers with respect to such properties and operations as may be reasonably
incident to such responsibilities. If the board of directors has not elected a
Chairman of the Board or any Vice Chairman of the Board or in the absence or
inability to act of the Chairman of the Board or any Vice Chairman of the Board,
the Chief Executive Officer shall exercise all of the powers and discharge all
of the duties of the Chairman of the Board. As between the Corporation and
third parties, any action taken by the Chief Executive Officer in the
performance of the duties of the Chairman of the Board shall be conclusive
evidence that there is no Chairman of the Board or Vice Chairman of the Board or
that the Chairman of the Board or Vice Chairman of the Board is absent or unable
to act.
6.8 President. The President shall have such powers and duties as may be
---------
assigned to him by the board of directors, the Chairman of the Board or the
Chief Executive Officer. In the absence or inability to act of the Chief
Executive Officer, the President shall exercise all of the powers and discharge
all of the duties of the Chief Executive Officer. As between the Corporation
and third parties, any action taken by the President in the performance of the
duties of the Chief Executive Officer shall be conclusive evidence that there is
no Chief Executive Officer or that the Chief Executive Officer is absent or
unable to act.
6.9 Vice Presidents. Each Vice President shall have such powers and
---------------
duties as may be assigned to him by the board of directors, the Chairman of the
Board, the Chief Executive Officer, or the President and (in order designated by
the board of directors or, in the absence of such designation, as determined by
the length of time such person has held the office of Vice President) shall
exercise the powers of the President during that officer's absence or inability
to act. As between the Corporation and third parties, any action taken by a
Vice President in the performance of the duties of the President shall be
conclusive evidence of the absence or inability to act of the President at the
time such action was taken.
6.10 Treasurer. The Treasurer shall have custody of the Corporation's
---------
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the Chief
Executive Officer.
6.11 Assistant Treasurers. Each Assistant Treasurer shall have such powers
--------------------
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the Chief Executive Officer. The Assistant Treasurers (in the
order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time
11
<PAGE>
they have held the office of Assistant Treasurer) shall exercise the powers of
the Treasurer during that officer's absence or inability to act.
6.12 Secretary. Except as otherwise provided in these bylaws, the
---------
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board, Chief Executive Officer or the President, in the name of the Corporation,
all contracts of the Corporation and affix the seal of the Corporation thereto.
He may sign with the Chairman of the Board, Chief Executive Officer or the
President all certificates for shares of stock of the Corporation, and he shall
have charge of the certificate books, transfer books, and stock papers as the
board of directors may direct, all of which shall at all reasonable times be
open to inspection by any director upon application at the office of the
Corporation during business hours. He shall in general perform all duties
incident to the office of the Secretary, subject to the control of the board of
directors, the Chairman of the Board, and the Chief Executive Officer.
6.13 Assistant Secretaries. Each Assistant Secretary shall have such
---------------------
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the Chief Executive Officer. The Assistant
Secretaries (in the order of their seniority as determined by the board of
directors or, in the absence of such a determination, as determined by the
length of time they have held the office of Assistant Secretary) shall exercise
the powers of the Secretary during that officer's absence or inability to act.
ARTICLE SEVEN - INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
7.1 Third-Party Actions. The Corporation shall indemnify any person who
-------------------
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, that such person had reasonable cause to
believe that his or her conduct was unlawful.
12
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The Corporation may indemnify any employee or agent of the
Corporation, or any employee or agent serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in the manner and to the extent that it shall
indemnify any director or officer under this Section 7.1.
7.2. Derivative Actions. The Corporation may indemnify any person who
------------------
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against all expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of such
action or suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the Court of Chancery of Delaware or
such other court shall deem proper.
7.3. Determination of Indemnification. Any indemnification under
--------------------------------
Section 7.1 or 7.2 of this Article 7 (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth in Section 7.1 or 7.2 of this Article 7. Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, (i) by the board of directors by a majority vote of directors who
were not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) by a committee of such directors designated by majority vote of
such directors, even though less than a quorum, or (iii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iv) by the stockholders.
7.4. Right to Indemnification. Notwithstanding the other provisions
------------------------
of this Article 7, to the extent that a present or former director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
7.1 or 7.2 of this Article 7, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
13
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7.5. Advance of Expenses. Expenses (including attorneys' fees)
-------------------
incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation on behalf of a
director, officer, employee or agent in advance of the final disposition of such
action, suit or proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Article 7.
7.6. Indemnification Not Exclusive. The indemnification and
-----------------------------
advancement of expenses provided by this Article 7 shall not be deemed exclusive
of any other rights to which any person seeking indemnification or advancement
of expenses may be entitled under any law, any agreement, the certificate of
incorporation, any vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
7.7. Insurance. The Corporation may purchase and maintain insurance
---------
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against liability under the provisions of this Article 7.
7.8. Definitions of Certain Terms. For purposes of this Article 7,
-----------------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article 7 with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
For purposes of this Article 7, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and
14
<PAGE>
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article 7.
7.9. Liability of Directors. Notwithstanding any provision of the
----------------------
certificate of incorporation or any other provision herein, no director shall be
personally liable to the Corporation or any stockholder for monetary damages for
breach of fiduciary duty as a director, except for any matter in respect of
which such director shall be liable under Section 174 of the Delaware General
Corporation Law or any amendment thereto or successor provision thereof or shall
be liable by reason that, in addition to any and all other requirements for such
liability, he (i) shall have breached his duty of loyalty to the Corporation or
its stockholders, (ii) shall not have acted in good faith, (iii) shall have
acted in a manner involving intentional misconduct or a knowing violation of law
or, in failing to act, shall have acted in a manner involving intentional
misconduct or a knowing violation of law or (iv) shall have derived an improper
personal benefit.
7.10. Continuity. The indemnification and advancement of expenses
----------
provided for in this Article 7 shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE EIGHT - CERTIFICATES AND STOCKHOLDERS
8.1 Certificates for Shares. Certificates for shares of stock of the
-----------------------
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board, any
Vice Chairman of the Board or the President or a Vice President and also by the
Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any and all signatures on the certificate may be a facsimile and may
be sealed with the seal of the Corporation or a facsimile thereof. If any
officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. The certificates
shall be consecutively numbered and shall be entered in the books of the
Corporation as they are issued and shall exhibit the holder's name and the
number of shares.
8.2 Replacement of Lost, Stolen, or Destroyed Certificates. The
------------------------------------------------------
board of directors may direct a new certificate or certificates to be issued in
place of a certificate or certificates theretofore issued by the Corporation and
alleged to have been lost, stolen, or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate or certificates representing
shares to be lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates the board of directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed certificate or certificates, or his legal representative,
to advertise the same in such manner as it shall require and/or to give the
Corporation a bond with a surety or sureties satisfactory to the Corporation in
such sum as it may direct as indemnity against any claim, or expense resulting
from a claim, that
15
<PAGE>
may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost, stolen, or destroyed.
8.3 Transfer of Shares. Shares of stock of the Corporation shall be
------------------
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
8.4 Registered Stockholders. The Corporation shall be entitled to
-----------------------
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
8.5 Regulations. The board of directors shall have the power and
-----------
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
8.6 Legends. The board of directors shall have the power and
-------
authority to provide that certificates representing shares of stock bear such
legends as the board of directors deems appropriate to assure that the
Corporation does not become liable for violations of federal or state securities
laws or other applicable law.
ARTICLE NINE - AFFILIATED TRANSACTIONS
9.1. Validity. Except as otherwise provided in the certificate of
--------
incorporation and except as otherwise provided in this bylaw, if Section 9.2 is
satisfied, no contract or transaction between the Corporation and any of its
directors or officers, or any corporation, partnership, association or other
organization in which any of such directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely because
of this relationship, or solely because of the presence of the director or
officer at the meeting of the board of directors or committee thereof
authorizing the contract or transaction, or solely because any such director's
or officer's votes are counted for such purpose.
9.2. Disclosure; Approval; Fairness. Section 9.1 shall apply only if:
------------------------------
(a) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are
disclosed or are known:
(i) to the board of directors (or committee thereof)
and it nevertheless in good faith authorizes or ratifies the
contract or transaction
16
<PAGE>
by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less
than a quorum, each interested director to be counted in
determining whether a quorum is present but not in
calculating the vote; or
(ii) to the stockholders entitled to vote thereon and
they nevertheless authorize or ratify the contract or
transaction in good faith by the affirmative requisite vote
of the stockholders; or
(b) the contract or transaction is fair to the Corporation
as of the time it is authorized, approved or ratified by the board of
directors (or committee thereof) or the stockholders.
9.3. Nonexclusive. This provision shall not be construed to
------------
invalidate a contract or transaction which would be valid in the absence of this
provision.
ARTICLE TEN - MISCELLANEOUS PROVISIONS
10.1 Dividends. Subject to provisions of law and the certificate of
---------
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
10.2 Reserves. There may be created by the board of directors out of
--------
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to provide
for contingencies, to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
10.3 Books and Records. The Corporation shall keep correct and
-----------------
complete books and records of account, shall keep minutes of the proceedings of
its stockholders and board of directors and shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
10.4 Fiscal Year. The fiscal year of the Corporation shall be fixed
-----------
by the board of directors; provided, that if such fiscal year is not fixed by
the board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
17
<PAGE>
10.5 Seal. The seal of the Corporation shall be such as from time to
----
time may be approved by the board of directors.
10.6 Resignations. Any director, committee member, or officer may
------------
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the Chairman of the Board, the Chief
Executive Officer, or the Secretary. Such resignation shall take effect at the
time specified therein or, if no time is specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
10.7 Securities of Other Corporations. The Chairman of the Board, the
--------------------------------
Vice Chairman of the Board, the Chief Executive Officer, the President or any
Vice President of the Corporation shall have the power and authority to
transfer, endorse for transfer, vote, consent, or take any other action with
respect to any securities of another issuer which may be held or owned by the
Corporation and to make, execute, and deliver any waiver, proxy, or consent with
respect to any such securities.
10.8 Telephone Meetings. Stockholders (acting for themselves or
------------------
through a proxy), members of the board of directors, and members of a committee
of the board of directors may participate in and hold a meeting of such
stockholders, board of directors, or committee by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this section shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
10.9 Action Without a Meeting. (a) Unless otherwise provided in the
------------------------
certificate of incorporation of the Corporation or prohibited by any securities
exchange of which the Corporation is a member, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in the
manner required by this Section 10.9(a) to the Corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody
18
<PAGE>
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office, principal place of
business, or such officer or agent shall be by hand or by certified or
registered mail, return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation
of the Corporation or by these bylaws, any action required or permitted to be
taken at a meeting of the board of directors, or of any committee of the board
of directors, may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, shall be signed by all the directors
or all the committee members, as the case may be, entitled to vote with respect
to the subject matter thereof, and such consent shall have the same force and
effect as a vote of such directors or committee members, as the case may be, and
may be stated as such in any certificate or document filed with the Secretary of
State of the State of Delaware or in any certificate delivered to any person.
Such consent or consents shall be filed with the minutes of proceedings of the
board or committee, as the case may be.
10.10 Invalid Provisions. If any part of these bylaws shall be
------------------
held invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
10.11 Mortgages, etc. With respect to any deed, deed of trust,
---------------
mortgage, or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
10.12 Headings. The headings used in these bylaws have been
--------
inserted for administrative convenience only and do not constitute matter to be
construed in interpretation.
10.13 References. Whenever herein the singular number is used,
----------
the same shall include the plural where appropriate, and words of any gender
should include each other gender where appropriate.
10.14 Amendments. These bylaws may be altered, amended, or
----------
repealed or new bylaws may be adopted by a majority of the entire board of
directors at any meeting of the board of directors. The stockholders of the
Corporation shall have the power to adopt, amend or repeal any provisions of the
bylaws only to the extent and in the manner provided in the certificate of
incorporation of the Corporation. Notwithstanding any other provision
contained herein to the contrary, these bylaws shall not be amended so as to
make them inconsistent with any provision of the certificate of incorporation.
The affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of the Voting Stock (as defined in the
certificate of incorporation), voting together as a single class, and the
approval of a majority of the Continuing Directors )as defined in Article 13 of
the certificate of incorporation) shall be required to alter, amend, repeal, or
adopt any provision inconsistent with the preceding sentence.
19
<PAGE>
CERTIFICATE
I, William D. Pratt, Executive Vice President, General Counsel and
Secretary of Hollywood Casino Corporation, a Delaware corporation (the
"Corporation"), do hereby certify that the foregoing document is a true and
correct copy of the Corporation's Second Amended and Restated Bylaws as adopted
by the Board of Directors of the Corporation on December 15, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 15/th/
day of December, 1999.
/s/ William D. Pratt
-------------------------------------------
William D. Pratt, Executive Vice President,
General Counsel and Secretary of Hollywood
Casino Corporation
20
<PAGE>
Exhibit 4.24
FIRST AMENDMENT TO CASH COLLATERAL AND
DISBURSEMENT AGREEMENT
----------------------
THIS FIRST AMENDMENT TO CASH COLLATERAL AND DISBURSEMENT AGREEMENT
(this "Amendment") is made and entered into as of the 1st day of January, 2000,
to be effective for all purposes as of August 10, 1999 (the "Effective Date"),
by and among SHREVEPORT CAPITAL CORPORATION, HOLLYWOOD CASINO SHREVEPORT, FIRST
AMERICAN TITLE INSURANCE COMPANY and STATE STREET BANK AND TRUST COMPANY.
RECITALS
--------
WHEREAS, the parties previously have entered a Cash Collateral and
Disbursement Agreement dated August 10, 1999 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement as set forth
in this Amendment;
AGREEMENT
---------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
(g) Amendment to Section 5. Effective as of the Effective Date,
----------------------
Section 5 of the Agreement is hereby amended by deleting the
reference to "September 1, 1999" in the first sentence thereof and
replacing it with a reference to "February 1, 2000".
(h) Choice of Law. The existence, validity, construction, operation
-------------
and effect of any and all terms and provisions of this Amendment
shall be determined in accordance with and governed by the laws of
the State of New York.
(i) Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as
of the date first above written.
SHREVEPORT CAPITAL CORPORATION
By: /s/ Paul C. Yates
------------------------------------------
Name: Paul C. Yates
Title: Executive Vice President,
Chief Financial Officer,
Treasurer and Assistant
Secretary
HOLLYWOOD CASINO SHREVEPORT
By: HCS I, Inc., its managing general partner
By: /s/ Paul C. Yates
------------------------------------------
Name: Paul C. Yates
Title: Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
FIRST AMERICAN TITLE INSURANCE
COMPANY
By: /s/ Scott P. Gallinghouse
------------------------------------------
Name: Scott P. Gallinghouse
-----------------------------------------
Title: Underwriting Counsel
----------------------------------------
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Robert J. Dunn
------------------------------------------
Name: Robert J. Dunn
-----------------------------------------
Title: Vice President
----------------------------------------
<PAGE>
Exhibit 9.4
DATED AS OF DECEMBER 17, 1999
HOLLYWOOD CASINO CORPORATION
VOTING TRUST AGREEMENT
("Agreement")
- by and between -
JACK E. PRATT, JR., AS TRUSTEE
OF THE J. E. PRATT GIFT TRUST
("Shareholder")
- and -
JACK E. PRATT, SR.
("Proxy")
<PAGE>
VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT ("Agreement") is made and entered into as
of the 17/th/ day of December, 1999, by and between JACK E. PRATT, JR., as
Trustee os the J. E. Pratt Gift Trust ("Shareholder") and JACK E. PRATT,
SR.("Proxy").
W I T N E S S E T H :
---------------------
WHEREAS, Shareholder is a Texas Trust, whose business address is in
care of Jack E. Pratt, Jr., Trustee, Two Galleria Tower, Suite 2200, 13455 Noel
Road, LB 48, Dallas, Texas 75240; and,
WHEREAS, Shareholder is the owner, either directly, indirectly or
beneficially, of 30,000 shares each of the issued and outstanding common stock
("the Stock") of Hollywood Casino Corporation, a corporation duly organized and
existing under the laws of the State of Delaware ("the Corporation"); and,
WHEREAS, Proxy is an adult individual residing 5055 Park Lane, Dallas,
Texas 75220; and,
WHEREAS, Shareholder, reposing a special trust and confidence in
Proxy, wishes to irrevocably assign all voting and other rights incident to the
Stock in Proxy under the terms and pursuant to the conditions set forth in this
Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises,
representations, covenants, agreements, understandings and undertakings
hereinafter set forth, Shareholder and Proxy do hereby covenant and agree as
follows:
1. APPOINTMENT OF PROXY. Shareholder hereby (a) irrevocably
appoints Proxy as Shareholder's attorney-in-fact and (b) irrevocably grants and
assigns to Proxy
<PAGE>
any and all voting rights Shareholder may now have, or may during the Term of
this Agreement acquire, all with respect to the Stock.
2. PROXY'S DUTIES/LIMITATION OF LIABILITY. In the discharge of his
obligations under this Agreement, Proxy shall have the right to vote the Stock
in such form and manner as Proxy, in the exercise of good faith and his prudent
business judgment, may deem in the best interest of Shareholder. Other than as
specifically set forth in this Paragraph 2, Proxy shall have no further duties
or obligations owing to Shareholder with regard to the Stock. Provided Proxy
acts pursuant to this Agreement in the exercise of good faith and his prudent
business judgment, Proxy shall not be personally liable to any person or entity
for any act or omission to act under this Agreement.
3. COVENANT NOT TO INFLUENCE. Shareholder hereby covenants and
agrees that he shall not exercise or attempt to exercise, directly or
indirectly, any control or influence over the Proxy with regard to any matter
concerning the voting of the Stock.
4. RELATIONSHIP BETWEEN SHAREHOLDER AND PROXY. Except as otherwise
specifically set forth in this Agreement, nothing contained or set forth in this
Agreement shall be construed so as to create any fiduciary or other relationship
between Shareholder and Proxy. In the course of exercising his duties under
this Agreement, Proxy shall not be entitled to receive any compensation or other
remuneration from Shareholder, provided, however, that Proxy shall be entitled
to retain and pay, on account of and for the benefit of Shareholder, such
professional services providers as Proxy may deem necessary or desirable. In
such event, Proxy shall pay for, and Shareholder shall reimburse Proxy for, the
costs of such professional services providers.
5. SUCCESSOR TRUSTEE. In the event Proxy is unable or unwilling to
serve, Shareholder shall have the right to appoint a Successor Proxy. Any such
Successor Proxy shall assume all rights and responsibilities of Proxy pursuant
to this Agreement but shall not be
2
<PAGE>
responsible for any acts or failures to act which occurred prior to such
Successor Proxy assuming all rights and responsibilities of Proxy under this
Agreement.
6. EFFECTIVE DATE/TERM/TERMINATION.
(a) Effective Date and Term. This Agreement shall become
effective as of the date and year first above written and shall
continue in force until December 31, 2001, unless sooner terminated as
provided in Paragraph 7(b) of this Agreement.
(b) Termination. This Agreement shall immediately terminate upon
the occurrence of Shareholder's' sale of all of the Stock pursuant to
the provisions of Paragraph 4 of this Agreement.
7. BEST EVIDENCE. This Agreement shall be executed in original and
"Xerox" or photostatic copies and each copy bearing original signatures of
Shareholder and Proxy in ink shall be deemed an original.
8. SUCCESSION. Subject to the provisions of Paragraph 6 of this
Agreement, this Agreement shall be binding upon and inure to the benefits of
Shareholder's and Proxy's respective heirs, successors and assigns.
9. AMENDMENT OR MODIFICATION. This Agreement may not be amended or
modified except upon a writing (i) signed by both Shareholder and Proxy and (ii)
approved by the Commission.
10. ASSIGNMENT. This Agreement shall not be assigned by either
Shareholder or Proxy without the prior written consent of both the non-assigning
party. Any purported assignment in violation of the provisions of this Paragraph
11 shall be deemed null and void and shall have no force or effect.
3
<PAGE>
11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
12. NOTICES. Any and all written notices required by this Agreement
shall be either (i) hand delivered, (ii) mailed via certified mail, return
receipt requested, or (ii) delivered via any
commercial courier service, addressed to the following:
TO Shareholder: Jack E. Pratt, Jr., Trustee
--------------- J. E. Pratt Gift Trust
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
TO PROXY: Jack E. Pratt, Sr.
--------- 5055 Park Lane
Dallas, Texas 75220
WITH COPIES TO: General Counsel
--------------- Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
All notices hand delivered shall be deemed delivered as of the date
actually delivered. All notices mailed via certified mail, return receipt
requested, shall be deemed delivered as of four (4) business days after the date
postmarked. All notices delivered via a commercial courier service shall be
deemed delivered as of the next business day after the date entrusted to such
commercial courier service. Any changes in any of the addresses listed in this
Paragraph 13 shall be made by written notice as provided in this Paragraph 13.
4
<PAGE>
13. 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.
14. 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.
IN WITNESS WHEREOF, Shareholder and Proxy have executed and delivered
this Agreement as of the date and year first above written.
WITNESS: J. E. PRATT GIFT TRUST
/s/ Evelyn Johnstone By: /s/ Jack E. Pratt Sr.
----------------------------- -----------------------------
Jack E. Pratt, Jr., Trustee
WITNESS:
/s/ Evelyn Johnstone /s/ Jack E. Pratt, Sr.
----------------------------- -----------------------------
Jack E. Pratt, Sr., Proxy
5
<PAGE>
Exhibit 10.4
-----------------------------------
Dated: January 1, 2000
-----------------------------------
EMPLOYMENT AGREEMENT
- by and between -
HOLLYWOOD CASINO CORPORATION
- and -
EDWARD T. PRATT III
-----------------------------------
<PAGE>
-----------------------------------
TABLE OF CONTENTS
-----------------------------------
Page
----
RECITALS.......................................................... 1
1. DEFINITIONS................................................... 2
2. PRIOR EMPLOYMENT.............................................. 3
3. BASIC EMPLOYMENT AGREEMENT.................................... 4
4. DUTIES OF EMPLOYEE............................................ 4
5. ACCEPTANCE OF EMPLOYMENT...................................... 5
6. TERM.......................................................... 5
7. SPECIAL TERMINATION PROVISIONS................................ 5
8. COMPENSATION TO EMPLOYEE...................................... 6
(a) Base Salary........................................... 6
(b) Base Salary Adjustment................................ 7
(c) Incentive Bonus....................................... 7
(d) Employee Benefit Plans................................ 7
(e) Expense Reimbursement................................. 8
(f) Licensing Expenses.................................... 8
(g) Vacations and Holidays................................ 8
9. LICENSING REQUIREMENTS........................................ 8
10. CONFIDENTIALITY...............................................10
11. RESTRICTIVE COVENANT..........................................11
11. BEST EVIDENCE.................................................11
12. SUCCESSION....................................................11
13. ASSIGNMENT....................................................12
i
<PAGE>
14. AMENDMENT OR MODIFICATION.....................................12
15. GOVERNING LAW.................................................12
16. NOTICES.......................................................12
17. INTERPRETATION................................................13
18. SEVERABILITY..................................................13
19. DISPUTE RESOLUTION............................................13
20. WAIVER........................................................13
21. PAROL.........................................................14
EXECUTION PAGE....................................................15
ii
<PAGE>
-----------------------------------
EMPLOYMENT AGREEMENT
-----------------------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of January, 2000, by and between HOLLYWOOD CASINO CORPORATION, a
Delaware corporation ("Employer"), and EDWARD T. PRATT III("Employee").
W I T N E S S E T H:
-------------------
WHEREAS, Employer is a corporation, duly organized and existing under
the laws of the State of Delaware, which develops and/or operates riverboat and
dockside casinos and related support facilities in emerging and established
gaming jurisdictions and which has a need for qualified, experienced personnel;
WHEREAS, Employee is an adult individual currently residing at 3307
Beverly Drive, Dallas, Texas 75205;
WHEREAS, Employee has represented and warranted to Employer that
Employee possesses sufficient qualifications and expertise in order to fulfill
the terms of the employment stated in this Agreement; and
WHEREAS, Employer is willing to employ Employee, and Employee is
desirous of accepting employment from Employer, under the terms and pursuant to
the conditions set forth herein.
1
<PAGE>
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:
(a) "Cause" - means
-----
(i) the conviction of Employee of a felony by a court of competent
jurisdiction; (ii) the indictment of Employee by a state or federal
grand jury of competent jurisdiction for embezzlement or
misappropriation of Employer's funds or for any act of dishonesty or
lack of fidelity towards Employer; (iii) a decree of a court of
competent jurisdiction that Employee is not mentally competent or is
unable to handle his own affairs; (iv) the written confession by
Employee of any act of dishonesty towards Employer or any
embezzlement or misappropriation of Employer's funds; (v) the payment
(or, by the operation solely of the effect of a deductible, the
failure of payment) by a surety or insurer of a claim under a
fidelity bond issued to the benefit of Employer reimbursing Employer
for a loss due to the wrongful act or wrongful omission to act of
Employee (the occurrence of which shall cause Employee to be indebted
to Employer for the greater of either (A) the loss incurred by
Employer or (B) the sums paid by Employer to Employee pursuant to
this Agreement); (vi) Employee's breach of the restrictive covenant
set forth in Paragraph 11 of this Agreement, or (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, provided that should
Employee's required licenses, permits and/or approvals be suspended
pending a final license, permit or approval revocation determination,
this Agreement shall not terminate but any compensation which would
otherwise be paid by Employer to Employee under Paragraph 8 of this
Agreement shall be suspended and accrued pending the final resolution
of such final license, permit and/or approval revocation
determination, and, in the event such final resolution of such final
license, permit and/or approval revocation determination does not
revoke Employee's licenses, permits
2
<PAGE>
and/or approvals, any compensation which has been so suspended and
accrued shall be paid by Employer to Employee, provided, however,
that Employee's disability due to illness or accident or any other
mental or physical incapacity shall not constitute "Cause" as defined
herein.
(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 three hundred
sixty (360) 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 three hundred sixtieth
(360th) day.
(c) "Confidential Information" - means any information in any form,
------------------------
regardless of the medium or media by which such information is
recorded or communicated, that is in the possession of Employer being
neither in the public domain nor routinely available to third
parties, and if directly or indirectly disclosed to Employer's
competitors (i) would assist such competitors in competing against
Employer, (ii) would diminish or eliminate any competitive advantage
now enjoyed by Employer,(iii) would cause financial injury or loss to
Employer, or (iv) would reveal proprietary information or trade
secrets of Employer.
(d) "Effective Date" - means January 1, 2000.
--------------
(e) "Employee" - means Edward T. Pratt III.
--------
(f) "Employer" - means Hollywood Casino Corporation, a Delaware
--------
corporation.
(g) "Employer's Affiliates" - means any parent, subsidiary,
---------------------
affiliate or other legal entity of Employer.
(h) "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, including, without limitation, that certain Employment Agreement dated as
of May 1, 1996, between Employer and Employee. From and
3
<PAGE>
after the Effective Date, Employee 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. Notwithstanding the foregoing, Employer
and Employee hereby covenant and agree that, in the absence of mutual consent of
both Employer and Employee, Employee shall not be assigned duties by Employer
which would require that Employee maintain his principal place of residence or
primary place of employment outside of the greater metropolitan area of Dallas,
Texas.
4. DUTIES OF EMPLOYEE. Employee shall perform such duties assigned to
------------------
Employee by Employer as are generally associated with the duties of President
and Chief Operating Officer of Employer, or such similar duties as may be
assigned to Employee by the Chairman of the Board of Directors 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. In the performance of his duties hereunder, Employee shall report
directly to the Chairman of the Board/Chief Executive Officer and the Board of
Directors of Employer. Notwithstanding the foregoing, Employee shall devote
such time
<PAGE>
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 to the performance of
Employee's duties under this Agreement.
6. TERM. The term of this Agreement shall commence on January 1, 2000
----
and expire on 12:00 p.m. on December 31, 2003 (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; provided, however, that any and all
-------- -------
employee benefits due and owing to Employee shall be paid to the
spouse of Employee in the event of such death;
(b) the giving of written notice from Employer to Employee of the
termination of this Agreement upon the Complete Disability of
Employee; provided, however, that a termination pursuant to this
Paragraph 7(b) shall not affect Employee's vesting or continued rights
in any stock option plan set forth in Paragraph 8(c) of this
Agreement;
(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 Employer to Employee of the
termination of this Agreement without Cause; provided, however, that,
-------- -------
if Employer gives Employee written notice of termination of this
Agreement without Cause, such notice must be accompanied by Employer's
written tender to Employee of Employer's commitment to
5
<PAGE>
continue to pay to Employee the compensation set forth in Paragraph
8(a) of this Agreement; and/or
(e) a Change of Control (as defined in that certain Indenture dated
as of May 19, 1999, among Employer, HWCC-Tunica, Inc., HWCC-
Shreveport, Inc. and State Street Bank and Trust Company, as
Trustee); provided, however, that, in the event of such Change of
-------- -------
Control, Employer shall be obligated to pay to Employee an amount
(the "Severance Amount") equal to the aggregate compensation which
would have been paid by Employer to Employee under Paragraph 8(a) of
this Agreement during the period (the "Severance Period") from the
date of termination to the later to occur of the expiration date of
this Agreement or thirty-six (36) months from the date of termination
assuming that such termination had not occurred. Employee shall have
the right, exercisable by written notice to Employer, to elect to
have the Severance Amount paid by Employer to Employee in (i) a lump
sum payment not later than the date of occurrence of the Change of
Control or (ii) equal monthly installments during the Severance
Period.
8. COMPENSATION TO EMPLOYEE. For and in complete consideration for
------------------------
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:
(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 Sixty-Eight Thousand and No/100 Dollars
($468,000.00), effective January 1, 2000, 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
6
<PAGE>
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 may be adjusted at such time and in such manner as the Compensation
Committee of the Board of Directors of Employer may determine in accordance with
the executive compensation policy of Employer then in effect; provided, however,
-------- -------
that such base salary shall never be less than $468,000 per annum.
(c) Incentive Bonus. Employee shall be eligible to receive one or
---------------
more incentive compensation bonuses based upon such performance and other
criteria as Employer shall determine in its sole discretion. After the
Effective Date of this Agreement, Employer will implement an incentive bonus
program in which Employee will participate and which will be used to determine
Employee's incentive bonus. The incentive bonus shall be payable by Employer to
Employee no later than the first day of March of the year following the calendar
year for which the incentive bonus is accrued (or in accordance with the terms
of any applicable incentive bonus program), and, where applicable, shall be
prorated based upon the number of days Employee was employed by Employer during
such calendar year. Any incentive bonus shall be in addition to Employee's
participation in any and all profit sharing plans, bonus participation plans,
stock options or other incentive compensation to which Employee is entitled to
participate or receive.
(d) 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.
7
<PAGE>
(e) 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.
(f) 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.
(g) 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.
9. LICENSING REQUIREMENTS. (a) Employer and Employee hereby
----------------------
covenant and agree that this Agreement may be subject to the approval of (i) the
Illinois Gaming Board (the "IGB") pursuant to the provisions of the Illinois
Riverboat Gambling Act, as amended (the "Illinois Gaming Act"), and the
regulations promulgated thereunder, (ii) the Mississippi Gaming
8
<PAGE>
Commission (the "MGC") pursuant to the provisions of the Mississippi Gaming
Control Act, as amended (the "Mississippi Gaming Act"), and the regulations
promulgated thereunder, (iii) the Louisiana Gaming Control Board (the "LGCB")
pursuant to the provisions of the Louisiana Riverboat Economic Development and
Gaming Control Act, as amended (the "Louisiana Gaming Act"), and the regulations
promulgated thereunder, and/or (iv) any and all other applicable gaming
authorities (the "Other Gaming Authorities") and any and all other applicable
gaming statutes (the "Other Gaming Acts") and the regulations promulgated
thereunder. If this Agreement is required by the Illinois Gaming Act, the
Mississippi Gaming Act, the Louisiana Gaming Act and/or the Other Gaming Acts
and the regulations promulgated thereunder to be approved by the IGB, the MGC,
the LGCB and/or the Other Gaming Authorities, as applicable, but is not so
approved by any such gaming regulatory authority, this Agreement shall
immediately terminate and shall be null and void and of no further force or
effect; provided, however, should this Agreement be required to be approved but
is not so approved by the IGB, the MGC, the LGCB and/or the Other Gaming
Authorities, Employer and Employee hereby covenant and agree that, with the
exception of the provisions of Paragraph 8 of this Agreement, this Agreement
shall be modified and amended so as to receive the appropriate approval from the
IGB, the MGC, the LGCB and/or the Other Gaming Authorities.
(b) Employer and Employee hereby covenant and agree that, in order for
Employee to discharge the duties required under this Agreement, Employee shall
hold any necessary and appropriate casino key employee license (the "License")
in gaming jurisdictions in which Employer or Employer's Affiliates may now or
hereafter maintain casino operations. In the event that any applicable gaming
regulatory authority (the "Authority") objects to the renewal of
9
<PAGE>
Employee's License or refuses to renew Employee's 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 either remove the Authority's
objections or secure the Authority's approval. Notwithstanding the foregoing, if
the source of the Authority's objections or the Authority's refusal to renew
Employee's License arise 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 Information,
including, but not limited to, (i) information, letters, photographs, graphs,
samples, or computer software of a confidential nature; (ii) information or
other documents concerning Employer's business, customers or suppliers; (iii)
Employer's marketing methods, files and credit and collection techniques and
files; or (iv) Employer's trade secrets, technical information, design, process,
procedure, improvement and other "know-how" or information not of a public
nature, regardless of how such information came into the custody of 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.
10
<PAGE>
11. RESTRICTIVE COVENANT. Employee hereby covenants and agrees that,
--------------------
during the Term of this Agreement or until December 31, 2004, if Employer
terminates Employee pursuant to Paragraph 7(d) above and is continuing to make
payments to Employee as provided therein, 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 without limitation any 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.
Notwithstanding anything express or implied herein to the contrary, the
restrictive covenant contained in this Paragraph 11 shall not apply in the event
of the termination of this Agreement due to a Change of Control.
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.
11
<PAGE>
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.
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: Chairman of the Board
----------- Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
WITH COPY TO: General Counsel
------------ Hollywood Casino Corporation
Two Galleria Tower, Suite 2200
13455 Noel Road, LB 48
Dallas, Texas 75240
TO EMPLOYEE: Edward T. Pratt III
----------- 3307 Beverly Drive
Dallas, Texas 75205
12
<PAGE>
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.
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 provision(s) 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 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
13
<PAGE>
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.
14
<PAGE>
IN WITNESS WHERE 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.
EMPLOYER:
--------
HOLLYWOOD CASINO CORPORATION, a
Delaware corporation
By: /s/ Jack E. Pratt
--------------------------------------
Name: Jack E. Pratt
Title: Chairman of the Board
& Chief Executive Officer
EMPLOYEE:
--------
/s/ Edward T. Pratt III
------------------------------------------
EDWARD T. PRATT III
15
<PAGE>
Exhibit 10.20
-----------------------------------
Dated: January 1, 2000
-----------------------------------
EMPLOYMENT AGREEMENT
- by and between -
HOLLYWOOD CASINO CORPORATION
- and -
PAUL C. YATES
-----------------------------------
<PAGE>
-----------------------------------
TABLE OF CONTENTS
-----------------------------------
Page
----
RECITALS............................................................... 1
1. DEFINITIONS............................................ 1
2. PRIOR EMPLOYMENT....................................... 3
3. BASIC EMPLOYMENT AGREEMENT............................. 3
4. DUTIES OF EMPLOYEE..................................... 3
5. ACCEPTANCE OF EMPLOYMENT............................... 3
6. TERM................................................... 4
7. SPECIAL TERMINATION PROVISIONS......................... 4
8. COMPENSATION TO EMPLOYEE............................... 4
(n) Base Salary.................................... 4
(b) Incentive Compensation Plan.................... 5
(c) Employee Benefit Plans......................... 5
(d) Expense Reimbursement.......................... 6
(e) Licensing Expenses............................. 6
(f) Vacations and Holidays......................... 6
9. LICENSING REQUIREMENTS................................. 7
10. TERMINATION BY EMPLOYEE................................ 8
11. CONFIDENTIALITY........................................ 9
12. RESTRICTIVE COVENANT................................... 9
13. BEST EVIDENCE..........................................10
14. SUCCESSION.............................................10
i
<PAGE>
15. ASSIGNMENT.............................................11
16. AMENDMENT OR MODIFICATION..............................11
17. GOVERNING LAW..........................................11
18. NOTICES................................................11
19. INTERPRETATION.........................................12
20. SEVERABILITY...........................................12
21. DISPUTE RESOLUTION.....................................12
22. WAIVER.................................................12
23. PAROL..................................................13
24. EXECUTION PAGE.........................................14
ii
<PAGE>
____________________________________________
EMPLOYMENT AGREEMENT
____________________________________________
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1/st/ day of January, 2000, by and between HOLLYWOOD CASINO CORPORATION, a
Delaware corporation ("Employer"), and PAUL C. YATES ("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; and
WHEREAS, Employee is an adult individual currently residing at 6310
Lakehurst Avenue, Dallas, Texas 75230;
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:
(a) "Just Cause" means any of the following: (i) the Employee's
----------
willful refusal to perform, or his substantial neglect of, the
duties assigned to the Employee pursuant to Paragraph 4 hereof
(for any reason other than as the result of a Complete
Disability), and the failure by the Employee to promptly cure
the breach or failure of performance upon written notice thereof
from the Employer; (ii) Employee's willful engagement in any
personal misconduct
<PAGE>
involving dishonesty, illegality, or moral turpitude which is
materially detrimental or materially injurious to the business
interests, reputation or goodwill of Employer or Employer's
Affiliates; (iii) Employee's willful engagement in any material
act of dishonesty, disloyalty, or infidelity against Employer or
Employer's Affiliates; (iv) the material breach by the Employee
of his covenants under this Agreement, and the failure by the
Employee to promptly cure the breach or failure of performance
upon written notice thereof from the Employer; (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 the failure by the Employee to promptly cure
such failure to perform upon written notice thereof from the
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 and such failure is not the result of any negligence
or omission by the Employer. All determinations of the existence
of "Just 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 or subsidiary
---------------------
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
<PAGE>
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, including, without limitation, that certain Employment Agreement dated as
of May 11, 1998, between Employer and Employee. From and after the Effective
Date, Employee 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 pursuant to the terms of this Agreement.
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 and Chief Financial Officer, including but not limited to (i)
primary responsibility for all of the finance, accounting, tax, budgeting and
investor relations functions of the Employer and its Affiliates, (ii) the
management, selection and supervision of employees of Employer and its
Affiliates that perform any of the forgoing duties, and (iii) such other and
further duties specifically related to such duties as may be assigned by
Employer to Employee.
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
3
<PAGE>
Agreement, Employee will devote the whole of his normal and customary working
time and best efforts solely to the performance of Employee's duties under this
Agreement.
6. TERM. The term of this Agreement (the "Term") shall commence on
----
the Effective Date and, unless sooner terminated as provided herein, expire on
December 31, 2002.
7. TERMINATION BY THE EMPLOYER. Notwithstanding the provisions of
---------------------------
Paragraph 6 above, this Agreement and each party's 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
Just Cause; or
(d) the giving of written notice by Employer to Employee of the
termination of this Agreement without Just 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 Base Salary and Minimum Bonus
as set forth in Paragraphs 8(a) and 8(b) of this Agreement for the
remainder of the Term of this Agreement.
8. COMPENSATION TO EMPLOYEE. 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:
(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 (the "Base Salary") of (i) Two Hundred Seventy-Five Thousand
and No/100 Dollars ($275,000), effective on the Effective Date and continuing
through and including December 31, 2000 and (ii) Three
4
<PAGE>
Hundred Thousand and No/100 Dollars ($300,000), effective as of January 1, 2001
and continuing throughout the remaining Term, 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) Incentive Compensation Plan. In addition to receiving the
---------------------------
Base Salary, Employee shall also be entitled to participate in the incentive
compensation plan of the Corporation 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 option plans or other incentive
compensation and profit sharing plans which are from time to time made generally
available by Employer to Employer's Affiliates to senior executive officers.
Notwithstanding anything to the contrary set forth in this Agreement, Employee's
additional compensation under this Paragraph 8(b) will in no event be less than
$75,000 during any year of the Term (the "Minimum Bonus").
(c) Employee Benefit Plans. Employer hereby covenants and agrees
----------------------
that it shall include Employee, if otherwise eligible, in any pension plans,
retirement plans, company life
5
<PAGE>
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. In the event that the Employer terminates the Employee without Just
Cause pursuant to Paragraph 7(d) of this Agreement, the Employer shall continue
to include the Employee in the employee benefits plans described in this
Paragraph 8(c) for the remainder of the Term of this Agreement.
(d) 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 travel expenses, dues and
expenses of membership in professional societies 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.
(e) 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.
(f) 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, Memorial Day, Independence Day, Labor
6
<PAGE>
Day, Thanksgiving Day, Christmas Day and up to three (3) additional floating
holidays which vary from year to year.
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 Louisiana Gaming Control Board and any other
jurisdiction in which Employer or Employer's Affiliates conducts business
(collectively, the "Gaming Authorities") pursuant to the provisions of the
Illinois Riverboat Gambling Act, the Mississippi Gaming Control Act, the
Louisiana Riverboat Economic Development and Gaming Control Act and any other
applicable law and the regulations promulgated thereunder (collectively, 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, then both
the Employer and the Employee covenant that they will attempt in good faith to
enter into a modified agreement that would be approved by the Gaming Authorities
provided, however, that, in no event will any modified agreement reduce the Base
Salary and Minimum Bonus provisions of Paragraphs 8(a) and 8(b) of this
Agreement. In the event that the Employer and Employee cannot in good faith
enter into a modified agreement or if a modified agreement is not approved by
the Gaming Authorities, then this Agreement shall immediately terminate and
shall be null and void and of no further force or effect.
(b) Employer and Employee hereby covenant and agree that, in
order for Employee to discharge the duties required under this Agreement,
Employee may be required to continue to hold casino key employee licenses (the
"Licenses") as issued by one or more Gaming Authorities pursuant to the terms of
the Gaming Acts and as otherwise required by this Agreement.
7
<PAGE>
In the event that any of the Gaming Authorities objects to the renewal of
Employee's License, or any 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 attempt 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. TERMINATION BY EMPLOYEE. The Employee shall have the
-----------------------
option to terminate this Agreement, effective upon the effective date set forth
in written notice of such termination to the Employer, for "Good Reason". For
purposes of this Agreement, Good Reason shall mean the occurrence of any one or
more of the following events: (i) any material breach of this Agreement by the
Employer that is not promptly remedied by the Employer after receipt of written
notice thereof from the Employee; and (ii) for any reason within one year
following the occurrence of a Change in Control (as defined in that certain
Indenture dated as of May 19, 1999, among Employer, HWCC-Tunica, Inc., HWCC-
Shreveport, Inc. and State Street Bank and Trust Company, as Trustee) (a "Change
in Control"). A termination of this Agreement by the Employee for Good Reason
shall be effectuated by giving Employer written notice of the termination,
setting forth in reasonable detail the specific conduct of the Employer that
constitutes Good Reason and the specific provision(s) of this Agreement on which
the Employee relies, and shall be given within sixty (60) days of the event
giving rise to the Good Reason. Upon termination of this Agreement by the
Employee for Good Reason, the Employee shall be entitled to the unpaid
8
<PAGE>
portion of the Base Salary and Minimum Bonus as set forth in Paragraphs 8(a) and
8(b) for the remainder of the Term of this Agreement.
11. 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 Employee. The warranty,
covenant and agreement set forth in this Paragraph 11 shall not expire, shall
survive this Agreement and shall be binding upon Employee without regard to the
passage of time or other events.
12. 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
9
<PAGE>
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 12 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.
13. 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.
14. SUCCESSION.
----------
(a) 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, Employer shall have the option, in
its sole discretion, to either (a) retain Employee 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 aggregate Base Salary under Paragraph 8(a) and
the Minimum Bonus set forth under the last sentence of Paragraph 8(b) which
would have been paid by Employer to Employee during the period (the "Severance
Period") from the date of termination of the Agreement to the expiration of this
Agreement had it not been so terminated. Employer shall have the right,
exercisable by written notice to Employee, to elect to pay the Severance Amount
to Employee in (i) a lump sum payment not later than the date of occurrence of
the Change of Control or (ii) equal monthly installments during the Severance
Period.
(b) Except as otherwise set forth in the immediately preceding
sentence, the Employer will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Employer,
10
<PAGE>
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that the Employer would be required to perform it if no such
succession had taken place. Failure of the Employer to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Employee to compensation from the
Employer in the same amount and on the same terms as he would be entitled to
hereunder if he terminated this Agreement for Good Reason.
15. 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 15 shall be null and void and of no force or effect.
16. AMENDMENT OR MODIFICATION. This Agreement may not be amended,
-------------------------
modified, changed or altered except by a writing signed by both Employer and
Employee.
17. 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.
18. NOTICES. Any and all notices required under this Agreement shall
-------
be in writing and shall be 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: Paul C. Yates
6310 Lakehurst Avenue
Dallas, Texas 75230
11
<PAGE>
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 18.
19. 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.
20. 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.
21. DISPUTE RESOLUTION. Except for equitable actions seeking to
------------------
enforce the provisions of Paragraphs 11 and 12 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.
22. WAIVER. None of the terms of this Agreement, including this
------
Paragraph 22, or any term, right or remedy hereunder shall be deemed waived
unless such waiver is in writing
12
<PAGE>
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.
23. 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.
13
<PAGE>
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.
EMPLOYER:
--------
HOLLYWOOD CASINO CORPORATION
By: /s/ Edward T. Pratt III
------------------------------------
Name: Edward T. Pratt III
Title: President and Chief
Operating Officer
EMPLOYEE:
--------
/s/ Paul C. Yates
--------------------------------------
PAUL C. YATES
14
<PAGE>
EXHIBIT 11.1
HOLLYWOOD CASINO CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE (LOSS) INCOME
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Calculation of (loss) income:
Net (loss) income before
extraordinary items $(51,318,000) $(1,269,000) $(17,132,000) $(55,293,000) $ 6,520,000
Extraordinary items (30,353,000) (336,000) (215,000) - (23,808,000)
------------ ----------- ------------ ------------ ------------
Net (loss) income to common
stockholders $(81,671,000) $(1,605,000) $(17,347,000) $(55,293,000) $(17,288,000)
============ =========== ============ ============ ============
Calculation of number of shares:
Weighted average shares
outstanding used for basic
per share calculation 24,950,000 24,946,000 24,833,000 24,721,000 24,602,000
Weighted average options
outstanding (1) - - - - 248,000
Weighted average warrants
outstanding (1) - - - - -
------------ ----------- ------------ ------------ ------------
Weighted average shares
outstanding used for diluted
per share calculation 24,950,000 24,946,000 24,833,000 24,721,000 24,850,000
============ =========== ============ ============ ============
Basic per share data:
Net (loss) income to common
stockholders before
extraordinary items $ (2.05) $ (0.05) $ (0.69) $ (2.24) $ 0.27
Extraordinary items (1.22) (0.01) (0.01) - (0.97)
------------ ----------- ------------ ------------ ------------
Net (loss) income to common
stockholders $ (3.27) $ (0.06) $ (0.70) $ (2.24) $ (0.70)
============ =========== ============ ============ ============
Diluted per share data:
Net (loss) income to
common stockholders
before extraordinary items $ (2.05) $ (0.05) $ (0.69) $ (2.24) $ 0.26
Extraordinary items (1.22) (0.01) (0.01) - (0.96)
------------ ----------- ------------ ------------ ------------
Net (loss) income to common
stockholders $ (3.27) $ (0.06) $ (0.70) $ (2.24) $ (0.70)
============ =========== ============ ============ ============
- -----------------------
</TABLE>
(1) Not included for loss periods as the effect would be antidilutive.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF HOLLYWOOD CASINO CORPORATION
State
Name Address Organized
Hollywood Casino - Aurora, 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
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 - Holdings, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, TX 75240
HWCC-Shreveport, Inc. 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, TX 75240
HWCC Transportation, Inc. 13455 Noel Road Texas
Suite 2200, LB48
Dallas, Texas 75240
HCS I, Inc. 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, Texas 75240
HCS II, Inc. 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, Texas 75240
Hollywood Casino Shreveport 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, Texas 75240
Shreveport Capital Corporation 13455 Noel Road Louisiana
Suite 2200, LB48
Dallas, Texas 75240
<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
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 115,351 42,118 40,259
<SECURITIES> 0 0 0
<RECEIVABLES> 7,315 3,836 3,935
<ALLOWANCES> 1,826 1,468 1,188
<INVENTORY> 1,714 1,385 1,454
<CURRENT-ASSETS> 134,652 61,467 60,902
<PP&E> 300,496 248,457 237,261
<DEPRECIATION> 92,958 80,642 66,099
<TOTAL-ASSETS> 525,817 270,740 276,218
<CURRENT-LIABILITIES> 58,423 34,754 38,404
<BONDS> 533,920 219,615 219,261
0 0 0
0 0 0
<COMMON> 2 2 2
<OTHER-SE> (74,159) 7,510 9,115
<TOTAL-LIABILITY-AND-EQUITY> 525,817 270,740 276,218
<SALES> 0 0 0
<TOTAL-REVENUES> 307,377 268,760 267,757
<CGS> 0 0 0
<TOTAL-COSTS> 221,165 196,991 185,055
<OTHER-EXPENSES> 84,536 43,961 45,558
<LOSS-PROVISION> 14,126 845 20,376
<INTEREST-EXPENSE> 37,672 27,416 28,541
<INCOME-PRETAX> (50,122) (453) (11,773)
<INCOME-TAX> 1,196 816 5,359
<INCOME-CONTINUING> (51,318) (1,269) (17,132)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (336) (215)
<CHANGES> 0 0 0
<NET-INCOME> (81,671) (1,605) (17,347)
<EPS-BASIC> (3.27) (.06) (.70)
<EPS-DILUTED> (3.27) (.06) (.70)
</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-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 10,339 16,325
<SECURITIES> 0 0
<RECEIVABLES> 4,218 1,980
<ALLOWANCES> 990 813
<INVENTORY> 869 779
<CURRENT-ASSETS> 16,969 24,397
<PP&E> 128,181 122,898
<DEPRECIATION> 44,575 38,910
<TOTAL-ASSETS> 112,398 120,461
<CURRENT-LIABILITIES> 11,139 10,151
<BONDS> 88,649 85,023
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 12,610 25,287
<TOTAL-LIABILITY-AND-EQUITY> 112,398 120,461
<SALES> 0 0
<TOTAL-REVENUES> 110,122 105,773
<CGS> 0 0
<TOTAL-COSTS> 84,378 78,845
<OTHER-EXPENSES> 16,272 14,001
<LOSS-PROVISION> 504 483
<INTEREST-EXPENSE> 9,968 10,350
<INCOME-PRETAX> (1,000) 2,094
<INCOME-TAX> (323) 689
<INCOME-CONTINUING> (677) 1,405
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (677) 1,405
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
