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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 7, 1996
BOYD GAMING CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of
Incorporation or Organization)
1-12168 88-0242733
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(Commission File Number) (I.R.S. Employer
Identification No.)
2950 South Industrial Road
Las Vegas, Nevada 89109
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(Address of Principal Executive Offices) (Zip Code)
(702) 792-7200
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(Registrant's telephone number,
including area code)
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ITEM 5. OTHER EVENTS.
a. Atlantic City Joint Venture
On May 29, 1996, the Company, through a wholly-owned subsidiary,
entered into a joint venture agreement (the "Mirage Joint Venture") with a
subsidiary of Mirage Resorts, Incorporated ("Mirage") to jointly develop and own
a casino/hotel entertainment facility in Atlantic City, New Jersey (the
"Atlantic City Project"). The Atlantic City Project, which is expected to cost
approximately $500 million, is planned to be one component of a multi-facility
casino entertainment development, master-planned by Mirage for the Marina
district of Atlantic City. Pursuant to the joint venture agreement, the Company
will control the development and operation of the Atlantic City Project. The
Atlantic City Project will be adjacent and connected to Mirage's planned
wholly-owned resort. Construction is anticipated to begin after completion of
the remediation of the property and is expected to take approximately 24 months
to complete. The Mirage Joint Venture will give the Company a presence
in Atlantic City, the primary casino gaming market serving the Eastern
United States.
On May 29, 1996, the Company and Mirage issued a joint press release
concerning the Mirage Joint Venture, the text of which press release is attached
hereto as Exhibit 99.1 and is incorporated by reference herein.
b. Sam's Town Reno Project
The Company has identified a site in Reno, Nevada upon which it plans
to develop a $92 million casino, hotel and entertainment complex, featuring the
Sam's Town brand name and western theme, which is planned to include a 33,000
square foot casino, a hotel with 211 guest rooms and suites, five restaurants,
an outdoor arena, an events center and various other amenities. The Company has
reached a preliminary agreement for the acquisition of a 100 acre parcel of land
and expects to complete the acquisition of the land and is currently planning
to commence construction of the project by the end of this calendar year, with
the opening occurring as early as spring 1998. William S. Boyd, Chairman and
Chief Executive Officer of the Company, and Warren L. Nelson, a Director of the
Company, each owns a 17.5 % interest in the partnership which owns the land to
be acquired for the project. A copy of the press release issued by the Company
concerning the Sam's Town Reno project is attached as Exhibit 99.2 hereto and
is incorporated by reference herein.
c. Governmental Regulation
As previously reported on the Company's Current Report on Form 8-K
filed on May 13, 1996, the Company entered into a definitive purchase agreement
on April 26, 1996 to acquire 100% of the capital stock of Par-A-Dice Gaming
Corporation ("Par-A-Dice Gaming"), an Illinois corporation, and 100% of the
capital stock of East Peoria Hotel, Inc. ("EPH"), an Illinois corporation (the
"Par-A-Dice Acquisition"). Par-A-Dice Gaming is the owner and operator of the
Par-A-Dice Riverboat Casino in East Peoria, Illinois, and EPH is the general
partner of a limited partnership which is developing the 204-room Par-A-Dice
Hotel located immediately adjacent to the Par-A-Dice Riverboat Casino. The
ownership and operation of the Par-A-Dice Riverboat
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Casino is subject to the jurisdiction of the Illinois Gaming Board and the
gaming laws of the State of Illinois.
As explained above, the Company, through a wholly-owned subsidiary, has
entered into the Mirage Joint Venture to jointly develop and own the Atlantic
City Project. The ownership and operation of the Atlantic City Project will be
subject to the jurisdiction of the New Jersey Casino Control Commission and the
gaming laws of the State of New Jersey.
In April 1996, the Louisiana legislature passed the Louisiana Gaming
Control Act, which abolished the Louisiana Riverboat Gaming Commission and the
Riverboat Gaming Enforcement Division of the Louisiana State Police and replaced
them with the Louisiana Gaming Control Board.
The following is a summary of the Illinois Riverboat Gambling Act, the
New Jersey Casino Control Act and the Louisiana Gaming Control Act, as well as
descriptions of the Missouri and Mississippi gaming regulations applicable to
the Company updated from those contained in the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1995 ("1995 Form 10-K").
Illinois
In February 1990, the State of Illinois legalized riverboat gaming. The
Illinois Riverboat Gambling Act (the "Illinois Act") authorizes the issuance by
the five-member Illinois Gaming Board of up to 10 riverboat gaming owner's
licenses for navigable streams within or forming a boundary of the state of
Illinois, except for Lake Michigan and any waterway in Cook County, which
includes Chicago. The Illinois Act regulates strictly the facilities, persons,
associations and practices related to riverboat gaming operations. The Illinois
Act grants the Illinois Gaming Board specific powers and duties, and all other
powers necessary and proper to fully and effectively execute the Illinois Act
for the purpose of administering, regulating and enforcing the system of
riverboat gaming. The Illinois Gaming Board's jurisdiction extends to every
person, association, corporation, partnership and trust involved in riverboat
gaming operations in the State of Illinois. The ownership and operation of a
riverboat gaming operation is subject to extensive regulation. Applicants must
submit comprehensive application and personal disclosure forms and undergo an
exhaustive background investigation prior to the issuance of a license.
The Illinois Act requires the owner of a riverboat gaming operation to
hold an owner's license issued by the Illinois Gaming Board. The Illinois Act
restricts the granting of certain of the ten owner's licenses by location. Four
are for operators docking at sites on the Mississippi River, one is for an
operator docking at a site on the Illinois River south of Marshall County and
one is for an operator docking at a site on the Des Plaines River in Will
County. The remaining four owner's licenses are not restricted as to location.
Riverboats operating on the Des Plaines River must have a minimum capacity of at
least 400 persons. All riverboats must be accessible to disabled persons, must
be either a replica of a 19th century Illinois riverboat or be of a casino
cruise ship design and must comply with applicable federal and state laws,
including, but not limited to, U.S. Coast Guard regulations. The Illinois Gaming
Board has currently granted ten licenses, one license to riverboat operations in
each of Alton, East Peoria, Rock Island, East
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Dubuque, Metropolis, East St. Louis, Aurora, and Elgin, and two licenses to
riverboat operators in Joliet. In addition to the ten owner's licenses which are
authorized under the Illinois Act, the Illinois Gaming Board may issue special
event licenses allowing persons who are not otherwise licensed to conduct
riverboat gaming on a specified date or series of dates.
Each owner's license initially runs for a period of three years.
Thereafter, the license is subject to renewal on an annual basis upon a
determination by the Illinois Gaming Board that the licensee continues to be
eligible for an owner's license pursuant to the Illinois Act and the Illinois
Gaming Board's rules. The owner's license for Par-A-Dice initially expired in
February 1995. Its license was thereafter renewed in February 1996. Par-A-Dice
will be required to renew its license in February 1997, and each year
thereafter. A licensed owner is authorized to apply to the Illinois Gaming Board
for and, if approved, will receive all licenses necessary for the operation of a
riverboat. These licenses include a liquor license, a license to prepare and
serve food and all other necessary licenses.
Each license granted entitles a licensee to own and operate up to two
riverboats (with a combined maximum of 1,200 gaming participants) as part of the
riverboat gaming operation. No person or entity may be licensed as the owner of
more than one riverboat gaming operation in Illinois, although a licensed owner
of greater than 10% may hold up to a 10% ownership interest in a second
riverboat gaming operation in Illinois.
The Illinois Act does not limit the maximum bet or per patron loss.
Minimum and maximum wagers on games are set by the licensee and wagering may not
be conducted with money or other negotiable currency. No person under the age of
21 is permitted to wager and wagers may only be received from a person present
on the riverboat. With respect to electronic gaming devices, the payout
percentage may not be less than 80% nor more than 100%. The Illinois Act imposes
a 20% wagering tax on adjusted gross receipts (which is gross gaming revenues
minus winnings paid to patrons). The tax imposed is to be paid by the licensed
owner to the Illinois Gaming Board on the day after the day when the liability
was established. The Illinois Act also requires that licensees pay a $2.00
admission tax for each person admitted to a gaming cruise. All state use,
occupation and excise taxes which apply to the sale of food and beverages and
taxes imposed on the sale or use of tangible property apply to such sales aboard
riverboats.
From time to time, various proposals have been introduced in the
Illinois legislature regarding riverboat gaming. Such bills include, among other
things, taxes, licensing and conduct of gaming. The Company cannot offer any
opinion of the outcome or effect of any pending or proposed legislation.
Under the Illinois Act, there is a four-hour maximum period during
which gaming may be conducted during a gaming excursion. Gaming is deemed to
commence when the first passenger boards a riverboat for an excursion and may
continue while other passengers are boarding for a period of not to exceed 30
minutes. A gaming excursion is deemed to have started upon the commencement of
gaming. Gaming may continue for a period not to exceed 30 minutes after the
gangplank or its equivalent is lowered. During this 30 minute period of egress,
new passengers may not board a riverboat.
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If a riverboat captain reasonably determines that either it is unsafe
to transport passengers on the waterway due to inclement weather or the
riverboat has been rendered temporarily inoperable by river icing or
unforeseeable mechanical or structural difficulties, the riverboat shall either
not leave the dock or immediately return to it. In the case of unforeseeable
mechanical or structural difficulties, the owner licensee shall make all
reasonable effort to promptly remedy the problem. If a riverboat captain
reasonably determines for reasons of safety that although seaworthy, the
riverboat should not leave the dock or should return immediately thereto, due to
the above conditions, a gaming excursion may commence or continue while the
gangplank or its equivalent is raised and remains raised, in which event the
riverboat is not considered docked. If, due to the above conditions, a gaming
excursion must commence or continue with the gangplank or its equivalent raised
and the riverboat does not leave the dock, ingress is prohibited until the
completion of the excursion.
The Illinois Gaming Board is authorized to conduct investigations into
the conduct of gaming as it may deem necessary and proper and into alleged
violations of the Illinois Act and Illinois Gaming Board Rules. 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 a riverboat gaming license will be subject to the
imposition of fines and suspension or revocation of its license for any act by
such holder, its 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. The following may be grounds for such
discipline: (i) failing to comply with or make provision for compliance with the
Illinois Act, the rules promulgated thereunder, any federal, state or local law
or regulation, or the license holder's internal procedures and administration
and accounting controls; (ii) failing to comply with any rule, order or filing
of the Illinois Gaming Board or its agents pertaining to gaming; (iii) receiving
goods or services from a person or business entity who does not hold a
supplier's license but who is required to hold such license by the rules; (iv)
being suspended or ruled ineligible or having a license revoked or suspended in
any other state or gaming jurisdiction; (v) associating with, either socially or
in business affairs, or employing persons of notorious or unsavory reputation or
who have extensive police records, or who have failed to cooperate with any
officially constituted investigatory or administrative body and would adversely
affect public confidence and trust in gaming; and (vi) employing in any Illinois
riverboat's gaming operation any person known to have been found guilty of
cheating or using any improper device in connection with any game.
Licensees are required to obtain formal approval from the Illinois
Gaming Board whenever a change is proposed in the following areas: (i) Key
Persons; (ii) type of entity; (iii) the equity and debt capitalization of the
entity; (iv) investors and/or debt holders; (v) sources of funds; (vi) the
applicant's economic development plan; (vii) riverboat capacity or significant
design change; (viii) the number of gaming positions; (ix) anticipated economic
impact; or (x) pro forma budgets and financial statements. In addition,
distributions to shareholders, partners and others are limited to those which
cannot impair the financial viability of the gaming operation.
The Illinois Gaming Board requires that a Key Person of an owner
licensee must submit a Personal Disclosure Form and be investigated and approved
by the Illinois Gaming Board. Any
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person directly or indirectly holding a legal or beneficial interest of 5% or
more of an applicant or owner licensee is deemed to be a Key Person, as are
officers, directors, trustees, partners, proprietors and managing agents of a
gaming enterprise. Furthermore, each applicant or owner licensee must disclose
the identify of every person, association, trust or corporation having a greater
than 1% direct or indirect pecuniary interest in an owner licensee or in the
riverboat gaming operation with respect to which the license is sought. The
Illinois Gaming Board may also require an applicant or owner licensee to
disclose any other principal or investor and require the investigation and
approval of such individuals.
The Illinois Gaming Board (unless the investor qualifies as an
institutional investor) requires a Personal Disclosure Form from any person or
entity who or which, individually or in association with others, acquires
directly or indirectly, beneficial ownership of more than 5% of any class of
voting securities or non-voting securities convertible into voting securities of
a publicly traded corporation which holds an ownership interest in the holder of
an owner's license. If the Illinois Gaming Board denies an application for such
a transfer and if no hearing is requested, the applicant for the transfer of
ownership interest must promptly divest those shares in the publicly traded
parent corporation. The holder of an owner's license would not be able to
distribute profits to a publicly traded parent corporation until such shares
have been divested. If a hearing is requested, the shares need not be divested
and profits may be distributed to a publicly held parent corporation pending the
issuance of a final order from the Illinois Gaming Board.
A person employed at a riverboat gaming operation must hold an
occupational license from the Illinois Gaming Board. The occupational license
permits the holder to perform only activities included within such holder's
level of occupational license or any lower level of occupational license. A
holder of a riverboat gaming license is required to investigate the background
and qualifications of all persons who apply for employment at its gaming
operation. Suppliers of gaming equipment and supplies and certain other vendors
must obtain a supplier's license from the Illinois Gaming Board prior to selling
or leasing any equipment and supplies as defined in Illinois Gaming Board Rules.
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.
New Jersey
The ownership and operation of casino gaming facilities in New Jersey
are subject to the New Jersey Casino Control Act (the "Casino Control Act"). In
general, the Casino Control Act and the regulations promulgated thereunder
contains detailed provisions concerning, among other things: the granting of
casino licenses; the suitability of the approved hotel facility and the amount
of authorized casino space and gaming units permitted therein; the qualification
of natural persons and entities related to the casino licensee; the licensing
and registration of employees and vendors of casino licensees; rules of the
games; the selling and redeeming of gaming chips; the granting and duration of
credit and the enforceability of gaming debts; management control procedures,
accountability, and cash control methods and reports to gaming agencies;
security standards; the manufacture and distribution of gaming equipment; equal
opportunity for employees and casino operators, contractors of casino
facilities, and others; and advertising, entertainment, and alcoholic beverages.
The New Jersey Casino Control Commission (the "CCC") is empowered
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under the Casino Control Act to regulate a wide spectrum of gaming and nongaming
related activities and to approve the form of ownership and financial structure
of not only a casino licensee, but also its entity qualifiers and intermediary
and holding companies.
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the CCC, which has broad discretion with regard to
the issuance, renewal, revocation, and suspension of such licenses and
approvals, which are nontransferable. The qualification criteria with respect to
the holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty, and integrity;
and the sufficiency of its business ability and casino experience to establish
the likelihood of creation and maintenance of a successful, efficient casino
operation. The CCC may reopen licensing hearings at any time and must reopen a
licensing hearing at the request of the Division of Gaming Enforcement (the
"Division").
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due; to achieve a gross operating
profit; to pay all local, state, and federal taxes when due; to make necessary
capital and maintenance expenditures to insure that it has a superior
first-class facility; and to pay, exchange, refinance or extend debts which will
mature and become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
CCC may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liability; requiring reasonable reserves
or trust accounts; denying licensure; or appointing a conservator.
Pursuant to the Casino Control Act, CCC regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other loan acquired in the ordinary course of business),
and any lender, whom the CCC may consider appropriate, obtains and maintains
qualification approval from the CCC. Qualification approval means qualification
requirements as a casino key employee, as described below.
An entity qualifier or intermediary or holding company is required to
register with the CCC and meet the same basic standards for approval as a casino
licensee; provided, however, that the CCC, with the concurrence of the Director
of the Division, may waive compliance by a publicly-traded corporate holding
company as to any officer, director, lender, underwriter, agent or employee
thereof, or person directly or indirectly holding a beneficial interest or
ownership of the securities of such company, where the CCC and the Director of
the Division are satisfied that such persons are not significantly involved in
the activities of the corporate licensee, and in the case of security holders,
do not have the ability to control the publicly-trade corporation or elect one
or more of its directors.
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The CCC may require all financial backers, investors, mortgagees, bond
holders and holders of notes or other evidence of indebtedness, either in effect
or proposed, which bears any relation to the casino project, publicly-traded
securities of an entity which holds a casino license or is an entity qualifier,
subsidiary, or holding company of a casino licensee (a "Regulated Company"), to
qualify as financial sources.
An institutional investor ("Institutional Investor") is defined by the
Casino Control Act as any retirement fund administered by a public agency for
the exclusive benefit of federal, state, or local public employees; investment
company registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; closed end investment trust; chartered or licensed
life insurance company or property and casualty insurance company; banking and
other chartered or licensed lending institution; investment advisor registered
under the Investment Advisers Act of 1940; and such other persons as the CCC may
determine for reasons consistent with the policies of the Casino Control Act.
An Institutional Investor shall be granted a waiver by the CCC from
financial source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the
Division that there is any cause to believe that the Institutional Investor may
be found unqualified, on the basis of CCC findings that: (a) its holdings were
purchased for investment purposes only and, upon request by the CCC, it files a
certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its holding or
intermediary companies; provided, however, that the Institutional Investor will
be permitted to vote on matters put to the vote of the outstanding security
holders; and (b) if (i) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary company of
the casino licensee's holding or intermediary companies which is related in any
way to the financing of the casino licensee and represent either (x) 20% or less
of the total outstanding debt of the company, or (y) 50% or less of any issue of
outstanding debt of the company, (ii) the securities are under 10% of the equity
securities of a casino licensee's holding or intermediary companies, or (iii) if
the securities so held exceed such percentages, upon a showing of good cause.
The CCC may grant a waiver of qualification to an Institutional Investor holding
a higher percentage of such securities upon a showing of good cause and if the
conditions specified above are met.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
reviewed the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
securities are those of a publicly-traded corporation; (iii) the holder
purchased the securities for investment purposes only and holds them in the
ordinary course of business; (iv) the holder has no involvement in the business
activities of, and no intention of influencing or affecting the affairs of the
issuer, the casino licensee, or any affiliate; and (v) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, it shall provide not less than 30 days' prior
notice of such intent and shall file with the CCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the CCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings,
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other than to divest itself of such holdings, until it has applied for interim
casino authorization and has executed a trust agreement pursuant to such an
application.
The Casino Control Act imposes certain restrictions upon the issuance,
ownership, and transfer of securities of a Regulated Company, and defines the
term "security" to include instruments which evidence a direct or indirect
beneficial ownership or creditor interest in a Regulated Company including, but
not limited to, mortgages, debentures, security agreements, notes, and warrants.
If the CCC finds that a holder of such securities is not qualified
under the Casino Control Act, it has the right to take any remedial action it
may deem appropriate, including the right to force divestiture by such
disqualified holder of such securities. In the event that certain disqualified
holders fail to divest themselves of such securities, the CCC has the power to
revoke or suspend the casino license affiliated with the Regulated Company which
issued the securities. If a holder is found unqualified, it is unlawful for the
holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (ii) to receive any dividends or interest upon
any such securities or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act
and CCC Regulations require that the corporate charter or partnership agreement
of a Regulated Company establish a right in the CCC of prior approval with
regard to transfers of securities, shares and other interests and an absolute
right in the Regulated Company to repurchase at the market price or the purchase
price, whichever is the lesser, any such security, share, or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
conditions that, if a holder thereof is found to be disqualified by the CCC,
such holder shall dispose of such securities.
Whenever any person enters into a contract to transfer any property
which relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim authorization.
Furthermore, the closing or settlement date in the contract may not be earlier
than the 121st day after the submission of a complete application for licensure
or qualification together with a fully executed trust agreement in a form
approved by the CCC. If, after the report of the Division and a hearing by the
CCC, the CCC grants interim authorization, the property will be subject to a
trust. If the CCC denies interim authorization, the contract may not close or
settle until the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be terminated for
all purposes, and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a
Regulated Company or a financing entity of a Regulated Company, any person is
required to qualify under the Casino Control Act, that person is required to
file an application for licensure or qualification within 30 days after the CCC
determines that qualification is required or declines to waive qualification.
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The application must include a fully executed trust agreement in a form approved
by the CCC, or in the alternative, within 120 days after the CCC determines that
qualification is required, the person whose qualification is required must
divest such securities as the CCC may require in order to remove the need to
qualify.
The CCC may grant interim casino authorization where it finds by clear
and convincing evidence that: (i) statements of compliance have been issued
pursuant to the Casino Control Act; (ii) the casino hotel is an approved hotel
in accordance with the Casino Control Act; (iii) the trustee satisfies
qualification criteria applicable to casino key employees, except for residency;
and (iv) interim operation will best serve the interests of the public.
When the CCC finds the applicant qualified, the trust will terminate.
If the CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey, or otherwise dispose of the property subject to the trust to
such persons who are licensed or qualified or shall themselves obtain interim
casino authorization.
Where a holder of publicly-traded securities is required, in applying
for qualification as a financial source or qualifier, to transfer such
securities to a trust in application for interim casino authorization and the
CCC thereafter orders that the trust become operative: (i) during the time the
trust is operative, the holder may not participate in the earnings of the casino
hotel or receive any return on its investment or debt security holdings; and
(ii) after disposition, if any, of the securities by the trustee, proceeds
distributed to the unqualified holder may not exceed the lower of their actual
cost to the unqualified holder or their value calculated as if the investment
had been made on the date the trust became operative.
The CCC may permit a licensee to increase its casino space if the
licensee agrees to add a prescribed number of qualifying sleeping units within
two years after the commencement of gaming operations in the additional casino
space. However, if the casino licensee does not fulfill such agreement due to
conditions within its control, the licensee will be required to close the
additional casino space, or any portion thereof that the CCC determines should
be closed.
The CCC is authorized to establish annual fees for the renewal of
casino licenses. The renewal fee is based upon the cost of maintaining control
and regulatory activities prescribed by the Casino Control Act, and may not be
less than $200,000 for a four-year casino license. Additionally, casino licenses
are subject to potential assessments to fund any annual operating deficits
incurred by the CCC or the Division. There is also an annual license fee of $500
for each slot machine maintained for use or in use in any casino. Additionally,
each casino licensee is also required to pay an annual tax of 8% on its gross
casino revenues.
Each party to an agreement for the management of a casino in required
to hold a casino license, and the party who is to manage the casino must own at
least 10% of all the outstanding equity securities of the casino licensee. Such
an agreement shall: (i) provide for the complete management of the casino; (ii)
provide for the sole and unrestricted power to direct the casino operations; and
(iii) provide for a term long enough to ensure the reasonable continuity,
stability and independence and management of the casino.
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An investment alternative tax imposed on the gross casino revenues of
each licensee in the amount of 2.5% is due and payable on the last day of April
next following the end of the calendar year. A licensee is obligated to pay the
investment alternative tax for a period of 30 years. Estimated payments of the
investment alternative tax obligation must be made quarterly in an amount equal
to 1.25% of estimated gross revenues for the preceding three-month period.
Investment tax credits may be obtained by the Casino Reinvestment Development
Authority ("CRDA"). CRDA bonds have terms as long as 50 years and bear interest
at below market rates, resulting in a value lower than the face value of such
CRDA bonds.
For the first 10 years of its obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of the bonds issued to the licensee by the
CRDA. Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments made in projects
designated as eligible by the CRDA, and (ii) has the option of entering into a
contract with the CRDA to have its tax credit comprised of direct investments in
approved eligible projects which may not comprise more than 50% of its eligible
tax credit in any one year.
From the monies made available to the CRDA, the CRDA is required to set
aside $100 million for investment in hotel development projects in Atlantic City
undertaken by a licensee which result in the construction or rehabilitation of
at least 200 hotel rooms by December 31, 1996. These monies will be held to fund
up to 35% of the cost to casino licensees of expanding their hotel facilities to
provide additional hotel rooms, a portion of which will be required to be
available upon the opening of the new Atlantic City convention center and
dedicated to convention events. The CRDA has determined at this time that
eligible casino licensees will receive up to 27% of the cost of additional hotel
rooms out of these monies set aside and may, in the future, increase the
percentage to no greater than 35%.
On each October 31 during the years 1996 through 2003, each casino
licensee must pay into an account established in the CRDA and known as the
Atlantic City Fund, its proportional share of an amount related to the amount by
which annual operating expenses of the CCC and the Division are less than a
certain fixed sum. Additionally, a portion of the investment alternative tax
obligation of each casino license for the years 1994 through 1998 allocated for
projects in Northern New Jersey is required to be paid into and credited to the
Atlantic City Fund. Amounts in the Atlantic City Fund will be expended by the
CRDA for economic development projects of a revenue producing nature that foster
the redevelopment of Atlantic City other than the construction and renovation of
casino hotels.
As of July 1, 1993, each casino licensee was required to impose on and
collect from patrons a standard minimum parking charge of at least $2.00 for the
use of a parking space for the purpose of parking, garaging or storing motor
vehicles in a parking facility owned or leased by a casino licensee or by any
person on behalf of a casino licensee. Of the amount collected by the casino
licensed, $1.50 is required to be paid to the New Jersey State Treasurer and
paid by the New Jersey State Treasurer into a special fund established and held
by the New Jersey State Treasurer for the exclusive use of the CRDA.
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Amounts in the special fund will be expended by the CRDA for (i)
eligible projects in the corridor region of Atlantic City, which projects are
related to the improvement of roads, infrastructure, traffic regulation, and
public safety, and (ii) funding up to 35% of the cost to casino licensees of
expanding their hotel facilities to provide additional hotel rooms, which hotel
rooms are required to be available upon the opening of the Atlantic City
Convention Center and dedicated to convention events.
If, at any time, it is determined that a Regulated Company has violated
the Casino Control Act, or that any such entity cannot meet the qualification
requirements of the Casino Control Act, such entity could be subject to fines or
the suspension or revocation of its license or qualification. If a Regulated
Company's license is suspended for a period in excess of 120 days or revoked, or
if the CCC fails or refuses to renew such casino license, the CCC could appoint
a conservator to operate or dispose of such entity's casino hotel facilities.
The conservator would be required to act under the direct supervision of the CCC
and would be charged with the duty of conserving, preserving, and if permitted,
continuing the operation of such casino hotel. During the period of true
conservatorship, a former or suspended casino licensee is entitled to a fair
rate of return out of net earnings, if any, on the property retained by the
conservator. The CCC may also discontinue any conservatorship action and direct
the conservator to take such steps as are necessary to effect an orderly
transfer of the property of a former or suspended casino licensee.
Casino employees are subject to more stringent requirements than
non-casino employees and must meet applicable standards pertaining to financial
stability, integrity and responsibility, good character, honesty and integrity,
and New Jersey residency. These requirements have resulted in significant
competition among Atlantic City casino operators for the services of qualified
employees.
Casinos must follow certain procedures which are outlined in the Casino
Control Act when granting gaming credit and recording counter checks which have
been exchanged, redeemed, or consolidated. Gaming debts arising in Atlantic City
in accordance with applicable regulations are enforceable in the courts of the
State of New Jersey.
Louisiana
The operation and management of riverboat casino facilities in
Louisiana are subject to extensive state regulation. The Louisiana Riverboat
Economic Development and Gaming Control Act (the "Riverboat Act") became
effective on July 19, 1991 and authorized the formation of the Louisiana
Riverboat Gaming Commission (the "Commission") and the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Division"). Both the
Commission and the Division promulgated extensive regulations which controlled
riverboat gaming in Louisiana. The Act states, among other things, that certain
of the policies of the State of Louisiana are to develop a historic riverboat
industry that will assist in the growth of the tourism market, to license and
supervise the riverboat industry from the period of construction through the
actual operation, to regulate the operators, manufacturers, suppliers, and
distributors of gaming devices and to license all entities involved in the
riverboat gaming industry. The Act makes it clear, however, that no holder of a
license or permit possesses any vested interest in such license or permit and
that the license or permit may be revoked at any time. In a special session held
in April 1996, the
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Louisiana legislature passed the Louisiana Gaming Control Act which dissolved
both the Commission and the Division and replaced them with the Louisiana Gaming
Control Board. The Board came into existence on May 1, 1996, but presently there
have been no appointees confirmed, the Board has not met and no regulations have
been promulgated. The Gaming Control Board will be made up of 9 members and 2
ex-officio, members (including the superintendent of Louisiana State Police). It
will be domiciled in Baton Rouge and will regulate riverboat gaming, the
landbased casino in New Orleans and video poker. The Attorney General will act
as legal counsel to the Gaming Control Board as he did for the Commission.
Pursuant to the Gaming Control Act, all of the regulatory authority, control and
jurisdiction of licensing has now been transferred to the Gaming Control Board.
The Gaming Control Board has not yet promulgated regulations. Any material
alteration in the method whereby riverboat gaming is regulated in the State of
Louisiana could have an adverse effect on the operations of the Treasure Chest.
Presently, in the absence of regulations from the Gaming Control Board,
licensees are continuing to conduct their affairs pursuant to the regulations
promulgated under the Riverboat Act.
The Louisiana legislature also passed legislation requiring each parish
(county) where riverboat gaming is currently authorized to hold an election in
order for the voters to decide whether riverboat gaming will remain legal in
that parish. The vote is scheduled for November 6, 1996. The Treasure Chest is
located in Jefferson Parish, Louisiana. If Jefferson Parish votes riverboat
gaming out of the parish, the Treasure Chest's operations will terminate on or
before the termination date of its license (May 18, 1999). There is no assurance
that the measure allowing riverboat gaming to remain in Jefferson Parish will
pass. The failure of the measure to be approved would have adverse consequences
on the operations of the Treasure Chest.
The Riverboat Act approved the conducting of gaming activities on a
riverboat, in accordance with the Act, on twelve separate waterways in
Louisiana. The Act allowed the Division to issue up to 15 licenses to operate
riverboat gaming projects within the state with no more than 6 in any one
parish. There are presently 14 licenses issued and 13 riverboats operating. No
gaming is allowed while a riverboat is docked unless the vessel is docked for
less than 45 minutes between excursions. All cruises are required to be at least
three 3 hours in duration. Pursuant to the Riverboat Act and the regulations
promulgated thereunder, each applicant which desired to operate a riverboat
casino in Louisiana was required to file a number of separate applications for a
Certificate of Preliminary Approval, all necessary gaming licenses and a
Certificate of Final Approval. No final Certificate was issued without all
necessary and proper certificates from all regulatory agencies including the
U.S. Coast Guard, the U.S. Army Corps of Engineers, local port authorities and
local levee authorities.
The Treasure Chest project application for Certificate of Preliminary
Approval was filed by Treasure Chest Casino, L.L.C., the owner of the Treasure
Chest. The Treasure Chest received its Preliminary Certificate in August of 1993
and received its license on May 18, 1994. The license is subject to certain
general operational conditions and is subject to revocation pursuant to
applicable laws and regulations.
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The Company and certain of its directors and officers and certain key
personnel were found suitable by the Division. New directors, officers and
certain key employees associated with gaming must also be found suitable by the
Gaming Control Board prior to working in gaming related areas. These approvals
may be immediately revoked for a number of causes as determined by the Gaming
Control Board. The Gaming Control Board may deny any application for a
certificate, permit or license for any cause found to be reasonable by the
Gaming Control Board. The Gaming Control Board has the authority to require the
Company to sever its relationships with any persons for any cause deemed
reasonable by the Division or for the failure of that person to file necessary
applications with the Gaming Control Board.
At any time, the Gaming Control Board may investigate and require the
finding of suitability of any beneficial shareholder of the Company. The Gaming
Control Board requires all holders of more than 5% of the license holder to
submit to suitability requirements. Additionally, if a shareholder who must be
found suitable is a corporate or partnership entity, then the shareholders or
partners of that entity must also submit to investigation. The sale or transfer
of more than a 5% interest in any riverboat project is subject to Gaming Control
Board approval.
Annual fees are currently charged to each riverboat project as follows:
(i) $50,000 per year for the first year and $100,000 for each year thereafter;
and (ii) 18.5 % of the net gaming proceeds. Additionally, each riverboat must
pay to the local government a boarding fee of $2.50 per passenger boarding the
vessel. These fees could be increased by the Gaming Control Board.
Pursuant to the regulations promulgated by the Division and the
Commission (prior to the formation of the Gaming Control Board), all licensees
are required to inform the Commission and the Division of all debt, credit,
financing and loan transactions including the identity of debt holders. This
practice will be followed with the Gaming Control Board pending the issuance of
conflicting regulations. Although the Company is not presently a license holder,
its subsidiary, Boyd Kenner is a licensee and is subject to these regulations.
In addition, the Gaming Control Board, in its sole discretion, may require the
holders of such debt securities to file applications and obtain suitability
certificates from the Gaming Control Board. Although the Act does not
specifically require debt holders to be licensed or to be found suitable, the
Gaming Control Board will retain the discretion to investigate and require that
any holders of debt securities be found suitable under the Act. Additionally, if
the Gaming Control Board finds that any holder exercises a material influence
over the gaming operations, a suitability certificate will be required. If the
Gaming Control Board determines that a person is unsuitable to own such a
security or to hold such an indebtedness, the Gaming Control Board may propose
any such action which it determines proper and necessary to protect the public
interest, including the suspension or revocation of the license. The Gaming
Control Board may also, under the penalty of revocation of license, issue a
condition of disqualification naming the person(s) and declaring that such
person(s) may not (i) receive dividends or interest in debt or securities; (ii)
exercise directly or through a nominee a right conferred by the securities or
indebtedness; (iii) receive any remuneration from the licensee; (iv) receive any
economic benefit form the licensee or (v) continue in an ownership or economic
interest in a licensee or remain as a manager, director or partner of a
licensee.
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Any violation of the Riverboat Act or the rules promulgated by the
Commission, the Division or the Gaming Control Board could result in substantial
fines, penalties (including a revocation of the license) and criminal actions.
Additionally, all licenses and permits issued by the Commission or the Division
are revocable privileges and may be revoked at any time by the Gaming Control
Board.
Mississippi
The ownership and operation of casino facilities in Mississippi are
subject to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission and the regulatory
control of the Mississippi State Tax Commission (the "Mississippi Gaming
Authorities").
The Mississippi Gaming Control Act (the "Mississippi Act"), which
legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990.
Although not identical, the Mississippi Act is similar to the Nevada Gaming
Control Act. The Mississippi Gaming Commission has adopted regulations which are
also similar in many respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting practices
and procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission; (iv) prevent
cheating and fraudulent practices; (v) provide a source of state and local
revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission. Changes in Mississippi law or regulations or their
interpretation may limit or otherwise materially affect the types of gaming that
may be conducted and could have an adverse effect on the Company and the
Company's Mississippi gaming operations.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Mississippi Gulf Coast or
the Mississippi River provided that voters in such counties have not voted to
prohibit gaming in that county. As of June 1, 1996, dockside gaming was
permissible in 9 of the 14 eligible counties in the State and gaming operations
had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren and
Washington counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. There are no limitations on the number of
gaming licenses which may be issued in Mississippi.
Under Mississippi law, gaming vessels must be located on the
Mississippi River or on navigable waters in eligible counties along the
Mississippi River, or in the waters of the State of Mississippi lying south of
the State in eligible counties along the Mississippi Gulf Coast. The Sam's Town
Tunica casino is located on barges situated in a specially constructed basin
several
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hundred feet inland from the Mississippi River. In the recent past, whether
basins such as the one in which the Company's barges are located constituted
"navigable waters" suitable for gaming under Mississippi law was a controversial
issue. The Mississippi Attorney General issued an opinion in July 1993
addressing legal locations for gaming vessels under the Mississippi Gaming
Control Act, and the Mississippi Gaming Commission later approved the location
of the barges on the Sam's Town Tunica site as legal under the opinion of the
Mississippi Attorney General. A competitor subsequently filed a letter with the
Mississippi Gaming Commission requesting a reconsideration with respect to the
Mississippi Gaming Commission's approval of the placement of the barges on the
Sam's Town Tunica site and other prospective gaming operators' sites adjacent
thereto. No official action was ever taken regarding this request. In December
1993, the Mississippi Gaming Commission voted to issue a license to Boyd Tunica,
the entity through which the Company operates Sam's Town Tunica. The license
requires demonstration of compliance with the Mississippi Attorney General's
"navigable waters" opinion, a requirement which has been imposed on many
licenses for Tunica County gaming projects. The Company believes that the barges
at the Sam's Town Tunica site, as well as similarly situated barges belonging to
operators whose facilities have opened and other prospective gaming operators,
are located on navigable waters within the meaning of Mississippi law. However,
no assurance can be given that a court would ultimately conclude that such sites
constitute navigable waters within the meaning of Mississippi law. If the basin
in which the Company's barges are presently located were not deemed navigable
waters within the meaning of Mississippi law, there would be a material adverse
effect on Sam's Town Tunica.
The Company has been registered with the Mississippi Gaming Commission
as a publicly traded holding company for Boyd Tunica. The Company is required
periodically to submit detailed financial and operating reports to the
Mississippi Gaming Commission and furnish any other information which the Gaming
Commission may require. The Company, Boyd Tunica and any other subsidiary of the
Company that operates a casino (other than Silver Star) in Mississippi (such a
subsidiary, including Boyd Tunica, a "Mississippi Gaming Subsidiary"), are
subject to the licensing and regulatory control of the Mississippi Gaming
Authorities. If the Company is unable to continue to satisfy the registration
requirements of the Mississippi Act, the Company and its Mississippi Gaming
Subsidiaries cannot own or operate gaming facilities in Mississippi. Each
Mississippi Gaming Subsidiary must obtain gaming licenses from the Mississippi
Gaming Commission to operate casinos in Mississippi. A gaming license is issued
by the Mississippi Gaming Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations and physical
inspection of the casinos prior to opening. The Mississippi Gaming Commission
granted a gaming license to Boyd Tunica in December 1993 which was renewed in
November of 1995.
Gaming licenses are non-transferable, are initially issued for a
two-year period and must be renewed periodically thereafter. No person may
become a stockholder of or receive any percentage of profits from a gaming
licensee subsidiary of a holding company without first obtaining approvals from
the Mississippi Gaming Commission. The Company obtained such approvals in
connection with the licensing of Boyd Tunica.
Certain employees of the Company and the officers, directors and
certain key employees of the Company's Gaming Subsidiaries must be found
suitable by the Mississippi Gaming Commission. The Mississippi Gaming
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Commission made findings of suitability with respect to such persons in
connection with the licensing of Boyd Tunica. Employees associated with gaming
must also obtain work permits that are subject to immediate suspension under
certain circumstances. In addition, any person having a material relationship or
involvement with the Company may be required to be found suitable or licensed,
in which case those persons must pay the costs and fees associated with such
investigation. The Mississippi Gaming Commission may deny an application for a
license or finding of suitability for any cause that it deems reasonable.
Changes in licensed positions must be reported to the Mississippi Gaming
Commission. Besides its authority to deny an application for a license or
finding of suitability, the Mississippi Gaming Commission has jurisdiction to
disapprove a change in corporate position. The Mississippi Gaming Commission has
the power to require any Mississippi Gaming Subsidiary and the Company to
suspend or dismiss officers, directors and other key employees or sever
relationships with other persons who refuse to file appropriate applications or
whom the authorities find unsuitable to act in such capacities.
Substantially all loans, leases, sales of securities and similar
financing transactions by a Mississippi Gaming Subsidiary must be reported to or
approved by the Mississippi Gaming Commission. A Mississippi Gaming Subsidiary
may not make a public offering of its securities, but may pledge or mortgage
casino facilities, if it obtains the prior approval of the Mississippi Gaming
Commission. The Company may not issue securities without the prior approval of
the Mississippi Gaming Commission if any part of the proceeds of the offering is
to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for one or
more such purposes. Such approval, if given, does not constitute a
recommendation or approval of the investment merits of the securities subject to
the offering.
If the Mississippi Gaming Commission decides that a Mississippi Gaming
Subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
Mississippi Gaming Subsidiary. In addition, a Mississippi Gaming Subsidiary, the
Company and the persons involved could be subject to substantial fines for each
separate violation. Because of such a violation, the Mississippi Gaming
Commission could seek to appoint a supervisor to operate the casino facilities.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's and the Gaming Subsidiary's gaming operations.
At any time, the Mississippi Gaming Commission has the power to
investigate and require the finding of suitability of any record or beneficial
owner of the Company's shares. Mississippi law requires any person who acquires
more than 5% of the Company's common stock to report the acquisition to the
Mississippi Gaming Commission, and such person may be required to be found
suitable. Also, any person who becomes a beneficial owner of more than 10% of
the Company's common stock, as reported to the Securities and Exchange
Commission, must apply for a finding of suitability by the Mississippi Gaming
Commission and must pay the costs and fees that the Mississippi Gaming
Commission incurs in conducting the investigation. The Mississippi Gaming
Commission has generally exercised its discretion to require a finding of
suitability of any beneficial owner of more than 5% of the Company's common
stock. If a stockholder who must be found suitable is a corporation, partnership
or trust, it must submit detailed business and
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financial information including a list of beneficial owners. The Mississippi
Gaming Commission has adopted a policy with respect to certain institutional
investors which may permit such investors to purchase and hold up to 10% of the
Company's common stock without a suitability finding. Such institutional
investors may be required to file certain information with the Mississippi
Gaming Commission under the policy and the Mississippi Gaming Commission retains
discretion to require a finding of suitability at any time. To date, all
stockholders of the Company required to be found suitable by the Mississippi
Gaming Commission have been found suitable.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Mississippi
Gaming Commission may be found unsuitable. Any person found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the securities of the
Company beyond such time as the Mississippi Gaming Commission prescribes, may be
guilty of a misdemeanor. The Company is subject to disciplinary action if, after
receiving notice that a person is unsuitable to be a stockholder or to have any
other relationship with the Company or its Mississippi Gaming Subsidiaries, the
Company: (i) pays the unsuitable person any dividend or other distribution upon
the voting securities of the Company; (ii) recognizes the exercise, directly or
indirectly, of any voting rights conferred by securities held by the unsuitable
person; (iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances; or (iv) fails to pursue all lawful efforts to require the
unsuitable person to divest himself of the securities, including, if necessary,
the immediate purchase of the securities for cash at a fair market value.
The Company may be required to disclose to the Mississippi Gaming
Commission, upon request, the identities of the security holders including
holders of debt securities of the Company. In addition, the Mississippi Gaming
Commission under the Mississippi Act may, in its discretion, require holders of
debt securities of registered corporations to file applications, investigate
such holders, and require such holders to be found suitable to own such debt
securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming Commission retains the discretion to
do so for any reason, including but not limited to a default or where the holder
of the debt instrument exercises a material influence over the gaming operations
of the entity in question. Any holder of debt securities required to apply for a
finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with such an investigation. If the
Mississippi Gaming Commission determines that a person is unsuitable to own such
security, then it is unlawful for the unsuitable person: (i) to receive any
dividend or interest whatsoever from the company; (ii) to exercise any voting
right conferred by such securities or interest; or (iii) to receive any
remuneration in any form from the Company.
The Gaming Subsidiary must maintain a current stock ledger in its
principal office in Mississippi and the Company must maintain a current list of
stockholders in the principal offices of the Gaming Subsidiary which must
reflect the record ownership of each outstanding share of any class of equity
security issued by the Company. The stockholder list may thereafter be
maintained by adding reports regarding the ownership of such securities that it
receives from the Company's transfer agent. The ledger and stockholder lists
must be available for inspection by the Mississippi Gaming Commission at any
time. If any securities of the Company are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
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beneficial owner to the Mississippi Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
must also render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Gaming Commission has the power to require that the
Company's securities bear a legend to the general effect that such securities
are subject to the Mississippi Act and the regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission has the power, through the power
to regulate licensees, to impose additional restrictions on the holders of the
Company's securities at any time. The Company received a waiver from the legend
requirement in connection with the licensing of Boyd Tunica.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and other
corporate defense tactics that affect corporate gaming licensees in Mississippi
and corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to: (i) assure the financial
stability of corporate gaming operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi Gaming
Commission before the Company may make exceptional repurchases of voting
securities above the current market price of its common stock or before a
corporate acquisition opposed by management may be consummated. Mississippi's
gaming regulations will also require prior approval by the Mississippi Gaming
Commission if the Company adopts a plan of recapitalization proposed by its
Board of Directors opposing a tender offer made directly to the shareholders for
the purpose of acquiring control of the Company.
Neither the Company nor any subsidiary may engage in gaming activities
in Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. The Mississippi Gaming
Authorities may require determinations that, among other things, there are means
for the Mississippi Gaming Authorities to have access to information concerning
the out-of-state gaming operations of the Company and its affiliates. In
connection with the licensing of Boyd Tunica, the Company and its affiliates
obtained the approval of the Mississippi Gaming Commission to engage in gaming
operations in Nevada, Louisiana and Missouri.
License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which a Mississippi Gaming Subsidiary's respective operations will
be conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino, (iii) the number of table
games operated by the casino or (iv) numbers of patrons entering the casino. The
license fee payable to the State of Mississippi is based upon "gaming receipts"
(generally defined as gross receipts less payouts to customers as winnings) and
equals 4% of gaming receipts of $50,000 or less per
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month, 6% of gaming receipts over $50,000 and less than $134,000 per month, and
8% of gaming receipts over $134,000. The foregoing license fees are allowed as a
credit against the Company's Mississippi income tax liability for the year paid.
In October 1994, the Mississippi Gaming Commission adopted a regulation
which requires as a condition of licensure or license renewal that a gaming
establishment's plan include a 500-car parking facility in close proximity to
the casino complex and infrastructure facilities which will amount to at least
25% of the casino cost. Such facilities may include any of the following: a
250-room hotel of at least a two star rating as defined by the current edition
of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis complex,
entertainment facilities, or any other such facility as approved by the
Mississippi Gaming Commission as infrastructure. Parking facilities, roads,
sewage and water systems, or facilities normally provided by cities and/or
counties are excluded. The Commission may in its discretion reduce the number of
rooms required, where it is shown to the Commission's satisfaction that
sufficient rooms are available to accommodate the anticipated visitor load. The
Company believes that Boyd Tunica, with a 508-room hotel and other amenities,
currently satisfies these requirements.
Missouri
Gaming was originally authorized in the State of Missouri in November
1992. On April 29, 1993, new legislation (the "Missouri Act") was enacted which
replaced the 1992 legislation. Subsequent to adoption, the Missouri Act has been
amended from time to time. There can be no assurances that the Missouri Act will
not be further amended and interpreted in a manner that would limit or otherwise
adversely affect the Company and its Missouri gaming operations. The Missouri
Act provides for the licensing and regulation of riverboat and dockside gaming
operations on the Mississippi and Missouri Rivers in the State of Missouri and
the licensing and regulation of persons who distribute gaming equipment and
supplies to gaming licensees. The Missouri Act limits the loss per individual on
each excursion to $500, but does not otherwise limit the amount which may be
wagered on any bet or the amount of space in the vessel which may be utilized
for gaming. In November 1994, a constitutional amendment was passed which
permits certain games of chance such as traditional slot machines on riverboats
and floating gaming facilities.
The Missouri Act is implemented and enforced by a five-member Missouri
Gaming Commission (the "Missouri Commission"). This Commission is empowered to
issue such number of riverboat gaming licenses as it determines to be
appropriate. A gaming license cannot be granted to any gaming operator unless
the voters in such operator's "home dock" city or county have authorized gaming
activities on gaming riverboats. On February 2, 1993, voters in Kansas City,
Missouri approved a riverboat gaming ballot measure. On September 13, 1995, Boyd
Kansas City was issued a Missouri gaming license for its Sam's Town Kansas City
facility. Boyd Kansas City's home dock city is Kansas City, Missouri.
Gaming boats in Missouri must generally resemble boats from Missouri's
riverboat history and must contain nongaming areas, food service and a Missouri
theme gift shop. The boats must cruise unless the Missouri Commission approves a
petition for continuous docking. On April 25, 1995, the Missouri Commission
approved Boyd Kansas City's petition for continuous docking for
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its riverboat at Sam's Town Kansas City. The Missouri Act also imposes a tax of
20% of adjusted gross receipts from gaming activities and a $2.00 per person
excursion fee. Annual license fees are set by the Missouri Commission but may
not be less than $25,000. Each licensee also must post a bond or other form of
surety (in an amount determined by the Missouri Commission) to secure
performance of its obligations under the Missouri Act and the regulations of the
Missouri Commission.
On September 1, 1993, the Missouri Commission adopted rules and
regulations (the "Missouri Regulations") governing the licensing, operation and
administration of riverboat gaming in the state of Missouri and the form of
application for such licensure. Subsequent to adoption, the Missouri Regulations
have been amended from time to time. There can be no assurances that the
Missouri Regulations will not be further amended and interpreted in a manner
that would limit or otherwise adversely affect the Company and its Missouri
gaming operations.
Directors and certain officers and key persons of the Company and Boyd
Kansas City must file personal disclosure forms with the gaming license
application and must be found suitable by the Missouri Commission. Owners of 5%
or more of the Company or Boyd Kansas City are considered key persons for
purposes of the gaming application disclosure and finding of suitability.
The Company, Boyd Kansas City and the Port Authority of Kansas City,
Missouri are parties to a Development Agreement dated April 25, 1995. In the
Development Agreement, Boyd Kansas City and the Company agreed that, within 6
months after the opening of Sam's Town Kansas City, Boyd Kansas City and the
Company would seek to identify qualified minority and women investors acceptable
to them and to offer such investors an opportunity to purchase up to 10% of the
stock of Boyd Kansas City; 7% of said stock is to be offered to minority
investors and 3% is to be offered to women investors which Boyd Kansas City and
the Company find to be qualified and acceptable. Boyd Kansas City has
subsequently requested, and the Port Authority has approved, a 6 month extension
of the time period within which the offering of stock of Boyd Kansas City to
qualified minority and women investors is to be completed. The Missouri
Commission's staff advised the Company that it will consider all minority or
women investors who are offered the right to purchase the stock of Boyd Kansas
City to be key persons, even if such investor's ownership is less than 5% of the
common stock of Boyd Kansas City.
Further, the Missouri Regulations require that all employees of Boyd
Kansas City who are involved in gaming operations must file applications for and
receive Missouri gaming occupational licenses. Presently, the Missouri
Commission staff has required all employees at Sam's Town Kansas City to obtain
occupational licenses, even if those employees are not involved in gaming
operations.
The Missouri Regulations require disclosure by the Company and Boyd
Kansas City of any person or entity holding any direct or indirect ownership
interest in the Company or Boyd Kansas City. The Company is also required to
disclose the names of the holders of all of the Company's debt including a
description of the nature and terms of such debt. The Missouri Commission may,
in its sole discretion, request additional information with respect to such
holders. The Company and Boyd Kansas City are required to update the Missouri
gaming license
21
<PAGE> 22
application any time there is a material change within seven business days after
the date of any such change. Missouri gaming licenses must be renewed annually
during the first two years of an entity's licensure and every two years
thereafter.
Under Missouri law, gaming licenses are not transferable. The Missouri
Regulations require that the Missouri Commission be notified at least 60 days
prior to the transfer, issuance, pledge or hypothecation of any ownership
interest in a gaming licensee which is not a publicly held entity, such as Boyd
Kansas City. The Missouri Regulations further require that the Missouri
Commission be notified at least 60 days prior to the issuance of an ownership
interest constituting 5% or more of a publicly held holding company, such as the
Company. Upon receipt of such 60-day notice, the Missouri Commission may
disapprove the transaction or require the transaction to be delayed pending
further investigation. The Missouri Regulations also require that the Missouri
Commission be notified no later than 7 days after the consummation of any pledge
or hypothecation of an ownership interest equaling 5% or more of the ownership
of a publicly held holding company or any transfer of ownership interest in a
publicly held holding company if such transfer would result in an entity or
group of entities acting in concert owning, directly or indirectly, a total
amount of ownership interest equaling 5% or more of the ownership of such
publicly held holding company. Further, without the prior approval of the
Missouri Gaming Commission, the Missouri Regulations prohibit withdrawals of
capital, loans, advances or distribution of any assets in excess of 5% of
accumulated earnings by a license holder to anyone with an ownership interest in
the license holder.
Presently, there are proposed regulations which, if adopted, will
change substantially the requirements set forth in the preceding paragraph.
Specifically, the proposed regulations will (i) prohibit the pledge or
hypothecation of any ownership interest in a gaming licensee which is not a
publicly-held entity; and (ii) permit a licensee to consummate issuance of
ownership interests in publicly-held licensees or holding companies, the
incurrence of debt by a gaming licensee or holding company or any public
issuance of debt at any time after 15 days after notice to the Commission by the
licensee of its intent to consummate such a transaction. The proposed
regulations also authorize the Commission to reopen a license hearing at any
time to consider the effect of the transaction in question on the gaming
licensee's suitability following the consummation of the transaction. If the
proposed regulations are adopted, the only type of transaction which will
require 60-day advance notice to the Commission is a transfer of an ownership
interest in a licensee or holding company which is not publicly held. All other
transactions will require either 15 days prior notice to the Commission (coupled
with the possible reopening of the licensee's suitability hearing) or notice
within 7 days after a transaction is consummated.
The Missouri Regulations specifically provide that any action of the
Missouri Commission shall not indicate or suggest that the Missouri Commission
has considered or passed in any way on the marketability of the applicant or
licensee's securities, or on any other matter, other than the applicant or
licensee's suitability for licensure under Missouri law. A Missouri gaming
license holder can be disciplined in Missouri for gaming related acts occurring
in another jurisdiction which results in disciplinary action in the other
jurisdiction.
22
<PAGE> 23
The Missouri Commission has broad powers to require additional
disclosure by an applicant during the processing of a gaming application, to
deny gaming licensure and to administratively fine or suspend or revoke a gaming
license for failure to comply with or for violation of the Missouri Act or
Missouri Regulations. Under the Missouri Regulations, a licensee is required to
provide all requested information immediately upon request by the Commission,
and to advise the Missouri Commission of any material changes in the information
submitted by a licensee on its license application within 7 business days after
the occurrence of such change. Further, in certain situations, the Missouri
Commission can appoint a supervisor to continue the operations of a license
holder after lapse, suspension or revocation of a gaming license. The supervisor
may operate and sell the facility with earnings or proceeds being paid to the
former owners only after deduction of the costs and expenses of the
supervisorship and establishment of reserves.
d. Competition
The following "Competition" discussion is updated from that contained
in the Company's 1995 Form 10-K.
The Company faces intense competition from other companies in the
gaming industry. The Company's Las Vegas properties compete primarily with other
casino hotels on the Las Vegas Strip, the Boulder Strip and in downtown Las
Vegas. Currently, there are approximately 24 major gaming properties located on
or near the Strip, 11 located in the downtown area and several located in other
areas of Las Vegas. Las Vegas gaming square footage and room capacity are
continuing to increase. A number of marquee properties have opened in the last
several years and several others are currently under construction or planned for
the Las Vegas strip, including the 1,500 room Stratosphere, the 3,000 room Paris
Hotel and Casino, the 3,000 room Monte Carlo Hotel and Casino, the 2,035 room
New York, New York Hotel and Casino, and the 3,000 room Bellagio Resort.
Additionally, several properties have recently announced or begun significant
expansion and renovation projects, including Circus Circus Hotel and Casino, MGM
Grand Hotel and Casino, Harrah's Hotel and Casino, Rio Hotel and Casino, Luxor
Hotel and Casino, and the Sahara Hotel and Casino. Each of the foregoing
facilities has or may have a theme and attractions which have drawn or may draw
significant numbers of visitors. Moreover, most of these facilities attract or
may attract primarily middle income patrons, who are the focus of the Company's
marketing strategy. Although the Company believes that these additional
facilities will have a positive effect on the Company by drawing more visitors
to Las Vegas, these properties also may divert some gaming activity from the
Company. Future additions, expansions and enhancements to existing properties by
the Company's competitors could divert additional gaming activity from the
Company's facilities. Although the Company has been able to compete successfully
following previous market expansions, there can be no assurance that the Company
will be able to compete successfully in the future.
The Company believes that a Las Vegas property is differentiated from
its competitors by the following factors: location; attractions; quality of
gaming facilities, gaming experience and entertainment; quality of food,
beverages and atmosphere; and price. The Company competes by offering a complete
entertainment and gaming experience with excellent price/value relationships
23
<PAGE> 24
and by targeting specific groups of customers. In addition, the Company competes
by offering the most modern video and other slot machines available. The Company
believes that the bases of competition in new markets are similar to those in
Las Vegas and that its principal competitors in those markets are, and will be,
those operators who develop high quality casino entertainment facilities.
Sam's Town Tunica competes primarily with other dockside gaming
operations in Tunica County and, to a lesser extent, with dockside casinos in
Vicksburg, Greenville, Natchez and Coahoma County, Mississippi, with dockside
casinos on the Mississippi Gulf Coast and with gaming operations in Louisiana.
Gaming has grown rapidly in Tunica County with nine dockside casinos now in
operation and one casino under construction and expected to open in June 1996.
Six casinos located in Tunica County have closed during the last 12 months.
Another closed facility was purchased by a competitor and reopened in April
1996. In addition, several Tunica area casinos are in the process of adding
hotel rooms, including 500 rooms at the Fitzgeralds Hotel and Casino, 350 rooms
at the Hollywood Hotel and Casino, and 200 rooms at Harrah's. Some of these
facilities are operated by certain of the Company's principal Nevada
competitors.
Sam's Town Kansas City competes primarily with other riverboat gaming
operations in the Kansas City area. Two riverboat gaming operations, one in
Riverside, Missouri and one in North Kansas City, Missouri have been granted a
license and have begun operations. In addition, two other operations in the
Kansas City area are currently under construction and awaiting licensing.
Several other companies, including some of the Company's principal Nevada
competitors, have announced plans to participate in riverboat gaming in the
Kansas City area. Some of these operations are being developed by companies that
have significantly greater financial resources than the Company, some have been
operating for a longer time than the Company's facility and some may possess
more desirable locations. While the Company believes that it has created a high
quality gaming and entertainment facility at Sam's Town Kansas City, no
assurance can be given that the Company will be able to compete successfully in
this new market.
The Treasure Chest competes primarily with other riverboat gaming
operations in the New Orleans metropolitan area and competes with a large
land-based temporary casino opened by Harrah's in May 1995. Fifteen operators
were granted licenses, one of which was subsequently surrendered, by the
Department of Public Safety, Office of State Police, Riverboat Gaming Division
(the "Louisiana Gaming Division") to operate riverboat casinos within the state
of Louisiana. Approximately four of these riverboat gaming operations currently
are located in the New Orleans metropolitan area. Some of the operations against
which the Treasure Chest competes are operated by companies with significantly
greater financial resources and some may possess more desirable locations. While
the Treasure Chest's operating results have met the Company's expectations, no
assurance can be given that the Treasure Chest will be able to continue to
compete successfully in this market.
The Par-A-Dice competes primarily with other gaming operations in
Illinois and, to a lesser extent, with dockside gaming facilities in Indiana,
Iowa and Missouri. The Illinois Riverboat Act authorizes ten owner's licenses
for riverboat gaming operations. All ten licenses have been granted and, of the
ten current riverboat gaming operations in Illinois, only one is within a 100
24
<PAGE> 25
mile radius of Peoria. Some of these riverboats are being operated by companies
with greater experience in the Illinois market than the Company. In addition,
the Par-A-Dice may face competition from riverboats in Indiana.
The Company also competes to a lesser extent with casino hotel
operators located in other parts of the State of Nevada, with facilities in
Atlantic City, New Jersey and in other parts of the world, with state-sponsored
lotteries, off-track wagering, card parlors, water-based and Indian gaming
ventures outside of Illinois, Mississippi, Missouri and Louisiana, and with
other forms of permitted gambling. Certain states have recently permitted, and
several other states may permit, casino gaming in specific geographic areas. In
addition, passage of the Indian Gaming Regulatory Act has led to rapid increases
in Indian gaming ventures. Although the Company intends to establish facilities
in certain of these new markets, expansion of gaming could significantly and
adversely affect the Company's business. In particular, adoption of legislation
permitting casino gaming in or near any major metropolitan area from which the
Company attracts customers could have a material adverse effect on the Company's
business.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Consolidated Financial Statements.
Unaudited Consolidated Financial Statements of Par-A-Dice
Gaming Corporation as of March 31, 1996 and for the quarters
ended March 31, 1996 and 1995.
Consolidated Financial Statements of Par-A-Dice Gaming
Corporation as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995, together
with Report of Independent Accountants.
Report of Independent Accountants
Financial Statements:
Consolidated Balance Sheets, as of December 31, 1995
and 1994
Consolidated Statements of Income for the three years
ended December 31, 1995
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1995
Consolidated Statements of Cash Flows for the three
years ended December 31, 1995
Notes to Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Consolidated Balance Sheet as of March 31, 1996.
Pro Forma Consolidated Statement of Income for the nine months
ended March 31, 1996.
Pro Forma Consolidated Statement of Income for the year ended
June 30, 1995.
Notes to Pro Forma Consolidated Financial Statements.
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
10.1 Joint Venture Agreement of Stardust A.C., dated as of May 29,
1996, between MAC, CORP., a New Jersey corporation which is a
wholly-owned
23.1 Consent of Coopers & Lybrand L.L.P.
25
<PAGE> 26
subsidiary of Mirage Resorts, Incorporated, a Nevada corporation,
and Grand K, Inc., a Nevada corporation which is a wholly-owned
subsidiary of Registrant. (Certain portions of this exhibit have
been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential
treatment for this Agreement.)
99.1 Registrant's Press Release, dated May 29, 1996, regarding
Atlantic City Project.
99.2 Registrant's Press Release, dated June 7, 1996, regarding Sam's
Town Reno.
26
<PAGE> 27
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of March 31, (In thousands, except share data) 1996
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,719
Receivables:
Trade, net of allowances of $117 384
Inventories 266
Prepaid expenses and other 391
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 7,760
Property and equipment, net 50,077
Due from related parties 1,117
Other assets, net 154
- -----------------------------------------------------------------------------------------------------------------------
Total assets $59,108
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $1,091
Accrued expenses 3,494
Notes payable and current portion of long-term debt 2,400
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,985
Long-term debt, net of current portion 14,700
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 21,685
- -----------------------------------------------------------------------------------------------------------------------
Minority interest 1,000
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized
13,000,000 shares: issued 9,568,535 shares 9,048
Retained earnings 27,375
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 36,423
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $59,108
=======================================================================================================================
</TABLE>
27
<PAGE> 28
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the quarters ended March 31, (In thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING REVENUES
Casino $24,778 $22,161
Admissions and parking 331 530
Food and beverage 1,292 965
Other 98 116
- -----------------------------------------------------------------------------------------------------
Total operating revenues 26,499 23,772
- -----------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Casino 7,904 6,987
Food and beverage 1,783 1,417
General and administrative 9,331 8,217
- -----------------------------------------------------------------------------------------------------
Total operating expenses 19,018 16,621
- -----------------------------------------------------------------------------------------------------
OPERATING INCOME 7,481 7,151
- -----------------------------------------------------------------------------------------------------
OTHER (INCOME) EXPENSE
Loss on disposition of property 0 16
Interest and other income (133) (91)
Interest expense 312 385
- -----------------------------------------------------------------------------------------------------
Total other (income) expense 179 310
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR STATE INCOME TAXES 7,302 6,841
Provision for state income taxes 98 95
- -----------------------------------------------------------------------------------------------------
NET INCOME $7,204 $6,746
=====================================================================================================
</TABLE>
28
<PAGE> 29
PAR-A-DICE GAMING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TREASURY STOCK STOCKHOLDERS'
---------- -------- --------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 9,568,535 $9,048 $17,444 0 $0 $26,492
Net Income 6,746 6,746
Distribution to stockholders (4,856) (4,856)
-------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 9,568,535 9,048 19,334 0 0 28,382
=========================================================================
BALANCE, JANUARY 1, 1996 9,568,535 9,048 23,171 0 0 32 219
Net Income 7,204 7,204
Distribution to stockholders (3,000) (3,000)
-------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 9,568,535 $9,048 $27,375 0 $0 $36,423
=========================================================================
</TABLE>
29
<PAGE> 30
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the quarters ended March 31, (in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $7,204 $6,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,123 1,096
(Gain) loss on dispositions of property -- 31
Changes in assets and liabilities:
Trade receivables, net 156 34
Inventories 111 (30)
Prepaid expenses and other 191 (278)
Accounts payable (716) (1,217)
Accrued expenses (512) (1,255)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,557 5,127
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property -- 70
Purchase of property and equipment (4,270) (226)
Investment in affiliates -- (108)
- -----------------------------------------------------------------------------------------------------
Net cash used by investing activities (4,270) (264)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 5,800 --
Payments on notes payable and long-term debt (3,600) (600)
Distributions to stockholders (3,000) (4,856)
- -----------------------------------------------------------------------------------------------------
Net cash used by financing activities (800) (5,456)
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,487 (593)
CASH AND CASH EQUIVALENTS, BEGINNING OF QUARTER 4,232 7,726
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF QUARTER $6,719 $7,133
=====================================================================================================
Supplemental cash flow disclosure:
Interest paid (net of amount capitalized) $266 $388
===========================
State income taxes paid $341 $385
===========================
</TABLE>
30
<PAGE> 31
PAR-A-DICE GAMING CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary, consisting of only
normal recurring adjustments, to present fairly the results of its operations
and its cash flows for the three month periods ended March 31, 1996 and 1995.
This report should be read in conjunction with the Company's audited
consolidated financial statements included elsewhere herein. The operating
results and cash flows for the three months ended March 31, 1996 are not
necessarily indicative of the results that will be achieved for the full year
or for future periods.
31
<PAGE> 32
Coopers Coopers & Lybrand L.L.P.
&Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders
Par-A-Dice Gaming Corporation
East Peoria, Illinois
We have audited the accompanying consolidated balance sheets of
Par-A-Dice Gaming Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Par-A-Dice Gaming Corporation as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
March 15, 1996, except for footnote 11
for which the date is May 23, 1996
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
32
<PAGE> 33
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31, (In thousands, except share data) 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,232 $7,726
Receivables:
Trade, net of allowances of $80 (1995) and $88 (1994) 541 325
Inventories 377 291
Prepaid expenses and other 628 457
- -----------------------------------------------------------------------------------------------------
Total current assets 5,778 8,799
Property and equipment, net 46,866 42,219
Due from related parties 1,117 1,117
Other assets, net 171 747
- -----------------------------------------------------------------------------------------------------
Total assets $53,932 $52,882
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $1,794 $2,929
Due to related parties 14 2,924
Accrued expenses 4,005 3,937
Notes payable and current portion of long-term debt 3,100 2,400
- -----------------------------------------------------------------------------------------------------
Total current liabilities 8,913 12,190
Long-term debt, net of current portion 11,800 14,200
- -----------------------------------------------------------------------------------------------------
Total liabilities 20,713 26,390
- -----------------------------------------------------------------------------------------------------
Minority interest 1,000
- -----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized
13,000,000 shares; issued 9,568,535 shares 9,048 9,048
Retained earnings 23,171 17,444
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 32,219 26,492
- -----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $53,932 $52,882
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31, (In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Casino $ 95,029 $84,483 $64,264
Admissions and parking 2,255 2,503 2,117
Food and beverage 4,829 4,275 2,611
Other 689 704 489
- -----------------------------------------------------------------------------------------------------------------
Total operating revenues 102,802 91,965 69,481
- -----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Casino 30,386 27,290 20,614
Food and beverage 6,951 5,605 3,271
General and administrative 35,987 35,058 23,467
- -----------------------------------------------------------------------------------------------------------------
Total operating expenses 73,324 67,953 47,352
- -----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 29,478 24,012 22,129
- -----------------------------------------------------------------------------------------------------------------
OTHER EXPENSE (INCOME)
(Gain) loss on disposition of property (611) 1,646 --
Gain on sale of riverboat -- (3,755) --
Interest and other income (594) (383) (126)
Interest expense 1,507 1,086 583
Equity in net loss of affiliates 635 613 --
Loss on sale of affiliate 186 -- --
- -----------------------------------------------------------------------------------------------------------------
Total other expense (income) 1,123 (793) 457
- -----------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR STATE INCOME TAXES 28,355 24,805 21,672
Provision for state income taxes 419 302 307
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 27,936 $24,503 $21,365
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
(In thousands, except share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK RETAINED TREASURY STOCK STOCKHOLDERS'
SHARES AMOUNT EARNINGS SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 11,802,500 $11,270 $4,972 968,965 $(958) $15,284
Purchase of common stock 225,000 (2,500) (2,500)
Retirement of treasury stock (968,965) (958) (968,965) 958 0
Capital acquired through GPLC
merger 1 1
Net income 21,365 21,365
Distribution to stockholders (12,388) (12,388)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 10,833,535 10,313 13,949 225,000 (2,500) 21,762
Purchase of common stock 1,040,000 (11,239) (11,239)
Retirement of treasury stock (1,265,000) (1,265) (12,474) (1,265,000) 13,739 0
Net income 24,503 24,503
Distribution to stockholders (8,534) (8,534)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31,1994 9,568,535 9,048 17,444 26,492
Net income 27,936 27,936
Distribution to stockholders (22,209) (22,209)
----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 9,568,535 $ 9,048 $ 23,171 $ 32,219
========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 36
PAR-A-DICE GAMING CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31, (In thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $27,936 $24,503 21,365
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,362 4,433 3,783
Gain on sale of riverboat -- (3,755) --
(Gain) loss on dispositions of property (596) 1,695 --
Equity in net loss of affiliates 635 613 --
Loss on sale of affiliate 166 -- --
Changes in assets and liabilities:
Trade receivables, net (216) (43) (188)
Due from related parties -- 415 72
Inventories (86) (114) (76)
Prepaid expenses and other (443) (385) (286)
Other assets (10) (261) (65)
Accounts payable (359) (663) 2,234
Due to affiliate (2,832) -- --
Accrued expenses 68 167 929
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,625 26,605 27,768
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 77 15,400 --
Proceeds from sale of investment in affiliate 230 -- --
Purchase of property and equipment (7,986) (22,538) (15,229)
Loans to related parties -- (10) (1,107)
Investment in affiliates (531) (839) (294)
Deposit on sale of riverboat -- -- 1,000
- -------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (8,210) (7,987) (15,630)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 1,200 28,148 12,152
Payments on notes payable and long-term debt (2,900) (25,204) (8,886)
Purchase of common stock -- (8,387) (2,500)
Distributions to stockholders (22,209) (8,534) (12,388)
- -------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (23,909) (13,977) (11,622)
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,494) 4,641 516
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,726 3,085 2,569
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $4,232 $7,726 $3,085
=============================================================================================================
Supplemental cash flow disclosure:
Interest paid (net of amount capitalized) $1,485 $1,050 $595
=============================
State income taxes paid $391 $284 $182
=============================
Noncash investing and financing activities:
Increase in due to related parties to purchase common stock -- $2,852 --
=============================
Decrease in accrued expenses in exchange for land $635 -- --
=============================
Acquisition of riverboat through GPLC merger and
related reduction in due from affiliate -- -- $2,048
=============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
1. Business
PAR-A-DICE GAMING CORPORATION (the "Company" or "PGC") was
incorporated on June 26, 1990, and owns and operates the Par-A-Dice
Riverboat Casino in East Peoria, Illinois. The riverboat casino began
operations on November 20, 1991 from a dockside location in Peoria,
after receipt of a temporary operating license from the Illinois
Gaming Board ("IGB"). The Company received its original permanent
operating license on February 14, 1992, which is valid for a three
year term and subject thereafter to annual renewal upon approval of
the IGB. Renewal of the original license was approved by the IGB on
February 14, 1995. The license is subject to annual renewal
thereafter. In February 1996, the Company was approved for the
following twelve months. In early 1993, the Company moved operations
to a new and larger dockside facility in East Peoria. Formerly known
as the Greater Peoria Riverboat Corporation, the Company legally
changed its name to Par-A-Dice Gaming Corporation in late 1993.
The Company is actively pursuing opportunities in other gaming venues.
On December 10, 1993, the Company entered into a general partnership
with New Concepts Incorporated, (Jamaica) Ltd, a Jamaican corporation
("NCI"). The general partnership was formed to own and operate
electronic gaming machines in Jamaican tourist hotels and elsewhere
and to develop the gaming industry in Jamaica. On November 22, 1995,
PGC sold its interest in the partnership.
On October 1, 1993 the Company entered into a limited partnership with
Recreational Concepts, Incorporated, a Virginia corporation ("RCI")
and Heritage Cruise Associates, a Virginia limited partnership
("HCA"). The partnership was formed to own and operate the Annabel
Lee riverboat in Virginia. PGC, RCI, and HCA have 70%, 1%, and 29%
interest in the partnership, respectively.
In April, 1995, the Company entered into a limited partnership
agreement with East Peoria Hotel Inc., a Delaware corporation, and
FOLEPI Foundation, Inc., an Illinois not-for-profit corporation
(FOLEPI). The partnership was formed to develop a hotel on property
adjacent to the Par-A-Dice Casino docking area. PGC has a 99%
interest in the partnership.
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
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
differ from those estimates.
37
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include those of the Company and
all material majority owned affiliates; investments in unconsolidated
affiliated companies are accounted for on the equity method and
included in other assets. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Casino Revenues and Promotional Allowances
In accordance with industry practice, the Company recognizes as casino
revenues the net win from gaining activities, which is the difference
between gaming wins and losses. The retail value of admissions and
parking, food and beverage, and other complimentary items furnished to
customers without charge is excluded from revenues. The estimated
retail value of complimentaries, for the years ended December 31,
1995, 1994 and 1993 are as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Admissions and Parking $ 6,139 $ 5,150 $ 3,099
Food and Beverage 2,287 2,167 918
Other 323 393 162
------- ------- -------
Total $8,749 $7,710 $4,179
======= ======= =======
</TABLE>
Cash Equivalents and Concentrations of Credit Risk
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The Company places its
temporary cash investments in local financial institutions. At
December 31, 1995, 1994 and 1993 a portion of these deposits was in
excess of federally insured limits.
Inventories
Inventories consist primarily of food, beverage, and logo merchandise
and are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method.
38
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are recorded at cost and include interest
capitalized during the construction period. Depreciation and
amortization are provided for on the straight-line basis over the
following expected useful lives:
<TABLE>
<S> <C>
Building 40 years
Equipment 5 years
Furniture & fixtures 7 years
Land & barge improvements 15 years
Riverboat 25 years
Leasehold improvements Lesser of lease term or expected useful lives
</TABLE>
Significant replacements and improvements are capitalized; other
maintenance and repairs are expensed. The cost and accumulated
depreciation of assets retired or otherwise disposed of are eliminated
from the accounts and any resulting gain or loss is included in net
income.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue Code. Under those provisions, the
stockholders, instead of the Company, are liable for federal income
taxes on the Company's taxable income, in proportion to their
respective interests. The Company is subject to state
income/replacement tax which has been provided for in the financial
statements.
Financial Instruments
The fair value of cash equivalents is assumed to approximate the
carrying value of these assets due to the short maturity of these
instruments. The fair value of the Company's debt, current and
long-term, is estimated to approximate the carrying value of these
liabilities based upon borrowing rates currently available to the
Company for borrowings with similar terms.
Advertising
Advertising and promotion costs are expensed when incurred.
Reclassifications
Certain reclassifications were made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
39
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS
3. Property and Equipment
A summary of property and equipment at December 31, 1995 and 1994
follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land and improvements $ 5,753 $ 4,953
Building and improvements 8,468 8,468
Riverboat 18,332 8,181
Furniture, fixtures and equipment 14,993 14,168
Construction in progress 7,462 610
--------- ---------
55,008 46,380
Less accumulated depreciation
and amortization (8,142) (4,161)
--------- ---------
Property and equipment, net $ 46,866 $ 42,219
========= =========
</TABLE>
Capitalized interest for boat construction for the years ended
December 31, 1995, 1994, and 1993 was approximately $0, $189,000 and
$30,000, respectively.
4. Transactions with Related Parties
In January of 1993, PGC merged with the Greater Peoria Leasing
Corporation ("GPLC"). Prior to the merger, GPLC had leased the Spirit
of Peoria riverboat to PGC for use in its Peoria site operations. The
stockholders of GPLC were also the stockholders of PGC in the same
proportion as their ownership in PGC. The merger was recorded like a
pooling of interests and had the impact of eliminating a PGC
receivable from GPLC of approximately $2,048,000.
The Company has transactions with J-Four, Incorporated ("J-Four").
The Company leased the Katie Hooper and Belle Reynolds riverboats in
addition to a landing barge from J-Four for use in PGC's Peoria site
operations. The stockholders of J-Four were also the stockholders of
PGC in the same proportion as their ownership in PGC. On February 15,
1994 the Company and J-Four entered into an agreement with the City of
Peoria for the sale of the Katie Hooper and the Belle Reynolds.
Proceeds from the sales were used to pay down the receivable from
J-Four of $415,000 at December 31, 1993.
40
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
4. Transactions with Related Parties (continued)
Under the terms of the Company's limited partnership agreement with
RCI and HCA, the Company made a loan to the partnership for the
purchase of the Annabel Lee riverboat and a loan for the purchase of
land. Furthermore, the agreement calls for capital contributions for
pre-development costs and annual operating cash contributions not to
exceed $50,000 which will be treated as additional capital
contributions. As of December 31, 1995 PGC had contributed
approximately $826,000, which has been expensed and the $1,117,000
loan balances are included in the accompanying consolidated balance
sheets as due from related parties. The boat and land loans earn
interest at 7 1/2% until maturity and are collateralized by the
Annabel Lee riverboat and the land, respectively, and are to be paid
back from available partnership cash flow, prior to distributions to
partners. The loans mature in November and December 1998,
respectively.
5. Notes Payable and Long-Term Debt
Long-term debt consisted of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Borrowings under a $10,000,000 commercial bank line of
credit maturing February 15, 1997 bearing interest at
the lender's base rate (8.5% at December 31, 1995) $ 700
Note payable to finance corporation, bearing interest at a rate
adjusted monthly based on the 30-day commercial paper
rate on the adjustment date plus 2.25% and 3.5% at
December 31, 1995 and 1994 respectively, payable in
monthly installments of approximately $100,000 plus
interest from June, 1994 through April, 1999, with final
principal installment of $6,100,000 in May, 1999 10,100 $11,300
Note payable to finance corporation, bearing interest at a rate
adjusted monthly based on the 30-day commercial paper
rate on the adjustment date plus 2.25% and 3.5% at
December 31, 1995 and 1994 respectively, payable in
monthly installments of approximately $100,000 plus
interest from June, 1994 through May, 1999. 4,100 5,300
-------- --------
14,900 16,600
Less current portion 3,100 2,400
-------- --------
$11,800 $14,200
======== ========
</TABLE>
41
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
5. Notes Payable and Long-Term Debt (continued)
The two notes payable to the finance corporation are
cross-collateralized by liens on the Par-A-Dice Riverboat and related
improvements, and all gaming equipment of the Company purchased with
the proceeds of the loans. The loan agreements place limitations on
the Company, relative to additional future borrowings and payment of
dividends, and changes in control. It also requires the maintenance
of certain financial ratios and amounts. The notes payable are
guaranteed by the Company's stockholders.
Maturities of notes payable and long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1996 $ 2,400
1997 2,400
1998 2,400
1999 7,000
-------
Total $14,200
=======
</TABLE>
On February 15, 1995 with prior IGB approval, the Company entered into
a new uncollateralized $10,000,000 line of credit with a financial
institution to be utilized for working capital purposes. The line
bears interest at the lender's base rate and matures on February 15,
1997. The loan agreement places limitations on the Company, relative
to additional future borrowings, payments of dividends and changes in
control. It also requires the maintenance of certain financial ratios
and amounts. Certain distributions during 1995 exceeded the amounts
allowed by the loan agreements, but waivers were received for all
covenant violations.
6. Hotel Development
During 1995, the Company entered into a Hotel Development Agreement
(the "Hotel Agreement") with the City of East Peoria (the "City").
Under the Hotel Agreement, the Company agreed to organize East Peoria
Hotel Limited Partnership (the "Partnership") to develop, own and
operate a hotel on land adjacent to the Company's riverboat casino
operation. That land had been given to the City in partial payment
for a late arrival payment asserted against the Company by the City.
The Hotel Agreement provided for the subsequent transfer of the land
by the City to the Partnership in return for the Class B limited
partnership interest in the Partnership, and contributions by the
Company of the funds necessary to construct the hotel in return for
all of the Class A limited partnership interest.
42
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS
6. Hotel Development (continued)
The City transferred the land to FOLEPI Foundation, Inc., a charitable
organization, which in turn transferred the land to the Partnership in
return for the Class B limited partnership interest. That interest is
not entitled to share in operating cash flow of the Partnership.
However, if the hotel is sold or refinanced, the holder of the Class B
interest is entitled to receive up to $1 million, but only after the
holders of the Class A limited partnership interest receive a return
of their capital contributions together with a cumulative 8% return.
If the hotel has not been sold or refinanced within ten years after
its opening, the holder of the Class B interest may tender its
interest to the Partnership and receive $1 million in return, if
certain conditions are fulfilled.
The Company is the holder of the Class A limited partnership interest.
As of December 31, 1995, the Company had contributed $6.5 million to
the hotel. The Class A interest is entitled to 99% of the operating
cash flow. The remaining 1% interest in operating cash flow is held
by East Peoria Hotel, Inc., the general partner. The general partner
is owned by shareholders of the Company.
For financial reporting purposes, the Partnership's assets,
liabilities and earnings are consolidated with those of the Company,
and FOLEPI's Class B limited partnership interest in the Partnership
is included in the Company's financial statements as a minority
interest.
7. Commitments and Contingencies
The Company is subject to legal actions in the ordinary course of
business. The Company believes it has defenses for all such claims
and is vigorously defending the actions. In the opinion of
management, based on the advice of legal counsel, liabilities, if any,
arising from these actions should not have a material effect on the
Company's financial statements.
8. Equity
On March 31, 1994 the Company's Board of Directors resolved to
repurchase 770,000 shares of common stock of the Company from the
estate of a deceased stockholder for approximately $8,556,000. On the
same day, the Board of Directors also resolved to repurchase 270,000
shares of common stock of the Company of another stockholder for
approximately $2,684,000. As of December 31, 1994, $2,852,000 is
payable to the estate of a former stockholder and is included in due
to related parties.
On January 2, 1996 the Board of Directors approved a distribution to
stockholders of $3,000,000.
43
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
9. Sale and Donation of Riverboats
In February of 1994, the Company consummated an agreement with the
City of Peoria for the donation of the Spirit of Peoria to the City of
Peoria, which resulted in a loss of approximately $1,646,000 to PGC.
In May of 1994, PGC also consummated an agreement with The Missouri
Gaming Company for the sale of the original Par-A-Dice riverboat.
This sale resulted in a gain of approximately $3,755,000 to PGC.
10. Benefit Plan
The Company has a 401(k) plan (the "Plan") for substantially all
employees with one year of service. Company contributions to the Plan
are discretionary. Approximately $240,000, $185,000 and $174,000,
were contributed by the Company for the years ended December 31, 1995,
1994 and 1993, respectively.
11. Subsequent Events
On February 9, 1996, the Illinois Gaming Board ordered the Company to
divest a 2.7% shareholder of his ownership interest in Par-A-Dice
Gaming because of the shareholder's failure to disclose the beneficial
interest of an unlicensed third party in 50% of his shares of the
Company. The shares of such shareholder and the beneficial owner were
redeemed by the Company on March 14 and 15, 1996 for $1,350,000 and
$130,000, respectively.
On January 29, 1996, the Company amended its long term note payable
with the finance corporation. The agreement called for an additional
credit advance of $3.5 million, reduced the stated interest rate and
eliminated the dividend restriction covenant. The balance of this
note was $10.1 million as of December 31, 1995. The payment schedule
was modified such that the final principal payment due in May of 1999
will be increased by $3.5 million.
The Company also renegotiated the terms of its commercial bank line of
credit in early 1996. The new agreement eliminates the dividend
restriction covenant and provides for rates based upon LIBOR (London
InterBank Offered Rate).
On March 28 and May 23, 1996, the Board of Directors approved
distributions to stockholders of $2,000,000 and $3,000,000,
respectively.
On April 26, 1996, Boyd Gaming Corporation entered into an agreement
with the Company and its stockholders to purchase all of the Company's
outstanding common stock. The closing of this sale is contingent upon
several matters including the approval of the IGB.
44
<PAGE> 45
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma consolidated financial statements present pro
forma information for the Company and Par-A-Dice Gaming giving effect to the
Par-A-Dice Acquisition. The pro forma consolidated financial statements of the
Company are based on the historical consolidated financial statements of the
Company and Par-A-Dice Gaming as of and for the nine months ended March 31, 1996
and the year ended June 30, 1995.
The accompanying pro forma consolidated income statements for the nine
months ended March 31, 1996 and for the year ended June 30, 1995, have been
presented as if the Par-A-Dice Acquisition occurred on July 1, 1994. The
accompanying pro forma consolidated balance sheet at March 31, 1996 has been
presented as if the Par-A-Dice Acquisition occurred on March 31, 1996.
The pro forma adjustments are based on currently available information and
upon certain assumptions that management of the Company believes are reasonable
under the circumstances.
THESE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE PROVIDED FOR
INFORMATIONAL PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF THE RESULTS
THAT WILL BE ACHIEVED FOR FUTURE PERIODS. THESE PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S RESULTS OF OPERATIONS
OR FINANCIAL POSITION WOULD ACTUALLY HAVE BEEN IF THE PAR-A-DICE ACQUISITION IN
FACT HAD OCCURRED AT JULY 1, 1994 OR MARCH 31, 1996. THESE PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO SHOULD BE READ
IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE
CONSOLIDATED FINANCIAL STATEMENTS OF PAR-A-DICE GAMING INCLUDED ELSEWHERE OR
INCORPORATED IN THIS REPORT.
45
<PAGE> 46
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
COMPANY PAR-A-DICE AND COMPANY
HISTORICAL HISTORICAL ELIMINATIONS PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................. $ 51,918 $ 6,719 $ 180,775(a)
(3,000)(b)
(17,100)(c)
(160,675)(d) $ 58,637
Accounts receivable, net................... 17,358 384 17,742
Inventories................................ 6,455 266 6,721
Prepaid expenses........................... 17,039 391 17,430
-------- ------- ----------
Total current assets.................... 92,770 7,760 100,530
Property, equipment and leasehold interests,
net........................................ 782,754 50,077 (e) 832,831
Other assets and deferred charges............ 55,810 1,271 3,000(b)
(1,117)(d) 58,964
Goodwill and intangibles, net................ 10,619 125,369(d) 135,988
-------- ------- -------- ----------
Total assets............................ $ 941,953 $ 59,108 $ 127,252 $1,128,313
======== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt.......... $ 40,657 $ 2,400 $ (2,400)(c) $ 40,657
Accounts payable........................... 40,066 1,091 41,157
Accrued liabilities........................
Payroll and related..................... 21,491 -- 21,491
Interest and other...................... 25,229 3,494 28,723
Income taxes payable....................... 3,882 -- 3,882
-------- ------- -------- ----------
Total current liabilities............... 131,325 6,985 (2,400) 135,910
Long-term debt, net of current maturities.... 548,034 14,700 180,775(a)
(14,700)(c) 728,809
Deferred income taxes........................ 32,527 -- 32,527
Minority interest............................ -- 1,000 1,000
Commitments..................................
Stockholders' equity
Common stock............................... 571 -- 571
Additional paid-in capital................. 101,436 9,048 (9,048)(d) 101,436
Retained earnings.......................... 128,060 27,375 (27,375)(d) 128,060
-------- ------- -------- ----------
Total stockholders' equity.............. 230,067 36,423 (36,423) 230,067
-------- ------- -------- ----------
Total liabilities and stockholders'
equity................................ $ 941,953 $ 59,108 $ 127,252 $1,128,313
======== ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
46
<PAGE> 47
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
COMPANY PAR-A-DICE AND COMPANY
HISTORICAL HISTORICAL ELIMINATIONS PRO FORMA
---------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Revenues
Casino.................................. $ 413,097 $ 74,012 $ $ 487,109
Food and beverage....................... 105,703 5,861 111,564
Rooms................................... 52,308 -- 52,308
Other................................... 35,300 1,705 37,005
Management fees and joint venture....... 30,893 -- 30,893
-------- ------- -------- --------
Gross revenues............................ 637,301 81,578 718,879
Less promotional allowances............... 55,792 1,669 57,461
-------- ------- -------- --------
Net revenues......................... 581,509 79,909 661,418
-------- ------- -------- --------
Costs and expenses
Casino.................................. 203,769 25,319 229,088
Food and beverage....................... 74,337 5,598 79,935
Rooms................................... 17,910 -- 17,910
Other................................... 25,653 1,203 26,856
Selling, general and administrative..... 83,179 20,327 103,506
Maintenance and utilities............... 22,620 2,160 24,780
Depreciation and amortization........... 45,868 3,306 (3,306)(f)
5,806(g) 51,674
Corporate expense....................... 16,417 -- 16,417
Preopening expense...................... 10,004 -- 10,004
-------- ------- -------- --------
Total................................ 499,757 57,913 2,500 560,170
-------- ------- -------- --------
Operating income.......................... 81,752 21,996 (2,500) 101,248
-------- ------- -------- --------
Other income (expense)
Interest income......................... 987 516 (63)(h) 1,440
Interest expense, net of amounts
capitalized.......................... (39,322) (1,127) 1,127(i)
(10,169)(j) (49,491)
-------- ------- -------- --------
Total................................ (38,335) (611) (9,105) (48,051)
-------- ------- -------- --------
Income before provision for income
taxes................................... 43,417 21,385 (11,605) 53,197
Provision for income taxes................ 17,315 311 3,140(k) 20,766
-------- ------- -------- --------
Net income................................ $ 26,102 $ 21,074 $ (14,745) $ 32,431
======== ======= ======== ========
Net income per common share............... $ 0.46 $ 0.57
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
47
<PAGE> 48
BOYD GAMING CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
COMPANY PAR-A-DICE AND COMPANY
HISTORICAL HISTORICAL ELIMINATIONS PRO FORMA
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Casino................................... $ 463,179 $ 93,050 $ $ 556,229
Food and beverage........................ 123,527 6,744 130,271
Rooms.................................... 62,300 -- 62,300
Other.................................... 37,563 2,520 40,083
Management fees and joint venture........ 35,763 -- 35,763
-------- ------- -------- --------
Gross revenues............................. 722,332 102,314 824,646
Less promotional allowances................ 61,992 2,297 64,289
-------- ------- -------- --------
Net revenues............................. 660,340 100,017 760,357
-------- ------- -------- --------
Costs and expenses
Casino................................... 221,844 33,169 255,013
Food and beverage........................ 90,670 5,278 95,948
Rooms.................................... 24,578 -- 24,578
Other.................................... 25,567 349 25,916
Selling, general and administrative...... 79,785 27,094 106,879
Maintenance and utilities................ 28,452 2,721 31,173
Depreciation and amortization............ 54,518 4,426 (4,426)(f)
7,760(g) 62,278
Corporate expense........................ 24,356 -- 24,356
-------- ------- -------- --------
Total................................. 549,770 73,037 3,334 626,141
-------- ------- -------- --------
Operating income........................... 110,570 26,980 (3,334) 134,216
-------- ------- -------- --------
Other income (expense)
Interest income.......................... 2,072 457 (84)(h) 2,445
Interest expense, net of amounts
capitalized........................... (48,443) (1,436) 1,436(i)
(13,558)(j) (62,001)
-------- ------- -------- --------
Total................................. (46,371) (979) (12,206) (59,556)
-------- ------- -------- --------
Income before provision for income taxes... 64,199 26,001 (15,540) 74,660
Provision for income taxes................. 27,950 508 3,251(k) 31,709
-------- ------- -------- --------
Net income................................. $ 36,249 $ 25,493 $ (18,791) $ 42,951
======== ======= ======== ========
Net income per common share................ $ 0.64 $ 0.76
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
48
<PAGE> 49
BOYD GAMING CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
The pro forma adjustments contained in the accompanying pro forma
consolidated financial statements reflect:
(a) The proceeds from the draw down of the New Bank Credit Facility to fund the
Par-A-Dice Acquisition.
(b) The payment of $3,000 in fees related to the Par-A-Dice Acquisition.
(c) The retirement of assumed indebtedness of Par-A-Dice Gaming.
(d) The payment of approximately $160,675 to the Par-A-Dice Gaming shareholders,
the transfer of certain assets of $1,117 not associated with the Par-A-Dice
to the Par-A-Dice Gaming shareholders (the "Transferred Assets"), the
elimination of Par-A-Dice Gaming's equity ($9,048 in common stock and
$27,375 in retained earnings) and the allocation of the excess purchase
price over historical value of acquired assets ($125,369) to
intangibles-license rights based on the Company's estimates of the fair
market values of the assets being acquired.
(e) No adjustment to property, equipment and leasehold interests is necessary as
the book value at March 31, 1996 reflects the fair value of the assets to
be acquired in the merger.
(f) The elimination of Par-A-Dice Gaming's historical depreciation and
amortization expense for the year ended June 30, 1995 and for the
nine-months ended March 31, 1996.
(g) Depreciation and amortization expense as follows:
<TABLE>
<CAPTION>
NINE-
AMOUNT LIFE ANNUAL MONTHS
-------- ---- ------ ------
<S> <C> <C> <C> <C>
Property, equipment and leasehold interests.... $ 50,077 11 $4,426 $3,306
Other assets................................... 3,000 15 200 150
Intangibles-license rights..................... 125,369 40 3,134 2,350
------ ------
Total..................................... $7,760 $5,806
====== ======
</TABLE>
(h) The elimination of interest income of $63 and $84, respectively, for the
nine months ended March 31, 1996 and the year ended June 30, 1995 related
to the transfer of the Transferred Assets.
(i) The elimination of Par-A-Dice Gaming's historical interest expense for the
year ended June 30, 1995 and for the nine-months ended March 31, 1996.
(j) Interest expense on $180,775 in debt at an assumed interest rate of 7.5%.
(k) An adjustment to the provision for income taxes of $3,140 and $3,251,
respectively, for the nine months ended March 31, 1996 and the year ended
June 30, 1995 in order to result in a 36% combined state and federal
corporate tax rate due to the conversion from Subchapter S status to C
corporate status under the Internal Revenue Code.
49
<PAGE> 50
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BOYD GAMING CORPORATION
Date: June 7, 1996 /s/ Keith E. Smith
----------------------------------
Keith E. Smith
Vice President and Controller
(Chief Accounting Officer)
50
<PAGE> 1
EXHIBIT 10.1
Confidential Treatment Requested
(Information Omitted Pursuant to
Rule 24b-2)
JOINT VENTURE AGREEMENT
OF
Stardust A. C.
This Joint Venture Agreement (the "Agreement") is made as of May 29, 1996 by and
between MAC, CORP. ("MR Sub"), a New Jersey corporation which is a wholly owned
subsidiary of Mirage Resorts, Incorporated, a Nevada corporation ("MRI"), and
Grand K, Inc. ("Boyd Sub"), a Nevada corporation which is a wholly owned
subsidiary of Boyd Gaming Corporation, a Nevada corporation ("Boyd") (MR Sub and
Boyd Sub are hereinafter referred to individually as a "Venturer" and
collectively as the "Venturers").
PREAMBLE
WHEREAS, the Venturers desire to form a joint venture for the purpose of
acquiring certain unimproved real property (as more particularly described in
Section 3.2 hereof, the "Property") within the "Huron North Redevelopment Area"
(the "Parcel") located in the Marina area of Atlantic City, New Jersey (the
"City") and designing, developing, constructing, owning and operating a
hotel-casino and related facilities (the "Facility") on the Property.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and in consideration of the mutual promises
set forth, the parties agree as follows:
ARTICLE 1
THE JOINT VENTURE
Section 1.1 Organization. The Venturers hereby form and establish a
joint venture in the form of a general partnership (the "Joint Venture") under
and pursuant to, and which shall continue to constitute a joint venture for
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purposes of, the provisions of this Agreement and the New Jersey Uniform
Partnership Act (the "Act") as of the date first above written, upon the terms
and conditions set forth in this Agreement.
Section 1.2 Name. The name of the Joint Venture shall be Stardust A. C.
and all business of the Joint Venture shall be conducted solely in such name.
Section 1.3 Place of Business. The principal office of the Joint
Venture shall be located at such place within Atlantic County, New Jersey as may
be approved by the Venturers.
Section 1.4 Business of the Joint Venture. The business of the Joint
Venture is to acquire and own the Property and to design, develop, construct,
finance, own and operate the Facility on the Property. In furtherance of its
business, the Joint Venture shall have and may exercise all the powers now or
hereafter conferred by the laws of the State of New Jersey on partnerships
formed under the laws of that State, and may do any and all things related or
incidental to its business as fully as natural persons might or could do under
the laws of that State.
Section 1.5 Purposes Limited. The Joint Venture shall be a joint
venture only for the purposes specified in Section 1.4. Except as otherwise
provided in this Agreement, the Joint Venture shall not engage in any other
activity or business and neither Venturer shall have any authority to hold
itself out as an agent of the other Venturer in any other business or activity.
Section 1.6 No Payments of Individual Obligations. The Venturers shall
use the Joint Venture's credit and assets solely for the benefit of the Joint
Venture. No asset of the Joint Venture shall be transferred or encumbered for or
in payment of any individual obligation of a Venturer.
Section 1.7 Statutory Compliance. The Joint Venture shall exist under
and be governed by, and this Agreement shall be construed and enforced in
accordance with, the laws of the State of New Jersey. The Venturers shall make
all filings and disclosures required by, and shall otherwise comply with, all
such laws. The Venturers shall execute, file and record in the appropriate
records any assumed or fictitious name certificate required by law to be filed
or recorded in connection with the formation of the
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Joint Venture and shall execute, file and record such other documents and
instruments as may be necessary or appropriate with respect to the formation of,
and conduct of business by, the Joint Venture.
Section 1.8 Title to Property. All property, whether real or personal,
tangible or intangible, owned by the Joint Venture shall be owned in the name of
the Joint Venture and no Venturer shall have any ownership interest in such
property in its individual name or right and each Venturer's interest in the
Joint Venture shall be personal property for all purposes.
Section 1.9 Duration. The Joint Venture shall commence on the date
first above written and shall continue until dissolved and liquidated pursuant
to law or any provision of this Agreement.
Section 1.10 Definitions. As used in this Agreement:
(a) "Acceptance Notice" has the meaning set forth in Section 11.4
hereof.
(b) "Accountants" has the meaning set forth in Section 7.3 hereof.
(c) "Act" has the meaning set forth in Section 1.1 hereof.
(d) "Affiliate" means a person which directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the person specified; provided, however, that a Venturer, as such,
shall not be deemed to be an Affiliate of the other Venturer.
(e) "Applicable Ratio" has the meaning set forth in Section 3.5 hereof.
(f) "Appraisal Notice" has the meaning set forth in Section 11.5
hereof.
(g) "Appraised Value" has the meaning set forth in Section 11.5 hereof.
(h) "Boyd" has the meaning set forth in the first paragraph of this
Agreement.
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(i) "Boyd Sub" has the meaning set forth in the Preamble to this
Agreement.
(j) "Capital Account" has the meaning set forth in Section 3.10 hereof.
(k) "City" has the meaning set forth in the Preamble to this Agreement.
(l) "Code" has the meaning set forth in Section 5.1 hereof.
(m) "Construction Financing" means debt financing, which may be
unsecured or collateralized by a lien on the Property and the Facility or any
portion thereof (including purchase money financing collateralized by furniture,
furnishings, fixtures, machinery or equipment), to be obtained by the Joint
Venture from one or more commercial banks or other lenders (including vendors or
the Venturers) for the purpose of funding Project Costs and which, except as
otherwise provided in Section 4.1 hereof, is non-recourse to the stockholders
and other Affiliates of each Venturer and does not require the stockholders or
other Affiliates of either Venturer to provide a personal guaranty.
(n) "Construction Period" has the meaning set forth in Section 4.1
hereof.
(o) "Cumulative Excess Contributions" has the meaning set forth in
Section 3.5 hereof.
(p) "Defaulting Venturer" has the meaning set forth in Section 12.1
hereof.
(q) "Development Agreement" means that certain agreement entitled "An
Agreement between the City of Atlantic City and Mirage Resorts, Incorporated for
the Development of the Huron North Redevelopment Area," dated May 3, 1996, which
is attached as Exhibit A to this Agreement, as the same may be amended or
supplemented from time to time.
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(r) "Disqualification Notice" has the meaning set forth in Section 11.4
hereof.
(s) "Distributable Cash" has the meaning set forth in Section 6.1
hereof.
(t) "Event of Bankruptcy" has the meaning set forth in Section 12.1
hereof.
(u) "Event of Default" has the meaning set forth in Section 12.1
hereof.
(v) "Facility" means a new hotel-casino and related restaurant,
entertainment, retail and other facilities and amenities, containing not less
than 1,000 guestrooms, to be designed, developed and constructed by the Joint
Venture on the Property, including all furniture, furnishings, machinery,
equipment and other tangible personal property located therein and used in
connection therewith.
(w) "Government Improvements" has the meaning set forth in Section 4.2
hereof.
(x) "Initiating Venturer" has the meaning set forth in Section 11.4
hereof.
(y) "Interest" has the meaning set forth in Section 3.6 hereof.
(z) "Losses" has the meaning set forth in Section 5.1 hereof.
(aa) "Managing Venturer" means Boyd Sub until such time, if any, as MR
Sub becomes the Managing Venturer pursuant to Section 9.3 hereof, and thereafter
means MR Sub.
(bb) "Master Plan" has the meaning set forth in Section 4.2 hereof.
(cc) "Master Plan Improvements" has the meaning set forth in Section
4.2 hereof.
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(dd) "MRI" has the meaning set forth in the first paragraph of this
Agreement.
(ee) "MR Sub" has the meaning set forth in the first paragraph of this
Agreement.
(ff) "New Jersey Gaming Authorities" means, collectively, the New
Jersey Casino Control Commission and the New Jersey Division of Gaming
Enforcement, or any governmental agency of the State of New Jersey or its
political subdivisions which succeeds to the functions of such agencies.
(gg) "Non-Managing Venturer" means MR Sub until such time, if any, as
MR Sub becomes the Managing Venturer pursuant to Section 9.3 hereof, and
thereafter means Boyd Sub.
(hh) "Offering Notice" has the meaning set forth in Section 11.4
hereof.
(ii) "Parcel" has the meaning set forth in the Preamble to this
Agreement.
(jj) "Profits" has the meaning set forth in Section 5.1 hereof.
(kk) "Project Cost" means all costs of designing, developing,
constructing, equipping and opening the Facility paid or accrued prior to the
end of the Construction Period, including all direct costs related thereto such
as labor, materials, supplies, furniture, furnishings, fixtures, machinery,
equipment, construction management, architectural, engineering and design fees,
site work, including all costs and expenses payable by the Joint Venture
pursuant to Section 4.2., utility installation and hook-up fees, construction
permits, certificates and bonds, preopening expenses, gaming tax and other
deposits, license fees, initial gaming and non-gaming bankroll and interest and
fees on the Construction Financing, including the value of the Property but
excluding the cost of acquiring any additional property pursuant to Section 3.4
hereof and excluding all costs associated with evaluation and remediation of
environmental contamination of the Property.
(ll) "Property" has the meaning set forth in the Preamble to this
Agreement.
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<PAGE> 7
(mm) "Responding Venturer" has the meaning set forth in Section 11.4
hereof.
(nn) "Transfer" has the meaning set forth in Section 11.1 hereof.
(oo) "Venturer" and "Venturers" means, individually or collectively, as
applicable, the parties named as such in the first paragraph of this Agreement
or any successor to either party by Transfer expressly permitted by this
Agreement.
ARTICLE 2
THE VENTURERS
Section 2.1 Identification. MR Sub and Boyd Sub shall be the Venturers
of the Joint Venture. No other person may become a Venturer except pursuant to a
Transfer specifically permitted under and effected in compliance with this
Agreement.
Section 2.2 Services of Venturers. During the existence of the Joint
Venture, the Venturers shall be required to devote only such time and effort to
Joint Venture business as may be necessary to promote adequately the interests
of the Joint Venture and the mutual interests of the Venturers, it being
specifically understood and agreed that the Venturers shall not be required to
devote full time to Joint Venture business and, except as provided in Section
3.4 hereof, each Venturer and its Affiliates may at any time and from time to
time engage in and possess interests in other business ventures of every type
and description, independently or with others, whether or not such ventures
relate to or compete with the Facility; and neither the Joint Venture nor the
other Venturer shall by virtue of this Agreement have any right, title or
interest in or to such independent ventures or to the income or profits derived
therefrom. The Venturers contemplate organizing a management company under the
laws of Nevada to manage the affairs of the Joint Venture in a manner consistent
with the provisions of this Agreement.
Section 2.3 Reimbursement and Fees. Unless expressly provided for in
this Agreement or approved by each of the Venturers, neither of the Venturers
nor any Affiliate thereof shall be paid any compensation for its
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services to the Joint Venture or be reimbursed for out-of-pocket, overhead or
general administrative expenses.
Section 2.4 Transactions with Affiliates. Unless expressly provided for
in this Agreement or approved by each of the Venturers, the Joint Venture shall
not employ or retain, or enter into any transaction or contract with, any
Venturer or any officer, employee or Affiliate of any Venturer, except for such
compensation and upon such other terms and conditions as are no less favorable
to the Joint Venture than those that could be obtained at the time from an
unrelated party.
Section 2.5 Liability of the Venturers; Indemnification. Neither
Venturer shall be liable for damages or otherwise to the Joint Venture or the
other Venturer for any act or omission performed or omitted by it in good faith
on behalf of the Joint Venture and in a manner reasonably believed by it to be
within the scope of the authority granted to it by this Agreement and in the
best interests of the Joint Venture if it shall not have been guilty of gross
negligence, bad faith or willful misconduct with respect to such acts or
omissions. Each Venturer shall be indemnified by the Joint Venture from and
against any and all claims, losses, damages and liabilities, including
reasonable attorneys' fees which shall be reimbursed as incurred, arising out of
or relating to any act or failure to act performed or omitted by it within the
scope of the authority conferred upon it by this Agreement; provided, however,
that such indemnity shall be payable only if such Venturer acted in good faith
and in a manner it reasonably believed to be in, or not opposed to, the best
interests of the Joint Venture. Any indemnity under this Section 2.5 shall be
paid from, and shall be limited to the extent of, Joint Venture assets, and no
Venturer shall have any personal liability on account thereof.
ARTICLE 3
CAPITAL CONTRIBUTIONS; LOANS; CAPITAL ACCOUNTS
Section 3.1 Initial Capital Contributions. On the date of this
Agreement, each Venturer shall contribute or cause to be contributed to the
Joint Venture, as its initial capital contribution, cash in the amount of
$1,000. As of the date of this Agreement, the initial capital contributions
represent the total capital of the Joint Venture.
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Section 3.2 Contribution of Property. Following the date on which the
City transfers title to the Parcel to an Affiliate of MRI, and on the latest
date practicable prior to the first draw on the Construction Financing, MR Sub
shall, as an additional capital contribution, convey, or cause to be conveyed,
to the Joint Venture by bargain and sale deed fee title to the Property, free
and clear of all monetary liens and encumbrances and all other liens,
encumbrances, rights and restrictions which would materially adversely affect
the Joint Venture's contemplated use of the Property, other than those liens,
encumbrances, rights and restrictions contained or referred to in the deed to
the Parcel from the City to MRI's Affiliate or in the Development Agreement. The
"Property" shall consist of that portion of the Parcel designated by MR Sub
within 30 days following the date Boyd Sub provides MR Sub with a description of
the Facility. The size, shape, frontage and location of the Property shall be
reasonably determined by MR Sub to be adequate for the Joint Venture to
construct the Facility. Boyd Sub shall use its best efforts to provide MR Sub
with a description of the Facility within 180 days of the date of this
Agreement. The Property will be adjacent to the portion of the Parcel on which
MRI intends to develop a hotel-casino. The legal description of the Property
will be inserted as an amendment to this Agreement at the time of designation by
MR Sub. The Venturers agree, solely for purposes of this Agreement, that the
fair market value of the Property is [Information Omitted pursuant to
Rule 24b-2] as of the date of this Agreement.
All costs associated with the environmental assessment and remediation
of the Property and all real property transfer taxes and other costs and
expenses of conveying the Property to the Joint Venture, including, if
determined to be necessary by the Managing Venturer, the cost of a CLTA owner's
policy of title insurance, shall be borne by MR Sub.
Section 3.3 Additional Capital Contributions. Not later than the
conveyance of the Property to the Joint Venture by MR Sub pursuant to
Section 3.2, Boyd Sub shall make one or more additional capital contributions
aggregating [Information omitted pursuant to Rule 24b-2] to the Joint Venture.
A portion of such additional capital contributions may consist of out-of-pocket
fees and expenses paid to third parties by Boyd Sub on behalf of the Joint
Venture in connection with the Joint Venture's pre-construction activities and
salaries paid to employees of Boyd Sub or its Affiliates who devote
substantially full time to the Joint Venture. From time
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to time thereafter, each of the Venturers shall concurrently make additional
capital contributions aggregating [Information omitted pursuant to Rule 24b-2]
to the Joint Venture at such time or times as required by the provider of the
Construction Financing or at the time or times as the Managing Venturer
reasonably determines necessary to coincide with the funding of the Project
Cost; provided, however, that if acceptable to the provider of the Construction
Financing, each of the Venturers may provide all or part of such [Information
omitted pursuant to Rule 24b-2] as subordinated loans, on such terms as the
Venturers may mutually determine, rather than as capital contributions.
Thereafter, Boyd Sub shall make additional capital contributions of cash to the
Joint Venture in an aggregate amount equal to the difference between (i) the
Project Cost, excluding the value of the Property, and (ii) the sum of (A) the
net proceeds from the Construction Financing and (B) the [Information omitted
pursuant to Rule 24b-2] contributed pursuant to the first and third sentences of
this Section 3.3. The additional capital contributions referred to in the
immediately preceding sentence shall be made by Boyd Sub at such time or times
as required by the provider of the Construction Financing or at the time or
times as the Managing Venturer reasonably determines necessary to coincide with
the funding of the Project Cost. If required to fund expenses, each Venturer
shall contribute up to $1,000,000 prior to the conveyance of the Property to the
Joint Venture, which contributions shall be credited against each Venturer's
subsequent capital contributions.
Section 3.4 Acquisition and Development of Additional Property. MR Sub
or its Affiliates may, alone or as a partner, joint venturer, stockholder or
associate of or with one or more other persons or entities, acquire or develop
property adjacent to the Property or the Parcel on such terms and conditions as
it may determine it its sole discretion, and neither the Joint Venture nor Boyd
Sub shall have any rights with respect thereto except such as may be agreed to
by each of the Venturers. Without the consent of MR Sub, which it may withhold
or condition in its sole discretion, neither Boyd Sub nor its Affiliates, alone
or as a partner, joint venturer, stockholder or associate of or with other
persons or entities, may acquire or possess an interest in any other property or
business located: (i) within the Marina area of Atlantic City, New Jersey at any
time during the term of this Agreement or within five years following the
termination of this Agreement as a result of the occurrence of an Event of
Default by Boyd Sub or (ii) within the entire Atlantic City area during the
five-year period commencing on the date of this Agreement. With the consent of
each Venturer, the Joint Venture may acquire additional property beneficial to
the Joint Venture in the vicinity of the Property. The purchase price and other
terms of any such acquisition shall be subject to the approval of each Venturer.
Unless the Venturers agree otherwise, the acquisition cost of any such
additional property shall be funded
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by equal additional capital contributions by each of the Venturers on or prior
to the acquisition date, which shall not affect the respective obligations of
the Venturers to make additional capital contributions to the Joint Venture
pursuant to Section 3.3. If any such additional property is acquired by the
Joint Venture and the Joint Venture is thereafter dissolved and liquidated, MR
Sub shall have the option, exercisable for a period of 90 days following
liquidation of the Joint Venture, to purchase any or all of such additional
property for cash at a purchase price equal to the Joint Venture's acquisition
cost of such additional property.
Section 3.5 Failure to Make Capital Contributions. If a Venturer
defaults in its obligation to make capital contributions required by this
Article 3, the other Venturer shall have and may exercise all remedies available
pursuant to this Agreement, at law or in equity. In addition, if a Venturer
defaults in its obligation to make capital contributions in cash required by
this Article 3, the other Venturer may, but shall not be required to, contribute
to the Joint Venture all or a portion of such amount. If such other Venturer
contributes any amount to the Joint Venture pursuant to this Section 3.5,
immediately following such contribution the Interest of the contributing
Venturer in the Joint Venture shall be increased and the Interest of the
defaulting Venturer in the Joint Venture shall be decreased. The resulting
Interest of the contributing Venturer shall be the number of percentage points
(rounded to the nearest one-hundredth of a percentage point) determined in
accordance with the following formula: (i) determine the percentage equivalent
of a fraction, the numerator of which shall be the aggregate capital
contributions made to the Joint Venture by the contributing Venturer pursuant to
this Agreement, and the denominator of which shall be the aggregate capital
contributions made to the Joint Venture by all Venturers pursuant to this
Agreement, (ii) subtract 50 percentage points, (iii) multiply the result of (i)
and (ii) by the Applicable Ratio (rounded to the nearest one-hundredth of a
percentage point) and (iv) add 50 percentage points to the result of (i), (ii)
and (iii). For purposes of the immediately preceding sentence, the value of the
Property contributed by MR Sub pursuant to Section 3.2 shall at all times be
deemed to be equal to [Information omitted pursuant to Rule 24b-2]. The
resulting Interest of the defaulting Venturer shall be the number of percentage
points equal to 100 minus the resulting Interest of the contributing Venturer
as determined above.
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As used in this Section 3.5: (i) to the extent that the cash
contributed by the contributing Venturer pursuant to this Section 3.5 in
response to such default, together with all cash previously contributed by the
contributing Venturer pursuant to this Section 3.5 in response to prior defaults
(collectively, the "Cumulative Excess Contributions"), is less than $30,000,000,
the Applicable Ratio shall be 1.20; (ii) with respect to that portion of the
Cumulative Excess Contributions that is between $30,000,000 and $39,999,999, the
Applicable Ratio shall be 1.30; (iii) with respect to that portion of the
Cumulative Excess Contributions that is between $40,000,000 and $49,999,999, the
Applicable Ratio shall be 1.40; and (iv) with respect to that portion of the
Cumulative Excess Contributions that is $50,000,000 or more, the Applicable
Ratio shall be 1.50.
By way of illustration, assume that (i) MR Sub and Boyd Sub each has a
50% Interest, (ii) MR Sub has previously contributed the Property pursuant to
Section 3.2 and [Information omitted pursuant to Rule 24b-2] pursuant to the
third sentence of Section 3.3, and Boyd Sub has previously contributed a total
of [Information omitted pursuant to Rule 24b-2] pursuant to the first and third
sentences of Section 3.3 and (iii) Boyd Sub is required to contribute an
additional [Information omitted pursuant to Rule 24b-2] pursuant to the fourth
sentence of Section 3.3. If Boyd Sub fails to contribute such amount, and MR Sub
elects to contribute such [Information omitted pursuant to Rule 24b-2] pursuant
to this Section 3.5, the resulting Interest of MR Sub following such
contribution would be [Information omitted pursuant to Rule 24b-2], determined
as follows:
<TABLE>
<S> <C>
[Information omitted pursuant to Rule 24b-2] [MR Sub cash and Property contributions]
- --------------------------------------------------------------------------------------
[Information omitted pursuant to Rule 24b-2] [total cash and Property contributions]
</TABLE>
equals [Information omitted pursuant to Rule 24b-2], minus 50% equals
[Information omitted pursuant to Rule 24b-2], multiplied by [Information
omitted pursuant to Rule 24b-2] [the blended Applicable Ratio applicable to
[Information omitted pursuant to Rule 24b-2]] equals [Information omitted
pursuant to Rule 24b-2], plus 50% equals [Information omitted pursuant to Rule
24b-2].
Accordingly, the resulting Interest of Boyd Sub would be [Information omitted
pursuant to Rule 24b-2].
Section 3.6 Interests. The respective percentage interest (the
"Interest") of the Venturers in the Joint Venture shall initially be as follows:
MR Sub - 50%
Boyd Sub - 50%
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Any additional capital contributions made by Boyd Sub pursuant to the
fourth sentence of Section 3.3 shall not increase the Interest of Boyd Sub.
Section 3.7 Loans by Venturers to the Joint Venture. If the Managing
Venturer reasonably determines that the Joint Venture's existing funds (giving
effect to funds available pursuant to existing third-party financing and amounts
required to be contributed to the Joint Venture by the Venturers pursuant to
Section 3.3) are insufficient to meet the Joint Venture's costs, expenses,
obligations and liabilities, the Managing Venturer may offer to each Venturer
the opportunity to advance funds to the Joint Venture in proportion to its
respective Interest. No Venturer shall be required to advance funds to the Joint
Venture, and neither Venturer shall be permitted to advance funds to the Joint
Venture without the approval of each Venturer. All amounts so advanced shall
take the form of an unsecured loan and shall bear interest at a floating rate
equal to the Joint Venture's weighted average cost of borrowed funds (or, if the
Joint Venture then has no borrowed funds, the published prime rate charged from
time to time by Bank of America NT & SA). Such loans shall be repayable on
demand but solely out of assets of the Joint Venture, in accordance with the
provisions of Section 6.2(a) and Article 13 hereof, and no Venturer shall have
any personal liability on account thereof, nor shall there be any recourse to
such Venturer's assets. To the extent required by the terms of the Construction
Financing or such other third-party financing obtained by the Joint Venture,
repayment of such loans shall be subordinated to the prior repayment of the
Construction Financing or other third-party financing. The provisions of this
Section 3.7 are solely and exclusively for the benefit of the Venturers, may
only be enforced by the Venturers and shall not inure to the benefit of, or be
enforceable by, any third party, including without limitation any creditor of
the Joint Venture.
Section 3.8 No Further Capital Contributions. The Venturers shall not
be required to contribute additional capital or lend any funds to the Joint
Venture, except as expressly provided in this Article 3.
Section 3.9 Capital Accounts. Each Venturer shall have a single capital
account (the "Capital Account") that shall be (i) increased by (a) the sum of
the cash and the fair market value of any property contributed by such Venturer,
(b) such Venturer's distributive share of Joint Venture Profits and (c) the
amount of any Joint Venture liabilities assumed by such Venturer or secured by
any Joint Venture property distributed to such Venturer and (ii)
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decreased by (a) the sum of the cash and the fair market value of property
distributed to such Venturer, (b) such Venturer's distributive share of Joint
Venture Losses and (c) the amount of liabilities of such Venturer assumed by the
Joint Venture or that are secured by property contributed by such Venturer to
the Joint Venture. No Venturer shall be entitled to receive or shall be paid
interest on its contributions to the capital of the Joint Venture or on its
Capital Account balance. This Section 3.9 is intended to comply with the
requirements of Treasury Regulation Section 1.704-1(b) regarding the maintenance
of capital accounts and shall be interpreted and applied in a manner consistent
with that provision.
Section 3.10 Return of Capital. Except as specifically provided herein,
no Venturer may withdraw capital from the Joint Venture. To the extent any cash
which any Venturer is entitled to receive pursuant to any provision of this
Agreement would constitute a return of capital, each of the Venturers consents
to the withdrawal of such capital. If any capital is, or is to be, returned to a
Venturer, the Venturer shall not have the right to receive property other than
cash, except as otherwise expressly provided in this Agreement.
ARTICLE 4
PREOPENING ACTIVITIES
Section 4.1 Construction Financing. The Managing Venturer, in
consultation and cooperation with the Non-Managing Venturer, shall use its best
efforts to obtain as promptly as practicable committed Construction Financing on
the most favorable terms available to the Joint Venture. The Managing Venturer
shall have the responsibility and authority for the negotiation, structuring and
documentation of the Construction Financing. Without the approval of each
Venturer, the outstanding principal amount of the Construction Financing at any
date shall not exceed 60% of the Project Cost incurred through such date;
provided, however, that (i) if the weighted average interest rate accrued on
such indebtedness during the period beginning on the day on which the first draw
on such indebtedness is made and ending on the day before the day on which the
Facility opens to the general public (the "Construction Period") exceeds 8.5%
per annum, the outstanding principal amount of Construction Financing at any
date shall not exceed the sum of 60% of the Project Cost incurred through such
date plus 100% of the difference between (A) the interest accrued on such
indebtedness
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during the Construction Period and (B) the interest which would have accrued on
such indebtedness during the Construction Period if such weighted average
interest rate had been 8.5% per annum and (ii) provided further, that, without
double counting, the outstanding principal amount of Construction Financing may
be increased by the amount, if any, by which the costs and expenses incurred by
the Joint Venture pursuant to the second and third sentences of Section 4.2
exceed $30,000,000. In any event, without the approval of each Venturer, the
aggregate principal amount of Construction Financing and all other Joint Venture
indebtedness outstanding at any time (other than Venturer subordinated loans
permitted by the third sentence of Section 3.3 hereof) shall not exceed
$300,000,000. The interest rate and other terms of the Construction Financing
and any other Joint Venture indebtedness shall be subject to the approval of
each Venturer, such approval not to be unreasonably withheld or delayed. If
non-recourse debt financing is not available to the Joint Venture on terms
reasonably acceptable to the Venturers, the Venturers will cooperate in good
faith to agree on alternative construction financing and to seek such
alternative construction financing (and in such event such alternative
construction financing shall constitute "Construction Financing" as such term is
used in this Agreement). In no event shall the stockholder or other Affiliates
of MR Sub or Boyd Sub be required to guarantee or otherwise assume liability for
Construction Financing.
Section 4.2 Design, Development and Construction. MRI or its Affiliates
shall have sole responsibility and authority with respect to the design of the
master plan for the Parcel and the Property, including without limitation all
roads, bridges, tunnels, walkways and other means of transportation within,
adjoining or servicing the Parcel or the Property (the "Master Plan") and all
improvements required by CAFRA and other governmental agencies in order to
construct projects on the Parcel ("Government Improvements"). The Joint Venture
shall pay all costs and expenses of design, development and construction of all
Government Improvements, and all other improvements and development specified in
the Master Plan, including without limitation all such means of transportation
(the "Master Plan Improvements"), which are entirely within the Property. The
Joint Venture shall also pay its equitable share of all such costs and expenses
for Government Improvements and Master Plan Improvements which are not entirely
within the Property or entirely within any other portion of the Parcel on which
a casino-hotel is being developed, based upon the number of
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developable (i.e. non-wetlands) acres comprising the Property as a percentage of
the total number of developable acres comprising the Parcel. Notwithstanding the
foregoing, the cost of any Government Improvement or Master Plan Improvement
which is located within the Property but is not for the exclusive benefit of the
Facility shall be shared equitably by the parties benefiting from such
Government Improvement or Master Plan Improvement. Except as provided in the
first sentence of this Section 4.2 and in Section 9.2 hereof, the Managing
Venturer shall have the responsibility and authority for supervising the design,
development and construction of the Facility. The Managing Venturer shall
prepare or cause to be prepared as promptly as practicable all necessary
preliminary plans and architectural, engineering, design and construction
drawings and other construction documents for the Facility. The Managing
Venturer shall arrange for the Joint Venture to obtain a construction contract
from a reputable and qualified general contractor and shall engage on behalf of
the Joint Venture other reputable and qualified contractors, architects,
engineers, designers and other professionals for the design, development and
construction of the Facility. The Managing Venturer shall keep the other
Venturer fully advised on a regular basis with respect to all aspects of the
design, development and construction of the Facility. Without the consent of
each Venturer, construction of the Facility shall not commence until the closing
of the Construction Financing, and shall commence as soon as practicable
thereafter. If physical construction of the Facility has not commenced by the
earlier of (i) December 31, 1998 or (ii) the first anniversary of the
commencement of physical construction by an Affiliate of MRI of a hotel-casino
on the Parcel, either Venturer may, by written notice to the other Venturer
delivered within 60 days after such date, elect to dissolve the Joint Venture as
provided in Article 13 hereof. In the event of dissolution, if an Affiliate of
MRI shall have commenced and is continuing physical construction of a
hotel-casino on the Parcel and physical construction of the Facility shall not
have commenced within one year thereafter, prior to any distribution of assets
to the Venturers, Boyd shall pay MR Sub, from Boyd's funds and not from the
assets of the Joint Venture, a termination fee of $2,000,000, unless such delay
in the commencement of construction of the Facility is attributable to factors
beyond Boyd Sub's reasonable control, including without limitation the inability
of the Joint Venture to obtain Construction Financing as provided in Section 4.1
(but which factors shall not include any lack of financial resources that
prevents Boyd Sub from contributing any amount required by Section 3.3 hereof).
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In the event that construction of the Facility has commenced but is not
completed and the Facility is not open to the public by the date which is three
years following the commencement of construction, unless such delay is
attributable to events of force majeure or other factors beyond Boyd Sub's
reasonable control (but which factors shall not include any lack of financial
resources that prevents Boyd Sub from contributing any amount required by
Section 3.3 hereof), MR Sub may, at its option, by written notice to Boyd Sub
delivered within 10 days after the expiration of such three-year period, (i)
elect to become the Managing Venturer pursuant to Section 9.3 hereof or (ii)
elect to dissolve the Joint Venture as provided in Article 13 hereof, in which
event, prior to any distribution of assets to the Venturers, Boyd shall pay MR
Sub, from Boyd's funds and not from the assets of the Joint Venture, a
termination fee of $2,000,000 or (iii) elect to purchase Boyd Sub's entire
Interest for cash in an amount equal to Boyd Sub's Capital Account balance,
which purchase right may be assigned to any person, including any Affiliate of
MR Sub.
MRI shall have the responsibility and authority to negotiate a Project
Agreement with the Atlantic City Building Trades Council on behalf of all
developers within the Parcel. Such negotiation shall be conducted by a Committee
chaired by a representative of Atlandia Design and Furnishings, Inc., on which
Boyd Sub shall also be represented by its most senior construction officer.
Section 4.3 Governmental Approvals. MR Sub shall have the
responsibility and authority for preparing, filing and processing all
applications, documents and instruments necessary to transfer the Property to
the Joint Venture. The Managing Venturer shall have the responsibility and
authority for preparing, filing and processing all applications to obtain all
governmental licenses, approvals, permits and entitlements on behalf of the
Joint Venture necessary or appropriate for the design, development,
construction, ownership and operation of the Facility, including without
limitation building permits and licenses and approvals issued by the New Jersey
Gaming Authorities. The costs of preparing, filing and processing applications
to obtain licenses and approvals from the New Jersey Gaming Authorities,
including investigation costs, shall be borne by the Venturer who (or whose
Affiliates) require such licenses and approvals. The Venturers shall cooperate
with each other and furnish all documents and other
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information necessary in order to obtain such licenses, approvals, permits and
entitlements.
ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
Section 5.1 Profits and Losses. The terms "Profits" and "Losses" shall
mean, for each fiscal year, an amount equal to the Joint Venture's federal
taxable income or loss for such period determined in accordance with Section
703(a) of the Internal Revenue Code of 1986, as amended (the "Code"), but
disregarding Section 703(a)(1) of the Code, and with the following adjustments:
(a) income exempt from federal income tax shall be added to such
taxable income or loss;
(b) expenditures not deductible in computing the Joint Venture's
taxable income and that are not properly chargeable as capital expenditures
shall be subtracted from such taxable income or loss;
(c) in the event that the tax book value of any Joint Venture
asset is adjusted pursuant to Section 7.2(a) or (b) hereof, the amount of such
adjustment shall be taken into account as gain or loss from the disposition of
such asset in computing Profits and Losses;
(d) gain or loss from any disposition of a Joint Venture asset
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the tax book value and not the adjusted
federal income tax basis of the asset disposed of; and
(e) if the tax book value of a Joint Venture asset has been
adjusted pursuant to Section 7.2 hereof, in lieu of federal income tax
depreciation, tax book depreciation (which shall be in the same ratio to tax
book value at the beginning of the taxable period as federal income tax
depreciation is to adjusted federal income tax basis at the beginning of such
period) shall be taken into account in computing Profits and Losses.
Section 5.2 Allocations. Profits or Losses, including without
limitation all items of income, gain, profit, loss, cost, expense, deduction or
credit earned or incurred by the Joint Venture, shall be allocated and credited
to the Venturers, and reflected in the Capital Accounts of the Venturers, in
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accordance with each Venturer's Interest. Notwithstanding the foregoing, the
following items shall be specially allocated in the following manner:
(a) Solely for the purpose of federal, state and local income
taxes, and without affecting or in any way being taken into account in computing
a Venturer's Capital Account or share of Profits, Losses or other items or
distributions pursuant to any provision of this Agreement:
(i) items of income, gain, loss and deduction with respect
to any property contributed to the Joint Venture by any Venturer shall be
allocated among the Venturers in accordance with Section 704(c) of the Code so
as to take account of any variation between the adjusted basis of the property
to the Joint Venture and the fair market value of the property (as determined by
the Venturers) at the time of the contribution; and
(ii) in the event that the tax book value of a Joint Venture
asset is adjusted pursuant to Section 7.2(a) hereof, subsequent allocations of
income, gain, loss and deduction with respect to such asset shall take account
of any difference between the adjusted basis of such asset for federal income
tax purposes and its book value in the same manner as under Section 704(c) of
the Code.
(b) To the extent the adjusted federal income tax basis of a
Joint Venture asset is adjusted pursuant to Section 734(b) or 743(b) of the
Code, and such adjustment is required by Treasury Regulation Section
1.704-1(b)(2)(iv)(m) to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such gain or loss shall be allocated
to the Venturers in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Treasury Regulation.
(c) Except as provided in Treasury Regulation Section
1.704-2(f)(2), (3) and (4) (pertaining to conversion or repayment of nonrecourse
liabilities), in the event there is a net decrease in partnership minimum gain
(within the meaning of Treasury Regulation Section 1.704-2(d)) for a taxable
year of the Joint Venture, each Venturer must be allocated items of partnership
income and gain for that year equal to that Venturer's share of the net decrease
in partnership minimum gain (within the meaning of Treasury Regulation Section
1.704-2(g)(2)). Allocations made pursuant to this Section 5.2(c) shall consist
of gains recognized from the disposition of Joint Venture
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property subject to one or more nonrecourse liabilities of the Joint Venture and
then, if necessary, shall consist of a pro rata portion of the Joint Venture's
other items of income and gain for that taxable year.
(d) Items of loss or deductions attributable to a nonrecourse
liability to a Venturer incurred pursuant to Section 3.7 hereof or to a
nonrecourse liability with respect to which a Venturer bears the economic risk
of loss (within the meaning of Treasury Regulation Section 1.752-2) shall be
allocated to such Venturer.
(e) If the additional capital contributions of Boyd Sub pursuant
to the first and fourth sentences of Section 3.3 hereof exceed the fair market
value of the Property at the time of the conveyance of the Property to the Joint
Venture as agreed by the Venturers pursuant to Section 3.2 hereof, upon
liquidation of the Joint Venture in accordance with Article 13 hereof MR Sub
shall be allocated items of income and gain, including gross income if
necessary, equal to the excess of such additional capital contributions over
such fair market value.
Section 5.3 Transfers of Joint Venture Interests. If any Interest in
the Joint Venture is Transferred in accordance with Section 11.2(a) hereof, all
items of Profits or Losses, including without limitation all items of income,
gain, profit, loss, deduction, cost, expense or credit and all other items of
the Joint Venture with respect to the Interest so Transferred, shall be
allocated between the transferor and the transferee in accordance with Section
706 of the Code using such conventions as may be selected by the Venturers.
ARTICLE 6
NON-LIQUIDATING DISTRIBUTIONS
Section 6.1 Distributable Cash. The term "Distributable Cash" with
respect to any period shall mean an amount equal to the total cash revenues and
receipts of the Joint Venture from any source (including capital contributions,
loans and refinancings) for such period, less the sum of (i) all operating
expenses paid or incurred by the Joint Venture, including current principal and
interest payments on the Construction Financing and other Joint Venture
indebtedness, but excluding any distributions pursuant to Section 6.2, (ii) all
capital expenditures made by the Joint Venture and (iii) the amount of
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any increase during such period in, or amounts established during such period
for, reasonable reserves for anticipated costs, expenses, liabilities and
obligations of the Joint Venture, working capital needs of the Joint Venture or
other appropriate Joint Venture purposes, as reasonably determined by the
Managing Venturer in consultation with the other Venturer.
Section 6.2 Distribution of Distributable Cash. Subject to any
covenants contained in the documentation governing the Construction Financing or
any other agreements to which the Joint Venture is a party, commencing with the
first full fiscal quarter following the fiscal quarter during which the Facility
opens to the public, Distributable Cash for each fiscal quarter shall be
distributed within 45 days after the end of such quarter in the following order
of priority:
(a) first, to the Venturers to repay amounts, if any, lent by them to
the Joint Venture pursuant to Section 3.7 hereof, any such payments to be made
on a pro rata basis according to the then outstanding balances of such loans,
with such payments applied first against accrued interest; and
(b) the balance, if any, to the Venturers, pro rata in accordance with
their respective Interests.
ARTICLE 7
ACCOUNTING AND RECORDS
Section 7.1 Books and Records. The Joint Venture shall keep at its
principal office separate books of account for the Joint Venture which shall
show a true and accurate record of all costs and expenses incurred, all charges
made, all credits made and received and all income derived in connection with
the operation of the Joint Venture business in accordance with generally
accepted accounting principles consistently applied.
Each Venturer shall, at its sole expense, have the right, at any time
without notice to the other, to examine, copy and audit the Joint Venture's
books and records during normal business hours.
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Section 7.2 Tax Book Values. The tax book value of any Joint Venture
asset shall be such asset's adjusted basis for federal income tax purposes,
except as follows:
(a) The tax book value of Joint Venture assets shall be adjusted to
equal their respective gross fair market values, as determined by the Venturers,
as of the following times:
(i) upon the acquisition of an additional Interest in the Joint
Venture by any new or existing Venturer in exchange for more than a de minimis
capital contribution; and
(ii) upon the liquidation of the Joint Venture within the meaning
of Treasury Regulation Section 1.704-1(b)(2)(ii)(g).
(b) The tax book value of a Joint Venture asset that is distributed to
any Venturer shall be the fair market value of such asset at the time of
distribution, as determined by the Venturers.
(c) The tax book value of Joint Venture assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Section 734(b) or 743(b) of the Code, but only to the extent such
adjustments are taken into account in determining Capital Accounts pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
(d) If the tax book value of a Joint Venture asset has been adjusted
pursuant to this Section 7.2, such tax book value shall thereafter be adjusted
by the amount of tax book depreciation taken into account with respect to such
asset for the purpose of determining Profits and Losses.
Section 7.3 Reports.
(a) The Managing Venturer shall cause to be prepared and distributed to
each Venturer the following reports as promptly as practicable, but in any event
within 75 days after the end of each fiscal year of the Joint Venture:
(i) a balance sheet as of the end of the fiscal year and statements
of income, Venturers' equity and cash flows for the year then ended, each of
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which shall be audited by a firm of independent certified public accountants
(the "Accountants") selected by the Venturers in accordance with Section 9.2(l)
hereof;
(ii) a general description of the activities of the Joint Venture
during the period covered by the report; and
(iii) a report of any material contracts or transactions between
the Joint Venture and the Venturers or any of their Affiliates, including fees
or compensation paid by the Joint Venture and the products supplied and services
performed by the Venturers or any such Affiliate for such fees or compensation.
(b) As promptly as practicable, but in any event within 30 days after
the end of each of the first three quarters of each fiscal year, the Managing
Venturer shall cause to be prepared and distributed to each Venturer a quarterly
report containing a balance sheet and statement of income for the period covered
by the report, each of which may be unaudited but which shall be certified by
the chief financial officer of the Joint Venture as fairly presenting the
financial position and results of operations of the Joint Venture during the
period covered by the report and as having been prepared in accordance with
generally accepted accounting principles applied on a basis substantially
consistent with that of the Joint Venture's audited financial statements. The
report shall also contain a description of any material event regarding the
business of the Joint Venture during the period covered by the report.
(c) As promptly as practicable, but in any event within 70 days after
the end of each fiscal year, the Managing Venturer shall cause to be prepared
and distributed to each Venturer all information necessary for the preparation
of such Venturer's federal and state income tax returns, including a statement
showing such Venturer's share of income, gains, losses, deductions and credits
for such year for federal and state income tax purposes and the amount of any
distributions made to or for the account of such Venturer pursuant to this
Agreement.
Section 7.4 Tax Returns. The Managing Venturer, at the expense of the
Joint Venture, shall prepare or cause the Accountants to prepare all income and
other tax returns, on an accrual basis, of the Joint Venture and
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cause the same to be filed in a timely manner. The Managing Venturer shall
furnish to each Venturer a copy of each such return as soon as it has been
filed, together with any schedules or other information which each Venturer may
require in connection with such Venturer's own tax affairs. Each of the
Venturers shall, in its respective income tax return and other statements filed
with the Internal Revenue Service or other taxing authority, report taxable
income in accordance with the provisions of this Agreement.
Section 7.5 Tax Matters Partner. The Managing Venturer is hereby
designated as the "tax matters partner" of the Joint Venture as defined in
Section 6231 of the Code and, to the extent authorized or permitted under
applicable law, the Managing Venturer shall represent the Joint Venture in
connection with all examinations of Joint Venture affairs by taxing authorities,
including, without limitation, resulting administrative and judicial
proceedings.
Section 7.6 Fiscal Year. The fiscal year of the Joint Venture shall be
the calendar year. As used in this Agreement, a fiscal year shall include any
partial fiscal year at the beginning or end of the term of the Joint Venture.
Section 7.7 Bank Accounts. The Managing Venturer shall be responsible
for causing one or more accounts to be maintained in one or more banks, which
accounts shall be used for the payment of expenses incurred in connection with
the business of the Joint Venture, and in which shall be deposited any and all
cash receipts. All such amounts shall be and remain the property of the Joint
Venture and shall be received, held and disbursed by the Joint Venture for the
purposes specified in this Agreement. There shall not be deposited in any of
such accounts any funds other than funds belonging to the Joint Venture, and no
other funds shall be commingled with such funds.
Section 7.8 Tax Elections.
(a) At the request of any Venturer, the Managing Venturer, on behalf of
the Joint Venture, shall elect to adjust the basis of the assets of the Joint
Venture for federal income tax purposes in accordance with Section 754 of the
Code in the event of a distribution of Joint Venture property as described in
Section 734 of the Code or a transfer by any Venturer of its Interest in the
Joint Venture as described in Section 743 of the Code.
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(b) The Managing Venturer, on behalf of the Joint Venture, shall from
time to time make such other tax elections as it deems necessary or desirable to
carry out the business of the Joint Venture or the purposes of this Agreement.
Section 7.9 Tax Withholding. Except as otherwise provided in this
Section 7.9, if the Joint Venture incurs an obligation to withhold taxes with
respect to any Venturer, any amount withheld or paid as withholding taxes by the
Joint Venture with respect to such Venturer shall be treated for all purposes of
this Agreement as if it had been distributed to such Venturer. The Venturers may
make such elections with respect to such withholding obligations, including
without limitation an election pursuant to Section 1446 of the Code, as they
reasonably determine. If the withholding obligation exceeds the amount that
would have been distributed to such Venturer determined without regard to the
provisions of this Section 7.9, such excess amount shall be treated for all
purposes of this Agreement as if it had been transferred to such Venturer by the
Joint Venture as an interest-free loan. If the Joint Venture incurs any
liability as a result of a failure to withhold with respect to any Venturer,
such liability will be borne by such Venturer and charged to such Venturer's
Capital Account. Amounts treated as loaned to any Venturer pursuant to this
Section 7.9 shall be repaid by such Venturer to the Joint Venture as promptly as
practicable. The Joint Venture shall offset such amounts against any amounts
that would otherwise be distributed to such Venturer.
ARTICLE 8
CONFIDENTIALITY; INTELLECTUAL PROPERTY
Section 8.1 Confidential Treatment of Information. Each of the
Venturers agrees, and shall cause each of its Affiliates (i) not to disclose any
material information concerning the Joint Venture or its business to the press
or the general public without the approval of the other Venturer, such approval
not to be unreasonably withheld or delayed and (ii) to retain in strict
confidence any proprietary confidential information and trade secrets of the
other Venturer, whether disclosed prior to or after the date hereof, and not to
use or disclose to persons other than the Venturer or its Affiliates ("third
parties"), and to use its best efforts to cause its employees, agents and
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consultants not to use or disclose to third parties, such proprietary
confidential information or trade secrets without the approval of the other
Venturer, unless in either case it can be established by the disclosing party
that such information:
(a) at the time of disclosure is part of the public domain and readily
accessible to the public or such third party;
(b) at the time of disclosure is already known by the receiving party
otherwise than pursuant to a breach of an obligation of confidentiality;
(c) is required by applicable law, regulation or court order to be
disclosed; or
(d) is required by any vendor, supplier or consultant in order to carry
out the business of the Joint Venture, provided that the disclosing Venturer
shall obtain the written agreement and obligation of such third party, in a form
reasonably satisfactory to the other Venturer, prior to disclosing such
information, that all of the provisions of this Article 8 shall apply with equal
effect to such third party. The Joint Venture shall be a third-party beneficiary
of any such written agreement.
Section 8.2 Intellectual Property. Neither the Joint Venture, nor Boyd
Sub or its Affiliates, shall have the right to use any trademark, service mark,
trade name, logo, copyright or other intellectual property owned by MRI or any
of its Affiliates in connection with the Facility or the business of the Joint
Venture. The Joint Venture will enter into a license agreement with Boyd
providing for the use of the name "Stardust" (subject to legal availability
thereof) and other intellectual property owned by Boyd, without compensation to
Boyd, as long as Boyd Sub or another Affiliate of Boyd shall be a Venturer. In
the event that Boyd Sub or another Affiliate of Boyd shall cease for any reason
to be a Venturer, the license agreement shall provide for a reasonable
transition period to enable the Joint Venture to replace the intellectual
property, including the Stardust name, without causing any disruption in the
operations of the Facility. Notwithstanding the above, in the event that Boyd
Sub or another Affiliate of Boyd shall become the Non-Managing Venturer, the
license agreement shall provide that the Joint Venture may continue to use the
"Stardust" name and shall provide for a reasonable transition period to enable
the Joint Venture to replace the other
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intellectual property, without causing any disruption in the operations of the
Facility. The Managing Venturer, on behalf and at the expense of the Joint
Venture, shall prepare, file and prosecute all applications which it reasonably
deems necessary or appropriate to protect and preserve any intellectual property
acquired or developed by the Joint Venture.
ARTICLE 9
MANAGEMENT
Section 9.1 Management by Managing Venturer. Subject to Section 9.3
hereof, Boyd Sub shall be and hereby is appointed the Managing Venturer of the
Joint Venture and shall serve in such capacity without fee or other
compensation.
Except as otherwise provided in this Agreement, the Managing Venturer
shall have, and hereby assumes, sole responsibility and authority for the
prudent day-to-day management and operation of the Joint Venture and the
Facility, and in furtherance thereof may exercise the following specific rights
and powers without approval of the other Venturer:
(a) oversee and manage the day-to-day operations of the Facility, the
Joint Venture business and such other activities as are customary in connection
with such operations;
(b) except as otherwise provided in Sections 4.2 and 9.2 hereof, direct
and oversee the architectural, engineering, design, construction,
administrative, legal and other work necessary for the design, development,
construction, completion, financing, opening, operation and improvement of the
Facility and other Joint Venture business;
(c) prepare appropriate budgets and construction schedules for the
development, construction, opening, repair, improvement and operation of the
Facility and other Joint Venture property;
(d) except as otherwise provided in Section 9.2, negotiate with and
enter into contracts for the design, development, construction, completion,
opening, operation and improvement of the Facility, and supervise all such work;
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(e) implement decisions made by the Venturers;
(f) use its best efforts to operate, on behalf of and for the sole
benefit of the Joint Venture, the Facility and such other business and
activities as are customary in connection with such operation;
(g) preserve, maintain and distribute Joint Venture funds in accordance
with the provisions of this Agreement;
(h) contract on behalf of the Joint Venture for the services of
independent contractors, including attorneys, accountants and financial
advisers;
(i) establish, maintain and supervise the deposit of funds and
securities of the Joint Venture with federally insured banking institutions, and
the Managing Venturer is authorized to sign on behalf of the Joint Venture on
all accounts with such banking institutions;
(j) acquire by purchase, lease or otherwise such personal property as
may be necessary, convenient or incidental to the accomplishment of the purposes
of the Joint Venture;
(k) procure on behalf of the Joint Venture such general liability,
casualty, comprehensive, workers' compensation, fidelity, errors and omissions,
business interruption and other insurance as is adequate to protect the Joint
Venture; and
(l) execute on behalf of the Joint Venture any and all agreements,
documents, certificates and instruments necessary or convenient in connection
with the management and operation of the Facility or in connection with managing
the affairs of the Joint Venture.
Section 9.2 Exclusive Powers of the Venturers. In addition to those
matters which, pursuant to other provisions of this Agreement, require approval
of each Venturer, the following matters shall require the approval of each
Venturer:
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(a) except as otherwise provided in this Agreement, the admission of an
additional Venturer;
(b) except as otherwise provided in Section 4.2 hereof, the design of
the exterior of the Facility, including landscaping and signage;
(c) the acquisition of any real property in addition to the Property;
(d) any transaction which is unrelated to the purposes of the Joint
Venture or makes it unlawful or impossible to carry out the purposes of the
Joint Venture;
(e) except with respect to the Construction Financing or as otherwise
provided in this Agreement, the incurrence of any indebtedness;
(f) the refinancing or early retirement of any Joint Venture
indebtedness;
(g) except in connection with the Construction Financing, the sale or
hypothecation of all or any significant part of the property or assets of the
Joint Venture, other than in the ordinary course of business;
(h) capital expenditures which are not included in the original
construction budget or in a budget prepared by the Managing Venturer and
approved by the Non-Managing Venturer on an annual basis;
(i) except as otherwise provided in Article 11 hereof, the Transfer of
all or any portion of a Venturer's Interest in the Joint Venture;
(j) the compromise of any claim owned by the Joint Venture in excess of
$500,000 or submission to arbitration of any dispute or controversy involving
the Joint Venture, other than in the ordinary course of business;
(k) the cancellation or lapse of any material insurance policy, which
approval shall not be unreasonably withheld or delayed;
(l) the selection and retention of independent certified public
accountants to audit the Joint Venture's financial statements and prepare its
tax returns;
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(m) the establishment of hotel room rate structures for the Facility;
(n) any expenditure by the Joint Venture in excess of $50,000 other
than in the ordinary course of business; and
(o) except as otherwise provided in this Agreement, the dissolution or
liquidation of the Joint Venture, or a merger, consolidation or recapitalization
involving the Joint Venture.
Any matter which requires the approval of each Venturer may be approved
by an instrument signed by an authorized representative of each Venturer. The
initial authorized representatives of Boyd Sub shall be William S. Boyd, Robert
L. Boughner and Ellis Landau, and the initial authorized representatives of MR
Sub shall be Stephen A. Wynn, Daniel R. Lee and Bruce A. Levin. Either Venturer
may designate different or additional authorized representatives by written
notice to the other.
Section 9.3 Replacement of Managing Venturer.
(a) Except as otherwise provided in this Agreement, the Managing
Venturer may only be changed with the approval of each Venturer. In the event
that (i) the Joint Venture is in material default with respect to any of its
debt obligations, whether or not any period to cure such default has expired,
(ii) an Event of Default on the part of Boyd Sub has occurred and is continuing
under this Agreement, (iii) Boyd Sub or another direct or indirect wholly owned
subsidiary of Boyd ceases for any reason (including a Permitted Transfer) to own
at least a 50% Interest in the Joint Venture, (iv) during the five-year period
commencing upon the public opening of the Facility, William S. Boyd ceases to
serve as Chairman of the Board of Boyd other than by reason of his death or
incapacity or, in the event of the death or incapacity of William S. Boyd,
Robert L. Boughner ceases to serve as Chief Operating Officer or a more senior
executive officer of Boyd for any reason, or (v) during the five-year period
commencing upon the public opening of the Facility, William S. Boyd, or his
heirs or legatees collectively, cease to own beneficially at least 15% of the
outstanding common stock or to be the largest beneficial stockholder of Boyd, MR
Sub may, at any time during the continuation of any such event, elect by written
notice delivered to Boyd Sub to become the Managing Venturer, and MR Sub shall
thereupon become the
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Managing Venturer and Boyd Sub shall become the Non-Managing Venturer. In the
event of such election by MR Sub, the Joint Venture shall pay MR Sub, on a
quarterly basis, a management fee to be negotiated. Upon the occurrence of any
of the events specified in Section 13.1(g) hereof with respect to the Managing
Venturer, if the business of the Joint Venture is continued, the remaining
Venturer shall become the Managing Venturer.
(b) The Managing Venturer shall not have the right to resign as
Managing Venturer, and any such purported resignation shall constitute an Event
of Default under this Agreement which shall entitle the other Venturer to
exercise all rights and remedies available under this Agreement, at law or in
equity.
Section 9.4 Meetings of the Venturers; Time and Place. The Venturers
shall meet with each other on a periodic basis, at least quarterly. At such
meetings, the Managing Venturer's representatives shall report on the
performance and condition of the Joint Venture, give progress reports on
negotiation of the Construction Financing, capital projects including
construction of the Facility, material contracts entered into, material
litigation and other matters material to the operation of the Joint Venture.
Meetings shall be held at such time and place within Atlantic County, New Jersey
as the Managing Venturer shall determine or by telephone, provided that each
Venturer's representatives may simultaneously participate and hear each other
Venturer's representatives. The Venturers may take action without a meeting if
the action taken is reduced to writing (either prior to or thereafter) and
signed on behalf of each Venturer. Any Venturer may call for a meeting of the
Venturers at any time by giving at least 48 hours' prior written notice to the
other Venturer.
Section 9.5 Officers. The Managing Venturer shall appoint the chief
executive officer and other officers of the Joint Venture, who shall serve at
the direction and pleasure of the Managing Venturer. The chief executive officer
and the other officers shall perform those functions of the Managing Venturer
and such other duties and responsibilities as the Managing Venturer may assign
to them. No officer or employee of either Venturer or its Affiliates who does
not devote substantially full time to the Joint Venture shall receive any salary
or other compensation from the Joint Venture. The Managing Venturer may from
time to time appoint certain employees of the Managing Venturer or its
Affiliates to devote substantially full time to the
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Joint Venture and retain such employees on its payroll. In such event, the Joint
Venture shall reimburse the Managing Venturer or its Affiliate for the
out-of-pocket compensation (including salary, bonus and the direct cost of
health and retirement benefit plans) paid to such employee for performing
services to the Joint Venture on a full-time basis. The terms of any benefits
offered to such an employee shall be within the discretion of the Managing
Venturer or its Affiliate. Each officer of the Joint Venture shall be
indemnified by the Joint Venture from and against any and all claims, losses,
damages and liabilities, including reasonable attorneys' fees which shall be
reimbursed as incurred, arising out of or relating to any act or failure to act
performed or omitted by him; provided, however, that such indemnity shall be
payable only if such officer acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Joint Venture.
Any indemnity under this Section 9.5 shall be paid from, and shall be limited to
the extent of, Joint Venture assets, and no Venturer shall have any personal
liability on account thereof. Each officer of the Joint Venture shall be fully
protected with respect to any action or omission taken or omitted by him in good
faith if such action or omission is taken or omitted in reliance upon and in
accordance with the opinion or advice of competent legal counsel, accountants,
financial advisers or other professionals as to matters within their
professional competence.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
Section 10.1 MR Sub. MR Sub hereby represents and warrants, which
representations and warranties shall survive the execution of this Agreement,
that:
(a) MR Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey and has the requisite
corporate power and authority to enter into and carry out the terms of this
Agreement;
(b) all of the outstanding capital stock of MR Sub is owned directly or
indirectly by MRI;
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(c) all corporate action required to be taken by MR Sub to enter into
and carry out the terms of this Agreement has been taken and no further approval
of any governmental agency, court or other body is necessary in order to permit
MR Sub to enter into and carry out the terms of this Agreement;
(d) this Agreement has been duly executed and delivered by MR Sub and
constitutes the legal, valid and binding obligation of MR Sub, enforceable in
accordance with its terms (subject to applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, equitable
principles and judicial discretion);
(e) to the best of its knowledge, neither the execution and delivery of
this Agreement, nor the performance of its obligations hereunder, has resulted
or will result in any violation of, or constitute a default under, the charter
or bylaws of MR Sub or any indenture, trust agreement, mortgage or other
agreement or any permit, judgment, decree or order to which MR Sub is a party or
by which it is bound, and there is no default and no event or omission has
occurred which, with the passage of time or the giving of notice or both, would
constitute a default on the part of MR Sub under this Agreement;
(f) to the best of its knowledge, there is no action, proceeding or
investigation, pending or threatened, which questions the validity or
enforceability of this Agreement as to MR Sub;
(g) no representation, warranty or covenant of MR Sub in this
Agreement, or in any document or certificate furnished or to be furnished to
Boyd Sub pursuant hereto, contains or will contain any untrue statement of
material fact or omits or will omit to state a material fact necessary to make
the statements or facts contained therein not misleading; all such
representations, warranties or statements of MR Sub are based, to the best of MR
Sub's knowledge, upon accurate and complete information as of the time of their
making, and there have been, to the best of MR Sub's knowledge, no material
changes in such information subsequent thereto; and
(h) MR Sub has no reason to believe that it or its Affiliates will not
receive any gaming license, approval or permit necessary for the consummation of
the transactions contemplated by this Agreement.
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Section 10.2 Boyd Sub. Boyd Sub hereby represents and warrants, which
representations and warranties shall survive the execution of this Agreement,
that:
(a) Boyd Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and has the requisite
corporate power and authority to enter into and carry out the terms of this
Agreement;
(b) all of the outstanding capital stock of Boyd Sub is owned directly
or indirectly by Boyd;
(c) all corporate action required to be taken by Boyd Sub to enter into
and carry out the terms of this Agreement has been taken and no further approval
of any governmental agency, court or other body is necessary in order to permit
Boyd Sub to enter into and carry out the terms of this Agreement;
(d) this Agreement has been duly executed and delivered by Boyd Sub and
constitutes the legal, valid and binding obligation of Boyd Sub, enforceable in
accordance with its terms (subject to applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, equitable
principles and judicial discretion);
(e) to the best of its knowledge, neither the execution and delivery of
this Agreement, nor the performance of its obligations hereunder, has resulted
or will result in any violation of, or constitute a default under, the charter
or bylaws of Boyd Sub or any indenture, trust agreement, mortgage or other
agreement or any permit, judgment, decree or order to which Boyd Sub is a party
or by which it is bound, and there is no default and no event or omission has
occurred which, with the passage of time or the giving of notice or both, would
constitute a default on the part of Boyd Sub under this Agreement;
(f) to the best of its knowledge, there is no action, proceeding or
investigation, pending or threatened, which questions the validity or
enforceability of this Agreement as to Boyd Sub;
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(g) No representation, warranty or covenant of Boyd Sub in this
Agreement, or in any document or certificate furnished or to be furnished to MR
Sub pursuant hereto, contains or will contain any untrue statement of material
fact or omits or will omit to state a material fact necessary to make the
statements or facts contained therein not misleading; all such representations,
warranties or statements of Boyd Sub are based, to the best of Boyd Sub's
knowledge, upon accurate and complete information as of the time of their
making, and there have been, to the best of Boyd Sub's knowledge, no material
changes in such information subsequent thereto; and
(h) Boyd Sub has no reason to believe that it or its Affiliates will
not receive any gaming license, approval or permit necessary for the
consummation of the transactions contemplated by this Agreement.
Section 10.3 Brokers. The parties each represent to the other that they
have not retained any broker, finder or agent in connection with the
transactions contemplated hereby or the negotiation thereof. Each party shall
indemnify and hold the other party harmless from and against all losses, claims,
damages and liabilities, including reasonable attorneys' fees, arising out of or
relating to any claim of brokerage or other commissions relative to this
Agreement or the transactions contemplated hereby insofar as any such claim
arises by reason of services alleged to have been rendered to or at the request
of the indemnifying party.
ARTICLE 11
TRANSFER OF INTERESTS
Section 11.1 Restrictions on Transfers. Except as otherwise expressly
provided in this Agreement, no Venturer shall, without the approval of each of
the Venturers, sell, transfer, assign, pledge, encumber or otherwise dispose of
(each a "Transfer") all or any portion of its Interest in the Joint Venture or
any rights therein. Any purported Transfer in violation of the preceding
sentence shall be null and void and of no force or effect. Each Venturer
acknowledges the reasonableness of the restrictions on Transfers imposed by this
Agreement in view of the Joint Venture purposes and the relationship of the
Venturers. The Venturers acknowledge and agree that they are relying on the
experience, reputation and financial condition of each other in entering into
this Agreement, that the nature of the relationship
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between the Venturers is personal and that the amount of damages that would be
sustained by the Venturers in the event of a breach of the restrictions on
Transfers imposed by this Agreement would not be readily ascertainable.
Accordingly, upon any breach of this Article 11 by any Venturer, the other
Venturer (in addition to all rights and remedies it may have under this
Agreement, at law or in equity) shall be entitled to a decree or order from a
court of competent jurisdiction specifically enforcing the restrictions on
Transfers contained herein. Each Venturer further agrees to hold the Joint
Venture and the other Venturer (and its successors and assigns) harmless from
and against any and all costs, liabilities and damages (including, without
limitation, liabilities for income taxes and costs of enforcing this indemnity)
incurred by any of such indemnified parties as a result of a Transfer or
purported Transfer in violation of this Agreement.
Section 11.2 Permitted Transfers.
(a) A Venturer shall be entitled to make the following Transfers (each
a "Permitted Transfer") without the approval of the other Venturer: (i) a pledge
or encumbrance of its Interest in favor of one or more commercial banks or other
institutional lenders to secure a loan provided by such lender(s) to such
Venturer or its Affiliates, provided that a foreclosure upon such pledge or
encumbrance shall not be a Permitted Transfer; (ii) a Transfer to an Affiliate
of such Venturer, subject to the provisions of Section 11.3; (iii) a Transfer to
MR Sub or Boyd Sub; or (iv) a Transfer pursuant to the right of first refusal
provisions of Section 11.4.
(b) Except with respect to Permitted Transfers described in clause
(ii), (iii) or (iv) of Section 11.2(a), a transferee of an Interest in the Joint
Venture shall be admitted as a Venturer only upon the agreement of each
Venturer. The rights of a transferee who is not admitted as a Venturer shall be
limited to the right to receive allocations and distributions from the Joint
Venture with respect to the Interest transferred, as provided in this Agreement.
A transferee that is not admitted as a Venturer shall not be a Venturer with
respect to such Interest and, without limiting the foregoing, shall not have the
right to inspect the Joint Venture's books or assets, grant or withhold
approvals, act for or bind the Joint Venture or otherwise participate in its
operations.
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(c) The Venturers intend that a Permitted Transfer shall not cause the
dissolution of the Joint Venture under the Act; however, if a court of competent
jurisdiction determines that a dissolution has occurred, the Venturers shall
continue to hold the Joint Venture's assets and operate its business in joint
venture form pursuant to this Agreement as if no such dissolution had occurred.
(d) In the event of a Permitted Transfer, the Venturer making the
Transfer shall notify the other Venturer of the Transfer and shall furnish the
Joint Venture with the transferee's taxpayer identification number and
sufficient information to determine the transferee's Interest and tax basis in
the Joint Venture and any other information reasonably necessary to permit the
Joint Venture to file all required tax returns. All Transfers shall be by
instrument in form and substance reasonably satisfactory to counsel for the
Joint Venture and shall contain an agreement of the transferee to accept the
Transfer and to accept and adopt all of the applicable provisions of this
Agreement. The Venturer making a Permitted Transfer shall execute, acknowledge
and deliver all such documents and instruments, in form and substance reasonably
satisfactory to counsel for the Joint Venture, as may be necessary or desirable
to effectuate such Transfer, and shall pay all costs and expenses incurred by
the Joint Venture in connection with such Transfer.
(e) Notwithstanding anything to the contrary in this Agreement, no
Venturer shall be permitted to Transfer its Interest or any portion thereof to
the extent such Transfer would be in violation of applicable law (including
securities laws) or would cause a default under any agreement to which the Joint
Venture is a party or by which it is bound.
Section 11.3 Limitation on Ownership of Venturers.
(a) Unless otherwise agreed by Boyd Sub, all of the outstanding capital
stock of MR Sub shall continue to be owned directly or indirectly by MRI.
(b) Unless otherwise agreed by MR Sub, all of the outstanding capital
stock of Boyd Sub shall continue to be owned directly or indirectly by Boyd.
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Section 11.4 Right of First Refusal.
(a) Commencing on the first anniversary of the opening of the Facility
to the public, either Venturer shall have the right to Transfer all or any part
of its Interest in the Joint Venture to a person who is not an Affiliate of any
Venturer in consideration for cash and/or a promissory note, provided that (i)
the Joint Venture is not in default under the terms of the Construction
Financing, (ii) the Venturer wishing to Transfer its Interest (the "Initiating
Venturer") is not in default under any of the provisions of this Agreement and
(iii) the Initiating Venturer first offers the Interest (or portion thereof) to
the other Venturer as provided in this Section 11.4.
(b) Prior to becoming legally obligated to Transfer its Interest or any
portion thereof (the "Relevant Interest") to a person who is not an Affiliate of
any Venturer (the "Third Party"), the Initiating Venturer shall deliver written
notice (the "Offering Notice") to the other Venturer (the "Responding Venturer")
offering to Transfer the Relevant Interest to the Responding Venturer on the
same terms and for the same price as the Initiating Venturer proposes to
Transfer to the Third Party. The Offering Notice shall specify the name of the
Third Party, the Relevant Interest proposed to be Transferred and the material
terms on which the Transfer is to be consummated, including without limitation
the Transfer price, terms of payment and the time and place of the closing. The
Responding Venturer shall thereupon have the right and option to purchase from
the Initiating Venturer all ( but not less than all) of the Relevant Interest at
the purchase price set forth in the Offering Notice by delivering written notice
(the "Acceptance Notice") to the Initiating Venturer within 30 days after
delivery of the Offering Notice. If the Responding Venturer delivers the
Acceptance Notice, it shall be legally obligated to purchase the Relevant
Interest on the same terms as specified in the Offering Notice at a closing to
be held as specified in the Offering Notice (but in no event earlier than 60
days after delivery of the Offering Notice) or such other time as may be
directed by the New Jersey Gaming Authorities. At the closing, the Initiating
Venturer shall deliver to the Responding Venturer good title to the Relevant
Interest, free and clear of any liens, claims or other encumbrances.
If the Responding Venturer does not elect to purchase the Relevant Interest, it
may, within the 30-day period referred to above, deliver to the Initiating
Venturer written notice (the "Disapproval Notice") stating that it does not
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elect to purchase the Relevant Interest and that it disapproves of the proposed
Transfer to the Third Party. In the event that the Responding Venturer delivers
the Disapproval Notice within such 30-day period, and the Disapproval Notice
sets forth the existence of specific facts which reasonably demonstrate that the
Third Party would not be suitable as a Venturer due to its background,
reputation or lack of financial capability, the Initiating Venturer may not
consummate the proposed Transfer. The Responding Venturer may deny such approval
if the proposed Transferee or its Affiliates operates another casino in the
greater Atlantic City, New Jersey area. If the Responding Venturer does not
deliver the Acceptance Notice or the Disapproval Notice within the 30-day period
referred to above, or if the Disapproval Notice does not satisfy the
requirements of the immediately preceding sentence, the Initiating Venturer may,
within 90 days after the expiration of such 30-day period, consummate the
proposed Transfer to the Third Party on the terms set forth in the Offering
Notice or on substantially similar terms. If the Initiating Venturer does not
consummate the proposed Transfer within such 90-day period, the proposed
Transfer may not be effected unless the Initiating Venturer again complies with
the provisions of this Section 11.4.
Section 11.5 Buy-Out on Default. At any time during the continuance of
an Event of Default under this Agreement, the non-defaulting Venturer, without
limiting any other rights or remedies it may have under this Agreement, at law
or in equity, may, upon written notice (the "Appraisal Notice") delivered to the
Defaulting Venturer, elect to purchase all (but not less than all) of the
Interest of the Defaulting Venturer for cash in an amount equal to 80% of the
Appraised Value of the Defaulting Venturer's Interest. The "Appraised Value"
shall be an amount equal to the Defaulting Venturer's Interest multiplied by the
fair market value of the Joint Venture, which shall represent the amount that a
single purchaser unrelated to any Venturer would reasonably be expected to pay
for the Joint Venture business and assets as a going concern, subject to all
existing indebtedness, liens and encumbrances, in a single cash purchase, taking
into account the current condition, use and net income of the Facility. If the
Venturers are unable to mutually agree upon the Appraised Value within 30 days
after delivery of the Appraisal Notice, each Venturer shall select a reputable
MAI appraiser to determine the Appraised Value. The two appraisers shall furnish
the Venturers with their written appraisals within 45 days of their selection,
setting forth their determinations of the Appraised Value as of the date of the
Appraisal Notice.
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If the higher of such appraisals does not exceed the lower of such appraisals by
more than 10%, the Appraised Value shall be the average of the two appraisals.
If the higher of such appraisals exceeds the lower of such appraisals by more
than 10%, the two appraisers shall, within 20 days, mutually select a third
reputable MAI appraiser. The third appraiser shall furnish the Venturers with
its written appraisal within 45 days of its selection, and the Appraised Value
shall be the average of the three appraisals. The cost of the appraisals shall
be borne equally by the Defaulting Venturer and the non-defaulting Venturer. The
determination of the Appraised Value in accordance with this Section 11.5 shall
constitute a final and non-appealable arbitration. The closing of the purchase
and sale of the Interest of the Defaulting Venturer pursuant to this Section
11.5 shall occur not later than 90 days after determination of the Appraised
Value, or such other time as may be directed by the New Jersey Gaming
Authorities. At the closing, the Defaulting Venturer shall deliver to the
non-defaulting Venturer good title to its Interest, free and clear of any liens,
claims or other encumbrances.
ARTICLE 12
EVENTS OF DEFAULT
Section 12.1 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" hereunder on the part of the
Venturer to which such event relates (the "Defaulting Venturer") if within 30
days following delivery to the Defaulting Venturer of written notice of such
default by the other Venturer, or within 10 days if the default is due solely to
the non-payment of monies, whichever is applicable, the Defaulting Venturer
fails to pay such monies or, in the case of non-monetary defaults, fails to
commence substantial efforts to cure such default or thereafter fails within a
reasonable time to prosecute to completion with diligence the curing of such
default; provided, however, that the occurrence of any of the events described
in Section 12.1(a) or (b) shall constitute an Event of Default immediately upon
such occurrence without any requirement of notice or the passage of time except
as specifically set forth therein:
(a) the violation by a Venturer of any of the restrictions set forth in
Article 11 of this Agreement upon the right of such Venturer to Transfer its
Interest;
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(b) (i) the institution by a Venturer of proceedings under any federal
or state law for the relief of debtors wherein such Venturer is seeking relief
as debtor, (ii) a general assignment by a Venturer for the benefit of creditors,
(iii) the institution by a Venturer of a proceeding for relief under the Federal
Bankruptcy Code, (iv) the institution against a Venturer of a proceeding under
the Federal Bankruptcy Code, which proceeding is not dismissed, stayed or
discharged within 60 days after the filing thereof or, if stayed, which stay is
thereafter lifted without a contemporaneous discharge or dismissal of such
proceeding, (v) the admission by a Venturer in writing of its inability to pay
its debts as they mature or (vi) the attachment, execution or other judicial
seizure of all or any substantial part of a Venturer's Interest which remains
undismissed or undischarged for a period of 15 days after the levy thereof, if
such attachment, execution or other judicial seizure would reasonably be
expected to have a material adverse effect upon the performance by such Venturer
of its obligations under this Agreement; provided, however, that any such
attachment, execution or seizure shall not constitute an Event of Default if
such Venturer posts a bond sufficient to fully satisfy the amount of such claim
or judgment within 15 days after the levy thereof and the Venturer's Interest is
thereby released from the lien of such attachment (each an "Event of
Bankruptcy");
(c) any material breach by a Venturer of its representations and
warranties pursuant to Article 10 hereof or any material default in performance
of, or failure to comply with, any other agreement, obligation or undertaking of
a Venturer contained in this Agreement;
(d) the Managing Venturer causing or permitting a material event of
default under the Construction Financing or any other third-party indebtedness
incurred by the Joint Venture, irrespective of any cure period;
(e) the issuance of a final and non-appealable order or directive of a
governmental agency of any jurisdiction, including the New Jersey Gaming
Authorities, disqualifying a Venturer from holding any license, approval or
permit required for the business of the Joint Venture, or directing that the
other Venturer or any of its Affiliates terminate its relationship with such
Venturer; and
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(f) the failure or inability of a Venturer, its officers, directors,
key employees or direct or indirect owners or the officers, directors or key
employees of its direct or indirect owners to obtain any license, approval or
permit required for the business of the Joint Venture or any other event
involving a Venturer which results in the Joint Venture or such Venturer
becoming unable to conduct a gaming business.
Section 12.2 Remedies upon Default. Upon the occurrence of any Event of
Default, the non-defaulting Venturer shall have the right, without limitation,
to exercise any and all rights and remedies set forth in this Agreement or as
may be available at law or in equity against the Defaulting Venturer.
ARTICLE 13
DISSOLUTION AND LIQUIDATION
Section 13.1 Events of Dissolution. The Joint Venture shall dissolve
upon the occurrence of any of the following events:
(a) the sale or other disposition (including, without limitation,
taking by eminent domain) of all or substantially all of the assets of the Joint
Venture and the collection of the proceeds thereof;
(b) upon the approval of each of the Venturers;
(c) at the election of the non-defaulting Venturer, the occurrence of
an Event of Default by a Defaulting Venturer;
(d) December 31, 2066;
(e) at the election of Boyd Sub or MR Sub, as the case may be, pursuant
to Section 4.2 hereof;
(f) the final and non-appealable rejection of the Joint Venture's
application for a casino license for the Facility or, after issuance, the final
and non-appealable revocation of such license;
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(g) the death, withdrawal, bankruptcy or dissolution of a Venturer, or
the occurrence of any event that terminates a Venturer's continued interest in
the Joint Venture or causes a Transfer of such interest by operation of law,
unless within 90 days after such event one or more new Venturers is admitted
pursuant to Section 11.2 or 13.2 hereof;
(h) at the election of and without liability to either Venturer, if
title to the Parcel shall for any reason not have been transferred by the City
to an Affiliate of MRI pursuant to the Development Agreement by December 31,
1997;
(i) at the election of MR Sub and without liability to either Venturer,
if at any time MR Sub determines in its sole discretion that the costs
associated with the environmental assessment and remediation of the Property are
unreasonable; or
(j) the occurrence or failure to occur of any other event, as a result
of which it is or becomes unlawful or impossible to carry on the business of the
Joint Venture.
Section 13.2 Venturers' Consent to Continue Business. Upon the
occurrence of an event described in Section 13.1 which may cause the dissolution
of the Joint Venture, or subsequent discovery of the occurrence of such an
event, the Managing Venturer shall immediately notify each of the remaining
Venturers of the occurrence of the event, and each of the remaining Venturers
shall notify the Managing Venturer whether or not it consents to continue the
business of the Joint Venture. If all of the remaining Venturers consent to
continue the Joint Venture's business, and there are at least two remaining
Venturers, the Joint Venture shall not be dissolved and the remaining Venturers
shall continue the Joint Venture's business. If there is only one remaining
Venturer and it consents to continue the Joint Venture's business, such Venturer
shall have the absolute right, notwithstanding any contrary provision of this
Agreement, to Transfer a portion of its Interest to a transferee (who may be an
Affiliate of such Venturer) and to unilaterally admit such transferee as a new
Venturer in the Joint Venture, so that such two Venturers may continue the Joint
Venture's business.
Section 13.3 Dissolution and Liquidation. Upon the occurrence of an
event of dissolution described in Section 13.1, if the business of the Joint
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Venture is not continued by the remaining Venturers pursuant to Section 13.2,
the Joint Venture shall continue solely for the purpose of winding up its
affairs in an orderly manner, liquidating its assets and satisfying the claims
of its creditors and Venturers and no Venturer shall take any action that is
inconsistent with, or not necessary to or appropriate for, winding up the Joint
Venture's business and affairs. To the extent not inconsistent with the
foregoing, all covenants and obligations set forth in this Agreement shall
continue in effect until such time as the Joint Venture's assets have been
distributed pursuant to this Section 13.3 and the Joint Venture has been
liquidated. The Managing Venturer shall be responsible for overseeing the
winding up and liquidation of the Joint Venture, shall take full account of the
Joint Venture's liabilities and assets, shall cause the assets to be liquidated
as promptly as is consistent with obtaining the fair market value thereof and
shall cause the proceeds therefrom, to the extent sufficient therefor, to be
applied and distributed in the following order:
(a) first, to the payment and discharge of all of the Joint Venture's
debts and liabilities to creditors other than Venturers, in the order of
priority provided by law;
(b) second, to the payment and discharge of all of the Joint Venture's
debts and liabilities to Venturers, other than liabilities for distributions to
which Venturers are entitled in their capacities as Venturers pursuant to
Article 6 hereof;
(c) third, to the establishment of any reserves that may reasonably be
deemed necessary by the Managing Venturer to meet any contingent or unforeseen
liabilities or obligations of the Joint Venture not covered by insurance. Any
such reserve shall be deposited in a bank or other financial institution. All or
any portion of such reserve no longer needed for the purpose for which it was
established shall be distributed as promptly as practicable in accordance with
Section 13.3(d) or 13.3(e), as appropriate;
(d) fourth, to the Venturers in accordance with the positive balances
in their respective Capital Accounts; and
(e) fifth, to the Venturers in accordance with their respective
Interests.
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The Managing Venturer shall not receive any compensation for any
services performed pursuant to this Section 13.3 but shall be entitled to
reimbursement for all out-of-pocket costs and expenses reasonably incurred in
connection therewith.
Any gains or losses on the disposition of assets of the Joint Venture
in the process of liquidation shall be credited or charged to the Venturers in
accordance with Article 5 hereof. Any property distributed in kind in the
liquidation shall be valued by agreement of the Venturers and the Capital
Accounts of the Venturers shall be adjusted to reflect the amount of Profits or
Losses that would have been recognized by the Joint Venture had such property
been sold for such value immediately before such distribution.
In the event that any Venturer has a negative balance in its Capital
Account after the liquidation of all of the Joint Venture's assets, such
Venturer shall contribute to the Joint Venture cash in an amount sufficient to
eliminate such negative balance.
Section 13.4 Notice of Dissolution. Upon the occurrence of an event of
dissolution described in Section 13.1, if the business of the Joint Venture is
not continued by the remaining Venturers pursuant to Section 13.2, the Managing
Venturer shall, within 30 days thereafter (i) provide written notice thereof to
each of the Venturers and to all other persons with whom the Joint Venture
regularly conducts business (as determined in the discretion of the Managing
Venturer) and (ii) publish notice of such dissolution in a newspaper of general
circulation in each place in which the Joint Venture conducts business.
ARTICLE 14
MISCELLANEOUS PROVISIONS
Section 14.1 Waiver of Partition and Covenant not to Withdraw. Each
Venturer covenants and agrees that the Venturers have entered into this
Agreement based on the mutual expectation that both Venturers will continue as
Venturers and carry out the duties and obligations undertaken by them hereunder
and, except as otherwise expressly required or permitted by this Agreement or
approved by each of the Venturers, each Venturer covenants and agrees not to (i)
take any action to require partition or to compel any sale
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with respect to its Interest, (ii) take any action to file a certificate of
dissolution or its equivalent with respect to itself, (iii) take any action that
would cause an Event of Bankruptcy of such Venturer, (iv) withdraw or resign, or
attempt to do so, from the Joint Venture, (v) exercise any power under the Act
to dissolve the Joint Venture, (vi) except as permitted herein, transfer all or
any portion of its Interest, (vii) petition for judicial dissolution of the
Joint Venture or (viii) demand a return of its capital contributions. Upon any
breach of this Section 14.1 by any Venturer, the other Venturer (in addition to
all rights and remedies it may have under this Agreement, at law or in equity)
shall be entitled to a decree or order from a court of competent jurisdiction
restraining and enjoining such application, action or proceeding.
Section 14.2 Notices. Unless otherwise provided herein, all notices or
other communications required or permitted by this Agreement shall be in writing
and shall be deemed to have been duly given on the date of delivery if delivered
personally to the party to whom notice is given, on the next business day if
sent by confirmed facsimile transmission or on the date of actual delivery if
sent by overnight commercial courier or by first-class mail, registered or
certified, with postage prepaid and properly addressed to the party at its
address set forth below, or at any other address that any party may from time to
time designate by written notice to the others:
If to MR Sub:
MAC, CORP.
c/o Mirage Resorts, Incorporated
3400 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: General Counsel
Facsimile: (702) 791-5787
If to Boyd Sub:
Grand K, Inc.
2950 South Industrial Road
Las Vegas, NV 89109-1100
Attention: General Counsel
Facsimile: (702) 696-1114
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Section 14.3 Amendments. The provisions of this Agreement may not be
waived, amended or repealed, in whole or in part, except with the written
consent of each of the Venturers.
Section 14.4 Successors and Assigns. This Agreement shall be binding
on, and inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors, transferees and assigns.
Section 14.5 Time. Time is of the essence with respect to this
Agreement.
Section 14.6 Severability. Each provision of this Agreement is intended
to be severable. If any term or provision hereof is held to be illegal or
invalid for any reason, such illegality or invalidity shall not affect the
legality or validity of the remainder of this Agreement.
Section 14.7 Counterparts. This Agreement 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.
Section 14.8 Attorneys' Fees. Should any action or proceeding be
commenced (including without limitation any proceeding in bankruptcy) by either
Venturer to enforce any of the terms of this Agreement or that in any other way
pertains to Joint Venture affairs or this Agreement, the prevailing party in
such action or proceeding (as determined by the presiding official(s)) shall be
entitled to receive from the opposing party or parties the prevailing party's
reasonable costs and attorneys' fees incurred in investigating, prosecuting,
defending or appearing in any such action or proceeding.
Section 14.9 Entire Agreement. This Agreement constitutes the complete
and exclusive statement of the agreement between the Venturers. This Agreement
supersedes all prior negotiations, understandings and agreements of the parties,
written or oral, with respect to the subject matter hereof.
Section 14.10 Further Assurances. Each Venturer agrees to perform any
further acts and execute, acknowledge and deliver any documents or instruments
which may be reasonably necessary or appropriate to carry out the provisions of
this Agreement.
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Section 14.11 Headings. Article and section headings contained in this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or have any legal effect.
Section 14.12 Exhibits. Each of the Exhibits referred to herein and
attached hereto is hereby incorporated by reference and made a part hereof for
all purposes. Unless the context otherwise expressly requires, any reference to
"this Agreement" shall mean and include all such Exhibits.
Section 14.13 Approvals and Consents. Whenever the approval or consent
of a Venturer is required by this Agreement, such Venturer shall have the right
to give or withhold such approval or consent in its sole discretion, unless
otherwise expressly provided herein.
Section 14.14 Estoppels. Each Venturer shall, upon the written request
of the other Venturer, promptly execute and deliver to the other Venturer a
statement certifying that this Agreement is unmodified and in full force and
effect (or, if modified, the nature of the modification) and whether or not
there are, to such Venturer's knowledge, any uncured defaults on the part of the
other Venturer, specifying such defaults if any exist. Any such statement may be
relied upon by third parties.
Section 14.15 Compliance with Laws and Contractual Obligations. Each
Venturer shall at all times act in accordance with all applicable laws and
regulations and shall indemnify and hold harmless the other Venturer from and
against any and all claims, losses, damages and liabilities, including
reasonable attorneys' fees which shall be reimbursed as incurred, arising out of
or relating to any breach of such laws or regulations. The Joint Venture will at
all times comply with all legal and contractual obligations and requirements
applicable to the acquisition or development of the Property and the operation
of the Facility, including without limitation those relating to the employment
of economically disadvantaged persons and City residents, contained in the
Development Agreement, and with all applicable federal, state and local
statutes, ordinances and regulations.
Section 14.16 Remedies Cumulative. Each right, power and remedy
provided for in this Agreement or now or hereafter existing at law, in equity,
by statute or otherwise shall be cumulative and concurrent and shall be in
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<PAGE> 49
addition to every other right, power or remedy provided for in this Agreement or
now or hereafter existing at law, in equity, by statute or otherwise, and the
exercise by any party of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise by such party of any or
all of such other rights, powers or remedies.
Section 14.17 Waiver. No consent or waiver, express or implied, by any
party to or of any breach or default by any other party in the performance of
obligations under this Agreement shall be deemed or construed to be a consent or
waiver to or of any other breach or default in the performance by such party.
Failure on the part of any party to complain of any act or failure to act by any
other party or to declare any other party in default, irrespective of how long
such failure continues, shall not constitute a waiver by any party of its rights
under this Agreement.
Section 14.18 Gaming Licensing Matters. The Venturers shall provide all
reasonable cooperation with any investigation by any gaming authority having
jurisdiction over any Venturer or any Affiliate of any Venturer. Each Venturer
shall cause any transferee of any portion of its Interest likewise to so
cooperate. Each Venturer agrees that it shall not take any action or omit to
take any action that would have the effect of adversely affecting any gaming
license, approval or permit held by any Venturer. Without limiting the
generality of the foregoing, Boyd and its Affiliates shall, within 60 days from
the date of this Agreement, apply for, and thereafter diligently pursue, a
statement of compliance from the New Jersey Casino Control Commission. MR Sub
and its Affiliates shall cooperate with Boyd and its Affiliates, to the extent
reasonably necessary, in connection with any review of this Agreement by the New
Jersey Gaming Authorities, and the Venturers shall execute and deliver any
further documents or instruments, including amendments to this Agreement, as the
New Jersey Gaming Authorities may reasonably require and which do not alter the
terms of this Agreement in a manner unfavorable to either of the Venturers in
its sole discretion. Each Venturer acknowledges that monetary damages alone
would not be adequate compensation for a breach of this Section 14.18 and the
Venturers agree that a non-breaching Venturer shall be entitled to seek a decree
or order from a court of competent jurisdiction for specific performance to
restrain a breach or threatened breach of this Section 14.18 or to require
compliance by a Venturer with this Section 14.18.
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Section 14.19 Liquidated Damages. The provisions of Section 3.5 hereof,
which in certain circumstances could result in the reduction of a Venturer's
Interest, constitute an agreement by the Venturers upon a liquidated amount as
to the damages sustained by the other Venturer upon the failure of a Venturer to
contribute to the capital of the Joint Venture. Each Venturer acknowledges that
the amount of damages sustained by the Venturers in the event of such a failure
is not readily ascertainable and that the provisions of Section 3.5 hereof
establishing such liquidated amount are reasonable under the circumstances
existing at the time of the execution of this Agreement and, to the extent
permitted by law, each Venturer waives any and all rights of any nature
whatsoever to challenge the reasonableness of such provisions as of the date of
this Agreement. In the event that the non-defaulting Venturer contributes the
full amount of capital that the defaulting Venturer shall have failed to
contribute, the reduction in the defaulting Venturer's Interest shall be the
sole measure of damages resulting from the occurrence of such a failure. If the
non-defaulting Venturer does not contribute the full amount of the deficit, the
Joint Venture and the non-defaulting Venturer shall have all other rights and
remedies that may be available under this Agreement, at law or in equity against
the defaulting Venturer with respect to the portion of the deficit not
contributed by the non-defaulting Venturer.
Section 14.20 Joint Access. The Master Plan shall include a public
connection or transportation link between the Facility and MRI's adjacent
facility.
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<PAGE> 51
IN WITNESS WHEREOF, the parties have executed this Joint Venture
Agreement as of the date first above written.
MAC, CORP., a New Jersey corporation
By: /s/ BRUCE A. LEVIN
------------------------------------------
Bruce A. Levin
Vice President and Assistant Secretary
Grand K, Inc., a Nevada corporation
By: /s/ ELLIS LANDAU
------------------------------------------
Ellis Landau
Vice President and Treasurer
Boyd Gaming Corporation hereby agrees to all of
its obligations specified in the foregoing
Agreement.
Boyd Gaming Corporation, a Nevada corporation
By: /s/ ELLIS LANDAU
-----------------------------------------
Ellis Landau
Senior Vice President and Treasurer
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-8 (No. 33-85022) pertaining to the Boyd Gaming Corporation 1993 Flexible
Stock Incentive Plan and the Boyd Gaming Corporation Directors' Non-Qualified
Stock Option Plan of our report dated March 15, 1996, except for footnote 11
for which the date is May 23, 1996, relating to the consolidated financial
statements of Par-A-Dice Gaming Corporation as of December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, included
in the Current Report of Boyd Gaming on Form 8-K dated June 7, 1996.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
June 7, 1996
<PAGE> 1
EXHIBIT 99.1
BOYD GAMING AND MIRAGE RESORTS ANNOUNCE
PLANS FOR NEW ATLANTIC CITY RESORT
LAS VEGAS, NEVADA, MAY 29, 1996 - Mirage Resorts, Incorporated and Boyd Gaming
Corporation announced today that they have entered into a joint venture
agreement to develop and operate a major casino hotel in the Marina district of
Atlantic City.
The agreement calls for the hotel to have at least 1,000 guest rooms. Subject to
design and cost analysis, the project could be significantly larger. Tentatively
named "The Stardust - Atlantic City", it will be adjacent and connected to
Mirage's planned wholly-owned resort. Development of both projects is contingent
on approval and funding by government authorities of highway improvements
necessary to accommodate the additional traffic that would be generated to and
from the Marina district.
The joint venture resort is expected to cost approximately $500 million and
employ at least 4,000 persons. Development of the project is conditioned upon
several factors, including receipt of various governmental approvals and
licenses. Construction is anticipated to begin after completion of the
remediation of the property and will take approximately 24 months to complete.
"We are very excited about joining Mirage Resorts in what we expect to be one of
the premier gaming resort complexes anywhere," said William S. Boyd, Chairman
and Chief Executive Officer of Boyd Gaming Corporation. "We are looking forward
to bringing our successful gaming and entertainment product to the East Coast
market and joining the
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other excellent operators in Atlantic City who are raising the city's resort and
entertainment experience to a new level."
"Both of our companies have enjoyed a long association as neighbors in Nevada
and have recently collaborated on the creation of the highly successful Fremont
Street Experience in downtown Las Vegas and The Strip Beautification Project,"
said Stephen A. Wynn, Chairman and Chief Executive Officer of Mirage Resorts,
Incorporated. "We're delighted to have the creative energies of Bill Boyd and
his colleagues at Boyd Gaming joining us in this ambitious transformation of
Atlantic City."
Mirage Resorts owns The Mirage, Treasure Island and two Golden Nugget casino
resorts in Southern Nevada. In a similar joint venture with Circus Circus,
Mirage owns 50% of the Monte Carlo resort in Las Vegas, scheduled to open in
three weeks. It is also building a 3,000 guest room luxury resort, Bellagio, in
Las Vegas and expects to begin construction shortly on a 1,800 guest room resort
in Biloxi, Mississippi.
In June 1995, Mirage was found qualified to hold a casino license by the New
Jersey Casino Control Commission. In May 1996, Mirage entered into a development
agreement with the City of Atlantic City for the development of the city's 150
acre "H-tract" in the Marina district. Both Mirage's wholly-owned resort and the
joint venture Stardust project are planned for portions of the H-tract.
Boyd Gaming Corporation is a large, diversified owner and operator of casino
entertainment properties with operations in four states. The company has six
properties in
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Las Vegas: the Stardust Resort and Casino on the Las Vegas Strip; Sam's Town,
the Eldorado and Jokers Wild Casinos on the Boulder Strip; and the California
and Fremont Hotel and Casinos, both in downtown Las Vegas. The Company also owns
and operates Sam's Town Tunica in Tunica County, Mississippi; owns and operates
Sam's Town in Kansas City, Missouri; manages the Silver Star Hotel and Casino,
near Philadelphia, Mississippi; and manages and partly owns the Treasure Chest
Casino, a riverboat casino in Kenner, Louisiana. The company has entered into a
contract to acquire the Par-a-Dice casino in East Peoria, Illinois and is
renovating and expanding Main Street Station Hotel and Casino in Las Vegas for a
late 1996 opening. Boyd anticipates filing for a New Jersey casino license in
the near future.
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EXHIBIT 99.2
BOYD GAMING ANNOUNCES
FIRST NORTHERN NEVADA HOTEL/CASINO DEVELOPMENT
LAS VEGAS, NV -- JUNE 7, 1996 -- Boyd Gaming Corporation (BYD) today announced
plans for a $92 million casino, hotel and entertainment complex in Reno,
Nevada. The Company is in the process of acquiring a 100-acre parcel in the
growing southern part of the greater Reno area near a newly opened freeway
interchange and expects the land acquisition to be completed this summer.
Plans for the project, which the Company expects to operate under its
popular Sam's Town name, include a 33,000 square-foot casino with 1,200 slots
and 36 table games; a state-of-the-art sports book; a 211-room hotel; over 800
seats throughout five restaurants; a 15,000 square-foot indoor events center;
and a 5,000 seat outdoor arena. Future phases are expected to include
additional hotel rooms and an RV park.
"We have considered the Reno market for a long time and believe that,
in light of the growth in the southern part of the Reno area, a Sam's Town
facility at that location will make an exciting entertainment option," said
William S. Boyd, chairman and chief executive officer of Boyd Gaming.
Boyd Gaming expects to begin site work shortly after the land
acquisition is completed, with construction of the facilities to begin in the
spring of 1997. The Company plans to open Sam's Town Reno in the spring of 1998.
Boyd Gaming Corporation is a large, diversified owner and operator of
casino entertainment properties with operations in four states. The Company
owns and operates six properties in three distinct markets in Las Vegas: the
Stardust Resort and Casino on the Las Vegas Strip; Sam's Town Las Vegas, the
Eldorado Casino and Jokers Wild
<PAGE> 2
Casino on the Boulder Strip; and the California Hotel and Casino and the
Fremont Hotel and Casino, both in downtown Las Vegas. The Company also owns and
operates Sam's Town Tunica in Tunica County, Mississippi; owns and operates
Sam's Town Casino in Kansas City, Missouri; manages Silver Star Hotel and
Casino, a casino hotel property near Philadelphia, Mississippi; and manages and
partly owns Treasure Chest Casino, a riverboat casino in Kenner, Louisiana.
Additionally, the Company has entered into a contract to acquire the Par-A-Dice
Casino in East Peoria, Illinois and is renovating and expanding Main Street
Station Hotel & Casino in Las Vegas for a late 1996 opening. Boyd Gaming has
also announced a joint venture agreement with Mirage Resorts, Inc. to develop
and operate a major casino hotel in the Marina district of Atlantic City.
