<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1995
REGISTRATION NO. 33-61571
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
BALLY ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2512405
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
8700 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631, (312) 399-1300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LEE S. HILLMAN
8700 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631, (312) 399-1300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
<TABLE>
<S> <C>
MARK D. GERSTEIN PHYLLIS G. KORFF
LAWRENCE D. LEVIN STACY J. KANTER
KATTEN MUCHIN & ZAVIS SKADDEN, ARPS, SLATE, MEAGHER & FLOM
525 West Monroe Street, Suite 1600 919 Third Avenue
Chicago, Illinois 60661 New York, New York 10022
(312) 902-5200 (212) 735-3000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
------------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
% PRIDES, Convertible Preferred Stock, par $170,000,000 $58,621(2)
value $1.00 per share........................................................
----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.66 2/3 per share, reserved (3) (3)
for issuance upon conversion or redemption of % PRIDES,
Convertible Preferred Stock..................................................
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Fees of $39,655 were previously paid, and an additional $18,966 has been
paid in connection with this Amendment.
(3) An indeterminate number of and dollar amount of shares of Common Stock,
issuable upon, or in connection with, the conversion or redemption of the
% PRIDES, including shares of Common Stock issuable in respect of
accrued and unpaid dividends and additional shares of Common Stock that may
become issuable as a consequence of adjustments to the Common Equivalent
Rate, the Optional Conversion Rate and the Minimum Redemption Rate (the
respective rates at which a share of % PRIDES is mandatorily or
voluntarily converted into or redeemed with shares of Common Stock).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 14, 1995
PROSPECTUS
10,000,000 SHARES
[BALLY LOGO]
BALLY ENTERTAINMENT CORPORATION
% PRIDES(SM)
CONVERTIBLE PREFERRED STOCK
------------------------
The shares offered hereby are 10,000,000 shares of Preferred Redeemable
Increased Dividend Equity Securities(SM), % PRIDES(SM), Convertible Preferred
Stock, par value $1.00 per share ("PRIDES"), of Bally Entertainment Corporation
(the "Company").
The annual dividend payable with respect to each share of PRIDES is
$ . Dividends will be cumulative from the date of issuance and will be
payable quarterly in arrears on each , , and ,
commencing , 1995. The liquidation preference applicable to each share
of PRIDES is equal to the sum of (i) the per share price to the public shown
below and (ii) the amount of accrued and unpaid dividends thereon.
On , 1999 (the "Mandatory Conversion Date"), unless either
previously redeemed or converted at the option of the holder, each of the
outstanding shares of PRIDES will mandatorily convert into (i) one share of
common stock, par value $.66 2/3 per share, of the Company (the "Common Stock"),
subject to adjustment in certain events, and (ii) the right to receive an amount
in cash equal to all accrued and unpaid dividends thereon.
Shares of PRIDES are not redeemable prior to , 1998. At any time and
from time to time on or after , 1998 until immediately prior to the
Mandatory Conversion Date, the Company may redeem any or all of the outstanding
shares of PRIDES. Upon any such redemption, each holder will receive, in
exchange for each share of PRIDES, the number of shares of Common Stock equal to
(A) the sum of (i) $ , declining after , 1998 as set forth herein
to $ until the Mandatory Conversion Date and (ii) all accrued and unpaid
dividends thereon (the "Call Price") divided by (B) the Current Market Price (as
defined herein) on the applicable date of determination, but in no event less
than of a share of Common Stock, subject to adjustment in certain
events.
At any time prior to the Mandatory Conversion Date, unless previously
redeemed, each of the shares of PRIDES is convertible at the option of the
holder thereof into of a share of Common Stock (equivalent to a
conversion price of $ per share of Common Stock (the "Conversion
Price")), subject to adjustment in certain events. The number of shares of
Common Stock a holder will receive upon redemption by the Company, and the value
of the shares received upon conversion by the holder, will vary depending on the
market price of the Common Stock from time to time, all as set forth herein.
Dividends will accrue on the shares of PRIDES notwithstanding that dividends
are not currently paid on the Common Stock. The opportunity for equity
appreciation afforded by an investment in the shares of PRIDES is less than that
afforded by an investment in the Common Stock because the Conversion Price is
higher than the per share price to the public of the shares of PRIDES and the
Company may, at its option, redeem the shares of PRIDES at any time on or after
, 1998 and prior to the Mandatory Conversion Date, and may be expected
to do so if, among other circumstances, the Current Market Price of the Common
Stock exceeds the Call Price. In such event, a holder of a share of PRIDES will
receive less than one share of Common Stock, but no less than of a share
of Common Stock, subject to adjustment in certain events. The per share value of
the Common Stock received by holders of shares of PRIDES may be more or less
than the per share amount paid for the shares of PRIDES offered hereby, due to
market fluctuations in the price of the Common Stock. As a result of these
provisions, holders of shares of PRIDES would be expected not to realize any
equity appreciation if, at the time of conversion or redemption, the Current
Market Price of the Common Stock is below the Conversion Price, and less than
all of such appreciation if, at the time of conversion or redemption, the
Current Market Price of the Common Stock is above the Conversion Price. Holders
of shares of PRIDES will realize the entire decline in equity value if, at the
time of conversion or redemption, the market price of the Common Stock is less
than the price paid for a share of PRIDES. For a detailed description of the
terms of the shares of PRIDES, see "Description of PRIDES."
SEE "RISK FACTORS," COMMENCING ON PAGE 11 OF THIS PROSPECTUS, FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN PRIDES.
Application has been made to list the shares of PRIDES on the New York Stock
Exchange. On September 13, 1995, the closing sale price of the Common Stock on
the New York Stock Exchange was $12 per share.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE SUBJECT TO THE NEVADA GAMING CONTROL ACT AND
THE REGULATIONS OF THE NEVADA GAMING COMMISSION. NEITHER THE NEVADA STATE
GAMING CONTROL BOARD NOR THE NEVADA GAMING COMMISSION HAS PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE
INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NEITHER THE NEW JERSEY CASINO CONTROL COMMISSION NOR THE NEW JERSEY DIVISION OF
GAMING ENFORCEMENT HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of PRIDES.................................. $ $ $
---------------------------------------------------------------------------------------------------------------------------
Total(4)............................................. $ $ $
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued dividends, if any, from the date of initial issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $700,000.
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 1,500,000 shares of PRIDES to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ ,
and $ , respectively. See "Underwriting."
------------------------
PRIDES are offered by the Underwriters, subject to prior sale, when, as and
if issued to and accepted by them, and subject to approval of certain legal
matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of PRIDES
offered hereby will be made in New York, New York, on or about , 1995.
SMService mark of Merrill Lynch & Co., Inc.
------------------------
MERRILL LYNCH & CO.
OPPENHEIMER & CO., INC.
DEAN WITTER REYNOLDS INC.
JEFFERIES & COMPANY, INC.
------------------------
The date of this Prospectus is , 1995.
<PAGE> 3
<TABLE>
<S><C>
------------------------------------------------------------------ ------------------------------------------------------------
[PHOTOGRAPH] [PHOTOGRAPH]
------------------------------------------------------------------ ------------------------------------------------------------
Bally's Park Place is the largest four-star hotel in New Jersey The Grand, known for its high-level of service, has more than
with approximately 80,100 square feet of gaming space. 500 oceanview guest rooms and approximately 60,000 square
feet of space.
------------------------------------------------------------------ --------------------------------------------------------------
[PHOTOGRAPH] [PHOTOGRAPH]
------------------------------------------------------------------ --------------------------------------------------------------
In addition to its 238-room hotel, Bally's Saloon*Gambling Bally's Casino*Lakeshore Resort features a two-level, 30,000
Hall*Hotel will feature a 40,000 square-foot dockside casino. square-foot riverboat casino located in New Orleans on Lake
Pontchartrain.
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
PRIDES AND THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements appearing elsewhere in this Prospectus. Unless otherwise indicated,
all data presented herein assume that the Underwriters' over-allotment option is
not exercised. References herein to the "Company" and "Bally Entertainment"
refer to Bally Entertainment Corporation and its subsidiaries, unless otherwise
stated or indicated by context.
THE COMPANY
Bally Entertainment Corporation is one of the world's foremost operators of
casinos and casino hotel resorts. The Company's principal casino operations are
Bally's Park Place Casino Hotel & Tower ("Bally's Park Place") and The Grand, a
Bally's Casino Resort ("The Grand") in Atlantic City, New Jersey; Bally's Las
Vegas casino hotel resort ("Bally's Las Vegas") in Las Vegas, Nevada; and
Bally's Casino*Lakeshore Resort ("Bally's New Orleans"), the Company's newly
opened riverboat casino on Lake Pontchartrain in New Orleans, Louisiana. In
addition, the Company has relocated its Mississippi floating dockside casino
("Bally's Mississippi") to a site in Robinsonville, Mississippi, where it will
be the casino closest to Memphis, Tennessee when it reopens, currently
anticipated to be in November 1995. The Company also operates, through its
Bally's Health & Tennis Corporation subsidiary ("Bally's Health & Tennis"),
Bally Total Fitness(TM), the nation's largest chain of fitness centers. The
Company intends to complete the spin off of this business to its stockholders on
or about December 31, 1995. See "Risk Factors -- Status and Effects of the
Spin-off."
OVERVIEW
The Company's business strategy is to expand and enhance its casino hotel
resort operations in Atlantic City and Las Vegas, and to selectively develop
opportunities in new and emerging gaming markets. The Company's improvement and
expansion projects in its principal markets include:
- EXPANSION OF BALLY'S PARK PLACE -- The Company plans to construct a
highly-themed, western-style casino and entertainment complex on
Boardwalk property adjacent to Bally's Park Place at the foot of the new
Atlantic City convention corridor. The complex is currently planned to
include approximately 50,000 square feet of casino space and cost
approximately $80 million, with groundbreaking expected in early 1996.
- EXPANSIONS OF THE GRAND -- In April 1995, the Company increased gaming
space at The Grand to a total of approximately 60,000 square feet,
increasing the number of slot machines to 1,835 and adding areas for
poker, keno and simulcasting. The Grand is currently constructing a
1,500-seat arena for headline entertainment, sports events and production
shows, with completion expected in the fourth quarter of 1995. In
addition, The Grand has filed plans with local authorities seeking
approval for construction of a 300-room hotel tower including meeting
rooms, a restaurant and other related amenities, all on land owned by the
Company adjacent to The Grand.
- IMPROVEMENTS AT BALLY'S LAS VEGAS -- During 1994, Bally's Las Vegas
completed improvements to its frontage area along the Strip, including
the addition of moving walkways that transport patrons to and from the
main entrance through gardens and water displays. In June 1995, the
Company and MGM Grand jointly opened a new commercial
transportation-grade monorail system, connecting the two major "Four
Corners" on the Strip through their respective casino hotel resort
properties. The monorail has been bringing an average of nearly 20,000
passengers each day through Bally's Las Vegas' casino and retail shopping
mall. The retail shopping mall has been redesigned to include gaming
space, a food court and new retailers. Renovation of the 800 hotel rooms
in the hotel's south tower was completed in August 1995, complementing
the 1993 renovation of the approximately 2,000 hotel rooms in the main
tower. In addition, a 7,500 square-foot expansion of the main casino
floor is expected to be completed later this year.
- THE PARIS CASINO-RESORT -- In May 1995, the Company announced its
intention to develop a separate casino hotel resort (the "Paris
Casino-Resort") in Las Vegas on approximately 24 acres of land situated
on the Strip adjacent to Bally's Las Vegas. The property is planned to
re-create Paris, France and has been designed by Joel Bergman, the
architect for the Mirage and Treasure Island resorts. The Company expects
to finalize development plans for the Paris Casino-Resort by the end of
1995. The cost of the project, exclusive of the value of land already
owned by Bally's Las Vegas, is currently estimated to be $250 million.
3
<PAGE> 5
The Company has developed and continues to explore opportunities for
expansion into jurisdictions where gaming is presently authorized or may become
authorized. The Company commenced operation of its first riverboat casino at
South Shore Harbor on Lake Pontchartrain in New Orleans on July 7, 1995. The
Company owns an approximate 50% interest in Belle of Orleans, L.L.C., the entity
that owns Bally's New Orleans, and receives a fee based upon operating results
under a long-term management agreement. Bally's Mississippi will be the casino
closest to Memphis, Tennessee when it reopens, currently anticipated to be in
November 1995. The Company owns a 58% interest in the entity that owns Bally's
Mississippi, and manages the property under a fee arrangement. In June 1995, the
Company entered into agreements with a third party to finance the acquisition of
and manage two harness racing facilities in Maryland: Rosecroft Raceway and
Delmarva Downs Raceway.
The Company continues to explore opportunities in other jurisdictions
including, among others, Indiana, Illinois, Florida, Pennsylvania and Ontario,
Canada, and Native American lands in various locations. New gaming projects may
be wholly owned and operated by the Company or may be developed, owned and/or
operated through joint ventures involving the Company. See "Business -- Casinos
-- Other."
As the Company adds to the number of casino and hotel properties it
operates, the Company's excellent reputation and name recognition among casino
patrons provides extensive cross-marketing opportunities among its various
properties. The Company utilizes sophisticated player tracking and marketing
programs which take advantage of these cross-marketing capabilities.
Certain information regarding the Company's existing properties, as of June
30, 1995, follows:
<TABLE>
<CAPTION>
GAMING AREA SLOT TABLE
PROPERTY (SQ. FT.) MACHINES GAMES ROOMS
---------------------------------------------- ----------- -------- ----- -----
<S> <C> <C> <C> <C>
Bally's Park Place............................ 80,059 2,237 119 1,255
The Grand..................................... 59,641 1,835 104 508
Bally's Las Vegas............................. 54,603 1,602 80 2,812
Bally's New Orleans........................... 30,000 1,213 46 --
Bally's Mississippi........................... 40,000 1,185 53 238
------- ----- --- -----
Total....................................... 264,303 8,072 402 4,813
======= ===== === =====
</TABLE>
BALLY'S PARK PLACE
Bally's Park Place is one of the largest casino hotel resorts in Atlantic
City, with approximately 80,100 square feet of gaming space and more than 1,250
guest rooms (including 98 suites), and is currently the largest four-star hotel
in New Jersey. Bally's Park Place has ranked as one of the top Atlantic City
casinos in operating income as a percentage of revenues ("Operating Margin")
since it commenced operations in 1979, and has been first among Atlantic City
casinos in Operating Margin for the past two years (based on New Jersey Casino
Control Commission filings). The casino hotel resort is situated on an
eight-acre site with ocean frontage at the well-known intersection of Park Place
and the Boardwalk. Bally's Park Place's strategic location on the Boardwalk
contributes to its success in attracting significant walk-in casino business,
including strong crossover business from competing casinos located nearby.
THE GRAND
The Grand is located at the intersection of Boston and Pacific Avenues at
the southern end of the Boardwalk, in proximity to one of the major highways
that leads into Atlantic City. This location enables destination-oriented
patrons visiting The Grand, primarily customers who arrive by automobile or bus,
to avoid much of the traffic congestion experienced in the midtown section of
Atlantic City. The Grand capitalizes on its first-class facility, and emphasizes
personalized service for high-end patrons. In addition to providing a full
selection of casino games in approximately 60,000 square feet of gaming space,
The Grand offers its guests more than 500 oceanview guest rooms, including
approximately 200 suites, a variety of specialty restaurants, headline
entertainment and other amenities.
4
<PAGE> 6
BALLY'S LAS VEGAS
Bally's Las Vegas is located on an approximately 30-acre site on the Las
Vegas "Strip" at the well-known "Four Corners" intersection of Las Vegas
Boulevard South and Flamingo Road. Bally's Las Vegas is centrally located and
within walking distance of many of the other major casino hotels on the Strip,
which management believes enhances its visibility and provides it with an
advantage in attracting hotel guests and convention business. Bally's Las Vegas
has approximately 55,000 square feet of gaming space, more than 2,800 guest
rooms (including 237 suites) and one of the largest casino hotel convention
facilities in Las Vegas with approximately 175,000 square feet of meeting space.
Convention business is a major marketing target for Bally's Las Vegas, as it
provides the resort with mid-week occupancy and generally higher than standard
mid-week rates. Management believes that Bally's Las Vegas' convention meeting
space and substantial convention amenities and services make it one of the most
desirable convention forums in Las Vegas. In addition to its focus on convention
business, Bally's Las Vegas markets to the middle to upper-middle tier of the
gaming market. Management believes that the spacious configuration of Bally's
Las Vegas' casino and the size of its standard hotel rooms, which are among the
largest offered on the Strip, contribute to its upscale image and help to
attract these targeted customers.
The Company owns approximately 80% of the outstanding common shares of
Bally's Grand, Inc., the publicly traded company that owns and operates Bally's
Las Vegas.
BALLY'S NEW ORLEANS
Bally's New Orleans' riverboat operates out of South Shore Harbor on Lake
Pontchartrain in New Orleans, which is approximately eight miles from the French
Quarter. The riverboat accommodates up to 2,500 passengers and features a 30,000
square-foot casino (the maximum size currently allowed under Louisiana law) on
the two upper decks of the vessel. Onshore facilities include a 34,000
square-foot terminal building that houses a buffet restaurant, cocktail lounge
and waiting area.
BALLY'S MISSISSIPPI
Bally's Mississippi's dockside casino has been relocated to Robinsonville,
Mississippi, a site which, upon opening, will be the casino closest to Memphis,
Tennessee. The Company expects to reopen its casino at the Robinsonville site in
November 1995. In addition to the 40,000 square-foot casino, Bally's
Saloon*Gambling Hall*Hotel features a 238-room hotel (already in operation) and
is expected to include a restaurant and an entertainment lounge.
BALLY'S HEALTH & TENNIS
Bally's Health & Tennis, a wholly owned subsidiary of the Company, operates
the nation's largest chain of fitness centers, with approximately 330 facilities
located primarily in major metropolitan markets. On June 28, 1994, the Company's
Board of Directors (the "Board") approved a plan to spin off Bally's Health &
Tennis (the "Spin-off"). Since announcing that decision, the Company has
reflected Bally's Health & Tennis as a discontinued operation in the Company's
Consolidated Financial Statements. The Spin-off is expected to be accomplished
by a stock dividend to the Company's stockholders of all shares of Bally's
Health & Tennis owned by the Company and is expected to be completed on or about
December 31, 1995. See "Risk Factors -- Status and Effects of the Spin-off."
The Company is organized under the laws of the State of Delaware. Its
executive offices are located at 8700 West Bryn Mawr Avenue, Chicago, Illinois
60631, and its telephone number is (312) 399-1300.
RISK FACTORS
At June 30, 1995, Bally Entertainment Corporation had long-term debt of
approximately $95.4 million and its subsidiaries had aggregate long-term debt of
approximately $1,200.6 million. See the note entitled "Long-term debt" in the
Consolidated Financial Statements. See "Risk Factors," commencing on page 11 of
this Prospectus, for a discussion of the Company's consolidated leverage and
certain other matters that should be considered in evaluating this Offering.
5
<PAGE> 7
THE OFFERING
Securities...................... PRIDES are shares of convertible preferred
stock and rank prior to the Common Stock as
to payment of dividends and distribution of
assets upon liquidation. The shares of PRIDES
mandatorily convert into shares of Common
Stock on , 1999 (the "Mandatory
Conversion Date"), and the Company has the
option to redeem the shares of PRIDES, in
whole or in part, at any time and from time
to time on or after , 1998 and
prior to the Mandatory Conversion Date at the
Call Price (as defined herein), payable in
shares of Common Stock. In addition,
unredeemed shares of PRIDES are convertible
into shares of Common Stock at the option of
the holder at any time prior to the Mandatory
Conversion Date as set forth below.
Dividends....................... Holders of shares of PRIDES will be entitled
to receive annual cumulative dividends at a
rate per annum of % of the stated
liquidation preference (equivalent to a rate
of $ per annum for each share of
PRIDES), from the date of initial issuance,
payable quarterly in arrears on each
, , and
, or, if any such date is not a
business day, on the next succeeding business
day, commencing , 1995. See
"Description of PRIDES -- Dividends."
Mandatory Conversion............ On the Mandatory Conversion Date, unless
previously redeemed or converted, each
outstanding share of PRIDES will mandatorily
convert into (i) one share of Common Stock,
subject to adjustment in certain events, and
(ii) the right to receive cash in an amount
equal to all accrued and unpaid dividends
thereon (other than previously declared
dividends payable to a holder of record as of
a prior date). See "Description of PRIDES --
Mandatory Conversion." The value of the
Common Stock that may be received by holders
of shares of PRIDES upon their mandatory
conversion may be more or less than the
amount paid for the shares of PRIDES offered
hereby due to market fluctuations in the
price of the Common Stock.
Optional Redemption............. Shares of PRIDES are not redeemable prior to
, 1998. At any time and from time
to time on or after , 1998, and
ending immediately prior to the Mandatory
Conversion Date, the Company may redeem any
or all of the outstanding shares of PRIDES.
Upon any such redemption, each holder will
receive, in exchange for each share of
PRIDES, the number of shares of Common Stock
equal to (A) the sum of (i) $ ,
declining after , 1998, as set
forth herein to $ until the
Mandatory Conversion Date and (ii) all
accrued and unpaid dividends thereon (other
than previously declared dividends payable to
a holder of record as of a prior date) (the
"Call Price") divided by (B) the Current
Market Price (as defined herein) on the
applicable date of determination, but in no
event less than of a share of
Common Stock, subject to adjustment in
certain events. See "Description of PRIDES --
Optional Redemption." The number of shares of
Common Stock to be delivered in payment of
the applicable Call Price will be determined
on the basis of the
6
<PAGE> 8
Current Market Price of the Common Stock
prior to the announcement of the redemption,
and the market price of the Common Stock may
vary between the date of such determination
and the subsequent delivery of such shares.
Conversion at the Option of the
Holder.......................... At any time prior to the Mandatory Conversion
Date, unless previously redeemed, each share
of PRIDES is convertible at the option of the
holder thereof into of a share of
Common Stock, subject to adjustment in
certain events (the "Optional Conversion
Rate"), equivalent to a conversion price of
$ per share of Common Stock (the
"Conversion Price"), subject to adjustment as
described below. The value of the shares
received upon conversion by a holder will
vary depending on the market price of the
Common Stock from time to time, and
adjustment in certain events, all as set
forth herein. The right of holders to convert
shares of PRIDES called for redemption will
terminate immediately prior to the close of
business on the redemption date. See
"Description of PRIDES -- Conversion at the
Option of the Holder."
Enhanced Dividend Yield; Less
Equity Appreciation Than Common
Stock......................... Dividends will accrue on the shares of PRIDES
notwithstanding that dividends are not
currently paid on the Common Stock. The
opportunity for equity appreciation afforded
by an investment in the shares of PRIDES is
less than that afforded by an investment in
the Common Stock because the Conversion Price
is higher than the per share price to the
public of the shares of PRIDES, and the
Company may, at its option, redeem the shares
of PRIDES at any time on or after ,
1998, and prior to the Mandatory Conversion
Date, and may be expected to do so if, among
other circumstances, the Current Market Price
of the Common Stock after , 1998
exceeds the Call Price. In such event, a
holder of a share of PRIDES will receive less
than one share of Common Stock, but no less
than of a share of Common Stock,
subject to adjustment in certain events. A
holder may also surrender for conversion any
shares of PRIDES called for redemption up to
the close of business on the redemption date,
and a holder that so elects to convert will
receive of a share of Common Stock,
subject to adjustment in certain events, per
share of PRIDES. The per share value of
Common Stock received by holders of shares of
PRIDES may be more or less than the per share
amount paid for the shares of PRIDES offered
hereby due to market fluctuations in the
price of the Common Stock. See "Description
of PRIDES -- Enhanced Dividend Yield; Less
Equity Appreciation than Common Stock."
Voting Rights................... The holders of shares of PRIDES will have the
right with the holders of Common Stock to
vote in the election of Directors and upon
each other matter coming before any meeting
of the holders of Common Stock on the basis
of 4/5 of a vote for each share of PRIDES. On
such matters, the holders of shares of PRIDES
and the holders of Common Stock will vote
together as one class except as otherwise
provided by law or the Com-
7
<PAGE> 9
pany's Restated Certificate of Incorporation.
In addition, (i) whenever dividends on the
shares of PRIDES or any other series of the
Company's preferred stock (all series of
which, including the shares of PRIDES,
hereinafter are called the "Preferred Stock")
with like voting rights are in arrears and
unpaid for six quarterly dividend periods,
and in certain other circumstances, the
holder of the shares of PRIDES (voting
separately as a class with holders of all
other series of outstanding Preferred Stock
upon which like voting rights have been
conferred and are exercisable) will be
entitled to vote, on the basis of one vote
for each share of PRIDES, for the election of
two Directors of the Company, such Directors
to be in addition to the number of Directors
constituting the Board of Directors
immediately prior to the accrual of such
right and (ii) the holders of the shares of
PRIDES will have voting rights with respect
to certain alterations of the Company's
Restated Certificate of Incorporation and
certain other matters, voting on the same
basis or separately as a series.
Liquidation Preference and
Ranking......................... The shares of PRIDES will rank senior to the
Common Stock, but junior to the Company's
Series D Convertible Exchangeable Preferred
Stock (the "Series D Preferred Stock"), as to
payment of dividends and distribution of
assets upon liquidation. The liquidation
preference of each share of PRIDES is an
amount equal to the sum of (i) the per share
price to the public shown on the cover page
of this Prospectus and (ii) all accrued and
unpaid dividends thereon. See "Description of
PRIDES -- Liquidation Preference and
Ranking."
New York Stock Exchange Symbol
of Common Stock................. BLY
Listing......................... Application has been made to list the shares
of PRIDES on the New York Stock Exchange
("NYSE") under the symbol "BLY PrP."
Use of Proceeds................. The Company intends to use the net proceeds
from this Offering for general corporate
purposes.
8
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data of the
Company. The financial data were derived from, and should be read in conjunction
with, financial information appearing elsewhere in this Prospectus. See
"Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA, RATIOS AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues............................. $ 473.3 $ 450.7 $ 942.3 $ 628.2 $ 556.0 $ 544.5 $ 564.8
Amortization of goodwill............. 2.2 2.1 4.2 3.3 3.3 3.2 3.0
Income (loss) from continuing
operations(2)...................... 13.4 (3.5) (1.9) 10.2 -- (33.4) (248.6)
Net income (loss)(2)................. 13.9 (70.3) (68.4) (46.5) 11.8 21.5 (280.3)
Per common and common equivalent
share:
Income (loss) from continuing
operations(2).................... $ .24 $ (.10) $ (.10) $ .16 $ (.06) $ (1.07) $ (9.03)
Net income (loss)(2)............... .25 (1.53) (1.52) (1.06) .22 .55 (10.15)
Average common and common equivalent
shares outstanding................. 50.6 46.9 46.9 46.6 41.1 33.9 28.4
Ratio of earnings to combined fixed
charges and preferred stock
dividends(3)....................... 1.3x --(4) 1.0x 1.1x --(4) --(4) --(4)
BALANCE SHEET DATA (AT END OF
PERIOD)(1):
Cash and equivalents................. $ 145.9 $ 158.4 $ 178.4 $ 192.1 $ 26.0 $ 26.5 $ 49.8
Total assets......................... 1,958.2 1,915.2 1,936.2 1,991.6 1,357.6 1,389.8 1,620.9
Long-term debt....................... 1,296.0 1,269.9 1,266.2 1,186.3 731.2 795.4 1,076.4
Minority interests................... 39.1 34.5 37.4 42.4
Stockholders' equity................. 307.8 292.4 293.6 364.1 410.2 364.7 332.5
OTHER FINANCIAL DATA(1):
EBITDA(5)............................ $ 121.3 $ 102.3 $ 217.5 $ 159.1 $ 135.1 $ 114.1 $ 102.3
EBITDA margin(5)..................... 25.6% 22.7% 23.1% 25.3% 24.3% 21.0% 18.1%
Cash provided by (used in):
Operating activities............... $ 51.7 $ 8.4 $ 62.8 $ 49.7 $ 14.7 $ 37.9 $ 20.5
Investing activities............... (114.3) (75.3) (102.8) (56.0) (24.0) (14.0) (93.0)
Financing activities............... 22.3 32.4 25.1 156.7 (58.3) (164.4) 99.8
</TABLE>
---------------
(1) The summary consolidated financial data have been presented to reflect
Bally's Health & Tennis as a discontinued operation because of the Spin-off.
Bally's Las Vegas has been consolidated since December 1, 1993 as a result
of the Company attaining a controlling interest in reorganized Bally's
Grand, Inc. ("BGLV") at that date. Prior to December 1, 1993, the Company's
investment in BGLV was principally recorded on the equity method of
accounting. Loss from continuing operations for the year ended December 31,
1990 includes equity in net loss of pre-reorganized BGLV of $186.6 million,
which includes a write-off of the Company's investment in and advances to
pre-reorganized BGLV because of the expected loss of control pursuant to the
reorganization. As of June 30, 1995, the Company (through certain
subsidiaries of which it is the sole common stockholder) owned approximately
80% of the outstanding common stock of reorganized BGLV.
(2) Income (loss) from continuing operations and net income (loss) for the six
months ended June 30, 1995 and 1994 and the years ended December 31, 1994
and 1993 include charges (after income taxes and minority interests) of $1.2
million ($.02 per share), $2.6 million ($.05 per share), $10.7 million ($.23
per share) and $2.7 million ($.06 per share), respectively, incurred in the
pursuit and development of new gaming projects and for amortization of
pre-opening costs. Income (loss) from continuing operations and net income
(loss) for the year ended December 31, 1994 also includes: (i) a charge of
$8.5 million net of tax ($.18 per share) for the write-down of certain
assets deemed unrecoverable due to the relocation of Bally's Mississippi's
operations closer to Memphis, Tennessee and (ii) a gain of $4.8 million net
of tax and minority interests ($.10 per share) from the sale of marketable
securities.
(3) The ratio of earnings to combined fixed charges and preferred stock
dividends is computed by dividing (i) income (loss) from continuing
operations before income taxes and minority interests plus fixed charges
(adjusted for capitalized interest and preferred
(footnotes continued on next page)
9
<PAGE> 11
(footnotes continued from previous page)
stock dividend requirements) by (ii) fixed charges. Fixed charges consist of
interest incurred (expensed or capitalized), preferred stock dividend
requirements and the portion of rent expense which is deemed representative
of interest.
(4) Earnings were insufficient to cover combined fixed charges and preferred
stock dividends for the six months ended June 30, 1994 by $6.1 million, and
for the years ended December 31, 1992, 1991 and 1990 by $9.3 million, $53.0
million and $89.4 million, respectively.
(5) EBITDA represents operating income before depreciation, amortization and
abandonment loss. The Company has presented EBITDA supplementally because
the Company believes it allows for a more complete analysis of its results
of operations. The EBITDA margin represents EBITDA divided by revenues and
is intended to indicate the operating efficiency of the Company. This data
should not be considered as an alternative to any measure of performance or
liquidity as promulgated under generally accepted accounting principles
(such as net income or cash provided by or used in operating, investing and
financing activities) nor should it be considered as an indicator of the
Company's overall financial performance.
10
<PAGE> 12
RISK FACTORS
Prospective investors should consider, among other matters, the following
in connection with a decision to purchase the shares of PRIDES offered hereby.
HOLDING COMPANY STRUCTURE AND SUBSTANTIAL CONSOLIDATED LEVERAGE
The Company is a holding company, with no material operations of its own,
and has certain cash obligations that must be satisfied by utilizing cash on
hand, obtaining cash from its subsidiaries, disposing of or leveraging certain
assets or issuing additional securities. The Company's corporate cash operating
costs for the foreseeable future are expected to be recovered substantially by
cost allocations to, and management fees from, its subsidiaries. Cash
requirements of the Company include income tax payments which management
estimates, net of amounts to be collected from subsidiaries pursuant to tax
sharing agreements, to be approximately $12 million over the next twelve months.
The Company also has debt service requirements and preferred stock dividend
payments of approximately $17 million over the next twelve months ($
million as adjusted to include cash dividend obligations on the shares of PRIDES
offered hereby). Accordingly, the Company is dependent on its subsidiaries to
pay management fees, cost allocations, income taxes and dividends or to advance
funds in order to satisfy these obligations. If the Company's subsidiaries
become unable to pay, distribute or advance funds to the Company, there can be
no assurance that the Company will be able to meet its obligations, including
the cash dividend obligations on the shares of PRIDES.
The Company and its subsidiaries have a substantial amount of indebtedness
on a consolidated basis. At June 30, 1995, the Company's consolidated long-term
debt was approximately $1,296.0 million. The Company's consolidated leverage may
adversely impact the Company's ability to obtain financing on terms satisfactory
to the Company for new gaming projects (including the Paris Casino-Resort) and
expansion of existing properties.
RESTRICTIONS ON DISTRIBUTIONS FROM SUBSIDIARIES
Various financial covenants and regulatory restrictions limit the payment
of dividends and other distributions of funds to the Company by its
subsidiaries. The terms of the various instruments governing the indebtedness of
the Company's subsidiaries also impose restrictions on their ability to incur
debt, issue preferred stock, make acquisitions and certain restricted payments,
create liens, sell assets or enter into transactions with affiliates. These
restrictions may have an adverse impact on the ability of these subsidiaries to
raise capital and, therefore, on the Company's liquidity. The future performance
of the Company and its subsidiaries and their ability to satisfy or refinance
their obligations are also affected by prevailing economic conditions and are
subject to financial, business and other factors, including factors beyond the
control of the Company. Accordingly, there can be no assurance that the Company
will receive distributions and payments from its subsidiaries in amounts
sufficient to satisfy its cash obligations, including the cash dividend
obligations on the shares of PRIDES.
Bally's Casino Holdings, Inc. ("Casino Holdings"), a wholly owned
subsidiary of the Company, serves as a holding company for Bally's Park Place, a
portion of the Company's investment in BGLV and the Company's interests in
Bally's Mississippi and Bally's New Orleans. Dividends received by Casino
Holdings from subsidiaries other than Bally's Park Place (i.e., BGLV, Bally's
New Orleans, Bally's Mississippi and future casino enterprises developed within
the Casino Holdings structure) are not available to be paid to the Company
unless (i) available pursuant to a net income test (generally limited to 50% of
Casino Holdings' consolidated net income exclusive of income attributable to
Bally's Park Place) and (ii) Casino Holdings has a consolidated fixed charge
coverage ratio (as defined) of 2:1 or greater. Dividends received by Casino
Holdings from Bally's Park Place may be paid to the Company if they were paid
under a separate net income test (generally limited to 50% of Bally's Park
Place's aggregate consolidated net income since April 1, 1994), which also
requires that Bally's Park Place maintain a consolidated fixed charge coverage
ratio (as defined) of at least 2.25:1 in order to pay such dividends. In 1994
and 1995 (through June 30), Bally's Park Place, pursuant to its net income test,
paid approximately $12.3 million and $5.5 million, respectively, in dividends to
Casino Holdings which were then paid to the Company.
11
<PAGE> 13
Limitations on dividends and other distributions to the Company from its
subsidiaries other than Casino Holdings, and the financial requirements of those
subsidiaries, will substantially limit and may preclude the receipt of dividends
and distributions by the Company for the near term. Other than dividends from
Bally's Park Place, no other amounts are presently available for distribution to
the Company.
SUBORDINATION TO SUBSIDIARIES' CREDITORS
Due to the Company's holding company structure, holders of shares of PRIDES
and other securities of the Company have a position effectively junior to any
creditors of the Company's subsidiaries. Any rights of the Company and its
creditors and stockholders to participate in the distribution of the assets of
any of the Company's subsidiaries upon any liquidation or reorganization of any
of its subsidiaries will be subject to the prior claims of that subsidiary's
creditors, including trade creditors (except to the extent the Company may
itself be a creditor of such subsidiary), and in the case of holders of shares
of PRIDES, the Company's creditors, including trade creditors. Accordingly,
there can be no assurance that holders of shares of PRIDES will receive any
proceeds in the event of a liquidation or reorganization of the Company or any
of its subsidiaries.
COMPETITION
The Company's casinos face significant competition from both established
casinos and newly emerging gaming operations. Since April 1990, there have been
ten casino hotel facilities operating in Atlantic City in competition with
Bally's Park Place and The Grand, which are also in competition with each other.
Several Atlantic City casino hotels have recently expanded or are currently in
the process of expanding their facilities. In addition, proposals for two new
casino hotel resorts were recently announced for the Marina in Atlantic City,
and, if and when such resorts are opened, capacity and competition will further
increase.
Bally's Las Vegas competes principally with other casino hotels and casinos
located in Las Vegas. Currently, there are approximately thirty major casino
hotels located on or near the Strip, approximately ten major casino hotels
located in the Las Vegas downtown area and several major facilities located
elsewhere in the Las Vegas area. As a result of new construction projects and
certain expansions by casino hotels located on or near the Strip, Las Vegas
casino space and hotel and motel room capacity increased significantly between
1991 and 1994. A significant portion of the increase is a result of the opening
during the latter part of 1993 of three new major casino hotels that contain
370,000 total square feet of casino space, 10,400 total guest rooms and a theme
park. In addition, there have been several public announcements concerning major
casino hotel projects in Las Vegas (including the Company's announcement
regarding the Paris Casino-Resort), and, if and when such projects are
completed, capacity and competition will further increase. In the event the
Paris Casino-Resort is completed, it will compete with Bally's Las Vegas.
The extent and effects of competition in new gaming markets are also
unpredictable. Mississippi gaming law does not limit the number of gaming
licenses that may be granted. In particular, management believes there was a
saturation of gaming facilities in and around the Memphis, Tennessee market,
which led to the closing of six casinos in that market. As of July 31, 1995,
seven gaming facilities were operating in this market, three of which are
located in proximity to the Robinsonville site. These facilities (as well as any
others which subsequently commence operations there) present significant
competition for Bally's Mississippi when it reopens. Further, a competitor has
announced it intends to proceed with development of a casino hotel resort, which
would be somewhat closer to Memphis than Bally's Mississippi and, if developed
as planned, would offer more casino space and greater amenities than those
expected to be offered by Bally's Mississippi, which may reduce the anticipated
patronage of Bally's Mississippi.
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all but one of which have been granted), with a
maximum of six riverboats in any one parish. Four riverboats are presently
operating in the New Orleans area (including that of Bally's New Orleans). In
addition to the riverboat casinos, a license for a single, large-scale,
land-based casino has been awarded to a competitor. This casino commenced
operations at a temporary location in May 1995 and is expected to be the largest
land-based casino in the United States when it moves to a permanent location in
mid-1996. Upon its opening, the
12
<PAGE> 14
permanent facility may draw customers who might otherwise patronize Bally's New
Orleans. In June 1995, a joint venture operating two casino gaming vessels in
downtown New Orleans closed due to revenues having been insufficient to meet
obligations of the venture, which posted substantial operating losses.
Legalization of gaming in additional jurisdictions would also provide
opportunities for expansion by the Company's competitors, some of which have
greater financial resources than the Company, which could adversely affect the
Company's existing and proposed operations. See "-- New and Emerging Gaming
Markets." The Company believes that the adoption of legislation approving casino
gaming in any jurisdiction near New Jersey (particularly New York or
Pennsylvania) or near Nevada (particularly California or the other southwestern
states) or the advent of full-scale gaming on nearby Native American lands could
have a material adverse effect on its present operations. Similarly, the
legalization of gaming in jurisdictions adjacent to Mississippi (particularly
Tennessee or Arkansas) could have a material adverse effect upon the expected
operations of Bally's Mississippi. The Company also competes with other forms of
legalized gaming, including state-sponsored lotteries and off-track wagering. In
markets in which the Company commences operations or seeks to commence
operations, it often faces intense competition for licenses, desirable sites,
qualified personnel and, ultimately, customers from other companies in the
gaming industry.
The effects of competition, as well as other factors, may affect the
Company's decision to proceed with any projects or affect the scope of such
projects.
NEW AND EMERGING GAMING MARKETS
The initial and long-term success of gaming in a market which has never
supported gaming operations previously or only recently permitted gaming cannot
be accurately predicted or assured. Factors such as the number of prospective
visitors, the number of licenses issued in a jurisdiction and the propensity of
visitors to wager cannot be predicted with any certainty and materially affect
the success of a casino.
The development of new gaming projects also entails risks associated with
development and construction. Any new project entails significant construction
risks which could delay development or result in a substantial increase in
costs. The Company also needs to obtain approvals and permits in order to
commence the construction of new gaming projects. Unexpected changes required by
local, state or federal authorities could involve significant additional costs
and delay the opening of a project. Further, there can be no assurance that the
Company will receive necessary permits and approvals for any project or that
such permits and approvals will be obtained within an anticipated time frame.
The Company has also invested substantial sums in obtaining interests in
properties in jurisdictions based upon the prospects of gaming being legalized
in such jurisdictions. Whether and when gaming will be legalized in such
jurisdictions is dependent upon a variety of matters, including economic and
political considerations, and there can be no assurance which, if any,
jurisdictions in which the Company has made investments will legalize gaming, or
that, if gaming is legalized in any such jurisdiction, the Company or any
venture in which it participates will be granted a license in that jurisdiction.
Development of new gaming and expansion projects generally requires third
party financing, and there can be no assurance that such financing will be
available or, if available, will be on terms satisfactory to the Company or that
such financing will be approved, if necessary, by the governing gaming
authorities. The consolidated leverage of the Company may adversely affect its
ability to obtain such financing or the terms of such financing.
The success of the Company's expansion in new gaming jurisdictions is also
dependent in part on its ability to attract and retain qualified management and
operating personnel in those jurisdictions. Competition for such personnel is
often intense and there can be no assurance that in the future the Company will
be able to attract and retain such personnel.
STATUS AND EFFECTS OF THE SPIN-OFF
The Company announced its decision in June 1994 to spin off Bally's Health
& Tennis and has reflected Bally's Health & Tennis as a discontinued operation
since that date. Although the Company has encountered
13
<PAGE> 15
unexpected delays in effecting the Spin-off, the Company recently satisfied two
significant conditions in connection therewith. In June 1995, Bally's Health &
Tennis completed a $150 million private placement of asset-backed securities,
the proceeds of which were primarily used to repay restrictive bank debt. In
July 1995, the Company completed a debt exchange to eliminate restrictions on
dividends. The Company intends to file a registration statement concerning the
Spin-off with the Securities and Exchange Commission no later than mid-September
1995. Subject to the timing of the registration statement being declared
effective by the Securities and Exchange Commission, the Company intends to
declare in November 1995 a dividend to its stockholders of all shares of Bally's
Health & Tennis owned by the Company. The Company intends to complete the
Spin-off on or about December 31, 1995.
The contemplated Spin-off will have certain material effects upon the
Company and holders of shares of PRIDES. At June 30, 1995, the Company's
consolidated stockholders' equity was $307.8 million. After giving effect to the
Spin-off as of June 30, 1995, and assuming that upon consummation of the
Spin-off $30 million of income taxes receivable from Bally's Health & Tennis due
to the Company remain outstanding, the Company's consolidated stockholders'
equity would be reduced to approximately $55.4 million without giving effect to
the issuance of PRIDES contemplated hereby and, as adjusted for such assumed
issuance, would be approximately $171.1 million. See "Capitalization." The
Spin-off will also have the effect of substantially reducing the Company's
federal tax loss carryforwards and Alternative Minimum Tax credit carryforwards,
which will ultimately increase the federal taxes paid by the Company.
The consummation of the Spin-off will result in an adjustment to the
Mandatory Conversion Price for shares of PRIDES, the redemption prices payable
upon optional redemption by the Company of shares of PRIDES and the conversion
price for conversion by holders of shares of PRIDES. See "Description of PRIDES
-- Conversion Adjustments."
Certain members of management of the Company may continue to devote a
portion of their time to the business of Bally's Health & Tennis following the
consummation of the Spin-off, which may reduce the time they devote to the
business of the Company.
GAMING REGULATION
Gaming is regulated in every jurisdiction in which it is currently
legalized, and regulations generally require receipt of a license prior to
commencement of gaming operations. The regulatory frameworks may impose
restrictions or costs including additional taxes that materially detract from
the feasibility or profitability of gaming operations. Gaming regulations and
their enforcement are within the discretion of the regulating jurisdictions, and
the Company cannot predict what these regulations will be, how they will be
enforced or what effect, if any, these regulations will have on the Company.
Changes in these regulations could have a material adverse effect upon the
Company. In addition, floating gaming ventures require compliance with certain
maritime laws and United States Coast Guard (the "U.S. Coast Guard")
regulations.
Gaming activities in Atlantic City are subject to the New Jersey Casino
Control Act (the "New Jersey Act"), regulations of the New Jersey Casino Control
Commission (the "New Jersey Commission") and other applicable laws. No casino
may operate unless the required permits or licenses and approvals are obtained
from the New Jersey Commission. The New Jersey Commission is authorized under
the New Jersey Act to adopt regulations covering a broad spectrum of gaming and
gaming-related activities and to prescribe the methods and forms of applications
for all classes of licensees.
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act") and (ii) various local ordinances
and regulations. BGLV's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the "Nevada Commission"),
the Nevada State Gaming Control Board (the "Nevada Board"), and the Clark County
Liquor and Gaming Licensing Board (the "Clark County Board"). The Nevada
Commission, the Nevada Board and the Clark County Board are collectively
referred to herein as the "Nevada Gaming Authorities." Mississippi and Louisiana
have adopted regulatory requirements which are similar to Nevada's with respect
to the discretion given regulators in
14
<PAGE> 16
granting licenses, financial qualification of licensees and qualification of
officers, directors and key employees. For a more complete discussion of gaming
regulations, see "Business -- Gaming Regulation."
REGULATORY RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SECURITIES
As described below, the New Jersey Act and the Nevada Act impose certain
restrictions on the ownership and transfer of securities, including shares of
PRIDES, issued by a corporation that holds a casino license or is deemed a
holding company, intermediary company, subsidiary or entity qualifier (each, an
"affiliate") of a casino licensee. If the New Jersey Commission or Nevada
Commission finds that a holder or beneficial owner of shares of PRIDES or Common
Stock must be found licensed or qualified or suitable to hold or own the shares
of PRIDES or Common Stock under the New Jersey Act or Nevada Act, and if such
holder or such beneficial owner is not found qualified, licensed or suitable
within any time period specified by the New Jersey Commission or Nevada
Commission or the New Jersey Act or Nevada Act, the Company has the right, at
its option, (i) to require such holder or beneficial owner to dispose of all or
a portion of such holder's or beneficial owner's shares of PRIDES or Common
Stock within 120 days after receipt of notice by such holder or beneficial owner
of its disqualification under the New Jersey Act or Nevada Act (the "Notice
Date") (or such different period as may be prescribed by the New Jersey
Commission or Nevada Commission), or (ii) to redeem shares of PRIDES or Common
Stock held by such holder, by action of the Board of Directors, if in the
judgment of the Board of Directors such action should be taken pursuant to
Section 151(b) of the Delaware General Corporation Law or any other applicable
provision of law, to the extent necessary to prevent the loss or secure the
reinstatement of any government-issued license or franchise held by the Company
or any subsidiary to conduct any portion of the business of the Company or any
subsidiary, which license or franchise is conditioned upon some or all of the
holders of the Company's securities possessing prescribed qualifications. Such
unsuitable or disqualified holder is required to indemnify the Company for any
and all direct or indirect costs, including attorneys' fees, incurred by the
Company as a result of such holder's continuing ownership or failure to divest
promptly.
The Company and BGLV are each registered by the Nevada Commission as a
publicly traded corporation (a "Registered Corporation"). Any beneficial holder
of the Company's or BGLV's voting securities, regardless of the number of shares
owned, may be required to file an application, be investigated, and be subject
to a suitability determination as a beneficial holder of such voting securities
if the Nevada Commission has reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the State of Nevada.
The Nevada Act requires any person who acquires more than 5% of the voting
securities of a Registered Corporation, including shares of PRIDES, to report
the acquisition to the Nevada Commission. The Nevada Act requires that
beneficial owners of more than 10% of a Registered Corporation's voting
securities apply to the Nevada Commission for a finding of suitability within 30
days after the Chairman of the Nevada Board mails a written notice requiring
such filing. Under certain circumstances, an "institutional investor," as
defined in the Nevada Act, which acquires more than 10%, but not more than 15%,
of the Registered Corporation's voting securities may apply to the Nevada
Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if such
holder owns or beneficially holds 5% or more of any class of the equity
securities of such corporation, unless such presumption of control or ability to
elect is rebutted by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly traded holding or intermediary company of a casino licensee and: (i)
the holdings were purchased for investment purposes only, (ii) there is no cause
to believe the institutional investor may be found unqualified and (iii) upon
request by the New Jersey Commission, the institutional investor 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 other
affiliates. The New Jersey Commission may grant a waiver of qualification to an
institutional investor holding 10% or more of such securities upon a showing of
good cause and if the conditions specified above are met.
15
<PAGE> 17
The redemption price of shares of PRIDES or Common Stock to be redeemed
would be equal to the lesser of (i) the holder's original purchase price for the
security or (ii) the lowest closing sale price of such security between the
Notice Date and the date 120 days after Notice Date.
Commencing on the date the Nevada Commission or the New Jersey Commission
serves notice upon the Company of the determination of unsuitability or
disqualification, it is unlawful under the Nevada Act and the New Jersey Act for
the unsuitable or disqualified holder (i) to receive any dividends upon shares
of PRIDES or Common Stock; (ii) to exercise, directly or through any trustee or
nominee, any right conferred by shares of PRIDES or Common Stock; or (iii) to
receive any remuneration in any form from the Company for services rendered or
otherwise.
Mississippi and Louisiana have adopted regulatory requirements similar to
those of New Jersey and Nevada governing the qualification of security holders.
The Mississippi regulations also restrict the ability to pay interest to debt
security holders who are not found suitable and require redemption of such debt
securities from those holders who are denied licensing. The Mississippi Gaming
Commission may conduct a suitability investigation of security holders at any
time. The Louisiana regulations restrict the payment of dividends, interest or
remuneration for services rendered or otherwise to security holders who are not
found suitable and requires disposition of such securities from those holders
who are found disqualified. The Louisiana Riverboat Gaming Enforcement Division
may conduct a suitability investigation of security holders at any time. For a
more complete discussion of regulatory restrictions on ownership and transfer of
securities, see "Business -- Gaming Regulation."
ABSENCE OF PUBLIC MARKET
There is no existing market for the shares of PRIDES. The Company has
applied for listing on the NYSE of the shares of PRIDES and the Common Stock
issuable upon conversion or redemption thereof. There can be no assurance that a
liquid market for the shares of PRIDES will develop. Future trading prices of
the shares of PRIDES will depend on many factors including, among other things,
the Company's operating results, the market for similar securities and the
trading price of Common Stock. The shares of PRIDES may trade at a price higher
or lower than that at which the PRIDES are offered hereby.
16
<PAGE> 18
PRICE RANGE OF COMMON STOCK; DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange under the symbol
"BLY" and also is traded on the Chicago Stock Exchange. The following table sets
forth on a per share basis, for the periods indicated, the high and low sales
prices of the Common Stock as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1995:
First Quarter............................................................ $ 8 7/8 $ 6
Second Quarter........................................................... 12 3/4 8 1/8
Third Quarter (through September 13, 1995)............................... 12 7/8 10
Fiscal 1994:
First Quarter............................................................ 9 5/8 6 3/4
Second Quarter........................................................... 7 5/8 6 3/8
Third Quarter............................................................ 8 1/8 6 1/2
Fourth Quarter........................................................... 7 5/8 5 1/4
Fiscal 1993:
First Quarter............................................................ 8 1/8 6
Second Quarter........................................................... 12 3/4 6 3/8
Third Quarter............................................................ 10 3/4 8 1/8
Fourth Quarter........................................................... 10 3/8 8 3/8
</TABLE>
The closing sale price of the Common Stock on September 13, 1995 as
reported on the New York Stock Exchange was $12.
The Company has not made cash dividend payments on the Common Stock since
1990. The Company substituted dividends paid in Common Stock for cash dividends
on certain of its preferred stock from 1991 through 1993 with the consent of the
holders of such preferred stock. The Company does not presently intend to pay
any dividends on the Common Stock in the foreseeable future. For a discussion of
restrictions on the ability of the Company's subsidiaries to pay dividends, see
"Risk Factors -- Holding Company Structure and Substantial Consolidated
Leverage," "-- Restrictions on Distributions from Subsidiaries" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
USE OF PROCEEDS
At an assumed offering price of $12 per share, the net proceeds to be
received by the Company from the sale of 10,000,000 shares of PRIDES (after
deducting the underwriting discount and estimated expenses payable by the
Company) are estimated to be approximately $115.7 million ($133.2 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds from this Offering for general corporate purposes.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1995, and as adjusted to give effect to: (i) the sale by the
Company of 10,000,000 shares of PRIDES offered hereby at an assumed offering
price of $12 per share (after deducting the underwriting discount and estimated
expenses payable by the Company); (ii) the consummation of an exchange offer on
July 12, 1995, pursuant to which the Company exchanged $13,586,000 of its 8%
Convertible Senior Subordinated Debentures due December 15, 2000 (the "8%
Debentures") for $13,586,000 of its 6% Convertible Subordinated Debentures due
1998 (the "6% Debentures"), which had the effect of reducing current maturities
of long-term debt by eliminating cash sinking fund requirements for the 6%
Debentures; and (iii) the consummation of the Spin-off, as if each of these
transactions had occurred as of June 30, 1995. The following as adjusted
information does not give effect to any use of the net proceeds of this
Offering.
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN MILLIONS)
<S> <C> <C>
Cash and equivalents.................................................. $ 145.9 $ 261.6
======== ========
Current maturities of long-term debt(1)............................... $ 6.9 $ 5.3
======== ========
Long-term debt, less current maturities(1)............................ $1,289.1 $1,290.7
Minority interests.................................................... 39.1 39.1
Stockholders' equity:
Preferred stock, $1.00 par value, 30,000,000 shares authorized:
% PRIDES, convertible preferred stock, 11,500,000 shares
authorized, 10,000,000 shares issued and outstanding, $
aggregate liquidation value, as adjusted......................... -- 10.0
Series D Preferred Stock, 2,000,000 shares authorized,
694,497 shares issued and outstanding; liquidation preference
of $34,725,000................................................. .7 .7
Series B Junior Participating Preferred Stock, 800,000 shares
authorized, none outstanding................................... -- --
Common Stock, $.66 2/3 par value, 80,000,000 shares authorized,
47,345,035 shares issued......................................... 31.6 31.6
Capital in excess of par value...................................... 296.2 149.5
Accumulated deficit................................................. (18.7) (18.7)
Common Stock in treasury, 146,956 shares at cost.................... (2.0) (2.0)
-------- --------
Total stockholders' equity(2)....................................... 307.8 171.1
-------- --------
Total capitalization............................................. $1,636.0 $1,500.9
======== ========
</TABLE>
---------------
(1) See the Consolidated Financial Statements for additional information with
respect to the Company's consolidated indebtedness. Because Bally's Health
& Tennis has been reflected as a discontinued operation in the Company's
Consolidated Financial Statements, its indebtedness is not included herein.
(2) At June 30, 1995, the Company's investment in and receivables from
discontinued operations (Bally's Health & Tennis) totaled $283.3 million.
As adjusted assumes that, upon consummation of the Spin-off, $30 million of
income taxes receivable from Bally's Health & Tennis due to the Company
will remain outstanding and collectible.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company presented below
under the captions "Statement of Operations Data" and "Balance Sheet Data" for
and as of the end of each of the five years ended December 31, 1994 are derived
from the audited consolidated financial statements of the Company. The data that
is presented for and as of the end of each of the six months ended June 30, 1995
and 1994 is unaudited; however, in the opinion of management, such data includes
all adjustments (which were of a normal recurring nature, except for those
required to present Bally's Health & Tennis as a discontinued operation and to
reflect a refinancing of indebtedness of a subsidiary) necessary for a fair
presentation of the information set forth therein. The Company's operations are
subject to seasonal factors and, therefore, the results of operations for the
six months ended June 30, 1995 are not necessarily indicative of results for the
full year. This data should be read in conjunction with the Company's
Consolidated Financial Statements and the related notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA, RATIOS AND PERCENTAGES)
STATEMENT OF OPERATIONS DATA(1):
Revenues....................................... $ 473.3 $ 450.7 $ 942.3 $ 628.2 $ 556.0 $ 544.5 $ 564.8
Amortization of goodwill....................... 2.2 2.1 4.2 3.3 3.3 3.2 3.0
Income (loss) from continuing operations(2).... $ 13.4 $ (3.5) $ (1.9) $ 10.2 $ -- $ (33.4) $ (248.6)
Income (loss) from discontinued operations..... (46.1) (46.1) (20.0) .6 (1.2) (43.7)
Extraordinary items............................ .5 (20.7) (20.4) (8.5) 11.2 56.1 12.0
Cumulative effect on prior years of change in
accounting for income taxes.................. (28.2)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(2)........................... $ 13.9 $ (70.3) $ (68.4) $ (46.5) $ 11.8 $ 21.5 $ (280.3)
======== ======== ======== ======== ======== ======== ========
Per common and common equivalent share:
Income (loss) from continuing
operations(2).............................. $ .24 $ (.10) $ (.10) $ .16 $ (.06) $ (1.07) $ (9.03)
Income (loss) from discontinued operations... (.99) (.98) (.43) .01 (.03) (1.54)
Extraordinary items.......................... .01 (.44) (.44) (.18) .27 1.65 .42
Cumulative effect on prior years of change in
accounting for income taxes................ (.61)
-------- -------- --------- -------- -------- -------- --------
Net income (loss)(2)......................... $ .25 $ (1.53) $ (1.52) $ (1.06) $ .22 $ .55 $ (10.15)
======== ======== ======== ======== ======== ======== ========
Average common and common equivalent shares
outstanding.................................. 50.6 46.9 46.9 46.6 41.1 33.9 28.4
Ratio of earnings to combined fixed charges and
preferred stock dividends(3)................. 1.3x --(4) 1.0x 1.1x --(4) --(4) --(4)
BALANCE SHEET DATA (AT END OF PERIOD)(1):
Cash and equivalents........................... $ 145.9 $ 158.4 $ 178.4 $ 192.1 $ 26.0 $ 26.5 $ 49.8
Total assets................................... 1,958.2 1,915.2 1,936.2 1,991.6 1,357.6 1,389.8 1,620.9
Long-term debt................................. 1,296.0 1,269.9 1,266.2 1,186.3 731.2 795.4 1,076.4
Minority interests............................. 39.1 34.5 37.4 42.4
Stockholders' equity........................... 307.8 292.4 293.6 364.1 410.2 364.7 332.5
OTHER FINANCIAL DATA(1):
EBITDA(5)...................................... $ 121.3 $ 102.3 $ 217.5 $ 159.1 $ 135.1 $ 114.1 $ 102.3
EBITDA margin(5)............................... 25.6% 22.7% 23.1% 25.3% 24.3% 21.0% 18.1%
Cash provided by (used in):
Operating activities......................... $ 51.7 $ 8.4 $ 62.8 $ 49.7 $ 14.7 $ 37.9 $ 20.5
Investing activities......................... (114.3) (75.3) (102.8) (56.0) (24.0) (14.0) (93.0)
Financing activities......................... 22.3 32.4 25.1 156.7 (58.3) (164.4) 99.8
</TABLE>
---------------
(1) The selected consolidated financial data have been presented to reflect
Bally's Health & Tennis as a discontinued operation because of the Spin-off.
Bally's Las Vegas has been consolidated since December 1, 1993 as a result
of the Company attaining a controlling interest in reorganized BGLV at that
date. Prior to December 1, 1993, the Company's investment in BGLV was
principally recorded on the equity method of accounting. Loss from
continuing operations for the year ended December 31, 1990 includes equity
in net loss of pre-reorganized BGLV of $186.6 million, which includes a
write-off of the Company's investment in and advances to pre-reorganized
BGLV because of the expected loss of control pursuant to the reorganization.
As of June 30, 1995, the Company
(footnotes continued on next page)
19
<PAGE> 21
(footnotes continued from previous page)
(through certain subsidiaries of which it is the sole common stockholder)
owned approximately 80% of the outstanding common stock of reorganized BGLV.
(2) Income (loss) from continuing operations and net income (loss) for the six
months ended June 30, 1995 and 1994 and the years ended December 31, 1994
and 1993 include charges (after income taxes and minority interests) of $1.2
million ($.02 per share), $2.6 million ($.05 per share), $10.7 million ($.23
per share) and $2.7 million ($.06 per share), respectively, incurred in the
pursuit and development of new gaming projects and for amortization of
pre-opening costs. Income (loss) from continuing operations and net income
(loss) for the year ended December 31, 1994 also includes: (i) a charge of
$8.5 million net of tax ($.18 per share) for the write-down of certain
assets deemed unrecoverable due to the relocation of Bally's Mississippi's
operations closer to Memphis, Tennessee and (ii) a gain of $4.8 million net
of tax and minority interests ($.10 per share) from the sale of marketable
securities.
(3) The ratio of earnings to combined fixed charges and preferred stock
dividends is computed by dividing (i) income (loss) from continuing
operations before income taxes and minority interests plus fixed charges
(adjusted for capitalized interest and preferred stock dividend
requirements) by (ii) fixed charges. Fixed charges consist of interest
incurred (expensed or capitalized), preferred stock dividend requirements
and the portion of rent expense which is deemed representative of interest.
(4) Earnings were insufficient to cover combined fixed charges and preferred
stock dividends for the six months ended June 30, 1994 by $6.1 million, and
for the years ended December 31, 1992, 1991 and 1990 by $9.3 million, $53.0
million and $89.4 million, respectively.
(5) EBITDA represents operating income before depreciation, amortization and
abandonment loss. The Company has presented EBITDA supplementally because
the Company believes it allows for a more complete analysis of its results
of operations. The EBITDA margin represents EBITDA divided by revenues and
is intended to indicate the operating efficiency of the Company. This data
should not be considered as an alternative to any measure of performance or
liquidity as promulgated under generally accepted accounting principles
(such as net income or cash provided by or used in operating, investing and
financing activities) nor should it be considered as an indicator of the
Company's overall financial performance.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's continuing operations comprise one industry segment, with all
significant revenues arising from its casino operations and, where applicable,
supporting hotel operations. Bally's Health & Tennis is reflected as a
discontinued operation because of the Spin-off. See notes to the Consolidated
Financial Statements. The following discussion and analysis of financial
condition and results of operations is that of the Company's continuing
operations.
RESULTS OF OPERATIONS
Revenues and operating income (loss) for the Company and each of its casino
properties were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1995 1994 1994 1993 1992
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED(1)(2):
Revenues......................................... $473.3 $450.7 $942.3 $628.2 $556.0
Operating income(3).............................. 86.4 61.4 125.1 107.9 86.5
BALLY'S PARK PLACE:
Revenues......................................... $196.3 $172.4 $377.0 $352.8 $331.1
Operating income................................. 52.5 36.3 88.3 85.8 62.7
THE GRAND:
Revenues......................................... $133.6 $114.8 $249.5 $239.8 $223.7
Operating income................................. 19.1 3.8 23.7 21.7 30.6
BALLY'S LAS VEGAS(1):
Revenues......................................... $139.7 $133.8 $271.9 $ 21.1
Operating income................................. 21.1 20.8 40.3 1.0
BALLY'S MISSISSIPPI(2):
Revenues......................................... $ 1.5 $ 27.9 $ 39.1 $ 4.1
Operating income (loss)(3)....................... (3.2) 3.1 (13.9) (1.7)
</TABLE>
---------------
(1) Bally's Las Vegas (through BGLV) has been consolidated since December 1,
1993. See the note entitled "Acquisition of Bally's Grand, Inc." in the
Consolidated Financial Statements.
(2) Bally's Mississippi commenced operations at Mhoon Landing in Tunica,
Mississippi on December 6, 1993. On February 9, 1995, Bally's Mississippi
suspended operations at its Mhoon Landing site. Bally's Mississippi expects
to reopen its casino in Robinsonville, Mississippi in November 1995.
(3) Includes charges in 1994 of $13.1 million for the write-down of certain
assets deemed unrecoverable upon Bally's Mississippi's relocation of its
operations and $3.3 million for amortization of pre-opening costs in the
first six months of 1994 (compared to $3.1 million in 1993). See the note
entitled "Abandonment Loss" in the Consolidated Financial Statements.
21
<PAGE> 23
Comparison of the Six Months Ended June 30, 1995 and 1994
Revenues of the Company for the six months ended June 30, 1995 were $473.3
million compared to $450.7 million for the 1994 period, an increase of $22.6
million (5%). Operating income of the Company for the six months ended June 30,
1995 was $86.4 million compared to $61.4 million for the 1994 period, an
increase of $25.0 million (41%). These increases principally reflect improved
operating results at both of the Company's Atlantic City casino hotel resorts
offset, in part, by a decline in operating results at Bally's Mississippi.
Atlantic City. Revenues of Bally's Park Place for the six months ended
June 30, 1995 were $196.3 million compared to $172.4 million for the 1994
period, an increase of $23.9 million (14%). Revenues during the first quarter of
1994 were negatively affected by severe weather in the northeastern United
States. Casino revenues for the 1995 period were $170.7 million compared to
$146.6 million in 1994, an increase of $24.1 million (16%). Slot revenues
increased $20.0 million (20%) due to a 25% increase in slot handle (volume)
offset, in part, by a decline in the win percentage from 8.9% in the 1994 period
to 8.5% in 1995. Bally's Park Place added 99 slot machines (a 5% increase) since
June 30, 1994. Table game revenues, excluding poker, increased $2.7 million (6%)
due to a 10% increase in the drop (amount wagered) offset, in part, by a
decrease in the hold percentage from 16.9% in the 1994 period to 16.4% in 1995.
Other casino revenues were $3.9 million for the 1995 period compared to $2.5
million in 1994, an increase of $1.4 million due primarily to the introduction
of horse race simulcasting and keno in June 1994. Rooms revenues decreased $.9
million (8%) due to increased complimentaries in 1995 causing reduced occupancy
of rooms by paying customers. Other revenues increased $.7 million (15%)
principally due to increased entertainment revenues and interest income offset,
in part, by lower dividends in 1995 from a multi-casino linked progressive
trust. Operating income of Bally's Park Place for the six months ended June 30,
1995 was $52.5 million compared to $36.3 million for the 1994 period, an
increase of $16.2 million (45%) as the aforementioned revenue increase was
offset, in part, by a $7.7 million (6%) increase in operating expenses. Casino
expenses increased $6.8 million (11%) due to expanded marketing and promotional
efforts, increased gaming taxes associated with higher gaming revenues and an
increase in salaries, benefits and other costs associated with the operation of
horse race simulcasting and keno in 1995. Other operating expenses increased
$1.3 million (5%) principally due to increased real estate taxes and
entertainment costs. Selling, general and administrative expenses increased $.9
million (5%) primarily due to increased legal, insurance and other costs offset,
in part, by a $1.8 million gain on the settlement of a supplemental executive
retirement plan in 1995. Depreciation and amortization expense decreased $1.5
million (10%) primarily due to the 1994 period including accelerated
depreciation associated with a slot machine upgrade.
Revenues of The Grand for the six months ended June 30, 1995 were $133.6
million compared to $114.8 million for the 1994 period, an increase of $18.8
million (16%). Revenues during the first quarter of 1994 were negatively
affected by severe weather in the northeastern United States. Casino revenues
for the 1995 period were $123.8 million compared to $104.6 million in 1994, an
increase of $19.2 million (18%). Slot revenues increased $13.6 million (22%) due
to a 32% increase in slot handle offset, in part, by a decline in the win
percentage from 8.9% in the 1994 period to 8.4% in 1995. On average, The Grand
had approximately 210 (14%) more slot machines in the 1995 period than in 1994.
Table game revenues, excluding poker, increased $4.5 million (11%) due to an
increase in the hold percentage from 16.0% in the 1994 period to 17.2% in 1995
and a 3% increase in the drop. Poker, horse race simulcasting and keno, which
commenced in April 1995, contributed $1.1 million to casino revenues. Other
revenues decreased $.6 million (18%) due primarily to an adjustment to the
reserve for unclaimed gaming chips and tokens in the first quarter of 1994.
Operating income of The Grand for the six months ended June 30, 1995 was $19.1
million compared to $3.8 million for the 1994 period, an increase of $15.3
million due primarily to the aforementioned revenue increase. Operating expenses
increased 3% primarily due to a $5.1 million (8%) increase in casino expenses
related to promotional expenses and gaming taxes associated with the
aforementioned increase in casino volume and a $1.7 million (13%) increase in
selling, general and administrative expenses primarily for advertising costs,
partially offset by a $1.2 million (11%) decrease in depreciation and
amortization expense due to accelerated depreciation in 1994 of certain slot
machines associated with a casino floor reconfiguration.
22
<PAGE> 24
Management believes that the increased number of slot machines in Atlantic
City has caused and will continue to cause intense promotional efforts to
attract slot players as both the Company's Atlantic City casinos and their
competitors continue to seek to expand their share of slot revenues and maximize
the utilization of their slot machines. Further, as a result of the aggressive
competition for slot patrons, the Atlantic City slot win percentage has
declined. Management believes that the slot win percentage will continue to be
subject to competitive pressure and may further decline. However, management
believes its Atlantic City casinos are well-positioned to compete for additional
casino revenues by continuing to offer attractive promotional slot and table
game programs and special events and by enhancing the appearance and comfort of
their gaming space. In 1994, Bally's Park Place expanded its casino floor from
68,100 to 71,400 square feet and added another 8,700 square feet of gaming space
to offer horse race simulcasting and keno, and to relocate and expand its poker
operations. During the first quarter of 1995, Bally's Park Place completed a
slot machine upgrade, replacing the majority of its slot machines with
state-of-the-art machines with embedded bill acceptors, and reconfigured its
slot machine layout, adding additional slot stools and aisle space. During the
second quarter of 1994, The Grand reconfigured its casino floor, widening the
aisles, adding additional slot stools and replacing the majority of its slot
machines with state-of-the-art machines with embedded bill acceptors. In April
1995, The Grand completed an expansion which increased its casino floor and
other gaming space by nearly 30% to accommodate approximately 400 additional
slot machines, poker, horse race simulcasting and keno. The Grand is currently
constructing a 1,500-seat arena for headline entertainment, sports events and
production shows, with completion expected in the fourth quarter of 1995. Also,
both Bally's Park Place and The Grand anticipate further expansions. See "--
Liquidity and Capital Resources."
Las Vegas. Revenues of Bally's Las Vegas for the six months ended June 30,
1995 were $139.7 million compared to $133.8 million for the 1994 period, an
increase of $5.9 million (4%). Casino revenues for the 1995 period were $64.9
million compared to $64.8 million for 1994, an increase of $.1 million. Slot
revenues increased $3.5 million (13%) due to a 21% increase in slot handle
offset, in part, by a decline in the win percentage from 6.4% in the 1994 period
to 6.0% in 1995. Management believes the increase in slot handle was primarily
attributable to an increase in walk-in business which resulted from the July
1994 opening of an automated walkway system (with related improvements to the
frontage area along the Strip) and increased marketing and promotional efforts.
Table game revenues decreased $2.9 million (8%) due to a decrease in the hold
percentage from 16.5% in the 1994 period to 14.3% in 1995 offset, in part, by a
6% increase in the drop. Other casino revenues decreased $.5 million (15%).
Rooms revenue increased $.6 million (2%) primarily due to a higher average room
rate. Food and beverage revenues increased $2.7 million (14%) primarily due to
increased convention business. Other revenues increased $2.5 million (13%)
primarily due to Bally's Las Vegas operating two retail gift shops in 1995 which
were operated by a third party in 1994 and an increase in interest income due
principally to higher average levels of invested cash in 1995. Operating income
of Bally's Las Vegas for the six months ended June 30, 1995 was $21.1 million
compared to $20.8 million for the 1994 period, an increase of $.3 million (1%)
as the aforementioned revenue increase was substantially offset by a $5.6
million (5%) increase in operating expenses. Other operating expenses increased
$1.5 million (7%) due principally to the cost of operating the aforementioned
gift shops in 1995 and additional costs associated with the operation of the
automated walkway system and related improvements to the frontage area.
Depreciation and amortization expense increased $1.4 million (14%) due to
substantial capital improvements completed recently. Casino operating expenses
increased $1.3 million (4%) due principally to increased complimentaries and
special events. In addition, food and beverage expenses increased $1.0 million
(6%) due to the increase in the number of convention-related banquets held
during the 1995 period.
Bally's Las Vegas competes principally with other casino hotels and casinos
located in Las Vegas. Currently, there are approximately 30 major casino hotels
located on or near the Strip, approximately 10 major casino hotels located in
the Las Vegas downtown area and several major facilities located elsewhere in
the Las Vegas area. In addition, there have been several public announcements
concerning major casino hotel projects in Las Vegas (certain of which have
commenced construction) which, if and when opened, will further expand capacity.
Management believes that the additional casino and hotel room capacity resulting
from the opening of new casino hotels has a short-term negative impact on
Bally's Las Vegas, but that over the long term Bally's Las Vegas benefits from
the increase in the number of visitors to Las Vegas that these new
23
<PAGE> 25
properties attract. To enhance its competitiveness in the Las Vegas market,
Bally's Las Vegas has conducted an expansive capital expenditure program.
Bally's Las Vegas completed an extensive renovation of its main tower during
1993 and opened the automated walkway system and related improvements during
1994. In June 1995, Bally's Las Vegas completed a redesign of the lower-level
retail shopping mall and commenced operation of a monorail system it constructed
with MGM Grand that transports passengers between the two properties. In
addition, Bally's Las Vegas completed a renovation of the south tower hotel
rooms and corridors in August 1995 and has commenced a relocation of the race
and sports book area to add approximately 7,500 square feet of gaming space,
primarily for additional slot machines. Also, BGLV has announced its intention
to develop a new casino hotel resort. See "-- Liquidity and Capital Resources."
Mississippi. On February 9, 1995, Bally's Mississippi entered into a
venture agreement with Lady Luck under which Bally's Mississippi has relocated
its dockside casino from Mhoon Landing in Tunica, Mississippi to Lady Luck's
site in Robinsonville, Mississippi (a site which, upon opening, will be the
casino closest to Memphis, Tennessee), where Lady Luck constructed a 238-room
hotel. In connection with the relocation, Bally's Mississippi suspended
operations at Mhoon Landing on February 9, 1995. Effective April 1, 1995,
Bally's Mississippi contributed its dockside casino and related assets to the
venture, and Lady Luck contributed its hotel and related assets to the venture.
Bally's Mississippi is the majority owner and general manager (through an
affiliate) of the venture; accordingly, Lady Luck's equity in the venture is
classified as "minority interests" in the Consolidated Financial Statements. The
Robinsonville site is expected to be developed to include a restaurant, an
entertainment lounge, administrative facilities and additional parking prior to
the anticipated commencement of casino operations in November 1995. Revenues of
Bally's Mississippi for the six months ended June 30, 1995 were $1.5 million,
which includes casino revenues of $1.0 million at Mhoon Landing (for the period
January 1, 1995 through February 9, 1995) and rooms revenue of $.5 million at
Robinsonville (for the second quarter of 1995). Operating loss of Bally's
Mississippi for the six months ended June 30, 1995 was $3.2 million, which
includes payroll and payroll-related expenses, certain equipment rental expense
under lease commitments, rooms expense and legal and advertising costs. Revenues
and operating income of Bally's Mississippi at its Mhoon Landing site for the
six months ended June 30, 1994 were $27.9 million and $3.1 million,
respectively. Operating income for the 1994 period included amortization of
pre-opening costs of $3.3 million.
Mississippi gaming law does not limit the number of gaming licenses that
may be granted. In particular, management believes there was a saturation of
gaming facilities in and around the Memphis, Tennessee market, which led to the
closing of six casinos in that market. As of July 31, 1995, seven gaming
facilities were operating in this market, three of which are located in
proximity to the Robinsonville site. These facilities (as well as any others
which subsequently commence operations there) present significant competition
for Bally's Mississippi when it reopens. Further, a competitor has announced it
intends to proceed with development of a casino hotel resort, which would be
somewhat closer to Memphis than Bally's Mississippi and, if developed as
planned, would offer more casino space and greater amenities than those expected
to be offered by Bally's Mississippi, which may reduce the anticipated patronage
of Bally's Mississippi.
New Orleans. Bally's New Orleans commenced operation of its riverboat
casino facility in New Orleans, Louisiana on July 7, 1995, after the issuance of
a Certificate of Final Approval by the Louisiana Riverboat Gaming Commission.
Bally's New Orleans operates out of South Shore Harbor on Lake Pontchartrain,
about eight miles from the French Quarter. The riverboat accommodates up to
2,500 passengers and features a 30,000 square-foot casino (the maximum size
currently allowed under Louisiana law) on the two upper decks of the vessel.
Onshore facilities include a 34,000 square-foot terminal building that houses a
buffet restaurant, cocktail lounge and waiting area. The Company owns an
approximate 50% interest in Belle of Orleans, L.L.C., the entity that owns
Bally's New Orleans, and receives a fee based upon operating results under a
long-term management agreement. Deferred pre-opening costs were approximately
$4.4 million, which will be amortized to expense during the first two calendar
quarters of operations.
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all but one of which have been granted), with a
maximum of six riverboats in any one parish. Four riverboats are presently
operating in the New Orleans area (including that of Bally's New Orleans). In
addition to the
24
<PAGE> 26
riverboat casinos, a license for a single, large-scale, land-based casino has
been awarded to a competitor. This casino commenced operations at a temporary
location in May 1995 and is expected to be the largest land-based casino in the
United States when it moves to a permanent location in mid-1996. Upon its
opening, the permanent facility may draw customers who might otherwise patronize
Bally's New Orleans.
Interest Expense. Interest expense, net of capitalized interest, was $64.6
million for the six months ended June 30, 1995 compared to $65.1 million in the
1994 period, a decrease of $.5 million (1%) due principally to an increase in
the amount of capitalized interest and the March 1994 refinancing of Bally's
Park Place's public indebtedness at a more favorable rate.
Income Taxes. For the six months ended June 30, 1995 and 1994, the
effective rates of the income tax provision (benefit) on income (loss) from
continuing operations differed from the U.S. statutory tax rate (35%) due
principally to state income taxes and nondeductible expenses (including goodwill
amortization) offset, in part, by adjustments of prior years' taxes.
1994 Versus 1993
Revenues of the Company for 1994 were $942.3 million compared to $628.2
million for 1993, an increase of $314.1 million (50%). Operating income for 1994
was $125.1 million compared to $107.9 million for 1993, an increase of $17.2
million (16%). These increases principally reflect the inclusion of twelve
months of operations of both Bally's Las Vegas and Bally's Mississippi in 1994
as compared to approximately one month in 1993 and improved operating results at
both of the Company's Atlantic City casino hotel resorts.
Atlantic City. Revenues of Bally's Park Place for 1994 were $377.0 million
compared to $352.8 million for 1993, an increase of $24.2 million (7%). Bally's
Park Place achieved this increase in revenues despite extremely adverse weather
in the first quarter of 1994 when revenues grew only $.3 million. Casino
revenues for 1994 were $321.5 million compared to $297.7 million in 1993, an
increase of $23.8 million (8%). Slot revenues increased $13.5 million (7%) due
to a 16% increase in slot handle (volume) offset, in part, by a decline in the
win percentage from 9.6% in 1993 (which includes the positive impact from the
discontinuation of certain progressive linked jackpots) to 8.8% in 1994. Bally's
Park Place added 223 slot machines (an 11% increase) during 1994. Table game
revenues, excluding poker, increased $6.4 million (7%) from 1993 due to a 3%
increase in the drop (amount wagered) and an increase in the hold percentage
from 16.5% in 1993 to 17.1% in 1994. Poker operations, which commenced in July
1993, generated revenues of $4.7 million for 1994 compared to $2.6 million for
1993. Horse race simulcasting and keno operations, which commenced in June 1994,
contributed $1.8 million to casino revenues for 1994. Rooms and food and
beverage revenues remained essentially unchanged. Other revenues increased $1.0
million (11%) due to higher entrance fees for promotional events, dividends from
a multi-casino linked progressive trust and increased interest income. Operating
income of Bally's Park Place for 1994 was $88.3 million compared to $85.8
million for 1993, an increase of $2.5 million (3%) as the aforementioned revenue
increase was offset, in part, by a $21.7 million (8%) increase in operating
expenses. Casino expenses increased $11.3 million (10%) due to an increase in
salaries, benefits and other costs associated with the introduction and
operation of horse race simulcasting and keno in 1994 and the operation of poker
throughout all of 1994 compared to only six months in 1993, and expanded
marketing and promotional efforts. Depreciation and amortization expense
increased $5.2 million (20%) primarily due to accelerated depreciation
associated with a slot machine upgrade and an increase in capital expenditures
during 1994 and 1993. Other operating expenses increased $3.1 million (6%) due
to an increase in the cost of property operations and ancillary services.
Revenues of The Grand for 1994 were $249.5 million compared to $239.8
million for 1993, an increase of $9.7 million (4%). The Grand achieved this
increase in revenues despite extremely adverse weather in the first quarter of
1994 when revenues declined $5.6 million. Casino revenues for 1994 were $228.4
million compared to $216.3 million in 1993, an increase of $12.1 million (6%).
Table game revenues increased $6.8 million (8%) due to a 5% increase in the drop
and an increase in the hold percentage from 16.3% in 1993 to 16.6% in 1994. Slot
revenues increased $5.3 million (4%) due to a 14% increase in slot handle
offset, in part, by a decline in the win percentage from 9.5% in 1993 to 8.6% in
1994. Slot revenues include approximately $1.5 million and $1.2 million from the
discontinuation of certain progressive slot jackpots in 1994 and 1993,
25
<PAGE> 27
respectively. The change in rooms and food and beverage revenues was not
significant. Other revenues decreased $1.5 million (19%) due, in part, to an
adjustment to the reserve for unclaimed gaming chips and tokens in 1993.
Operating income of The Grand for 1994 was $23.7 million compared to $21.7
million for 1993, an increase of $2.0 million (9%) as the aforementioned revenue
increase was offset, in part, by a $7.7 million (4%) increase in operating
expenses. Casino expenses increased $10.2 million (8%) primarily due to
increases in payroll and payroll-related expenses, the provision for doubtful
receivables and the costs of providing additional complimentary services and
other promotional expenses in conjunction with the increase in casino volume and
additional marketing efforts associated with the comprehensive marketing program
introduced in July 1993. Selling, general and administrative expenses decreased
$1.3 million (5%) primarily due to a real estate tax refund for prior years
offset, in part, by increasing advertising and various other expenses.
Las Vegas. Revenues of Bally's Las Vegas for 1994 were $271.9 million
compared to $21.1 million for December 1993. Bally's Las Vegas was consolidated
effective December 1, 1993. Casino revenues in 1994 were $134.6 million, which
primarily consisted of table game revenues of $68.9 million and slot revenues of
$59.2 million. Table game hold and slot win percentages for 1994 were 16.0% and
6.2%, respectively. Rooms revenue for 1994 was $58.6 million and food and
beverage revenues and other revenues (including entertainment) for 1994 were
$37.6 million and $41.1 million, respectively. Casino revenues for December 1993
were $12.2 million, which primarily consisted of table game revenues of $6.7
million and slot revenues of $5.0 million. In December 1993, rooms revenue, food
and beverage revenues and other revenues were $2.9 million, $2.8 million and
$3.1 million, respectively. Operating income of Bally's Las Vegas for 1994 and
December 1993 was $40.3 million and $1.0 million, respectively. BGLV was
reorganized pursuant to a Fifth Amended Plan of Reorganization in August 1993.
See the note entitled "Acquisition of Bally's Grand, Inc." in the Consolidated
Financial Statements.
Mississippi. Revenues of Bally's Mississippi for 1994 were $39.1 million
compared to $4.1 million in 1993 (which included only 24 days of operations).
Casino revenues in 1994 were $38.5 million and consisted of slot revenues of
$27.4 million and table game revenues of $11.1 million. Slot win and table game
hold percentages for 1994 were 8.8% and 24.3%, respectively. Casino revenues for
December 1993 were $4.0 million and consisted of slot and table game revenues of
$2.7 million and $1.3 million, respectively. Management believes Bally's
Mississippi's revenues were negatively impacted by intense competition in the
Memphis market (especially from casinos closer to the Memphis metropolitan area)
and as a result, Bally's management commenced exploring various options
available to Bally's Mississippi during the fourth quarter of 1994. On February
9, 1995, Bally's Mississippi entered into a venture agreement with Lady Luck
under which Bally's Mississippi has relocated its dockside casino from Mhoon
Landing in Tunica, Mississippi to Lady Luck's site in Robinsonville,
Mississippi, where Lady Luck constructed a 238-room hotel. Operating loss of
Bally's Mississippi for 1994 was $13.9 million principally resulting from a
charge of $13.1 million for the write-down of certain assets deemed
unrecoverable upon Bally's Mississippi's relocation of its operations and the
amortization of $3.3 million of pre-opening costs. Operating loss of Bally's
Mississippi for December 1993 was $1.7 million principally resulting from the
amortization of $3.1 million of pre-opening costs. In connection with the
proposed relocation, Bally's Mississippi ceased operations on February 9, 1995
and expects casino operations to commence at the Robinsonville site in November
1995. Management believes the cessation of Bally's Mississippi's casino
operations for several months in 1995 will have a short-term negative effect on
Bally's Mississippi's results of operations, but that over the long term Bally's
Mississippi will benefit from improved operating results.
New Gaming Projects. Operating income for 1994 includes a charge of $10.9
million for costs incurred in the pursuit and development of new gaming projects
in various jurisdictions compared to $1.3 million in 1993. The Company continues
to explore opportunities in jurisdictions where gaming is presently authorized
or may become authorized. However, successful expansion and development
opportunities are contingent upon, among other things, the passage of
legislation authorizing gaming (when not already approved) and the Company
obtaining the appropriate licenses. There can be no assurance that such
legislation will be enacted or that the Company will be granted gaming licenses
in any of these jurisdictions.
26
<PAGE> 28
Corporate. Revenues for 1994 were $3.7 million compared to $8.0 million in
1993, a decrease of $4.3 million. The decline in revenues was principally due to
a $2.4 million reduction in interest and other income from subsidiaries and 1993
having included nonrecurring income of $1.7 million for the forgiveness of a tax
liability previously owed to Bally Gaming International, Inc. ("Gaming") and $.8
million for insurance recoveries.
Operating income for 1994 was $2.2 million compared to $2.3 million in
1993, a decrease of $.1 million as the decline in revenues was substantially
offset by 1993 having included a nonrecurring charge of $1.7 million related to
the accelerated vesting of stock options and increased allocations of corporate
overhead (including executive salaries and benefits, public company reporting
costs and other corporate headquarters' costs) to subsidiaries in 1994.
Management believes that the methods used to allocate these costs are reasonable
and expects similar allocations (subject to changes in circumstances which may
warrant modification) in future years.
Gain on Sales of Marketable Securities. During 1994, BGLV acquired and
sold common stock of certain publicly traded gaming companies. The pre-tax gain
on these transactions totalled $11.8 million.
Interest Expense. Interest expense, net of capitalized interest, was
$130.8 million in 1994 compared to $92.9 million in 1993. The increase of $37.9
million (41%) was due principally to higher average levels of debt primarily
resulting from the consolidation of BGLV effective December 1993 and the
issuance of the Casino Holdings Senior Discount Notes due 1998 (the "Senior
Discount Notes") in June 1993 offset, in part, by lower average interest rates.
Income Taxes. Effective rates of the income tax provision on income from
continuing operations were 49% in 1994 and 35% in 1993. The 1994 income tax rate
differed from the U.S. statutory tax rate (35%) due principally to state income
taxes and certain nondeductible expenses offset, in part, by adjustments of
prior years' taxes and changes in the valuation allowance. The 1993 income tax
rate approximated the U.S. statutory tax rate as the effect of state income
taxes, the change in the U.S. statutory tax rate from 34% to 35% on deferred tax
balances and nondeductible amortization was principally offset by adjustments of
prior years' taxes. A reconciliation of the income tax provision with amounts
determined by applying the U.S. statutory tax rate to income from continuing
operations before income taxes and minority interests is included in the note
entitled "Income Taxes" in the Consolidated Financial Statements.
1993 Versus 1992
Revenues of the Company for 1993 were $628.2 million compared to $556.0
million for 1992, an increase of $72.2 million (13%). Operating income for 1993
was $107.9 million compared to $86.5 million for 1992, an increase of $21.4
million (25%).
Atlantic City. Revenues of Bally's Park Place for 1993 were $352.8 million
compared to $331.1 million for 1992, an increase of $21.7 million (7%). Casino
revenues for 1993 were $297.7 million compared to $278.0 million for 1992, an
increase of $19.7 million (7%). Slot revenues, which include the positive impact
from the discontinuation of certain progressive linked jackpots, increased $14.7
million (8%) due to an 11% increase in slot handle offset, in part, by a decline
in the win percentage from 9.9% in 1992 to 9.6% in 1993. Bally's Park Place
added 112 slot machines (a 6% increase) during 1993. Table game revenues,
excluding poker, increased $2.4 million (3%) from 1992 primarily due to a 6%
increase in the drop offset, in part, by a decline in the hold percentage from
17.0% in 1992 to 16.5% in 1993. Poker operations, which commenced in July 1993,
contributed $2.6 million to casino revenues. Rooms revenue increased $1.3
million (5%) due to an increase in rooms occupied in 1993 compared to 1992
offset, in part, by a reduction in the average room rate. Food and beverage
revenue remained essentially unchanged. Interest income declined $.9 million
from 1992 due to the elimination of an intercompany loan. Operating income of
Bally's Park Place for 1993 was $85.8 million compared to $62.7 million in 1992,
an increase of $23.1 million (37%) due to the aforementioned increase in
revenues and, to a lesser extent, to a $1.4 million (1%) decrease in operating
expenses. Operating expenses decreased due to a 10% reduction in selling,
general and administrative expenses (due in part to a reduction in costs
associated with a management restructuring) which was offset, in part, by
increased marketing and promotional costs and food and beverage expenses.
27
<PAGE> 29
Revenues of The Grand for 1993 were $239.8 million compared to $223.7
million for 1992, an increase of $16.1 million (7%). Casino revenues for 1993
were $216.3 million compared to $199.6 million in 1992, an increase of $16.7
million (8%). Table game revenues increased $13.3 million (18%) due primarily to
a 19% increase in the drop. Slot revenues, which include the discontinuation of
certain progressive slot jackpots, increased $3.4 million (3%) due to a 9%
increase in slot handle offset, in part, by a decline in the slot win percentage
from 10.0% in 1992 to 9.5% in 1993. The Grand added 28 slot machines (a 2%
increase) during 1993. Rooms revenue decreased $1.5 million (22%) due primarily
to a reduction in the average room rate. Food and beverage revenue remained
essentially unchanged. Other revenues increased $.9 million from 1992 due
principally to an adjustment to the reserve for unclaimed gaming chips and
tokens in 1993. Operating income of The Grand for 1993 was $21.7 million
compared to $30.6 million in 1992, a decrease of $8.9 million (29%) as the
aforementioned increase in revenues was more than offset by a $25.0 million
(13%) increase in operating expenses. Operating expenses increased primarily due
to the increase in casino volume and to a comprehensive marketing program that
The Grand introduced in July 1993, which expanded the use of complimentary and
promotional programs and special events and also resulted in higher payroll and
payroll-related expenses and state gaming taxes. Management of The Grand
believes the initial costs of the comprehensive marketing program were
proportionately greater during implementation and, because the incremental
revenues generally trailed such costs, the marketing program had an adverse
effect on operating results for 1993.
Changes in gaming regulations, including modifications allowing more slot
machines on existing casino floor space and permitting unrestricted 24-hour
gaming effective July 1992, aided Atlantic City slot revenue growth. In addition
to the ongoing slot revenue trend, the introduction in the second quarter of
1993 of poker and horse race simulcasting also improved the Atlantic City gaming
climate. However, the Company's competitors in Atlantic City intensified their
promotional slot marketing efforts during 1992 to expand their share of slot
revenues, and this trend continued through 1993.
Las Vegas. Revenues of Bally's Las Vegas for December 1993 were $21.1
million. Bally's Las Vegas was consolidated effective December 1, 1993. Casino
revenues were $12.2 million, which primarily consisted of table game revenues of
$6.7 million and slot revenues of $5.0 million. Rooms revenues were $2.9 million
and food and beverage revenues were $2.8 million. Other revenues were $3.1
million and primarily resulted from entertainment. Operating income of Bally's
Las Vegas for December 1993 was $1.0 million. BGLV was reorganized pursuant to a
Fifth Amended Plan of Reorganization in August 1993. See the note entitled
"Acquisition of Bally's Grand, Inc." in the Consolidated Financial Statements.
Mississippi. Revenues of Bally's Mississippi, which included 24 days of
operations in December 1993, were $4.1 million and included casino revenues of
$4.0 million (slot revenues were $2.7 million and table game revenues were $1.3
million). Operating loss of Bally's Mississippi for its December 1993 operations
was $1.7 million, principally caused by the amortization of $3.1 million of
pre-opening costs offset, in part, by income from operations before depreciation
and amortization.
Corporate. Revenues for 1993 were $8.0 million compared to $2.5 million in
1992, an increase of $5.5 million. The increase was due principally to: (i) the
forgiveness of a tax liability of $1.7 million previously owed to Gaming, (ii)
the billing of an additional $1.7 million of insurance costs to subsidiaries,
and (iii) an increase in interest income and other revenues from subsidiaries of
$2.0 million.
Operating income for 1993 was $2.3 million compared to an operating loss of
$4.2 million in 1992, an improvement of $6.5 million. Results in 1993, as
compared to 1992, were positively impacted by the aforementioned revenue items
totalling $5.4 million and a $1.1 million reversal of an accrual no longer
deemed necessary. The allocation of corporate overhead to subsidiaries remained
essentially unchanged.
Interest Expense. Interest expense, net of capitalized interest, was $92.9
million in 1993 compared to $93.8 million in 1992. The decrease of $.9 million
(1%) was due principally to the reversal in 1993 of a $2.0 million interest
reserve no longer necessary and interest in 1992 on accrued but unpaid interest
for debt in default (which did not occur in 1993) offset, in part, by higher
average levels of debt in 1993 (due, in part, to the issuance of the Senior
Discount Notes in June 1993).
28
<PAGE> 30
Income Taxes. The effective rate of the income tax provision on income
from continuing operations for 1993 equalled the U.S. statutory tax rate (35%)
as the effect of state income taxes, the change in the U.S. statutory tax rate
from 34% to 35% on deferred tax balances and nondeductible amortization was
principally offset by adjustments of prior years' taxes. The effective rate of
the income tax benefit on loss from continuing operations for 1992 differed from
the U.S. statutory tax rate (34%) due principally to adjustments of prior years'
taxes offset, in part, by nondeductible amortization and state income taxes. A
reconciliation of the income tax provision (benefit) with amounts determined by
applying the U.S. statutory tax rate to income (loss) from continuing operations
before income taxes and minority interest is included in the note entitled
"Income Taxes" in the Consolidated Financial Statements.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes as required by Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." As permitted by SFAS No. 109, the
Company elected to use the cumulative effect approach rather than to restate the
consolidated financial statements of any prior years to apply the provisions of
SFAS No. 109. The cumulative effect on prior years of this change in accounting
for income taxes was a charge of $28.2 million ($.61 per share).
In 1992, the Company utilized tax loss carryforwards to offset taxable
income principally arising from the sale of Gaming common stock in July 1992,
and the related tax benefit of $10.6 million ($.26 per share) was reflected as
an extraordinary credit.
LIQUIDITY AND CAPITAL RESOURCES
PARENT COMPANY
The Company is a holding company without operations of its own.
Nevertheless, the Company has certain cash obligations that must be satisfied by
obtaining cash from its subsidiaries or disposing of or leveraging certain
assets. The Company's corporate cash operating costs for the foreseeable future
are expected to be recovered substantially by cost allocations to, and
management fees from, its subsidiaries. Cash requirements of the Company include
income tax payments which management estimates, net of amounts to be collected
from subsidiaries pursuant to tax sharing agreements, to be approximately $12
million over the next twelve months. The Company also has debt service
requirements and preferred stock dividend payments of approximately $17 million
over the next twelve months (not including dividend payments with respect to the
PRIDES).
Sources of cash available to the Company are generally limited to existing
cash balances ($25.3 million at June 30, 1995), management fees or cost
allocations to subsidiaries, receipts pursuant to tax sharing agreements,
dividends from subsidiaries, asset sales and issuance of new securities. Each of
the Company's principal operating subsidiaries presently has debt covenants
which limit the payment of dividends to the Company and the redemption of stock
owned by the Company. Under the terms of the Senior Discount Notes, an amount
equal to dividends paid pursuant to a net income test by Bally's Park Place to
Casino Holdings may be declared as a dividend by Casino Holdings and be paid to
the Company. For the six months ended June 30, 1995, dividends totalling $5.5
million have been paid to the Company, and as of June 30, 1995 almost $6 million
was available for the payment of additional dividends, pursuant to this net
income test. Dividends to the Company from subsidiaries other than Bally's Park
Place are not expected over the next twelve months. The Company believes it will
be able to satisfy its cash needs over the next twelve months, but remains
dependent upon the ability of its subsidiaries to pay management fees, cost
allocations, income taxes and dividends or to advance funds to meet its future
cash requirements.
The Spin-off of Bally's Health & Tennis is expected to be accomplished by a
stock dividend to the Company's stockholders of all shares of Bally's Health &
Tennis owned by the Company and is expected to be completed on or about December
31, 1995. As a result, stockholders' equity of the Company will be reduced by
the amount of its investment in Bally's Health & Tennis and by a portion of
income taxes receivable from Bally's Health & Tennis to the extent any amounts
are forgiven, and the Company's debt to equity ratio will increase
substantially.
29
<PAGE> 31
SUBSIDIARIES
CASINO HOLDINGS
Casino Holdings. Casino Holdings is a holding company without operations
of its own and relies on obtaining cash from its subsidiaries to meet its cash
obligations. Casino Holdings has no scheduled interest or principal payments on
the Senior Discount Notes until 1998 but expects to continue to incur costs and
obligations in the pursuit of new gaming ventures. Sources of cash available to
Casino Holdings are generally limited to existing cash balances ($7.4 million at
June 30, 1995) and loan repayments, dividends and management fees from
subsidiaries. To the extent Casino Holdings requires additional funds for
existing ventures or to develop new ventures, Casino Holdings expects that it
will be able to obtain financing for a significant portion of such cash
requirements from a combination of third party sources, including banks,
suppliers and capital markets.
Bally's Park Place and BGLV are both limited with respect to amounts which
may be paid as dividends to Casino Holdings under the terms of their respective
public debt indentures. In addition to the funds that are available to be paid
by Casino Holdings to the Company under Bally's Park Place's net income test,
Bally's Park Place may pay additional dividends of up to $25 million to Casino
Holdings that are not available to be paid by Casino Holdings to the Company,
which was paid by Bally's Park Place in the third quarter of 1995. BGLV is
presently not expected to pay dividends over the next twelve months.
Bally's New Orleans, which commenced operations in July 1995, and Bally's
Mississippi, expected to commence operations later in 1995, are expected to
generate unrestricted cash flows thereafter, a portion of which will be used by
each of Bally's New Orleans and Bally's Mississippi to pay management fees to
Casino Holdings and to repay Casino Holdings for project costs and working
capital requirements funded by Casino Holdings. Casino Holdings believes it will
be able to satisfy its cash needs over the next twelve months, although it
remains dependent upon the ability of its subsidiaries to generate cash to repay
advances and to pay management fees and dividends.
Bally's Park Place. Bally's Park Place has no scheduled principal payments
under its public indebtedness until 2004, and its scheduled principal payments
under other indebtedness outstanding at June 30, 1995 are not significant.
Management plans to make capital expenditures of approximately $16 million over
the next twelve months for the completion of the penthouse floor in the hotel
tower, expansions of meeting room and ballroom space, restaurant and kitchen
renovations and other improvements and equipment necessary to maintain Bally's
Park Place in first-class condition. As of June 30, 1995, Bally's Park Place had
an unused line of credit totalling $50 million. The Company believes that
Bally's Park Place will be able to satisfy its debt service and the
aforementioned capital expenditure requirements and pay dividends to Casino
Holdings over the next twelve months out of existing cash balances ($33.7
million at June 30, 1995) and cash flow from operations. For the six months
ended June 30, 1995 and the year ended December 31, 1994, cash provided by
operating activities at Bally's Park Place totalled $30.7 million and $68.4
million, respectively, and its operating margin (before depreciation and
amortization) was 34% and 32%, respectively.
In addition, Bally's Park Place has announced its intention to develop a
highly-themed, western-style casino and entertainment complex on Boardwalk
property adjacent to its existing facility at the foot of the new Atlantic City
convention corridor. The complex is currently planned to include approximately
50,000 square feet of casino space and cost approximately $80 million, with
groundbreaking expected in early 1996. Bally's Park Place anticipates filing
plans in late September 1995 seeking regulatory approval from local authorities.
Bally's Park Place intends to finance the expansion through cash generated by
operations and, if necessary, utilization of its line of credit.
Bally's Las Vegas. BGLV has no scheduled principal payments on its
indebtedness outstanding until 2003. Significant capital improvement projects
planned at Bally's Las Vegas over the next twelve months include the relocation
of the race and sports book area to expand gaming space, which has already
commenced. This and certain other improvements, including the recently completed
renovation of the south tower hotel rooms and corridors, are expected to cost
approximately $22 million, of which approximately $8 million was expended
through June 30, 1995. In addition, capital expenditures of approximately $8
million are required over the next twelve months to maintain Bally's Las Vegas
in first-class condition. The Company believes that BGLV will be able to satisfy
its debt service and the aforementioned capital expenditure
30
<PAGE> 32
requirements over the next twelve months out of existing cash balances ($59.9
million at June 30, 1995) and cash flow from operations. For the six months
ended June 30, 1995 and the year ended December 31, 1994, cash provided by
operating activities at BGLV totalled $12.9 million and $28.0 million,
respectively, and its operating margin (before depreciation and amortization)
was 23% for both periods.
In May 1995, BGLV announced its intention to develop a separate casino
hotel resort with a Paris, France theme on approximately 24 acres of land
situated on the Strip adjacent to Bally's Las Vegas. BGLV expects to finalize
development plans for the Paris Casino-Resort by the end of 1995, at which time
construction costs will be better known and third-party financing for the
project will be sought. The cost of the project, exclusive of the value of land
already owned by BGLV, is currently estimated to be $250 million.
Bally's Mississippi. As described previously, Bally's Mississippi entered
into a venture agreement with Lady Luck under which Bally's Mississippi has
relocated its dockside casino from Mhoon Landing in Tunica, Mississippi to Lady
Luck's site in Robinsonville, Mississippi (a site which, upon opening, will be
the casino closest to Memphis, Tennessee), where Lady Luck constructed a
238-room hotel. The Robinsonville site is expected to be developed to include a
restaurant, an entertainment lounge, administrative facilities and additional
parking prior to the anticipated commencement of casino operations in November
1995. In March 1995, Bally's Mississippi received a commitment from a lender for
a construction loan which converts to a three-year term loan for maximum
borrowings of up to $10 million. Proceeds from the construction loan in addition
to advances from Casino Holdings (presently estimated to be $8 million) are
expected to substantially cover Bally's Mississippi's relocation, development
and working capital requirements.
Bally's New Orleans. Bally's New Orleans began operating a riverboat
casino on Lake Pontchartrain in July 1995. A total of approximately $55 million
was required to construct and equip the riverboat and to develop related
landside improvements. The project cost was partially funded by two five-year
term loans totalling approximately $30 million. Casino Holdings has funded the
remaining project cost. Bally's New Orleans has debt service requirements
totalling approximately $8 million over the next twelve months under the terms
of the two five-year loans, which are expected to be funded by cash flow from
operations. In addition, Bally's New Orleans may seek additional third-party
financing, which would be used to repay amounts funded by Casino Holdings.
Other. In April 1995, a subsidiary of Casino Holdings obtained a $15
million unsecured loan, the proceeds of which were used to repay its obligation
to the Company for shares of BGLV common stock purchased previously and to
purchase additional shares of BGLV common stock from the Company. The loan
matures in April 1996, unless an option to extend the maturity date to October
1996 is exercised by the subsidiary (subject to satisfaction of certain
conditions). The subsidiary expects to meet its debt service requirements
through funding from Casino Holdings.
THE GRAND
The Grand has no scheduled principal payments under its public indebtedness
until 2003. Management expects to make capital expenditures of approximately $12
million over the next twelve months for a 1,500-seat entertainment arena,
refurbishment of suites, additional slot machines and certain other public area
improvements necessary to maintain The Grand in first-class condition. As of
June 30, 1995, The Grand had an unused line of credit totalling $20 million. The
Company believes The Grand will be able to satisfy its debt service and the
aforementioned capital expenditure requirements over the next twelve months out
of existing cash balances ($18.1 million at June 30, 1995) and cash flow from
operations. For the six months ended June 30, 1995 and the year ended December
31, 1994, cash provided by operating activities at The Grand totalled $12.0
million and $20.6 million, respectively, and its operating margin (before
depreciation and amortization) was 21% and 17%, respectively.
In addition, The Grand has filed plans with local authorities seeking
approval for construction of a 300-room hotel tower, including meeting rooms, a
restaurant and other related amenities, all on land owned by the Company
adjacent to The Grand. The planned expansion of The Grand is subject to final
approval from various governmental entities and the receipt of third-party
consents, including the receipt of Casino Reinvestment Development Authority
investment obligation credits. The Grand intends to finance the expansion
through cash generated by operations and utilization of its line of credit.
31
<PAGE> 33
BUSINESS
GENERAL
Bally Entertainment Corporation, formerly known as Bally Manufacturing
Corporation, and its subsidiaries are engaged primarily in the operation of
casinos, some with adjacent hotels. Principal casino operations include: (i)
Bally's Park Place casino hotel resort in Atlantic City, New Jersey; (ii) The
Grand casino hotel resort in Atlantic City; (iii) Bally's Las Vegas casino hotel
resort in Las Vegas, Nevada; and (iv) Bally's New Orleans, the Company's newly
opened riverboat casino on Lake Pontchartrain in New Orleans, Louisiana. In
addition, the Company has relocated Bally's Mississippi to a site which, upon
its anticipated reopening in November 1995, will be the casino closest to
Memphis, Tennessee.
CASINOS
Bally's Park Place. Bally's Park Place is situated on an eight-acre site
with ocean frontage at the well-known intersection of Park Place and the
Boardwalk in Atlantic City, New Jersey. The casino hotel resort is adjacent to
the Boardwalk and within four blocks of both the existing Atlantic City
Convention Hall and the new convention facility, which is currently under
construction. A corridor project which will link the Boardwalk with the new
convention center is under development. The corridor project is expected to
consist of the enhancement of existing roadways that connect the Atlantic City
Expressway to the center of Atlantic City and the beautification of areas
adjacent to these roadways. Management believes that the corridor project, when
completed, will generally enhance the Atlantic City market and, as a result of
Bally's Park Place's location, will benefit Bally's Park Place.
Bally's Park Place's strategic location on the Boardwalk contributes to its
success in attracting significant walk-in casino business, including strong
crossover business from competing casinos located nearby. Equipped with two
multi-story parking garages and surface valet parking lots, management believes
that Bally's Park Place is also strongly positioned to attract desirable
drive-in business.
Bally's Park Place is one of the largest casino hotel resorts in Atlantic
City and the largest four-star hotel in New Jersey, currently encompassing
approximately 2.2 million square feet of space, with more than 1,250 guest rooms
(including 98 suites), approximately 80,100 square feet of gaming space, a
30-story hotel tower, a 12-story hotel facility and two multi-story parking
garages providing over 2,000 parking spaces. In 1994, the casino floor space was
expanded from 68,100 to 71,400 square feet and another 8,700 square feet of
gaming space was added to accommodate 24 poker tables, horse race simulcasting
and keno.
Bally's Park Place recently completed a slot machine upgrade, replacing the
majority of its slot machine inventory with state-of-the-art machines with
embedded bill acceptors. In conjunction with the expansion of casino floor
space, Bally's Park Place added approximately 220 slot machines, including
nearly 130 machines in its new high denomination slot area and opened Magnums, a
posh new premium players lounge. Bally's Park Place employs the latest slot
machine technology and places particular emphasis on the location, design and
lighting of its slot machines areas to further develop and compete for slot
machine play. Bally's Park Place offers 2,237 slot machines and 119 table games
including baccarat, blackjack, craps, roulette and poker, among others.
Bally's Park Place contains approximately 50,000 square feet of meeting and
exhibition space and a 38,000-square foot health spa facility. Dining areas
include three specialty restaurants, two cocktail lounges, a coffee shop, a
buffet, a delicatessen, two fast food facilities and a restaurant with a bar and
lounge in the spa.
Bally's Park Place has announced its intention to develop a highly-themed,
western-style casino and entertainment complex on Boardwalk property adjacent to
its existing facility at the foot of the new Atlantic City convention corridor.
The complex is currently planned to include approximately 50,000 square feet of
casino space and cost approximately $80 million, with groundbreaking expected in
early 1996. Bally's Park Place anticipates filing plans in late September 1995
seeking regulatory approval from local authorities.
Bally's Park Place's operating strategy capitalizes on its central location
and quality facilities, which serve to maximize the profitability of Bally's
Park Place and allow Bally's Park Place to expand its success with mid-level and
high-end players. Historically believed to be a leader in Atlantic City's middle
to upper-middle
32
<PAGE> 34
tier slot player segments, Bally's Park Place intends to broaden its appeal and
target premium table game and slot players through enhanced facilities and
accommodations without compromising its focus on mid-level slot play. During
1994, Bally's Park Place increased spending for marketing and promotional
programs and hired additional host and player development personnel to grow its
share of table game players and revenues. The marketing strategy of Bally's Park
Place is to generate a high volume of play from casino customers from New York,
Philadelphia and other northeastern metropolitan areas, as well as to further
develop its position in all segments of the Atlantic City hotel and convention
market.
Bally's Park Place's revenues and earnings peak during the summer season,
with less favorable operating results during the winter. Bally's Park Place
employs approximately 4,100 persons in the operation of its business.
The Grand. The Grand is situated on approximately three acres at the
intersection of Boston and Pacific Avenues at the southern end of the Boardwalk,
in proximity to one of the major highways that leads into Atlantic City. This
location enables destination-oriented patrons visiting The Grand, primarily
customers who arrive by automobile or bus, to avoid much of the traffic
congestion experienced in the midtown section of Atlantic City.
The Grand encompasses approximately 1.2 million square feet of space
contained within a 22-story tower, a low-rise complex and a multi-story parking
garage and transportation center. The Grand has approximately 60,000 square feet
of gaming space featuring 1,835 slot machines and 104 table games. The Grand
regularly updates and modernizes the type of slot games if offers, including
state-of-the-art machines with embedded bill acceptors and increasingly popular
video games (such as video poker), to attract slot customers and provide
diversity of play. In addition, The Grand offers a full selection of table games
including baccarat, blackjack, craps, pai gow poker and roulette, among others.
The Grand has more than 500 oceanview guest rooms (including approximately
200 suites), approximately 20,000 square feet of convention and meeting room
space, three specialty restaurants, a coffee shop, a buffet, two cocktail
entertainment lounges, an exclusive penthouse lounge area for select gaming
patrons, a beauty salon and three retail gift shops. Recreational facilities
include a health spa and a large swimming pool area. To accommodate drive-in and
bus patrons, The Grand owns a multi-story parking garage and transportation
center which provides valet and self-parking for approximately 1,100 cars and
contains 11 bays for buses. The parking garage and transportation center,
located directly across the street from The Grand, is connected to the casino
hotel by an enclosed walk bridge, thereby enabling patrons to walk directly from
the transportation center into the casino hotel. The Grand also owns a six-story
structure, encompassing approximately 67,000 square feet, which is utilized for
storage and maintenance facilities and is located approximately two blocks from
The Grand. In addition, surface parking space located directly across the street
from The Grand accommodates approximately 520 cars.
The Grand is currently constructing a 1,500-seat arena for headline
entertainment, sports events and production shows, with completion expected in
the fourth quarter of 1995. In addition, The Grand has filed plans with local
authorities seeking approval for construction of a 300-room hotel tower,
including meeting rooms, a restaurant and other related amenities, all on land
owned by the Company adjacent to The Grand. The planned expansion of The Grand
is subject to final approval from various governmental entities and the receipt
of third-party consents, including the receipt of Casino Reinvestment
Development Authority investment obligation credits.
The Grand's operating strategy is to capitalize on its first-class
facility, with an emphasis on personalized service for high-end patrons. In
addition to providing a full selection of casino games, The Grand also offers
its guests a variety of specialty restaurants, headline entertainment and other
amenities.
The Grand's revenues and earnings peak during the summer season, with less
favorable operating results during the winter. The Grand employs approximately
3,100 persons in the operation of its business.
Bally's Las Vegas. The Company owns approximately 80% of the BGLV common
shares outstanding as of June 30, 1995. BGLV owns and operates the Bally's Las
Vegas casino hotel resort in Las Vegas, Nevada. Bally's Las Vegas is located on
an approximately 30-acre site on the Strip at the well-known "Four Corners"
33
<PAGE> 35
intersection of Las Vegas Boulevard South and Flamingo Road. Bally's Las Vegas
is centrally located and is within walking distance of many of the other major
casino hotels on the Strip, which management believes enhances its visibility
and provides it with an advantage in attracting hotel guest and convention
business. In addition, separate subsidiaries of BGLV own approximately 24 acres
of land situated on the Strip adjacent to Bally's Las Vegas (on which a small
retail shopping center is located), approximately 14 acres of land situated
adjacent to Bally's Las Vegas (on which a parking lot is located) and 5 acres of
land situated in North Las Vegas, Nevada (on which supporting facilities used by
Bally's Las Vegas are located).
Bally's Las Vegas currently encompasses approximately 3.2 million square
feet of space in two high-rise hotel towers connected by a low-rise structure
and has approximately 55,000 square feet of gaming space. Bally's Las Vegas
features approximately 1,600 slot machines, 80 table games, a keno area and a
race and sports book area. In order to promote slot machine play, Bally's Las
Vegas emphasizes the configuration and location of its slot machine areas. In
addition, Bally's Las Vegas offers a full selection of table games including
baccarat, blackjack, craps, roulette, pai gow poker, caribbean stud poker, let
it ride and a big-six wheel.
Bally's Las Vegas has more than 2,800 guest rooms (including 237 suites)
and one of the largest casino hotel convention facilities in Las Vegas with
approximately 175,000 square feet of meeting space. The complex also includes
two entertainment showrooms with a combined seating capacity of 2,500, five
restaurants, a coffee shop, two bars, a snack bar, a casino lounge, a
state-of-the-art health spa, a swimming pool and cabana area with food and
beverage service, eight tennis courts and a retail shopping mall.
During 1994, Bally's Las Vegas completed improvements to its frontage area
along the Strip, including the addition of moving walkways that transport
patrons to and from the main entrance through gardens and water displays. In
June 1995, the Company and MGM Grand jointly opened a new commercial
transportation-grade monorail system, connecting the two major "Four Corners" on
the Strip through their respective casino hotel resort properties. The monorail
has been bringing an average of nearly 20,000 passengers each day through
Bally's Las Vegas' casino and retail shopping mall. The retail shopping mall has
been redesigned to include gaming space, a food court and new retailers.
Renovation of the 800 hotel rooms in the hotel's south tower was completed in
August 1995, complementing the 1993 renovation of the approximately 2,000 hotel
rooms in the main tower. In addition, a 7,500 square-foot expansion of the main
casino floor is expected to be completed later this year.
Convention business is a major marketing target for Bally's Las Vegas as it
provides the resort with mid-week occupancy and generally higher than standard
mid-week rates. Management believes that Bally's Las Vegas' convention meeting
space and substantial convention amenities and services make it one of the most
desirable convention forums in Las Vegas.
In addition to its focus on convention business, Bally's Las Vegas markets
to two distinct groups of customers identified as "consistent wagerers" in the
middle to upper-middle tier of the gaming market. The first group consists of
individuals traveling to Las Vegas from southern California and the southwestern
states by automobile and, to a lesser extent, by airplane. These individuals are
primarily weekend-oriented and represent a significant portion of Bally's Las
Vegas' customers. The second group consists of primarily mid-week oriented
individuals who tend to take advantage of travel "packages" offered by tour and
travel agents. Bally's Las Vegas' operating strategy is designed to attract and
retain these customer groups by capitalizing on the quality of its facilities
and providing its guests with a full range of resort amenities and personalized
services, emphasizing its "Touch of Class" motto. Management believes that the
spacious configuration of Bally's Las Vegas' casino and the size of its standard
hotel rooms, which are among the largest offered on the Strip, contribute to its
upscale image and help to attract these targeted customers.
Business at Bally's Las Vegas is somewhat seasonal, usually declining in
the summer and midwinter months. Bally's Las Vegas employs approximately 4,000
persons in the operation of its business.
Bally's New Orleans. A subsidiary of Casino Holdings owns an equity
interest of approximately 50% in Belle of Orleans, L.L.C., the entity that owns
Bally's New Orleans, which commenced operation of a riverboat casino facility in
July 1995 in New Orleans, Louisiana. In August 1993, the Casino Holdings
subsidiary entered into a formal operating agreement for the capitalization and
development of Bally's New Orleans.
34
<PAGE> 36
Simultaneously, Casino Holdings and Bally's New Orleans entered into a
management agreement with a term of five years and an option for a second
five-year term granting responsibility for the development and management of
Bally's New Orleans to Casino Holdings. Casino Holdings receives management fees
based on a percentage of the earnings of Bally's New Orleans.
Bally's New Orleans' riverboat operates out of South Shore Harbor on Lake
Pontchartrain in Orleans Parish, which is approximately eight miles from the
French Quarter of New Orleans. The riverboat can accommodate up to 2,500
passengers and features a 30,000 square-foot casino (the maximum size currently
allowed under Louisiana law) on the two upper decks of the vessel. The casino
features 1,213 state-of-the-art slot machines with embedded bill acceptors and
46 table games, including blackjack, roulette, craps and poker. The lower level
of the vessel has an additional 20,000 square feet of space available for gaming
in the event current Louisiana law is amended. The vessel was built to resemble
a traditional paddle-wheel riverboat and features an "Americana" theme in red,
white and blue. Onshore facilities include a 34,000 square-foot terminal
building that houses a buffet restaurant, cocktail lounge and waiting area and
parking for over 1,200 vehicles. Bally's New Orleans employs approximately 1,000
persons in the operation of its business.
Louisiana law provides for twenty-four hour, unlimited stakes gaming on a
riverboat. Barring adverse weather and water conditions, gaming is not permitted
while a riverboat is docked other than during a period no longer than 45 minutes
between excursions. Each round-trip riverboat cruise may not be less than three
nor more than eight hours in duration. Bally's New Orleans operates seven
cruises daily with no admission charge. Bally's New Orleans' operating strategy
is to provide its patrons with an enjoyable gaming experience through a
well-trained, friendly staff in an attractive facility. The marketing strategy
of Bally's New Orleans is to generate a high volume of casino play from local
residents, as well as tourists. Expansion plans being considered include a
25,000 to 30,000-square foot performance arena, which would feature various
headline entertainment.
Bally's Mississippi. Bally's Mississippi commenced operations in December
1993 at Mhoon Landing in Tunica, Mississippi (located approximately 35 miles
from Memphis, Tennessee). On February 9, 1995, Bally's Mississippi entered into
a venture agreement with Lady Luck under which Bally's Mississippi has relocated
its dockside casino from Mhoon Landing to Lady Luck's site in Robinsonville,
Mississippi (a site which, upon opening, will be the casino closest to Memphis,
Tennessee), where Lady Luck constructed a 238-room hotel. The Company owns a 58%
interest in the entity that owns Bally's Mississippi, and manages the property
under a fee arrangement.
The Robinsonville site encompasses approximately 64 acres. Upon the
anticipated reopening in November 1995, the 40,000 square-foot dockside casino
is expected to feature 1,185 slot machines and 53 table games (including
blackjack, craps, mini-baccarat and roulette, among others). The venture expects
to develop the site to include a restaurant, an entertainment lounge,
administrative facilities and parking for approximately 1,200 vehicles. The
existing hotel encompasses approximately 150,000 square feet of space.
The venture's operating strategy is expected to result in an enjoyable
gaming experience for its patrons through a well-trained, friendly staff in an
attractive facility, complemented by comfortable hotel accommodations,
entertainment and other amenities. The atmosphere of the casino is expected to
be open and airy, with wide aisles and ample space between games. A "Bayou"
theme featuring weathered metal siding and exposed wooden beams is expected to
create a fun environment with strong destination appeal. The marketing strategy
of the venture is to generate a high volume of play from casino customers in the
regional area and is expected to be enhanced by the hotel and the Robinsonville
site's proximity to Memphis.
The venture is expected to employ approximately 800 persons in the
operation of its business.
Other. The Company continues to explore opportunities for gaming expansion
in jurisdictions where gaming is presently authorized or may become authorized.
New gaming projects may be wholly owned and operated by the Company or may be
developed, owned and/or operated through joint ventures involving the Company.
Exclusive of costs incurred in the development of Bally's New Orleans and
Bally's Mississippi, the Company has expended approximately $20 million during
the past three years in the pursuit of gaming opportunities (including land
option costs) in jurisdictions including, among others, Pennsylvania, Florida,
35
<PAGE> 37
Missouri, Ontario (Canada), Illinois, Alabama, Virginia and Indiana, and Native
American lands in various locations. In addition, the Company entered into
agreements with a third party in June 1995 whereby the Company loaned $10.6
million to finance the acquisition of and is managing two harness racing
facilities in Maryland: (i) Rosecroft Raceway, located in suburban Washington,
D.C., and (ii) Delmarva Downs Raceway, located near Ocean City, Maryland.
In May 1995, BGLV announced its intention to develop a separate casino
hotel resort with a Paris, France theme on approximately 24 acres of land
situated on the Strip adjacent to Bally's Las Vegas. The property has been
designed by Joel Bergman, the architect for the Mirage and Treasure Island
resorts. BGLV expects to finalize development plans for the Paris Casino-Resort
by the end of 1995, at which time construction costs will be better known and
third-party financing for the project will be sought. The cost of the project,
exclusive of the value of the land already owned by BGLV, is currently estimated
to be $250 million.
COMPETITION
General. The Company's casinos face significant competition from both
established casinos and newly emerging gaming operations. The Company believes
that the legalization of casino gaming in various jurisdictions over the last
several years and the opening of gaming facilities operated by Native Americans
have not, to date, had a material adverse impact on its Atlantic City or Las
Vegas operations. However, proposals have been made for significant casinos,
generally water-based, in a number of other jurisdictions and several large
metropolitan areas, including Chicago, where the Company is headquartered, and
Philadelphia, where the Company holds an option on a large tract of waterfront
property. Legalization of gaming in additional jurisdictions would also provide
opportunities for expansion by the Company's competitors, some of which have
greater financial resources than the Company, which could adversely affect the
Company's existing and proposed operations. The Company believes that the
adoption of legislation approving casino gaming in any jurisdiction near New
Jersey (particularly New York or Pennsylvania) or near Nevada (particularly
California or the other southwestern states) or the advent of full-scale gaming
on nearby Native American lands could have a material adverse effect on its
present operations. Similarly, the legalization of gaming in jurisdictions
adjacent to Mississippi (particularly Tennessee or Arkansas) could have a
material adverse affect upon the expected operations of Bally's Mississippi. The
Company also competes with other forms of legalized gaming, including
state-sponsored lotteries and off-track wagering. In markets in which the
Company commences operations or seeks to commence operations, it often faces
intense competition for licenses, desirable sites, qualified personnel and,
ultimately, customers from other companies in the gaming industry.
The Company believes that casino competition in the markets in which it
competes is based primarily on the location and physical design of the casino
and, where applicable, hotel accommodations, the extent and quality of
personalized service offered to guests and casino customers, the price and
quality of rooms and food and beverages, the number and quality of its
restaurants, convention and other public facilities, promotional allowances, the
entertainment offered, the variety of table games and slot machines, table
limits, casino credit granted to customers and parking availability. Management
believes that the reputation of each of the Company's casinos as a first-class
facility enhances their competitiveness in each of their markets.
Atlantic City. Since April 1990, there have been ten casino hotel
facilities operating in Atlantic City in competition with Bally's Park Place and
The Grand, which are also in competition with each other. Several Atlantic City
casino hotels have recently expanded or are currently in the process of
expanding their facilities. In addition, proposals for two new casino hotel
resorts were recently announced for the Marina in Atlantic City, and, if and
when such resorts are opened, capacity and competition will further increase.
Bally's Park Place has a central location which positively affects its
competitive position. The Grand, however, is geographically removed from the
newest Atlantic City casino hotels and others that have made significant capital
improvements, which has historically adversely affected its competitive
position.
Las Vegas. Bally's Las Vegas competes principally with other casino hotels
and casinos located in Las Vegas. Currently, there are approximately thirty
major casino hotels located on or near the Strip, approximately ten major casino
hotels located in the Las Vegas downtown area and several major facilities
located
36
<PAGE> 38
elsewhere in the Las Vegas area. As a result of new construction projects and
certain expansions by casino hotels located on or near the Strip, over the last
three years Las Vegas casino space increased significantly and hotel and motel
room capacity increased by approximately 12,000 rooms or 15%. A significant
portion of the increase is a result of the opening during the latter part of
1993 of three new major casino hotels that contain 370,000 total square feet of
casino space, 10,400 total guest rooms and a theme park. In addition, there have
been several public announcements concerning major casino hotel projects in Las
Vegas (including the Company's announcement regarding the Paris Casino-Resort),
and, if and when such projects are completed, capacity and competition will
further increase. Management believes that the additional casino and hotel room
capacity resulting from the opening of new casino hotels has a short-term
negative impact on Bally's Las Vegas, but that over the long term Bally's Las
Vegas benefits from the increase in the number of visitors to Las Vegas that
these new properties attract. The number of visitors to Las Vegas during 1994
increased approximately 32% over the number in 1991. Management also believes
that Bally's Las Vegas' central location has had and will continue to have a
positive effect on its competitive position.
New Orleans. Louisiana law currently limits to fifteen the number of
riverboat gaming licenses that may be granted (all but one of which have been
granted), with a maximum of six riverboats in any one parish. Four riverboats
are presently operating in the New Orleans area (including that of Bally's New
Orleans). In addition to the riverboat casinos, a license for a single,
large-scale, land-based casino has been awarded to a competitor. This casino
commenced operations at a temporary location in May 1995 and is expected to be
the largest land-based casino in the United States when it moves to a permanent
location in mid-1996. Upon its opening, the permanent facility may draw
customers who might otherwise patronize Bally's New Orleans. In June 1995, a
joint venture operating two casino gaming vessels in downtown New Orleans closed
due to revenues having been insufficient to meet obligations of the venture,
which posted substantial operating losses.
Mississippi. Mississippi gaming law does not limit the number of gaming
licenses that may be granted. In particular, management believes there was a
saturation of gaming facilities in and around the Memphis, Tennessee market,
which led to the closing of six casinos in that market. At July 31, 1995, seven
gaming facilities were operating in this market, three of which are located in
proximity to the Robinsonville site. These facilities (as well as any others
which subsequently commence operations there) present significant competition
for Bally's Mississippi when it reopens. Further, a competitor has announced it
intends to proceed with development of a casino hotel resort, which would be
somewhat closer to Memphis than Bally's Mississippi and, if developed as
planned, would offer more casino space and greater amenities than those expected
to be offered by Bally's Mississippi, which may reduce the anticipated patronage
of Bally's Mississippi.
GAMING REGULATION
General. Gaming is regulated in every jurisdiction in which it is
currently legalized, and regulations generally require receipt of a license
prior to commencement of gaming operations. The regulatory frameworks may impose
restrictions or costs including additional taxes that materially detract from
the feasibility or profitability of gaming operations. Gaming regulations and
their enforcement are within the discretion of the regulating jurisdictions, and
the Company cannot predict what these regulations will be, how they will be
enforced or what effect, if any, these regulations will have on the Company. In
addition, floating gaming ventures require compliance with certain maritime laws
and U.S. Coast Guard regulations. The Company believes it is in material
compliance with all such regulations.
New Jersey Regulation. Gaming activities in Atlantic City are subject to
the New Jersey Act, regulations of the New Jersey Commission and other
applicable laws. No casino may operate unless the required permits or license
and approvals are obtained from the New Jersey Commission. The New Jersey
Commission is authorized under the New Jersey Act to adopt regulations covering
a broad spectrum of gaming and gaming-related activities and to prescribe the
methods and forms of applications from all classes of licensees. These laws and
regulations concern primarily: (i) the financial stability, integrity,
responsibility, good character, honesty and business ability of casino service
suppliers and casino operators, their directors, officers and employees, their
security holders and others financially interested in casino operations, (ii)
the nature of casino hotel facilities, and (iii) the operating methods and
financial and accounting practices used in
37
<PAGE> 39
connection with the casino operations. Taxes are imposed by the State of New
Jersey on gaming operations at the rate of 8% of gross gaming revenues. In
addition, the New Jersey Act provides for an investment alternative tax of 2.5%
of gross gaming revenues. This investment alternative tax may be offset by
investment tax credits equal to 1.25% of gross gaming revenues, which are
obtained by purchasing bonds issued by or investing in housing or other
development projects approved by the New Jersey Casino Reinvestment Development
Authority, a state agency. New laws and regulations, as well as amendments to
existing laws and regulations, relating to gaming activities in Atlantic City
are periodically introduced or proposed and sometimes adopted. In January 1995,
a comprehensive package of amendments to the New Jersey Act was enacted into
law, which amendments, among other things, reduce certain regulatory
requirements.
The New Jersey Commission had broad discretion with regard to the issuance,
renewal and revocation or suspension of casino licenses. A casino license is not
transferable, is issued for a term of up to one year for the first two renewals
and thereafter for a term of up to four years (subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time),
and must be renewed by filing an application which must be enacted on by the New
Jersey Commission prior to the expiration of the license in force. At any time,
upon a finding of disqualification or noncompliance, the New Jersey Commission
may revoke or suspend a license or impose fines.
The New Jersey Act imposes certain restrictions on the ownership and
transfer of securities issued by a corporation that holds a casino license or is
deemed a holding company, intermediary company, subsidiary or entity qualifier
(each, an "affiliate") of a casino licensee. "Security" is defined by the New
Jersey Act to include instruments that evidence either a beneficial ownership in
an entity (such as common stock or preferred stock) or a creditor interest in an
entity (such as a bond, note or mortgage). Pursuant to the New Jersey Act, the
corporate charter of a publicly traded affiliate of a casino licensee must
require that a holder of the company's securities dispose of such securities if
the holder's continued holding would result in the company or any other
affiliate being no longer qualified to continue as a casino licensee under the
New Jersey Act. The corporate charter of a casino licensee or any privately held
affiliate of the licensee must: (i) establish the right of prior approval by the
New Jersey Commission with regard to a transfer of any security in the company
and (ii) create the absolute right of the company to repurchase at the market
price or purchase price, whichever is less, any security in the company in the
event the New Jersey Commission disapproves a transfer of such security under
the New Jersey Act. The corporate charters of the Company's subsidiaries that
operate Bally's Park Place and The Grand and the charters of their privately
held affiliates conform with the New Jersey Act's requirements described above
for privately held companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of such corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action. The New Jersey Commission may require divestiture of the
securities held by any disqualified holder who is required to be qualified under
the New Jersey Act (e.g., officers, directors, security holders and key casino
and other employees). In the event that disqualified persons fail to divest
themselves of such securities, the New Jersey Commission may revoke or suspend
the license. However, if an affiliate of a casino licensee is a publicly traded
company and the New Jersey Commission finds disqualified any holder of any
security thereof who is required to be qualified, and the New Jersey Commission
also finds that: (i) such company has complied with aforesaid charter
provisions, (ii) such company has made a good faith effort including the
prosecution of all legal remedies, to comply with any order of the New Jersey
Commission requiring the divestiture of the security interest held by the
disqualified holder, and (iii) such disqualified holder does not have the
ability to control the corporate licensee or the affiliate, or to elect one or
more members of the board of directors of such affiliate, the New Jersey
Commission will not take action against the casino licensee or its affiliate
with respect to the continued ownership of the security interest by the
disqualified holder.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if such
holder owns or beneficially holds 5% or more of any class of the equity
securities of such corporation, unless such presumption of control or ability to
elect is rebutted by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
38
<PAGE> 40
qualification if it holds less than 10% of any class of the equity securities of
a publicly traded holding or intermediary company of a casino licensee and: (i)
the holdings were purchased for investment purposes only, (ii) there is no cause
to believe the institutional investor may be found unqualified and (iii) upon
request by the New Jersey Commission, the institutional investor 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 other
affiliates. The New Jersey Commission may grant a waiver of qualification to an
institutional investor holding 10% or more of such securities upon a showing of
good cause and if the conditions specified above are met.
With respect to debt securities, the New Jersey Commission generally
requires a person holding 15% or more of a debt issue of a publicly traded
affiliate of a casino licensee to qualify as a "financial source" where the use
of the proceeds from the debt issue is related in any way to the financing of
the casino licensee. There can be no assurance that the New Jersey Commission
will continue to apply the 15% threshold, and the New Jersey Commission could at
any time establish a lower threshold for qualification. An exception to the
qualification requirement is made for institutional investors, in which case the
institutional holder is entitled to waiver of qualification if the holder's
position in the aggregate is less than 20% of the total outstanding debt of the
affiliate and less than 50% of any outstanding publicly traded issue of such
debt, and if the conditions specified in the above paragraph are met. As with
equity securities, a waiver of qualification may be granted to institutional
investors holding larger positions upon a showing of good cause and if all
conditions specified in the above paragraph are met.
Generally, the New Jersey Commission would require each institutional
holder seeking a waiver of qualification to execute a certificate to the effect
that: (i) the holder has reviewed the definition of institutional investor under
the New Jersey Act and believes that it meets the definition of institutional
investor, (ii) the holder purchased the securities for investment purposes only
and holds them in the ordinary course of business, (iii) 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
(iv) 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' notice of such intent and shall file with the New Jersey Commission an
application for qualification before taking any such action.
Commencing on the date the New Jersey Commission serves notice on a
corporate licensee or an affiliate of such corporate licensee that a security
holder of such corporation has been found disqualified, it will be unlawful for
the security holder to: (i) receive any dividends or interest upon any such
securities, (ii) exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (iii) receive any remuneration in any form from
the corporate licensee for services rendered or otherwise.
Persons who are required to qualify under the New Jersey Act by reason of
holding debt or equity securities are required to place the securities into an
Interim Casino Authorization ("ICA") trust pending qualification. Unless and
until the New Jersey Commission has reason to believe that the investor may not
qualify, the investor will retain the ability to direct the trustee how to vote,
or whether to dispose of, the securities. If at any time the New Jersey
Commission finds reasonable cause to believe that the investor may be found
unqualified, it can order the trust to become "operative," in which case the
investor will lose voting power, if any, over the securities but will retain the
right to petition the New Jersey Commission to order the trustee to dispose of
the securities.
Once an ICA trust is created and funded, and regardless of whether it
becomes operative, the investor has no right to receive a return on the
investment until the investor becomes qualified. Should an investor ultimately
be found unqualified, the trustee would dispose of the trust property, and the
proceeds would be distributed to the unqualified applicant only in an amount not
exceeding the actual cost of the trust property. Any excess proceeds would be
paid to the State of New Jersey. If the securities were sold by the trustee
pending qualification, the investor would receive only actual cost, with
disposition of the remainder of the proceeds, if any, to await the investor's
qualification hearing.
In the event it is determined that a licensee has violated the New Jersey
Act or its regulations, then under certain circumstances, the licensee could be
subject to fines or have its license suspended or revoked. In addition, if a
person who is required to qualify under the New Jersey Act fails to qualify, or
if a security holder
39
<PAGE> 41
who is required to qualify fails to qualify and does not dispose of the related
securities in the licensee or in any affiliate of the licensee, as may be
required by the New Jersey Act, then, under certain circumstances, the licensee
could have its licensee suspended or revoked.
If a casino licensee was not renewed, was suspended for more than 120 days
or was revoked, the New Jersey Commission could appoint a conservator. The
conservator would be charged with the duty of conserving and preserving the
assets so acquired and continuing the operation of the hotel and casino of a
suspended licensee or with operating and disposing of the casino hotel
facilities of a former licensee. Such suspended licensee or former licensee,
however, would be entitled only to a fair return on its investment, to be
determined under New Jersey law, with any excess to go to the State of New
Jersey, if so directed by the New Jersey Commission. Suspension or revocation of
any licenses or the appointment of a conservator by the New Jersey Commission
would have a material adverse effect on the business of Bally's Park Place and
The Grand.
In 1994, the New Jersey Commission renewed the casino licenses of Bally's
subsidiaries that operate Bally's Park Place and The Grand through June 1996 and
July 1996, respectively.
Nevada Regulation. The ownership and operation of casino gaming facilities
in Nevada are subject to: (i) the Nevada Act and (ii) various local ordinances
and regulations. BGLV's gaming operations are subject to the licensing and
regulatory control of the Nevada Commission, the Nevada Board and the Clark
County Board. The Nevada Commission, the Nevada Board and the Clark County Board
are collectively referred to herein as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity, (ii) the establishment and maintenance of responsible accounting
practices and procedures, (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities, (iv) the prevention of cheating and
fraudulent practices, and (v) providing a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on Bally's Las Vegas' gaming operations.
The Company is registered by the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been approved to acquire
control of BGLV. Casino Holdings, an indirect wholly owned subsidiary of the
Company, is a Registered Corporation by virtue of its outstanding debt
securities. Casino Holdings has been found suitable to own the capital stock of
Bally's Grand Management Co., Inc. ("Management Co."), which is the manager of
BGLV. BGLV is a Registered Corporation and has been found suitable to own the
stock of Grand Resorts, Inc. ("GRI"), which operates the Bally's Las Vegas
casino. GRI is required to be licensed by the Nevada Gaming Authorities. The
gaming license held by GRI requires the payment of fees and taxes and is not
transferable. Management Co. is required to be licensed by the Nevada Commission
as a manager for Bally's Las Vegas and such license is not transferable. GRI and
Management Co. are each a corporate licensee (individually a "Corporate
Licensee" and collectively the "Corporate Licensees") under the terms of the
Nevada Act. As Registered Corporations, the Company, Casino Holdings and BGLV
are required periodically to submit detailed financial and operating reports to
the Nevada Commission and furnish any other information which the Nevada
Commission may require. No person may become a stockholder of, or receive any
percentage of profits from the Corporate Licensees without first obtaining
licenses and approvals from the Nevada Gaming Authorities. The Company, Casino
Holdings, BGLV and the Corporate Licensees have obtained from the Nevada Gaming
Authorities the various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company, Casino
Holdings, BGLV or the Corporate Licensees in order to determine whether such
individual is suitable or should be licensed as a business associate of a gaming
40
<PAGE> 42
licensee. Officers, directors and certain key employees of the Corporate
Licensees must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of the Company, Casino Holdings or BGLV
who are actively and directly involved in gaming activities of the Corporate
Licensees may be required to be licensed or found suitable by the Nevada Gaming
Authorities. The Nevada Gaming Authorities may deny an application for licensing
for any cause which they deem reasonable. A finding of suitability is comparable
to licensing, and both require submission of detailed personal and financial
information followed by a thorough investigation. The applicant for licensing or
a finding of suitability must pay all costs of investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, Casino Holdings, BGLV or the Corporate Licensees,
the companies involved would have to sever all relationships with such person.
In addition, the Nevada Commission may require the Company, Casino Holdings,
BGLV or the Corporate Licensees to terminate the employment of any person who
refuses to file appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial review in Nevada.
The Company, Casino Holdings, BGLV and the Corporate Licensees are required
to submit detailed financial and operating reports to the Nevada Commission.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Corporate Licensees must be reported to or
approved by the Nevada Commission.
If it were determined that the Nevada Act was violated by a Corporate
Licensee, the gaming licenses it holds could be limited, conditioned, suspended
or revoked, subject to compliance with certain statutory and regulatory
procedures. In addition, the Corporate Licensees, the Company, Casino Holdings,
BGLV and the persons involved could be subject to substantial fines for each
separate violation of the Nevada Act at the discretion of the Nevada Commission.
Further, a supervisor could be appointed by the Nevada Commission to operate the
Bally's Las Vegas casino and, under certain circumstances, earnings generated
during the supervisors' appointment (except for reasonable rental value of the
casino) could be forfeited to the State of Nevada. 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 Bally's Las
Vegas' gaming operations.
Any beneficial holder of the Company's or BGLV's voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and be subject to a suitability determination as a
beneficial holder of such voting securities if the Nevada Commission has reason
to believe that such ownership would otherwise be inconsistent with the declared
policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.
The Nevada Act requires any person who acquires more than 5% of a
Registered Corporation's voting securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of a Registered Corporation's voting securities apply to the Nevada
Commission for a finding of suitability within 30 days after the Chairman of the
Nevada Board mails a written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Registered Corporation's
voting securities my apply to the Nevada Commission for a waiver of such finding
of suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of the board of directors of the
Registered Corporation, any change in the Registered Corporation's or its gaming
affiliates' corporate charter, bylaws, management, policies or operations, or
any other action which the Nevada Commission finds to be inconsistent with
holding the Registered Corporation's voting securities for investment purposes
only. Activities which are not deemed to be inconsistent with holding
41
<PAGE> 43
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders, (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations,
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners of its securities. The applicant is required to pay all costs
of investigation.
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 Nevada Commission or
the Chairman of the Nevada Board may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company, Casino Holdings and BGLV would be subject to
disciplinary action if, after they receive notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, Casino
Holdings, BGLV or the Corporate Licensees, the Company, Casino Holdings or BGLV:
(i) pays that person any dividend or interest upon the voting securities of the
Company or BGLV, (ii) allows that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish that person's voting securities including, if necessary, the
immediate purchase of said voting securities for cash at fair market value.
Additionally, the Clark County Board has the authority to approve all persons
owning or controlling the stock of any corporation controlling a Corporate
Licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a Registered Corporation to file applications, be investigated
and be found suitable to own the debt security of a Registered Corporation. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered Corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest or any distribution whatsoever, (ii) recognizes any voting right by
such unsuitable person in connection with such securities, (iii) pays the
unsuitable person remuneration in any form, or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation or similar transaction.
The Company, Casino Holdings and BGLV are required to maintain a current
stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at
any time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Nevada Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company, Casino Holdings
and BGLV are also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
the stock certificates of the Company, Casino Holdings and BGLV to bear a legend
indicating that the securities are subject to the Nevada Act. Although Casino
Holdings is subject to such a requirement, the Nevada Commission has not imposed
such requirement on the Company or BGLV to date.
None of the Company, Casino Holdings nor BGLV may make a public offering of
its securities without the prior approval of the Nevada Commission if the
securities or proceeds therefrom are intended to be used to construct, acquire
or finance gaming facilities in Nevada, or to retire or extend obligations
incurred for such purposes. On August 24, 1995, the Nevada Commission granted
the Company prior approval to make offerings for a period of one year, subject
to certain conditions (the "Shelf Approval"). The Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and must be renewed
annually. The Shelf Approval also applies to any affiliated company wholly owned
by the Company (an "Affiliate") which is a publicly traded corporation or would
thereby become a publicly traded corporation pursuant to a public offering. The
Shelf Approval also includes approval for Management Co. to guarantee any
security issued by, or to hypothecate its assets to secure the payment or
performance of any obligations evidenced by securities issued by, the Company or
an
42
<PAGE> 44
Affiliate in a public offering under the Shelf Approval. The Shelf Approval does
not constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus or the
investment merits of the securities offered thereby. This Offering is being made
pursuant to the Shelf Approval.
Changes in control of the Company or BGLV through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby that person obtains control, may not occur without
the prior approval of the Nevada Commission. In addition, because Casino
Holdings is an indirect wholly owned subsidiary of the Company, the Nevada
Commission has conditioned Casino Holdings' registrations so that no transfer of
its voting securities may occur without the prior approval of the Nevada
Commission. Entities seeking to acquire control of a Registered Corporation must
satisfy the Nevada Board and the Nevada Commission in a variety of stringent
standards prior to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers, directors and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Corporate Licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of Corporate Licensees 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 Nevada Commission
before a Registered Corporation can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensee's respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received, (ii) the number of
gaming devices operated or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada gaming
licensees that hold a license as an operator of a slot machine route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of such Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease at the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operations, fail to
conduct the foreign gaming operations in accordance with the standards of
honesty and integrity required of Nevada gaming operations, engage in activities
that are harmful to the State of Nevada or its ability to collect gaming taxes
and fees, or employ a person in the foreign operation who has been denied a
license or finding of suitability in Nevada on the grounds of personal
unsuitability.
Louisiana and Maritime Regulation. Louisiana has also adopted regulatory
requirements which are similar to Nevada's with respect to the discretion given
the regulators in granting licenses, financial qualification of licensees and
qualification of security holders, officers, directors and key employees. In
43
<PAGE> 45
addition, significant contracts and leases entered into by a licensee must be
reported to the Louisiana regulators and certain enterprises which transact
business with a licensee must be licensed. The Louisiana regulations restrict
the payment of dividends, interest or remuneration for services rendered or
otherwise to security holders who are not found suitable and requires
disposition of such securities from those holders who are found disqualified.
The Riverboat Gaming Enforcement Division of the Louisiana State Police may
conduct a suitability investigation of security holders at any time. A Louisiana
gaming license is not transferable and requires the periodic payment of fees.
The Louisiana Riverboat Gaming Commission issued Bally's New Orleans a
Certificate of Preliminary Approval in June 1993 and the Riverboat Gaming
Enforcement Division of the Louisiana State Police issued a riverboat gaming
license in March 1994. In July 1995, Bally's New Orleans received from the
Louisiana Riverboat Gaming Commission a Certificate of Final Approval. Louisiana
law also provides that, barring adverse weather and water conditions, gaming is
not permitted while a riverboat is docked other than during a period no longer
than 45 minutes between excursions. Additionally, each round-trip riverboat
cruise may not be less than three nor more than eight hours in duration.
Under the provisions of Title 46 of the U.S. Code, the design, construction
and operation of Bally's New Orleans' riverboat are subject to regulation and
approval of the U.S. Coast Guard. Prior to the commencement of operations, a
Certificate of Inspection and a Certificate of Documentation were obtained from
the U.S. Coast Guard. All shipboard employees of the Company employed on U.S.
Coast Guard regulated vessels, including those not involved with the actual
operation of the vessel, such as dealers, cocktail hostesses and security
personnel, may be subject to certain federal legislation relating to maritime
activity which, among other things, exempts those employees from state limits on
workers' compensation awards. The Company expects that it will have adequate
insurance to cover employee claims. Furthermore, Bally's New Orleans' riverboat
is a cruising riverboat on Lake Pontchartrain which, among other things,
requires a U.S. Coast Guard hull inspection at five-year intervals.
Mississippi Regulation. The ownership and operation of casino gaming
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 Mississippi State Tax Commission. Bally's Mississippi must
register under the Mississippi Gaming Control Act (the "Mississippi Act") and
its gaming operations are subject to the licensing and regulatory control of the
Mississippi Gaming Commission and various local, city and county regulatory
agencies. Although not identical, the Mississippi Act is similar to the Nevada
Gaming Control Act. The adopted regulations of the Mississippi Gaming Commission
are also similar in many respects to the Nevada gaming regulations.
Mississippi statutes and regulations give the Mississippi Gaming Commission
the discretion to require a suitability finding with respect to any person or
entity who acquired any security of Bally's Mississippi regardless of the
percentage of ownership. The current policy of the Mississippi Gaming Commission
is to require any person or entity acquiring 5% or more of any voting securities
of a public company with a licensed subsidiary or private company licensee to be
found suitable. If the owner of voting securities who is required to be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any owner of voting securities found unsuitable who holds, directly or
indirectly, any beneficial ownership of equity interests in Bally's Mississippi
beyond such period of time as may be prescribed by the Mississippi Gaming
Commission may be guilty of a misdemeanor. Any person who fails or refuses to
apply for a finding of suitability or a license within 30 days after being
ordered to do so by the Mississippi Gaming Commission may be found unsuitable.
Bally's Mississippi would be subject to disciplinary action if, after it
receives notice that a person is unsuitable to be an owner of or to have any
other relationship with it, Bally's Mississippi (i) pays the unsuitable person
any dividends or interest upon any of its securities or any payments or
distribution of any kind whatsoever, (ii) recognizes the exercise, directly or
indirectly, of any voting rights in its securities by the unsuitable person, or
(iii) pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances. In
addition, if the Mississippi Gaming
44
<PAGE> 46
Commission finds any owner of voting securities unsuitable, such owner must
immediately surrender all securities to Bally's Mississippi, as applicable, and
Bally's Mississippi must purchase the security so offered, for cash at fair
market value within ten days.
Bally's Mississippi is required to maintain current ownership ledgers in
the State of Mississippi which may be examined by the Mississippi Gaming
Commission at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Mississippi Gaming Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Bally's
Mississippi is also required to render maximum assistance in determining the
identity of the beneficial owner. Bally's Mississippi may be required to
disclose to the Mississippi Gaming Commission upon request the identities of the
holders of the securities. In addition, the Mississippi Gaming Commission under
the Mississippi Act may, in its discretion (i) require holders of debt
securities of such registered corporations to file applications, (ii)
investigate such holders, and (iii) 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 debt securities
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.
Mississippi law prohibits Bally's Mississippi from making a public offering
or private placement of its securities without the approval of or waiver of
approval by 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 of such purposes. Because none of the proceeds from this
Offering are intended to be used in Mississippi, approval of the Mississippi
Gaming Commission is not required.
Mississippi regulation requires prior approval to recapitalize or engage in
gaming outside of Mississippi. A Mississippi gaming license is valid for two
years, is not transferable and requires the periodic payment of fees. In
December 1993, the Mississippi Gaming Commission granted Bally's Mississippi a
license to operate its dockside casino at the Mhoon Landing site and found
certain key principals suitable. In February 1995, in conjunction with the
relocation to the Robinsonville site, the Mississippi Gaming Commission granted
Bally's Mississippi a new two year license. The findings of suitability for the
certain key principals are required to be reviewed in December 1995.
Federal Registration. The operating subsidiaries of Bally that are
involved in gaming activities are required to make annual filings with the
Attorney General of the United States in connection with the operation of slot
machines. All requisite filings for the present year have been made.
FITNESS CENTERS
Bally's Health & Tennis, through the subsidiaries which it controls, is the
largest (and the only nationwide) commercial operator of fitness centers in the
United States in terms of revenues, members, and number and square footage of
facilities. Bally's Health & Tennis operates approximately 330 fitness centers
located in 27 states and Canada, with approximately 4.2 million members. On June
1, 1995, Bally's Health & Tennis began to market substantially all of its
fitness centers under the name "Bally Total Fitness", thereby eliminating the
prior practice of using a number of different regional trade names. Most of the
Company's fitness centers are located in major metropolitan markets in the
United States including, among others, Los Angeles, New York, Chicago,
Baltimore, Philadelphia, Houston, Dallas, Minneapolis, Detroit, Miami, Atlanta,
Cleveland, Seattle, Phoenix, Denver, St. Louis and Kansas City. Bally's Health &
Tennis owns 32 locations and leases space, generally pursuant to long-term
leases, in other locations where it operates fitness centers.
Bally's Health & Tennis offers, on a membership basis, the use of its
fitness centers, including extensive aerobics programs and personal training
emphasizing cardiovascular conditioning, strength development and
45
<PAGE> 47
improved appearance. Bally's Health & Tennis' strategy is to offer members value
by providing state-of-the-art facilities and membership programs at affordable
prices. The fitness centers offer prospective members the option of financing
their initial membership fees as an alternative to a lump sum cash payment, and
management considers such payment flexibility to be a competitive advantage over
many of its competitors. As part of Bally's Health & Tennis' strategy, fitness
centers are clustered in major metropolitan areas in order to achieve
advertising, marketing and operating efficiencies. Most fitness centers provide
a wide variety of progressive resistance, cardiovascular and conditioning
exercise equipment and free weights in addition to aerobic exercise rooms, steam
rooms, whirlpools and saunas, and many centers offer additional spa areas as
well as indoor swimming pools, jogging tracks and, in some cases, tennis and
racquetball courts.
Bally's Health & Tennis currently offers prospective members a limited
number of membership plans that differ primarily by the inclusion of additional
in-club services (such as racquetball facilities and child care) and access to
other fitness centers operated by Bally's Health & Tennis, either locally or
nationally. From time to time, Bally's Health & Tennis also offers special
membership plans, which limit access to fitness centers to certain days and
non-peak hours. Members choose from several payment mechanisms and downpayment
options, but a variety of discount offers encourage members to select an
electronic funds transfer method of payment and to increase the amount of
downpayment. In addition to the one-time initial membership fee, members must
pay membership dues in order to maintain their membership privileges. As one way
of emphasizing the value and affordability of its memberships, Bally's Health &
Tennis offers different renewal plans with prices that vary depending on the
member's historical usage of the fitness center facilities.
Bally's Health & Tennis is the largest operator, or is among the largest
operators, of fitness centers in every major market in which it has fitness
centers. Bally's Health & Tennis believes its fitness centers generally offer a
high level of amenities to its primary target market, the 18- to 34-year old,
middle income segment of the population. Within each market, Bally's Health &
Tennis competes with other fitness centers, physical fitness and recreational
facilities established by local governments and businesses for their employees,
the YMCA and similar organizations and, to a certain extent, with racquet and
tennis and other athletic clubs, country clubs, weight reducing salons and the
home-use fitness equipment industry. However, Bally's Health & Tennis believes
that its operating experience, its ability to recover advertising and
administration costs over all of its fitness centers, and its account processing
and collection infrastructure provide an advantage over its competitors. Bally's
Health & Tennis believes that its membership plans are affordable and have the
flexibility to be responsive to economic conditions. However, Bally's Health &
Tennis also competes with other entertainment and retail businesses for the
discretionary income of its target market.
Bally's Health & Tennis' sales and marketing programs emphasize the
benefits of health, physical fitness and exercise by appealing to the public's
desire to look and feel better. The success of Bally's Health & Tennis'
marketing efforts are dependent upon the ability of its sales personnel to make
effective personal presentations of the benefits of membership to prospective
members. Bally's Health & Tennis believes that these presentations are enhanced
by its well-equipped, attractive fitness centers and its "value-pricing"
membership programs. Bally's Health & Tennis' marketing focus also includes
corporate membership sales (through a special sales force) and
insurance-eligible rehabilitation programs.
Bally's Health & Tennis intends to continue its program of upgrading its
fitness centers by remodeling, expanding or replacing smaller fitness centers
constructed prior to 1980, closing selected existing facilities that management
believes do not present sufficient growth opportunities and selectively
constructing new facilities, primarily in established markets. Recently
constructed fitness centers have been and will continue to be somewhat smaller
than those constructed in the 1980's as the design of new fitness centers
focuses on those fitness services that members most frequently use rather than
on a broader range of fitness services that have very low usage, such as pools,
sauna and steam facilities or jogging tracks.
Historically, Bally's Health & Tennis has experienced greater sales in the
first quarter of each year. In recent years, Bally's Health & Tennis has
lessened this seasonal effect by the use of sales incentives and awards for
sales personnel and members, as well as other marketing initiatives. Bally's
Health & Tennis
46
<PAGE> 48
currently employs approximately 15,000 persons in the operation of its business,
including approximately 7,800 part-time employees.
On June 28, 1994, the Board approved a plan to spin-off Bally's Health &
Tennis. See "Risk Factors -- Status and Effects of the Spin-off."
COPYRIGHTS AND TRADEMARKS
The Company owns or is licensed under a number of copyrights, trademarks
and trade names. Several of the copyrights, trademarks and trade names used by
the Company are considered to have substantial value in its businesses.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of the capital stock of the Company is qualified
in its entirety by reference to the Company's Restated Certificate of
Incorporation, as amended (the "Restated Certificate"), which has been filed
with and is available from the offices of the Commission as referred to under
"Available Information."
The Company's Restated Certificate authorizes the issuance of 110,000,000
shares of capital stock of which 30,000,000 shares shall be designated preferred
stock, par value $1.00 per share ("Preferred Stock"), and 80,000,000 shares
shall be designated common stock, par value $.66 2/3 per share. As of June 30,
1995, there were 2,800,000 shares of Preferred Stock authorized and issued or
reserved for issuance as follows: 2,000,000 shares of the Series D Preferred
Stock and 800,000 shares of Series B Junior Participating Preferred Stock
("Series B Preferred Stock"). As of June 30, 1995, 694,497 shares of Series D
Preferred Stock, no shares of Series B Preferred Stock and 47,198,079 shares of
the Company's Common Stock were outstanding. Additionally, at June 30, 1995,
15,428,142 shares of Common Stock were reserved for issuance, primarily for the
exercise of stock options, the conversion of certain equity and debt securities
of the Company (giving effect to the 8% Debentures issued in July 1995), the
acquisition of businesses and the conversion of preferred stock of a subsidiary.
All outstanding shares of Common Stock and Preferred Stock are fully paid and
nonassessable, shares of PRIDES offered hereby will, upon full payment of the
purchase price therefor, be fully paid and nonassessable, and Common Stock
issuable upon conversion or redemption thereof will be fully paid and
nonassessable.
PREFERRED STOCK
Under the Restated Certificate, the Board of Directors of the Company may
provide for the issuance of Preferred Stock in one or more series, and the
rights, preferences, privileges and restrictions, including dividend rights,
voting rights, conversion rights, terms of redemption and liquidation
preferences, of the Preferred Stock of each series will be fixed or designated
by the Board of Directors pursuant to a certificate of designation without any
further vote or action by the Company's stockholders.
The description of Preferred Stock set forth below and the description of
the terms of PRIDES that are set forth in this Prospectus do not purport to be
complete and are qualified in their entirety by reference to the Company's
Restated Certificate and the certificate of designation relating to such series
(the "Certificate of Designation").
SERIES D PREFERRED STOCK
Dividends. Holders of the Series D Preferred Stock are entitled to receive
quarterly cumulative dividends at an annual rate of $4.00 per share. Unless
cumulative dividends on the Series D Preferred Stock have been paid or declared
in full, no dividends may be paid or declared on any capital stock of the
Company ranking junior to the Series D Preferred Stock, including the shares of
PRIDES.
47
<PAGE> 49
Conversion Rights. Holders of the Series D Preferred Stock have the right
to convert such shares into shares of Common Stock at a conversion rate of $25
per share, equivalent to a conversion rate of two shares of Common Stock for
each share of Preferred Stock. The conversion rate is subject to adjustment in
certain cases, as provided in the Certificate of Designation of the Series D
Preferred Stock, including the issuance of Common Stock as a stock dividend; the
combination, subdivision or reclassification of the Common Stock; the issuance
to all holders of Common Stock of rights or warrants to subscribe for or
purchase Common Stock at less than the current market price (as determined in
accordance with the provisions of the Certificate of Designation of the Series D
Preferred Stock) of the Common Stock; or the distribution to all holders of
Common Stock of shares of capital stock (other than Common Stock), evidence of
indebtedness or assets or rights or warrants (other than those mentioned above).
No adjustment in the conversion rate is required unless it would amount to at
least 1/100th of a share; however, any such adjustment not made as a result of
such restriction is carried forward and taken into account in any subsequent
adjustment.
Exchangeability. The Series D Preferred Stock is exchangeable at the
option of the Company in whole, but not in part, on any dividend payment date
for 8% Convertible Subordinated Debentures due 2007 that would be issued by the
Company.
Optional Redemption. The Series D Preferred Stock may be redeemed at the
option of the Company, in whole or in part, for $50.80 per share declining each
February 1 ratably to $50 per share on and after February 1, 1997, in each case
plus accrued and unpaid dividends.
Voting Rights. The Series D Preferred Stock does not carry any voting
rights other than: (i) the right to elect two additional directors to the Board
of Directors of the Company in the event that dividends on the Series D
Preferred Stock are in arrears in an amount equal to at least six quarterly
dividends and (ii) as the Delaware General Corporation Law (the "GCL") may
provide.
Liquidation Rights. In the event of the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, holders of the
Series D Preferred Stock are entitled to receive a preferred liquidation payment
of $50 per share plus an amount equal to the dividends accrued and unpaid to the
distribution date, before any distributions are made to holders of Junior
Securities (as defined in the Certificate of Designation), which include the
PRIDES.
SERIES B PREFERRED STOCK
The Series B Preferred Stock is issuable pursuant to purchase rights
attributable to each outstanding share of Common Stock. Under certain
conditions, each right may be exercised to purchase 1/100th of a share of Series
B Preferred Stock for $60. The rights are not exercisable or transferable apart
from the Common Stock until the occurrence of one of the following: (i) ten days
after the date ("Stock Acquisition Date") of a public announcement by a person
or a group of beneficial ownership of 20% or more of the Common Stock (an
"Acquiring Person"); (ii) ten business days after a public announcement by a
person or group of a tender offer for 30% or more of the Common Stock; or (iii)
the occurrence of a Flip-in Event. A Flip-in Event is: (i) a final court order
or administrative order finding that a person or group having beneficial
ownership of 10% or more of the Common Stock (a "10% Stockholder") has violated
Nevada or New Jersey gaming, casino or similar laws in connection with such 10%
Stockholder's interest in the Company; (ii) the failure of a 10% Stockholder to
eliminate or reduce to an acceptable level its beneficial ownership of the
Common Stock within 20 days after a final court or administrative order finding
that such 10% Stockholder is unsuitable or unqualified to hold its interest in
the Company; (iii) the acquisition by a person or group of 20% or more of the
Common Stock without having obtained prior Nevada Gaming Commission approval to
acquire control of the Company; or (iv) the consummation of certain
"self-dealing" transactions between an Acquiring Person and the Company,
including a merger with an Acquiring Person in which the Company is the
surviving corporation and the Common Stock is not changed or exchanged. Upon the
occurrence of a Flip-in Event, each right, other than those held by the
Acquiring Person or 10% Stockholder causing such occurrence, will entitle the
holder to purchase shares of the Common Stock or, in certain cases, other assets
or securities of the Company, having a value of $120 for $60. In the event that
the Company is acquired in a merger or other business combination transaction
(other than a merger with an Acquiring Person in which the Company is the
48
<PAGE> 50
surviving corporation and the Common Stock is not changed or exchanged) or 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a right shall have the right to receive, upon exercise, common stock
of the acquiring company having a calculated value equal to twice the purchase
price of the right. The rights, which do not have voting privileges, are subject
to adjustment to prevent dilution, expire on December 4, 1996 and may be
redeemed by the Company at a price of five cents per right at any time until 20
days (subject to extension by the Board of Directors of the Company) following
the Stock Acquisition Date. See "Description of Capital Stock -- Common
Stock -- Limitation on Changes in Control."
COMMON STOCK
Dividends and Voting Rights. Subject to the dividend preferences of any
outstanding shares of Preferred Stock, all shares of Common Stock are entitled
to participate in such dividends as may be declared by the Board of Directors of
the Company out of assets available for the payment thereof. The holders of the
Common Stock are entitled to one vote for each share held on all matters
submitted to stockholders.
Provisions of the Restated Certificate and Bylaws. The Restated
Certificate provides for a classified Board of Directors, consisting of three
classes as nearly equal in size as practicable. Each class holds office until
the third annual stockholders' meeting electing directors following the most
recent election of such class. A director may only be removed with the consent
or vote of the holders of 80% of all classes of stock entitled to vote at an
election of directors.
Under the Restated Certificate, the vote of holders of 80% of the voting
stock of the Company is required for approval of, with certain exceptions, a
merger or consolidation of the Company with or into another corporation, a sale
or lease of all or substantially all of the assets of the Company to another
corporation, person or entity and, under certain conditions, a sale or lease to
the Company or any subsidiary of the Company of assets in exchange for voting
securities of the Company, in each case where the other party to the transaction
is a beneficial owner, directly or indirectly, of 5% or more of the outstanding
shares of any class or series of voting stock of the Company. Any amendments to
the Restated Certificate which would amend the foregoing requirements require
the same affirmative vote.
Section 203 of the Delaware General Corporation Law. The Company is a
Delaware corporation subject to Section 203 of the GCL. Generally, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless: (i) prior to such date, either the business combination or
such transaction that resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation; (ii) upon
consummation of the transaction which resulted in the stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock; or (iii) on or after such date, the business
combination is approved by the board of directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or, within three years, did own) 15% or
more of the corporation's outstanding voting stock.
Limitation on Changes in Control. Certain of the above provisions of the
Restated Certificate, the provisions of Section 203 of the GCL and the Series B
Preferred Stock could have the effect of delaying, deferring or preventing a
change in control of the Company or the removal of existing management or
deterring potential acquirors from making an offer to stockholders of the
Company. This could be the case notwithstanding that a majority of the
stockholders might benefit from such a change in control or offer. In addition,
the issuance of shares of Preferred Stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
49
<PAGE> 51
DESCRIPTION OF PRIDES
The summary contained herein of the terms of shares of PRIDES does not
purport to be complete and is subject to and qualified in its entirety by
reference to all of the provisions of the Company's Restated Certificate of
Incorporation and the Certificate of Designations, Preferences, Rights and
Limitations (the "Certificate of Designations") relating to the shares of
PRIDES, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
The Company's Board of Directors has authorized the issuance of up to
11,500,000 shares of % PRIDES, Convertible Preferred Stock, stated
liquidation value of $ per share.
DIVIDENDS
Holders of shares of PRIDES will be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available therefor, cash
dividends from the date of initial issuance of the shares of PRIDES at the rate
per annum of % of the stated liquidation value per share (equivalent to
$ per annum, or $ per quarter, for each share of PRIDES),
payable quarterly in arrears on each , , and
, or, if any such date is not a business day, on the next succeeding
business day; provided, however, that with respect to any dividend period during
which a redemption occurs, the Company may, at its option, declare accrued
dividends to, and pay such dividends on, the date fixed for redemption, in which
case such dividends will be payable in cash to the holders of shares of PRIDES
as of the record date for such dividend payment and would not be included in the
calculation of the related PRIDES Call Price as set forth below. The first
dividend period will be from the date of initial issuance of the shares of
PRIDES to but excluding , 1995, and the first dividend will be payable
on , 1995. Dividends will cease to accrue in respect of the shares of
PRIDES on the Mandatory Conversion Date or on the date of their earlier
conversion or redemption.
Dividends will be payable to holders of record as they appear on the stock
register of the Company on such record dates, not less than 15 nor more than 60
days preceding the payment date thereof, as shall be fixed by the Board of
Directors. Dividends payable on shares of PRIDES for any period less than a full
quarterly dividend period will be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed in any period less
than one month.
Dividends on shares of PRIDES will accrue whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. Accrued but unpaid dividends on shares of PRIDES will
cumulate as of the dividend payment date on which they first become payable, but
no interest will accrue on accumulated but unpaid dividends on shares of PRIDES.
The shares of PRIDES will rank junior to the Series D Preferred Stock as to
payment of dividends. The shares of PRIDES will rank on a parity as to payment
of dividends with any future preferred stock issued by the Company that by its
terms ranks pari passu with the shares of PRIDES ("Parity Preferred Stock").
As long as any shares of PRIDES are outstanding, no dividends (other than
dividends payable in shares of, or warrants, rights or options exercisable for
or convertible into shares of, Common Stock or any other capital stock of the
Company ranking junior to PRIDES as to the payment of dividends or the
distribution of assets upon liquidation ("Junior Stock") and cash in lieu of
fractional shares in connection with any such dividend) will be paid or declared
in cash or otherwise, nor will any other distribution be made (other than a
distribution payable in Junior Stock and cash in lieu of fractional shares in
connection with any such distribution), on any Junior Stock unless (i) full
dividends on Preferred Stock (including the shares of PRIDES) that does not
constitute Junior Stock ("Senior Preferred Stock") have been paid, or declared
and set aside for payment, for all dividend periods terminating at or before the
date of such Junior Stock dividend or distribution payment to the extent such
dividends are cumulative; (ii) dividends in full for the current quarterly
dividend period have been paid, or declared and set aside for payment, on all
Senior Preferred Stock to the extent such dividends are cumulative; (iii) the
Company has paid or set aside all amounts, if any, then or theretofore required
to be paid or set aside for all purchase, retirement, and sinking funds, if any,
for any
50
<PAGE> 52
Senior Preferred Stock; and (iv) the Company is not in default on any of its
obligations to redeem any Senior Preferred Stock.
In addition, as long as any shares of PRIDES are outstanding, no shares of
any Junior Stock may be purchased, redeemed, or otherwise acquired by the
Company or any of its subsidiaries (except in connection with a reclassification
or exchange of any Junior Stock through the issuance of other Junior Stock (and
cash in lieu of fractional shares in connection therewith) or the purchase,
redemption or other acquisition of any Junior Stock with any Junior Stock (and
cash in lieu of fractional shares in connection therewith)), nor may any funds
be set aside or made available for any sinking fund for the purchase or
redemption of any Junior Stock unless: (i) full dividends on Senior Preferred
Stock have been paid, or declared and set aside for payment, for all dividend
periods terminating at or before the date of such purchase or redemption to the
extent such dividends are cumulative; (ii) dividends in full for the current
quarterly dividend period have been paid, or declared and set aside for payment,
on all Senior Preferred Stock to the extent such dividends are cumulative; (iii)
the Company has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement, and sinking
funds, if any, for any Senior Preferred Stock; and (iv) the Company is not in
default on any of its obligations to redeem any Senior Preferred Stock.
Subject to the provisions described above, such dividends or other
distributions (payable in cash, property, or Junior Stock) as may be determined
by the Board of Directors may be declared and paid on the shares of any Junior
Stock from time to time and Junior Stock may be purchased, redeemed or otherwise
acquired by the Company or any of its subsidiaries from time to time. In the
event of the declaration and payment of any such dividends or other
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of any Senior Preferred Stock, to share therein according
to their respective interests.
As long as any shares of PRIDES are outstanding, dividends or other
distributions may not be declared or paid on any Parity Preferred Stock (other
than dividends or other distributions payable in Junior Stock and cash in lieu
of fractional shares in connection therewith), and the Company may not purchase,
redeem or otherwise acquire any Parity Preferred Stock (except with any Junior
Stock and cash in lieu of fractional shares in connection therewith), unless
either (a)(i) full dividends on Senior Preferred Stock have been paid, or
declared and set aside for payment, for all dividend periods terminating at or
before the date of such Parity Preferred Stock dividend, distribution, purchase,
redemption or other acquisition payment to the extent such dividends are
cumulative; (ii) dividends in full for the current quarterly dividend period
have been paid, or declared and set aside for payment, on all Senior Preferred
Stock to the extent such dividends are cumulative; (iii) the Company has paid or
set aside all amounts, if any, then or theretofore required to be paid or set
aside for all purchase, retirement, and sinking funds, if any, for any Senior
Preferred Stock; and (iv) the Company is not in default on any of its
obligations to redeem any Senior Preferred Stock; or (b) with respect to the
payment of dividends only, any such dividends will be declared and paid pro rata
so that the amounts of any dividends declared and paid per share of PRIDES and
each other share of Senior Preferred Stock will in all cases bear to each other
the same ratio that accrued dividends (including any accumulation with respect
to unpaid dividends for prior dividend periods, if such dividends are
cumulative) per share of PRIDES and such other shares of Senior Preferred Stock
bear to each other.
MANDATORY CONVERSION OF PRIDES
On the Mandatory Conversion Date, each outstanding share of PRIDES will,
unless previously either redeemed or converted at the option of the holder into
Common Stock, as hereinafter described, mandatorily convert into (i) shares of
Common Stock at the Common Equivalent Rate (as defined below) in effect on such
date and (ii) the right to receive cash in an amount equal to all accrued and
unpaid dividends on such shares of PRIDES (other than previously declared
dividends payable to a holder of record as of a prior date) to the Mandatory
Conversion Date, whether or not declared, out of funds legally available for the
payment of dividends, subject to the right of the Company to redeem the shares
of PRIDES on or after , 1998, and before the Mandatory Conversion
Date, as described below, and subject to the conversion of the shares of PRIDES
at the option of the holder at any time before the Mandatory Conversion Date, as
described below. The "Common Equivalent Rate" is initially one share of Common
Stock for each share of PRIDES and is
51
<PAGE> 53
subject to adjustment as described below. Dividends will cease to accrue on the
Mandatory Conversion Date in respect of the shares of PRIDES then outstanding.
Because the price of the Common Stock is subject to market fluctuations,
the value of the Common Stock that may be received by holders of shares of
PRIDES upon their mandatory conversion may be more or less than the amount paid
for the shares of PRIDES offered hereby.
OPTIONAL REDEMPTION
Shares of PRIDES are not redeemable by the Company before , 1998.
At any time and from time to time on or after that date until immediately before
the Mandatory Conversion Date, the Company will have the right to redeem, in
whole or in part, the outstanding shares of PRIDES. Upon any such redemption,
the Company will deliver to the holder thereof in exchange for each share of
PRIDES subject to redemption the greater of: (i) the number of shares of Common
Stock equal to the applicable Call Price (as described below) in effect on the
redemption date divided by the Current Market Price of the Common Stock,
determined as of the second trading day immediately preceding the Notice Date
(as defined below), or (ii) of a share of Common Stock (the "Minimum
Redemption Rate" which is subject to adjustment in the manner described below).
Dividends will cease to accrue on the shares of PRIDES on the date fixed for
their redemption.
The Call Price of each share of PRIDES is the sum of (i) $ on and
after , 1998, to and including , 1998; $ on and
after , 1998, to and including , 1998; $ on and
after , 1998, to and including , 1999; $ on and
after , 1999, to and including , 1999; and $ (the
Purchase Price of a share of PRIDES) on and after , 1999, to and
including , 1999; and (ii) all accrued and unpaid dividends thereon to
but not including the date fixed for redemption (other than previously declared
dividends payable to a holder of record as of a prior date).
The "Current Market Price" per share of the Common Stock on any date of
determination means the lesser of (x) the average of the closing sale prices of
the Common Stock for the 15 consecutive trading days ending on and including
such date of determination and (y) the closing sale price of the Common Stock
for such date of determination; provided, however, that, with respect to any
redemption of shares of PRIDES, if any event resulting in an adjustment of the
Common Equivalent Rate occurs during the period beginning on the first day of
such 15-day period and ending on the applicable redemption date, the Current
Market Price as determined pursuant to the foregoing will be appropriately
adjusted to reflect the occurrence of such event. The "Notice Date" with respect
to any notice given by the Company in connection with a redemption of the shares
of PRIDES means the earlier of the date of the public announcement of such
redemption and the date of the commencement of mailing of such notice to the
holders of shares of PRIDES. Closing sale prices shall be based on the last sale
price or the average of the closing bid and ask prices on the New York Stock
Exchange or, if not listed thereon, the Nasdaq National Market or the over the
counter market, as appropriate.
If fewer than all the outstanding shares of PRIDES are to be called for
redemption, the shares of PRIDES to be called will be selected by the Company
from outstanding shares of PRIDES not previously called by lot or pro rata (as
nearly as may be) or by any other method determined by the Board of Directors in
its sole discretion to be equitable.
The Company will provide notice of any redemption of shares of PRIDES to
holders of record of the shares of PRIDES to be called for redemption not less
than 15 nor more than 60 days before the date fixed for redemption. Accordingly,
there cannot be notice given of redemption of shares of PRIDES prior to
, 1998. Any such notice will be provided by mail, sent to the holders
of record of the shares of PRIDES to be called at each such holder's address as
it appears on the stock register of the Company, first class postage prepaid;
provided, however, that failure to give such notice or any defect therein will
not affect the validity of the proceeding for redemption of any shares of PRIDES
to be redeemed except as to the holder to whom the Company has failed to give
such notice or whose notice was defective. On and after the redemption date, all
rights of the holders of the shares of PRIDES called for redemption will
terminate except the right to receive
52
<PAGE> 54
the redemption price and to receive dividends on such shares previously declared
and payable to the holders of record of such shares as of a prior date (unless
the Company defaults on the payment of the redemption price). A public
announcement of any call for redemption will be made by the Company before, or
at the time of, the mailing of such notice of redemption.
Each holder of shares of PRIDES called for redemption must surrender the
certificates evidencing such shares of PRIDES to the Company at the place
designated in the notice of redemption and will thereupon be entitled to receive
certificates for shares of Common Stock and cash for any fractional share
amount.
REDEMPTION OR FORCED SALE FOR REGULATORY REASONS
If the New Jersey Commission or Nevada Commission finds that a holder or
beneficial owner of shares of PRIDES or Common Stock must be found licensed or
qualified or suitable to hold or own the shares of PRIDES or Common Stock under
the New Jersey Act or Nevada Act, and if such holder or such beneficial owner is
not found qualified, licensed or suitable within any time period specified by
the New Jersey Commission or Nevada Commission or the New Jersey Act or Nevada
Act, the Company has the right, at its option, (i) to require such holder or
beneficial owner to dispose of all or a portion of such holder's or beneficial
owner's shares of PRIDES or Common Stock within 120 days after receipt of notice
by such holder or beneficial owner of its disqualification under the New Jersey
Act or Nevada Act (the "Notice Date") (or such different period as may be
prescribed by the New Jersey Commission or Nevada Commission), or (ii) to redeem
shares of PRIDES or Common Stock held by such holder, by action of the Board of
Directors, if in the judgment of the Board of Directors such action should be
taken pursuant to Section 151(b) of the GCL or any other applicable provision of
law, to the extent necessary to prevent the loss or secure the reinstatement of
any government-issued license or franchise held by the Company or any subsidiary
to conduct any portion of the business of the Company or any subsidiary, which
license or franchise is conditioned upon some or all of the holders of the
Company's securities possessing prescribed qualifications. Such unsuitable or
disqualified holder is required to indemnify the Company for any and all direct
or indirect costs, including attorneys' fees, incurred by the Company as a
result of such holder's continuing ownership or failure to divest promptly.
The redemption price of shares of PRIDES or Common Stock to be redeemed
would be equal to the lesser of (i) the holder's original purchase price for the
security or (ii) the lowest closing sale price of such security between the
Notice Date and the date 120 days after Notice Date.
Commencing on the date the Nevada Commission or the New Jersey Commission
serves notice upon the Company of the determination of unsuitability or
disqualification, it is unlawful under the Nevada Act and the New Jersey Act for
the unsuitable or disqualified holder (i) to receive any dividends upon shares
of PRIDES or Common Stock; (ii) to exercise, directly or through any trustee or
nominee, any right conferred by shares of PRIDES or Common Stock; or (iii) to
receive any remuneration in any form from the Company for services rendered or
otherwise.
CONVERSION AT THE OPTION OF THE HOLDER
The shares of PRIDES are convertible, in whole or in part, at the option of
the holder thereof, at any time before the Mandatory Conversion Date, unless
previously redeemed, into shares of Common Stock at a rate of of a
share of Common Stock, subject to adjustment in certain events, for each share
of PRIDES (the "Optional Conversion Rate"), equivalent to a conversion price of
$ per share of Common Stock (the "Conversion Price"), subject to
adjustment as described below. The right to convert shares of PRIDES called for
redemption will terminate immediately before the close of business on any
redemption date with respect to such shares.
Conversion of shares of PRIDES at the option of the holder may be effected
by delivering certificates evidencing such shares of PRIDES, together with
written notice of conversion and a proper assignment of such certificates to the
Company or in blank (and, if applicable, cash payment of an amount equal to the
dividend attributable to the current quarterly dividend period payable on such
shares), to the office of the transfer agent for PRIDES or to any other office
or agency maintained by the Company for that purpose and otherwise in accordance
with conversion procedures established by the Company. Each optional conversion
53
<PAGE> 55
will be deemed to have been effected immediately before the close of business on
the date on which the foregoing requirements have been satisfied. The conversion
will be at the Optional Conversion Rate in effect at such time and on such date.
Holders of shares of PRIDES at the close of business on a record date for
any payment of declared dividends will be entitled to receive the dividend
payable on such shares of PRIDES on the corresponding dividend payment date
notwithstanding the optional conversion of such shares of PRIDES following such
record date and before such dividend payment date. However, shares of PRIDES
surrendered for conversion after the close of business on a record date for any
payment of declared dividends and before the opening of business on the next
succeeding dividend payment date must be accompanied by payment in cash of an
amount equal to the dividend attributable to the current quarterly dividend
payable on such date (unless such shares of PRIDES are subject to redemption on
a redemption date on or after such record date and on or prior to such dividend
payment date). A holder of shares of PRIDES called for redemption on or after
the record date for any dividend payment and on or prior to the payment date for
such dividend will receive the dividend on such shares of PRIDES payable on that
dividend payment date and will be able to convert such shares of PRIDES after
the record date for such dividend without paying an amount equal to such
dividend to the Company upon conversion. Except as provided above, upon any
optional conversion of shares of PRIDES, the Company will make no payment of or
allowance for unpaid dividends, whether or not in arrears, on such shares of
PRIDES, or for previously declared dividends or distributions on the shares of
Common Stock issued upon such conversion.
ENHANCED DIVIDEND YIELD; LESS EQUITY APPRECIATION THAN COMMON STOCK
As of the date of this Prospectus, the Company has not paid and does not
intend to pay dividends on the Common Stock, whereas dividends will accrue on
PRIDES at the rate of % per annum. The opportunity for equity appreciation
afforded by an investment in shares of PRIDES is less than that afforded by an
investment in the Common Stock because the Conversion Price is higher than the
Purchase Price of a share of PRIDES and the Company may, at its option, redeem
the shares of PRIDES at any time on or after , 1998 and before the
Mandatory Conversion Date, and may be expected to do so if, among other
circumstances, the Current Market Price of the Common Stock exceeds the Call
Price. In such event, a holder of a share of PRIDES will receive less than one
share of Common Stock but not less than of a share of Common Stock. A
holder may also surrender for conversion any shares of PRIDES called for
redemption up to the close of business on the redemption date, and a holder that
so elects to convert will receive of a share of Common Stock per share
of PRIDES. The value of the Common Stock received by the holder of a share of
PRIDES may be more or less than the per share amount paid for the shares of
PRIDES offered hereby, due to market fluctuations in the price of the Common
Stock.
As a result of these provisions, holders of shares of PRIDES would be
expected not to realize any equity appreciation if, at the time of conversion or
redemption, the Current Market Price of the Common Stock is below the Conversion
Price, and less than all of such appreciation if, at the time of conversion or
redemption, the Current Market Price of the Common Stock is above the Conversion
Price. Holders of shares of PRIDES will realize the entire decline in equity
value if, at the time of conversion or redemption, the market price of the
Common Stock is less than the price paid for a share of PRIDES.
CONVERSION ADJUSTMENTS
The Common Equivalent Rate, the Minimum Redemption Rate and the Optional
Conversion Rate are each subject to adjustment as appropriate in certain
circumstances, including if the Company (a) pays a stock dividend or makes a
distribution with respect to its Common Stock in shares of Common Stock; (b)
subdivides or splits its outstanding Common Stock; (c) combines its outstanding
Common Stock into a smaller number of shares; (d) issues by reclassification of
its shares of Common Stock any shares of Common Stock; (e) issues certain rights
or warrants to all holders of its Common Stock; or (f) pays a dividend or
distributes to all holders of its Common Stock evidences of its indebtedness,
cash or other assets (including capital stock of any company other than Common
Stock including shares of capital stock of Bally's Health & Tennis, but
excluding any cash dividends or distributions, other than Extraordinary Cash
Distributions (as
54
<PAGE> 56
defined below), and dividends referred to in clause (a) above). In the event of
a distribution of shares of capital stock of Bally's Health & Tennis or any
subsidiary or parent of Bally's Health & Tennis (other than the Company), such
capital stock will be valued for the purposes of the adjustment at the average
high and low sales prices for the first 20 days of trading on a national
securities exchange or the Nasdaq National Market following the record date for
the distribution. In addition, the Company will be entitled (but will not be
required) to make upward adjustments in the Common Equivalent Rate, the Minimum
Redemption Rate, the Optional Conversion Rate and the Call Price as the Company,
in its discretion, determines to be advisable, in order that any stock
dividends, subdivision of shares, distribution of rights to purchase stock or
securities, or distribution of securities convertible into or exchangeable for
stock (or any transaction which could be treated as any of the foregoing
transactions under Section 305 of the Internal Revenue Code of 1986, as amended)
hereafter made by the Company to its stockholders will not be taxable.
"Extraordinary Cash Distribution" means, with respect to any consecutive
12-month period, all cash dividends and cash distributions on the Common Stock
during such period (other than cash dividends and cash distributions for which a
prior adjustment to the Common Equivalent Rate, the Minimum Redemption Rate, and
Optional Conversion Rate was previously made) to the extent such dividends and
distributions exceed, on a per share of Common Stock basis, 10% of the average
daily closing price of the Common Stock over such period. All adjustments to the
Common Equivalent Rate, the Minimum Redemption Rate, and the Optional Conversion
Rate will be calculated to the nearest 1/100th of a share of Common Stock. No
adjustment in the Common Equivalent Rate, the Minimum Redemption Rate, or the
Optional Conversion Rate will be required unless such adjustment would require
an increase or decrease of at least one percent therein; provided, however, that
any adjustments which, by reason of the foregoing, are not required to be made
will be carried forward and taken into account in any subsequent adjustment. All
adjustments will be made successively.
Whenever the Common Equivalent Rate, the Minimum Redemption Rate, and the
Optional Conversion Rate are adjusted as provided in the preceding paragraph,
the Company will file with the transfer agent for the shares of PRIDES a
certificate with respect to such adjustment, make a prompt public announcement
thereof and mail a notice to holders of the shares of PRIDES providing specified
information with respect to such adjustment. At least 10 business days before
taking any action that could result in certain adjustments in the Common
Equivalent Rate, the Minimum Redemption Rate, and the Optional Conversion Rate,
the Company will notify each holder of shares of PRIDES concerning such proposed
action.
ADJUSTMENT FOR CERTAIN CONSOLIDATION OR MERGERS
In case of (i) any consolidation or merger to which the Company is a party
(other than a merger or consolidation in which the Company is the surviving or
continuing corporation and in which the shares of Common Stock outstanding
immediately before the merger or consolidation remain unchanged), (ii) any sale
or transfer to another corporation of the property of the Company as an entirety
or substantially as an entirety, or (iii) any statutory exchange of securities
with another corporation (other than in connection with a merger or
acquisition), each share of PRIDES will, after consummation of such transaction,
be subject to (A) conversion at the option of the holder into the kind and
amount of securities, cash, or other property receivable upon consummation of
such transaction by a holder of the number of shares of Common Stock into which
such share of PRIDES might have been converted immediately before consummation
of such transaction, (B) conversion on the Mandatory Conversion Date into the
kind and amount of securities, cash, or other property receivable upon
consummation of such transaction by a holder of the number of shares of Common
Stock into which such share of PRIDES would have been converted if the
conversion on the Mandatory Conversion Date had occurred immediately before the
date of consummation of such transaction, plus the right to receive cash in an
amount equal to all accrued and unpaid dividends on such share of PRIDES (other
than previously declared dividends payable to a holder of record as of a prior
date), and (C) redemption on any redemption date in exchange for the kind and
amount of securities, cash, or other property receivable upon consummation of
such transaction by a holder of the number of shares of Common Stock that would
have been issuable at the Call Price in effect on such redemption date upon a
redemption of such share of PRIDES immediately before consummation of such
transaction, assuming that, if the Notice Date for such redemption is not before
such transaction, the Notice Date had been the date of such transaction; and
assuming in each case that such holder of shares of Common Stock failed to
exercise rights of
55
<PAGE> 57
election, if any, as to the kind or amount of securities, cash, or other
property receivable upon consummation of such transaction (provided that, if the
kind or amount of securities, cash, or other property receivable upon
consummation of such transaction is not the same for each non-electing share,
then the kind and amount of securities, cash, or other property receivable upon
consummation of such transaction for each non-electing share will be deemed to
be the kind and amount so receivable per share by a plurality of the
non-electing shares). The kind and amount of securities into or for which the
shares of PRIDES will be convertible or redeemable after consummation of such
transaction will be subject to adjustment as described above under the caption
"Conversion Adjustments" following the date of consummation of such transaction.
The Company may not become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
FRACTIONAL SHARES
No fractional shares of Common Stock will be issued upon redemption or
conversion of shares of PRIDES. In lieu of any fractional share otherwise
issuable in respect of the aggregate number of shares of PRIDES of any holder
that are redeemed or converted on any redemption date or upon mandatory
conversion or any optional conversion, such holder will be entitled to receive
an amount in cash equal to the same fraction of the (i) Current Market Price of
the Common Stock, determined as of the second trading day immediately preceding
the Notice Date, in the case of redemption, or (ii) Closing Price (as defined in
the Certificate of Designation) of the Common Stock determined (A) as of the
fifth trading day immediately preceding the Mandatory Conversion Date, in the
case of mandatory conversion, or (B) as of the second trading day immediately
preceding the effective date of conversion, in the case of an optional
conversion by a holder.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the Company, and subject to the rights of holders of any other
series of Preferred Stock, the holders of outstanding shares of PRIDES are
entitled to receive for each share of PRIDES an amount equal to the Purchase
Price, plus accrued and unpaid dividends thereon, out of the assets of the
Company available for distribution to stockholders, before any distribution of
assets is made to holders of Common Stock or any other capital stock ranking
junior to PRIDES upon liquidation, dissolution, or winding up.
The shares of PRIDES will rank junior to the Series D Preferred Stock upon
distribution of assets upon liquidation. The shares of PRIDES will rank on a
parity upon liquidation with any Parity Preferred Stock.
If, upon any voluntary or involuntary liquidation, dissolution, or winding
up of the Company, the assets of the Company are insufficient to permit the
payment of the full preferential amounts payable with respect to the shares of
PRIDES and all other series of Parity Preferred Stock, the holders of shares of
PRIDES and of all other series of Parity Preferred Stock will share ratably in
any distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of shares of PRIDES will not be entitled to any further participation in any
distribution of assets by the Company. A consolidation or merger of the Company
with or into one or more other corporations (whether or not the Company is the
corporation surviving such consolidation or merger), or a sale, lease or
exchange of all or substantially all of the assets of the Company, will not be
deemed to be a voluntary or involuntary liquidation, dissolution, or winding up
of the Company.
VOTING RIGHTS
The holders of shares of PRIDES shall have the right with the holders of
Common Stock to vote in the election of Directors and upon each other matter
coming before any meeting of the holders of Common Stock on the basis of
four-fifths of a vote for each share of PRIDES held. The holders of shares of
PRIDES and the holders of Common Stock will vote together as one class on such
matters except as otherwise provided by law or the Restated Certificate of
Incorporation of the Company.
In the event that dividends on the shares of PRIDES or any other series of
Preferred Stock are in arrears and unpaid for six quarterly dividend periods, or
if any other series of Preferred Stock is entitled for any other
56
<PAGE> 58
reason to exercise voting rights, separate from the Common Stock, to elect any
Directors of the Company ("Preferred Stock Directors"), the holders of the
shares of PRIDES (voting separately as a class with holders of all other series
of Preferred Stock upon which like voting rights have been conferred and are
exercisable with the PRIDES as a class), with each share of PRIDES entitled to
one vote on this and other matters in which such Preferred Stock votes as a
group, will be entitled to vote for the election of two Directors, such
Directors to be in addition to the number of Directors constituting the Board of
Directors immediately before the accrual of such right. Such right, when vested,
will continue until all dividends in arrears and payable on the shares of PRIDES
and such other series of Preferred Stock have been paid in full and the right of
any other such series of Preferred Stock to exercise voting rights, separate
from the Common Stock, to elect Preferred Stock Directors of the Company
terminates or has terminated, and, when so paid and any such termination occurs
or has occurred, such right of the holders of the shares of PRIDES will cease.
The term of office of any Director elected by the holders of the shares of
PRIDES and such other series will terminate on the earlier of (i) the next
annual meeting of stockholders at which a successor has been elected and
qualified or (ii) the termination of the right of holders of the shares of
PRIDES and such other series to vote for such Directors.
The Company will not, without the approval of the holders of at least
66 2/3 percent of the shares of PRIDES then outstanding: (i) amend, alter, or
repeal any of the provisions of the Restated Certificate of Incorporation or
Bylaws of the Company so as to affect adversely the powers, preferences, or
rights of the holders of the shares of PRIDES then outstanding or reduce the
minimum time for any required notice to which the holders of the shares of
PRIDES then outstanding may be entitled (an amendment of the Restated
Certificate of Incorporation to authorize or create, or to increase the
authorized amount of, Common Stock or other Junior Stock or any stock of any
class ranking on a parity with the shares of PRIDES being deemed not to affect
adversely the powers, preferences, or rights of the holders of the shares of
PRIDES); (ii) authorize or create or increase the authorized amount of, any
stock of any class (whether or not convertible into capital stock of any class)
ranking prior to the shares of PRIDES either as to the payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up of the
Company; or (iii) merge or consolidate with or into any other corporation,
unless each holder of shares of PRIDES immediately preceding such merger or
consolidation receives or continues to hold in the resulting corporation the
same number of shares, with substantially the same rights and preferences, as
correspond to the shares of PRIDES so held.
The Company will not, without the approval of the holders of at least a
majority of the shares of PRIDES then outstanding, increase the authorized
number of shares of Preferred Stock to more than .
Notwithstanding the provisions summarized in the preceding two paragraphs,
no such approval described therein of the holders of the shares of PRIDES will
be required if, at or before the time when such amendment, alteration, or repeal
is to take effect or when the authorization, creation, increase or issuance of
any such prior or parity stock or convertible security is to be made, or when
such consolidation or merger, voluntary liquidation, dissolution, or winding up,
sale, lease, conveyance, purchase, or redemption is to take effect, as the case
may be, provision is made for the redemption of all shares of PRIDES at the time
outstanding.
TRANSFER AGENT AND REGISTRAR
will act as transfer agent and registrar for, and paying
agent for the payment of dividends on, the shares of PRIDES.
MISCELLANEOUS
Upon issuance, the shares of PRIDES will be fully paid and nonassessable.
Holders of shares of PRIDES have no preemptive rights. The Company will at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion or redemption of shares of
PRIDES, such number of shares of Common Stock as will from time to time be
issuable upon the conversion or redemption of all the shares of PRIDES then
outstanding. Shares of PRIDES redeemed for, or converted into, Common Stock of
the Company or otherwise reacquired by the Company will resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series,
and will be available for subsequent issuance.
57
<PAGE> 59
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Company has received an opinion from its tax counsel, Katten Muchin &
Zavis, which addresses certain of the United States Federal income tax
consequences under existing law of the purchase, ownership and disposition of
shares of PRIDES, and this section discusses material United States Federal
income tax consequences under existing law. A copy of that opinion is filed as
an exhibit to the Registration Statement of which this Prospectus is a part, and
the following summary of such tax consequences is qualified in its entirety by
reference thereto, including the assumptions set forth therein. The Company does
not intend to seek a ruling from the Internal Revenue Service (the "Service")
with respect to any of these tax consequences. This summary is intended for
general information only and deals only with holders who are initial holders of
shares of PRIDES and who hold shares of PRIDES as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"). It does not address aspects of taxation, other than Federal income
taxation, or all tax consequences that may be relevant in the particular
circumstances of each holder (some of which, such as dealers in securities,
banks, insurance companies and tax-exempt organizations, may be subject to
special rules). Stock having terms closely resembling those of shares of PRIDES
has not been the subject of any regulation, ruling or judicial decision
currently in effect, and there can be no assurance that the Service will adopt
the positions set forth below. There can be no assurance that future changes in
applicable law or administration and judicial interpretations thereof, any of
which could have a retroactive effect, will not adversely affect the tax
consequences discussed herein or that there will not be differences of opinion
as to the interpretation of applicable law. For purposes of this summary, "U.S.
Holder" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized under the laws of the United
States or any State, or an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source and "non-U.S.
Holder" means a holder other than a U.S. Holder. Certain aspects of United
States Federal income and estate tax relevant to a non-U.S. Holder are discussed
separately below. Persons considering the purchase of shares of PRIDES should
consult their tax advisors with respect to the application of the United States
Federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
DIVIDENDS
Dividends paid on shares of PRIDES out of the Company's current or
accumulated earnings and profits will be taxable as ordinary income. Certain
corporate holders will generally qualify for the 70 percent intercorporate
dividends-received deduction subject to satisfaction of the minimum holding
period (generally at least 46 days) and other applicable requirements. The
dividends-received deduction is not available in computing a corporate U.S.
Holder's liability for alternative minimum tax.
Under certain circumstances, a corporation that receives an "extraordinary
dividend," as defined in Section 1059(c) of the Code, is required to reduce its
stock basis by the non-taxed portion of such dividend. Generally, quarterly
dividends not in arrears paid to an original holder of shares of PRIDES will not
constitute extraordinary dividends under Section 1059(c). Under Section 1059(f),
any dividend with respect to "disqualified preferred stock" is treated as an
"extraordinary dividend." The Company does not believe that shares of PRIDES
will be determined to constitute "disqualified preferred stock."
CALL OR CONVERSION PREMIUM
Under certain circumstances, Section 305 of the Code requires that any
excess of the redemption price of preferred stock over its issue price is
includable in income, before receipt, as a constructive dividend. While the
issue is not free from doubt due to a lack of authority directly on point, a
holder of shares of PRIDES should not be required to include any call or
conversion premium in income as a redemption premium under Section 305 of the
Code.
58
<PAGE> 60
REDEMPTION OR MANDATORY OR OPTIONAL CONVERSION INTO COMMON STOCK
As a general rule, gain or loss will not be recognized by a holder upon the
redemption of shares of PRIDES for shares of Common Stock or the conversion of
shares of PRIDES into shares of Common Stock if no cash is received. Income may
be recognized, however, to the extent Common Stock or cash is received in
payment of accrued and unpaid dividends upon a redemption or conversion. Such
income would likely be characterized as dividend income although some
uncertainty exists as to the appropriate characterization of payments in
satisfaction of accrued and undeclared dividends. In addition, a holder who
received cash in lieu of a fractional share will be treated as having received
such fractional share of Common Stock and as having exchanged it for cash in a
transaction subject to Section 302 of the Code and related provisions. Such
exchange should generally result in capital gain or loss measured by the
difference between the cash received for the fractional share interest and the
holder's tax basis in the fractional share interest.
Generally, a holder's tax basis in the Common Stock received upon the
redemption or conversion of shares of PRIDES, other than shares of Common Stock
taxed upon receipt, will equal the adjusted tax basis of the redeemed or
converted shares of PRIDES (exclusive of any basis allocable to a fractional
share interest) and the holding period of such Common Sock will include the
holding period of the redeemed or converted shares of PRIDES. As a general rule,
a holder's tax basis in shares of Common Stock taxed upon receipt will equal the
fair market value thereof and the holding period for such Common Stock will
begin on the day following the redemption or conversion.
ADJUSTMENT OF CONVERSION RATES
Certain adjustments to the Common Equivalent Rate and the Optional
Conversion Rate to reflect the Company's distribution of certain rights,
warrants, evidences of indebtedness, securities or other assets, including the
Spin-off, to holders of Common Stock may result in constructive distributions
taxable as dividends to the holders of shares of PRIDES which may constitute
(and cause other dividends to constitute) "extraordinary dividends" to corporate
holders of PRIDES as described above.
CONVERSION OF PRIDES AFTER DIVIDEND RECORD DATE
If a holder whose shares of PRIDES have not been called for redemption,
surrenders such shares for conversion into shares of Common Stock after a
dividend record date but before payment of the dividend, such holder will be
required to pay the Company an amount equal to such dividend upon conversion.
The holder would likely recognize the dividend payment which is received as
income, and would increase the basis of the Common Stock received by the amount
paid to the Company in connection with the receipt of such dividend.
BACKUP WITHHOLDING
Certain non-corporate U.S. Holders may be subject to backup withholding at
a rate of 31% on dividends and certain consideration received upon the call or
conversion of shares of PRIDES unless such holder provides proof of an
applicable exemption or a correct taxpayer identification number, and otherwise
complies with applicable requirements of the backup withholding rates.
NON-U.S. HOLDERS
Dividends. In general, dividends (including constructive distributions
taxable as dividends) paid to a non-U.S. Holder will be subject to United States
withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax
treaty) unless the dividends are either (i) effectively connected with a trade
or business carried on by the non-U.S. Holder within the United States or (ii)
if a tax treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. Holder. Dividends effectively connected with such
trade or business or attributable to such permanent establishment will generally
be subject to United States Federal income tax at regular rates and, in the case
of a non-U.S. Holder which is a corporation, may be subject to the branch
profits tax. To determine the applicability of a tax treaty providing for a
lower rate of withholding, dividends paid to an address in a foreign country are
presumed under current Treasury
59
<PAGE> 61
regulations to be paid to a resident of that country. Treasury regulations
proposed in 1984 which have not been finally adopted, however, would require
non-U.S. Holders to file certain forms to obtain the benefit of any applicable
tax treaty providing for a lower rate of withholding tax on dividends.
Gain on Redemption or Conversion into Common Stock. A non-U.S. Holder
generally will not be subject to United States Federal income tax on any gain
recognized on a disposition, redemption or conversion (a "disposition") of a
share of PRIDES unless (i) all or a portion of such gain is treated as dividend
income; (ii) the Company is or has been a "U.S. real property holding
corporation" for United States Federal income tax purposes (which the Company
does not believe that it is or is likely to become) and the non-U.S. Holder
disposing of the share owned, directly or constructively, at any time during the
five-year period preceding the disposition, more than five percent of the
outstanding shares of PRIDES; (iii) the gain is effectively connected with a
trade or business carried on by the non-U.S. Holder within the United States or,
if a tax treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. Holder; (iv) in the case of a non-U.S. Holder who is
an individual, who holds the share as a capital asset and who is present in the
United States for 183 days or more in the taxable year of the disposition either
(a) such non-U.S. Holder has a "tax home" (as defined for U.S. Federal income
tax purposes) in the United States and the gain from the disposition is not
attributable to an office or other fixed place of business maintained by such
non-U.S. Holder outside of the United States or (b) the gain from the
disposition is attributable to an office or other fixed place of business
maintained by such non-U.S. Holder in the United States; or (v) the non-U.S.
Holder is subject to a tax pursuant to provisions of the Code applicable to
certain United States expatriates.
Federal Estate Tax. Shares of PRIDES owned or treated as owned by an
individual who is not a citizen or resident (as defined for United States
Federal estate tax purposes) of the United States at the time of death will be
includible in the individual's gross estate for United States Federal estate tax
purposes unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting Requirements. The Company
must report annually to the Service and to each non-U.S. Holder the amount of
dividends paid to, and the tax withheld with respect to such holder. These
information reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of these information
returns may also be made available under the provisions of a specific treaty or
agreement to the tax authorities in the country in which the non-U.S. Holder
resides. United States backup withholding tax (which generally is a withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish the information required under the United States information reporting
requirements) will generally not apply to dividends paid on shares of PRIDES to
a non-U.S. Holder at an address outside the United States.
The payment of the proceeds from the disposition of shares of PRIDES to or
through the United States office of a broker will be subject to information
reporting and backup withholding at a rate of 31% unless the owner certifies,
among other things, its status as a non-U.S. Holder under penalties of perjury
or otherwise establishes an exemption. The payment of the proceeds from the
disposition of shares of PRIDES to or through a non-U.S. office of a broker will
generally, except as noted below, not be subject to backup withholding and
information reporting. In the case of proceeds from a disposition of shares of
PRIDES paid to or through a non-U.S. office of a U.S. broker or paid to or
through a non-U.S. office of a non-U.S. broker that is (i) a "controlled foreign
corporation" for United States Federal income tax purposes or (ii) a person 50%
or more of whose gross income from all sources for a certain three-year period
was effectively connected with a United States trade or business, (a) backup
withholding will not apply unless the broker has actual knowledge that the owner
is not a non-U.S. Holder, and (b) information reporting will not apply if the
broker has documentary evidence in its files that the owner is non-U.S. Holder
(unless the broker has actual knowledge to the contrary).
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. Holder will be refunded (or credited against the non-U.S. Holder's
United States Federal income tax liability, if any), provided that the required
information is furnished to the Service.
60
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Oppenheimer & Co., Inc., Dean Witter Reynolds Inc. and
Jefferies & Company, Inc. (the "Underwriters"), the Company has agreed to sell
to the Underwriters, and each of the Underwriters severally has agreed to
purchase from the Company, the number of shares of PRIDES set forth opposite
each Underwriter's name.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER PRIDES
----------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Oppenheimer & Co., Inc......................................
Dean Witter Reynolds Inc....................................
Jefferies & Company, Inc....................................
----------
Total.......................................... 10,000,000
==========
</TABLE>
In the Purchase Agreement, the Underwriters severally have agreed, subject
to the terms and conditions set forth herein, to purchase all of the shares of
PRIDES being sold pursuant to the Purchase Agreement if any of the shares being
sold pursuant to the Purchase Agreement are purchased.
The Underwriters have advised the Company that they propose initially to
offer the shares of PRIDES to the public at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $ per share
on sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days following the date of this Prospectus, to purchase up to 1,500,000 shares
of PRIDES at the price to the public set forth on the cover page of the
Prospectus less the underwriting discount. The Underwriters may exercise this
option only to cover over-allotments, if any, made on the sale of shares of
PRIDES offered hereby. To the extent that the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase the same percentage of shares as the number of shares of
PRIDES to be purchased by such Underwriter shown in the foregoing table bears to
the total number of shares initially offered hereby.
The Company has agreed, for a period of 90 days after the date of this
Prospectus, to not, without the prior written consent of Merrill Lynch & Co.,
directly or indirectly, sell, offer to sell, grant any option for the sale of,
or otherwise dispose of, any shares of the capital stock of the Company or
securities convertible into or exchangeable for capital stock of the Company
other than to the Underwriters pursuant to the Purchase Agreement, other than
shares of Common Stock or options for shares of Common Stock issued pursuant to
or sold in connection with qualified employee benefit, dividend reinvestment and
stock option and stock purchase plans and shares of Common Stock issuable upon
conversion of securities or exercise of stock options.
Prior to this Offering, there has been no public market for the shares of
PRIDES. The initial public offering price for the shares of PRIDES was
determined in negotiations among the Company and the Underwriters. In
determining the terms of the shares of PRIDES, including the initial public
offering price, the Company and the Underwriters considered the market price of
the Company's Common Stock and also considered the Company's recent results of
operations, the future prospects of the Company and the industry in general,
market prices and terms of, and yields on, securities of other companies
considered to be comparable to the Company and prevailing conditions in the
securities market. There can be no assurance that an active trading market will
develop for the shares of PRIDES or that the shares of PRIDES will trade in the
public market subsequent to the offering at or above the initial public offering
price.
61
<PAGE> 63
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and to contribute to payments that the Underwriters may
be required to make in respect thereof.
The Underwriters have performed and continue to perform financial advisory
services for the Company. Merrill Lynch Capital Corporation, an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the Underwriters,
made a loan in the amount of $15,000,000 to Bally's CHLV, Inc., a subsidiary of
Casino Holdings, pursuant to the Loan Agreement with respect thereto, which loan
remains outstanding.
LEGAL MATTERS
Certain legal matters with respect to the shares of PRIDES offered hereby,
and the Common Stock issuable upon conversion thereof, will be passed upon for
the Company by Katten Muchin & Zavis, Chicago, Illinois, and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1994
and 1993 and for each of the three years in the period ended December 31, 1994,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act with respect to the shares of PRIDES offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Commission. The Registration Statement,
as well as such reports, proxy and information statements, and other information
filed by the Company with the Commission, can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: New York Regional Office, 7 World Trade Center, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material also can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Company's Common Stock is listed on the New York
Stock Exchange. Reports, proxy and information statements may also be inspected
at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
62
<PAGE> 64
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, each as filed by the Company with the Commission
pursuant to the Exchange Act, are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
(2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995; and
(3) the Company's Current Reports on Form 8-K dated June 12, 1995, June
29, 1995, July 21, 1995 and July 26, 1995.
All documents filed by the Company pursuant to any of Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of PRIDES shall be deemed
incorporated by reference in this Prospectus and a part hereof from the
respective date of filing each such document. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide, without charge, to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents referred to above that
have been incorporated in this Prospectus by reference, other than exhibits to
such documents. Requests for such copies should be directed to Bally
Entertainment Corporation, 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631,
telephone (312) 399-1300.
63
<PAGE> 65
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of independent auditors......................................................... F-2
Consolidated balance sheet at December 31, 1994 and 1993............................... F-3
Consolidated statement of operations for the three years ended December 31, 1994....... F-5
Consolidated statement of stockholders' equity for the three years ended December 31,
1994................................................................................. F-6
Consolidated statement of cash flows for the three years ended December 31, 1994....... F-7
Notes to consolidated financial statements for the three years ended December 31,
1994................................................................................. F-9
Supplementary data:
Quarterly consolidated financial information (unaudited)............................. F-25
Condensed consolidated balance sheet at June 30, 1995 (unaudited)...................... F-27
Condensed consolidated statement of operations for the six months ended June 30, 1995
and 1994 (unaudited)................................................................. F-28
Condensed consolidated statement of stockholders' equity for the six months ended June
30, 1995 (unaudited)................................................................. F-29
Condensed consolidated statement of cash flows for the six months ended June 30, 1995
and 1994 (unaudited)................................................................. F-30
Notes to condensed consolidated financial statements for the six months ended June 30,
1995 and 1994 (unaudited)............................................................ F-32
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Bally Entertainment Corporation
We have audited the accompanying consolidated balance sheet of Bally
Entertainment Corporation as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. 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 consolidated financial position of
Bally Entertainment Corporation at December 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in the "Summary of significant accounting policies -- Income
taxes" note to the consolidated financial statements, in 1993 the Company
changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Chicago, Illinois
February 15, 1995, except for the
"Discontinued operations" note, as to which
the date is March 17, 1995
F-2
<PAGE> 67
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................................. $ 178,427 $ 192,078
Marketable securities, at fair value.............................. 6,031
Receivables, less allowances of $12,196 and $7,872................ 23,450 24,050
Inventories....................................................... 8,113 7,511
Deferred income taxes............................................. 16,299 22,053
Other current assets.............................................. 16,373 6,769
---------- ----------
Total current assets.................................... 248,693 252,461
Property and equipment, at cost:
Land.............................................................. 223,590 215,670
Buildings, barge and improvements................................. 1,070,764 1,062,834
Furniture, fixtures and equipment................................. 303,454 282,670
Construction in progress.......................................... 34,299 7,990
---------- ----------
1,632,107 1,569,164
Accumulated depreciation.......................................... 445,239 392,028
---------- ----------
Net property and equipment.............................. 1,186,868 1,177,136
Investment in and receivables from discontinued operations.......... 291,012 354,160
Intangible assets, at cost less accumulated amortization of $24,398
and $20,208....................................................... 123,367 124,546
Other assets........................................................ 86,221 83,249
---------- ----------
$1,936,161 $1,991,552
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEET -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 28,745 $ 33,444
Income taxes payable.............................................. 27,707 43,674
Accrued liabilities............................................... 113,990 116,227
Current maturities of long-term debt.............................. 7,200 7,631
---------- ----------
Total current liabilities............................... 177,642 200,976
Long-term debt, less current maturities............................. 1,258,990 1,178,654
Deferred income taxes............................................... 152,851 191,888
Other liabilities................................................... 15,656 13,509
Minority interests.................................................. 37,410 42,384
Stockholders' equity:
Preferred stock, $1 par value; 30,000,000 shares authorized;
Series B Junior Participating;
800,000 shares authorized; none issued.......................
Series D Convertible Exchangeable;
2,000,000 shares authorized; 694,497 shares issued;
liquidation preference of $34,725............................ 694 694
Common stock, $.66 2/3 par value;
80,000,000 shares authorized; 47,138,498 and
46,986,313 shares issued....................................... 31,426 31,325
Capital in excess of par value.................................... 295,110 294,413
Retained earnings (accumulated deficit)........................... (31,581) 39,507
Common stock in treasury, 146,956 and 109,956 shares at cost...... (2,037) (1,798)
---------- ----------
Total stockholders' equity.............................. 293,612 364,141
---------- ----------
$1,936,161 $1,991,552
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Casino..................................................................... $ 722,903 $ 530,250 $ 477,557
Rooms...................................................................... 88,841 33,380 30,697
Food and beverage.......................................................... 67,730 34,163 30,781
Other...................................................................... 62,781 30,412 16,961
---------- ---------- ----------
942,255 628,205 555,996
Costs and expenses:
Casino..................................................................... 358,195 253,879 223,951
Rooms...................................................................... 33,280 14,301 10,407
Food and beverage.......................................................... 65,534 32,483 27,688
Other operating expenses................................................... 133,955 87,031 81,963
Selling, general and administrative........................................ 122,921 80,148 76,859
Gaming development costs, including amortization
of pre-opening costs of $3,330 and $3,052................................ 14,200 4,342
Depreciation and amortization.............................................. 75,964 48,075 48,603
Abandonment loss........................................................... 13,100
---------- ---------- ----------
817,149 520,259 469,471
---------- ---------- ----------
Operating income............................................................. 125,106 107,946 86,525
Gain on sales of marketable securities....................................... 11,806
Interest expense............................................................. (130,834) (92,876) (93,795)
---------- ---------- ----------
Income (loss) from continuing operations
before income taxes and minority interests................................. 6,078 15,070 (7,270)
Income tax benefit (provision)............................................... (3,000) (5,335) 7,226
Minority interests........................................................... (4,981) 484
---------- ---------- ----------
Income (loss) from continuing operations..................................... (1,903) 10,219 (44)
Discontinued operations:
Loss from operations....................................................... (46,091) (26,245) (6,105)
Gain on sale............................................................... 6,215 6,706
---------- ---------- ----------
Income (loss) before extraordinary items and cumulative
effect on prior years of change in accounting for
income taxes............................................................... (47,994) (9,811) 557
Extraordinary items:
Gain (loss) on extinguishment of debt...................................... (20,395) (8,490) 612
Credit for utilization of tax loss carryforwards........................... 10,605
Cumulative effect on prior years of change in accounting
for income taxes........................................................... (28,197)
---------- ---------- ----------
Net income (loss)............................................................ (68,389) (46,498) 11,774
Preferred stock dividend requirement......................................... (2,778) (2,778) (2,778)
---------- ---------- ----------
Net income (loss) applicable to common stock................................. $ (71,167) $ (49,276) $ 8,996
========== ========== ==========
Per common and common equivalent share:
Income (loss) from continuing operations................................... $ (.10) $ .16 $ (.06)
Discontinued operations --
Loss from operations..................................................... (.98) (.56) (.15)
Gain on sale............................................................. .13 .16
Extraordinary items --
Gain (loss) on extinguishment of debt.................................... (.44) (.18) .01
Credit for utilization of tax loss carryforwards......................... .26
Cumulative effect on prior years of change in
accounting for income taxes.............................................. (.61)
---------- ---------- ----------
Net income (loss).......................................................... $ (1.52) $ (1.06) $ .22
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 70
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
CAPITAL EARNINGS TOTAL
SERIES D IN (ACCUMU- CUMULATIVE COMMON UNEARNED STOCK-
PREFERRED COMMON EXCESS OF LATED TRANSLATION STOCK IN COMPEN- HOLDERS'
DOLLAR AMOUNTS STOCK STOCK PAR VALUE DEFICIT) ADJUSTMENTS TREASURY SATION EQUITY
--------- -------- --------- -------- ----------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991........ $ 694 $25,021 $264,094 $82,565 $10,353 $(17,709) $ (326) $364,692
Net income........................ 11,774 11,774
Issuance of common stock/treasury
stock:
In satisfaction of certain
interest obligations........ 3,873 23,719 27,592
In satisfaction of preferred
stock dividends -- $8.00 per
share....................... 780 4,776 (5,556)
In exchange for debt.......... (10,090) 15,581 5,491
For acquisition of business... 648 3,966 4,614
In settlement of litigation... 166 1,396 1,562
Under stock option and other
benefit plans............... 243 1,450 330 2,023
Amortization of unearned
compensation.................... 326 326
Effect of disposal of discontinued
operations...................... (7,922) (7,922)
Foreign currency translation
adjustments..................... 75 75
------- ------- -------- ------- ------- -------- ------- --------
Balance at December 31, 1992........ 694 30,731 289,311 88,783 2,506 (1,798) -- 410,227
Net loss.......................... (46,498) (46,498)
Issuance of common stock:
In satisfaction of preferred
stock dividends -- $4.00 per
share......................... 221 2,557 (2,778)
In satisfaction of certain
obligations................... 180 1,232 1,412
Under stock option plans........ 193 1,313 1,506
Effect of disposal of discontinued
operations...................... (2,506) (2,506)
------- ------- -------- ------- ------- -------- ------- --------
Balance at December 31, 1993........ 694 31,325 294,413 39,507 -- (1,798) -- 364,141
Net loss.......................... (68,389) (68,389)
Unrealized gain on
available-for-sale marketable
securities...................... 79 79
Preferred stock dividends -- $4.00
per share....................... (2,778) (2,778)
Issuance of common stock under
stock purchase and option
plans........................... 101 697 798
Purchases of common stock......... (239) (239)
------- ------- -------- -------- ------- -------- ------- --------
Balance at December 31, 1994........ $ 694 $31,426 $295,110 $(31,581) $ -- $ (2,037) $ -- $293,612
======= ======= ======== ======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SERIES D COMMON STOCK
PREFERRED -----------------------
SHARE AMOUNTS STOCK ISSUED TREASURY
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1991...................................................... 694 37,531 1,083
Issuance of common stock/treasury stock:
In satisfaction of certain interest obligations............................... 5,809
In satisfaction of preferred stock dividends.................................. 1,170
In exchange for debt.......................................................... (953)
For acquisition of business................................................... 971
In settlement of litigation................................................... 250
Under stock option and other benefit plans.................................... 365 (20)
--- ------ ----
Balance at December 31, 1992...................................................... 694 46,096 110
Issuance of common stock:
In satisfaction of preferred stock dividends.................................. 332
In satisfaction of certain obligations........................................ 269
Under stock option plans...................................................... 289
--- ------ ----
Balance at December 31, 1993...................................................... 694 46,986 110
Issuance of common stock under stock purchase and option plans.................. 152
Purchases of common stock....................................................... 37
--- ------ ----
Balance at December 31, 1994...................................................... 694 47,138 147
=== ====== ====
</TABLE>
See accompanying notes.
F-6
<PAGE> 71
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING:
Income (loss) from continuing operations.................... $ (1,903) $ 10,219 $ (44)
Adjustments to reconcile to cash provided --
Depreciation and amortization (including
pre-opening costs)..................................... 79,294 51,127 48,603
Interest accretion on discount notes and other
amortization included in interest expense.............. 19,867 10,110 1,613
Abandonment loss......................................... 13,100
Deferred income taxes.................................... (21,758) (27,061) 4,534
Gain on sales of marketable securities................... (11,806)
Provision for doubtful receivables....................... 6,829 2,201 1,153
Minority interests....................................... 4,981 (484)
Change in operating assets and liabilities............... (26,170) 5,358 (40,548)
Other, net............................................... 373 (1,816) (639)
--------- --------- --------
Cash provided by continuing operating activities.... 62,807 49,654 14,672
INVESTING:
Purchases of property and equipment......................... (95,858) (70,895) (17,641)
Increase (decrease) in construction-related liabilities..... (1,015) 8,558
Acquisitions of Bally's Grand, Inc. common stock, net of
cash acquired upon consolidation......................... (14,256) 30,688
Purchases of marketable securities.......................... (16,352)
Net proceeds from sales of marketable securities............ 27,168
Other, net.................................................. (2,476) (24,351) (6,315)
--------- --------- --------
Cash used in investing activities................... (102,789) (56,000) (23,956)
FINANCING:
Debt transactions --
Proceeds from the issuance of long-term debt............. 425,000 720,181
Proceeds from construction loan and sale-leaseback
transactions........................................... 9,944
Net repayments under revolving credit agreements......... (2,000) (1,000) (44,653)
Repayments of long-term debt............................. (389,422) (536,440) (13,995)
Debt issuance costs...................................... (16,133) (26,659) (375)
--------- --------- --------
Cash provided by (used in) debt transactions........ 27,389 156,082 (59,023)
Equity transactions --
Preferred stock dividends................................ (2,778)
Proceeds from issuance of common stock under stock
purchase and option plans.............................. 755 590 699
Purchases of common stock for treasury................... (239)
--------- --------- --------
Cash provided by (used in) financing activities..... 25,127 156,672 (58,324)
DISCONTINUED OPERATIONS:
Proceeds from disposal...................................... 58,743
Dividends received from discontinued operations............. 15,000
Other, net.................................................. 1,204 799 8,321
--------- --------- --------
Cash provided by discontinued operations............ 1,204 15,799 67,064
--------- --------- --------
Increase (decrease) in cash and equivalents................... (13,651) 166,125 (544)
Cash and equivalents, beginning of year....................... 192,078 25,953 26,497
--------- --------- --------
Cash and equivalents, end of year............................. $ 178,427 $ 192,078 $ 25,953
========= ========= ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 72
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities, net of
effects from acquisitions and dispositions, were as
follows --
Increase in receivables.............................. $ (6,048) $ (3,252) $ (1,078)
(Increase) decrease in inventories, other current
assets and other assets........................... (9,931) 12,033 (1,008)
Decrease in accounts payable and accrued
liabilities....................................... (8,309) (1,731) (7,609)
Increase (decrease) in income taxes payable.......... (1,730) 13,791 (27,584)
Decrease in other long-term liabilities.............. (152) (15,483) (3,269)
--------- --------- ---------
$ (26,170) $ 5,358 $ (40,548)
========= ========= =========
Cash was invested in acquisitions of Bally's Grand, Inc.
common stock as follows --
Fair value of assets acquired (including goodwill of
$19,354).......................................... $ $(475,299) $
Liabilities assumed (including long-term debt of
$259,950)......................................... 390,305
Minority interests................................... (17,080) 43,280
Unsettled purchases.................................. 2,824
Cash and equivalents acquired upon consolidation..... 72,402
--------- --------- ---------
$ (14,256) $ 30,688 $ --
========= ========= =========
Cash payments for interest and income taxes for continuing
operations were as follows --
Interest paid........................................ $ 115,551 $ 79,347 $ 88,957
Interest capitalized................................. (2,067) (422) (74)
Income taxes paid (refunded)......................... 26,485 18,639 (14,929)
Investing and financing activities exclude the following
non-cash activities --
Purchases of marketable securities on margin......... $ 21,620 $ $
Sales of marketable securities on margin............. 16,764
Acquisition of Bally's Grand, Inc. common stock in
exchange for other equity securities.............. 10,161 18,838
Reduction of intangible assets resulting from the
settlement of a pre-acquisition contingency....... 3,998
Issuance of common stock in satisfaction of preferred
stock dividends, interest and other obligations... 4,190 34,710
Issuance of common stock for acquisition of
business.......................................... 4,614
Securities exchanged for debt........................ 5,491
Exchange of exclusive gaming machines license for
liability reduction............................... 3,500
Discontinued operations --
Capital contributions to Bally's Health & Tennis
Corporation (principally forgiveness of
indebtedness)................................... 31,400 32,000 1,675
Increase (decrease) in income taxes receivable
from Bally's Health & Tennis Corporation........ (1,084) (16,427) 58,911
Sale of certain fitness-related assets to Bally's
Health & Tennis Corporation..................... 27,621
</TABLE>
See accompanying notes.
F-8
<PAGE> 73
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of Bally
Entertainment Corporation ("Bally") and the subsidiaries which it controls
(collectively, the "Company"). The consolidated financial statements have been
presented (after restatement of prior years' financial statements) to reflect
Bally's Health & Tennis Corporation ("Bally's Health & Tennis"), which operates
the nation's largest chain of fitness centers, as a discontinued operation
because of Bally's plan to spin-off its fitness centers segment (see
"Discontinued operations"). As a result, the Company's continuing operations
comprise one industry segment, with all significant revenues arising from the
operation of two casino hotel resorts in Atlantic City, New Jersey, a casino
hotel resort in Las Vegas, Nevada and a dockside gaming facility in Tunica,
Mississippi ("Bally's Mississippi").
Certain reclassifications have been made to prior years' financial
statements to conform with the 1994 presentation.
Cash equivalents
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value due to the short maturity of those
instruments.
Marketable securities
Marketable securities consist of common stock of certain publicly-traded
gaming companies. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," these securities are considered available-for-sale securities and
are carried at fair value (cost at December 31, 1994 was $5,846) with unrealized
gains or losses reported net of tax, as a credit or charge to retained earnings.
Gross unrealized gains and losses of securities held at December 31, 1994 were
$219 and $34, respectively. Gross realized gains and losses on sales of
available-for-sale equity securities totalled $11,884 and $78, respectively, for
the year ended December 31, 1994. The cost of securities sold is determined on
the specific identification method.
Inventories
Inventories of provisions and supplies are stated at the lower of cost
(first-in, first-out basis) or market, which approximates replacement cost.
Property and equipment
Depreciation of property and equipment is provided principally on the
straight-line method over the estimated economic lives of the related assets and
the terms of the applicable leases for leasehold improvements. Depreciation
expense was $68,938, $44,112 and $42,224 for 1994, 1993 and 1992, respectively.
Deferred finance costs
Deferred finance costs are amortized over the terms of the related debt
using the bonds outstanding method. Included in "Other assets" at December 31,
1994 and 1993 were deferred finance costs of $36,528 and $32,505, respectively,
net of accumulated amortization of $6,105 and $9,044, respectively.
F-9
<PAGE> 74
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Gaming development costs
Gaming development costs include consulting and legal fees, design and
architectural costs, application and licensing fees and salaries incurred in
connection with the pursuit and development of new gaming projects in various
jurisdictions. These costs are expensed as incurred until such time as a
particular opportunity is determined to be viable, generally when the Company
has been selected as the operator of a new gaming facility or a gaming license
has been granted to the Company, at which time the costs are classified as
pre-opening costs.
Pre-opening costs
Personnel, marketing and other operating costs that are directly associated
with the opening of new casinos are capitalized as pre-opening costs and
amortized to expense over the first two calendar quarters of operations.
Included in "Other assets" at December 31, 1994 and 1993 were pre-opening costs
of $1,740 and $3,653, respectively.
Intangible assets
Intangible assets consist principally of cost in excess of net assets of
acquired businesses (goodwill) and are being amortized on the straight-line
method over periods ranging up to forty years from the dates of acquisition.
The Company evaluates quarterly whether the remaining estimated useful life
of goodwill may warrant revision or the remaining balance of goodwill may not be
recoverable, generally considering expectations of future profitability and cash
flows (undiscounted and without interest charges) for each subsidiary having
goodwill of significance. If the sum of a subsidiary's expected future cash
flows was less than the carrying amount of that subsidiary, an impairment loss
would be recognized equal to the amount by which the carrying amount of that
subsidiary exceeded its fair value. The Company believes that no impairment of
goodwill exists at December 31, 1994.
Revenue recognition
Casino revenues consist of the net win from gaming activities, which is the
difference between gaming wins and losses. Operating revenues exclude the retail
value of complimentary food, beverages and hotel services furnished to
customers, which were $99,558, $71,261 and $69,177 for 1994, 1993 and 1992,
respectively. The estimated costs of providing such complimentary services,
which are classified as casino expenses through interdepartmental allocations
from the departments granting the services, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Rooms......................................................... $15,601 $10,010 $ 9,576
Food and beverages............................................ 53,356 40,541 33,527
Other......................................................... 6,958 5,577 4,012
------- ------- --------
$75,915 $56,128 $ 47,115
======= ======= =======
</TABLE>
Income taxes
Effective January 1, 1993, the Company changed its method of accounting for
income taxes as required by SFAS No. 109, "Accounting for Income Taxes." As
permitted by SFAS No. 109, the Company elected to use the cumulative effect
approach rather than to restate the consolidated financial statements of any
prior
F-10
<PAGE> 75
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
years to apply the provisions of SFAS No. 109. The cumulative effect on prior
years of this change in accounting for income taxes was a charge of $28,197
($.61 per share).
ABANDONMENT LOSS
On February 9, 1995, Bally's Mississippi entered into a venture agreement
with Lady Luck Gaming Corporation ("Lady Luck") under which Bally's Mississippi
has relocated its dockside casino from Mhoon Landing to Lady Luck's site in
Robinsonville, Mississippi (which is presently the closest gaming site to
Memphis) and contributed the dockside casino and related assets to the venture.
The Robinsonville site presently includes a 238-room hotel (contributed by Lady
Luck) and is expected to be developed to include a restaurant, an entertainment
lounge, administrative facilities and additional parking, all of which are
expected to cost approximately $10,000. Bally's Mississippi, through an
affiliate which is general manager of the venture, plans to commence casino
operations at the Robinsonville site in November 1995. Bally's Mississippi,
which is the majority owner of the venture, is committed to provide financing up
to $5,000 in the event that third-party financing cannot be obtained.
In connection with the venture agreement, Bally's Mississippi ceased
operations at Mhoon Landing on February 9, 1995 and will terminate its land
lease later in 1995, at which time the land-based building and related
leaseholds will become property of the lessor. In addition, certain other assets
were not recoverable upon relocation. As a result, Bally's Mississippi wrote
down unrecoverable assets and recognized a charge of $13,100 at December 31,
1994, which represents the cost (net of accumulated depreciation) of assets to
be abandoned.
EXTRAORDINARY ITEMS
In 1994, Bally's Park Place, Inc. ("Bally's Park Place") completed a
refinancing of its debt which resulted in an extraordinary loss of $20,735, net
of income taxes of $14,137. See "Long-term debt." Also in 1994, the Company
purchased $7,400 principal amount of public debt securities (discount notes) not
related to sinking fund requirements for $4,456 in cash, which resulted in an
extraordinary gain of $340, net of income taxes of $183.
In 1993, three other subsidiaries of the Company completed refinancings of
their debt which, in the aggregate, resulted in the issuance of over $700,000
principal amount of public debt securities. These refinancings resulted in an
extraordinary loss totalling $8,490, net of income taxes of $5,092 and minority
interests of $412.
In 1992, the Company utilized tax loss carryforwards to offset taxable
income principally arising from the sale of Bally Gaming International, Inc.
("Gaming") common stock in July 1992 and the related tax benefit of $10,605 has
been reflected as an extraordinary credit. See "Discontinued operations." Also
in 1992, the Company purchased $11,471 principal amount of public debt
securities not related to sinking fund requirements for 952,697 shares of Bally
Common Stock, par value 66 2/3c per share ("Common Stock") and $7,900 in cash,
which resulted in an extraordinary gain of $612, net of income taxes of $329.
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share is computed by
dividing net income (loss) applicable to common stock by the weighted average
number of shares of common stock and common stock equivalents outstanding during
each year (46,897,196 in 1994, 46,558,856 in 1993 and 41,110,353 in 1992).
Common stock equivalents, which represent the dilutive effect of the assumed
exercise of certain outstanding stock options, increased the weighted average
number of shares outstanding by 1,645,348 in 1992. The assumed exercise of
outstanding stock options was not applicable in 1994 or 1993.
F-11
<PAGE> 76
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
ACQUISITION OF BALLY'S GRAND, INC.
On August 20, 1993 (the "Effective Date"), the Fifth Amended Plan of
Reorganization (the "Chapter 11 Plan") of Bally's Grand, Inc. (a company
originally acquired by Bally in 1986 which owns and operates the casino hotel
resort in Las Vegas, Nevada known as "Bally's Las Vegas") became effective and
Bally's Grand, Inc. emerged from bankruptcy. For almost two years prior thereto,
Bally's Grand, Inc. operated its business and managed its properties as a
debtor-in-possession under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). On the Effective Date, Bally relinquished all of its equity
interest in Bally's Grand, Inc. and Bally's net intercompany receivable from
Bally's Grand, Inc. was cancelled and extinguished. Bally's investment in and
advances to Bally's Grand, Inc. were written down to zero in 1990. Also, Bally
did not provide any type of guarantee or commitment to Bally's Grand, Inc. nor
did it assume any other obligation of Bally's Grand, Inc. in connection with the
Chapter 11 Plan. Accordingly, the Company did not reflect any equity in earnings
of Bally's Grand, Inc. for the period from January 1, 1992 through the Effective
Date.
During 1993, two subsidiaries of Bally acquired 5,215,678 shares
(approximately 50% of the shares then outstanding) of reorganized Bally's Grand,
Inc. common stock in several transactions in exchange for $41,714 in cash and
1,752,400 shares of Gaming common stock. Bally's Grand, Inc. has been
consolidated since December 1, 1993 as a result of Bally's controlling interest.
From September 29, 1993 (the date a cumulative 20% equity interest in
reorganized Bally's Grand, Inc. was attained) through November 30, 1993, Bally's
investment in Bally's Grand, Inc. was recorded on the equity method of
accounting. The equity in earnings of reorganized Bally's Grand, Inc. recognized
during that period was $786.
During 1994, Bally's Grand, Inc. repurchased 1,439,681 shares of its common
stock in several transactions for a total cash consideration of $17,080. In
addition, in December 1994, a subsidiary of Bally purchased 752,676 shares of
reorganized Bally's Grand, Inc. common stock from an executive officer of Bally
in exchange for cumulative exchangeable preferred stock of that subsidiary. See
"Minority interests."
Collectively, as a result of the transactions described above, Bally owns
approximately 65% of the Bally's Grand, Inc. common shares outstanding at
December 31, 1994. The acquisitions of Bally's Grand, Inc. common stock have
been recorded using the purchase method of accounting and the excess of the
purchase price over the estimated fair value of net assets acquired of $26,363
is being amortized using the straight-line method over 20 years.
Certain employees of Bally and certain of its subsidiaries are involved in
the management and operations of Bally's Grand, Inc. For services provided to
Bally's Grand, Inc. prior to the Effective Date, Bally was paid $1,427 and
$2,247 during 1993 and 1992, respectively. Following the Effective Date, such
services, among other things, are provided to reorganized Bally's Grand, Inc.
under a management agreement pursuant to which a subsidiary of Bally receives
$3,000 annually.
The following unaudited pro forma summary consolidated results of
operations of the Company for 1993 and 1992 have been prepared to give effect to
the acquisition of the controlling interest in reorganized Bally's Grand, Inc.
as if the acquisition had occurred as of the beginning of each of the years
presented. These pro forma results have been prepared for comparative purposes
only and do not purport to present what the Company's results of operations
would actually have been if the acquisition had in fact occurred at such dates
or to project the Company's results of operations for any future year. In
addition, the pro forma summary consolidated results of operations of the
Company include adjustments to the historical results of operations of Bally's
Grand, Inc. which principally reflect: (i) the elimination of the operating
results of the casino hotel resort formerly known as "Bally's Reno," (ii) the
elimination of the reorganization items of Bally's Grand, Inc., (iii) the
effects of transactions related to the reorganization of Bally's Grand, Inc.
pursuant to the Chapter 11 Plan, (iv) the effects of the adoption of
"fresh-start reporting" and (v) the income tax effects of
F-12
<PAGE> 77
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
the pro forma adjustments. The pro forma summary consolidated results of
operations are based upon available information and upon certain assumptions
that management believes are reasonable.
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Revenues............................................................ $ 867,952 $ 803,829
Operating income.................................................... 143,048 117,641
Income (loss) from continuing operations............................ 11,571 (233)
Net income (loss)................................................... (46,707) 11,585
Per common and common equivalent share:
Income (loss) from continuing operations.......................... $ .19 $ (.07)
Net income (loss)................................................. (1.06) .21
</TABLE>
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Payroll and benefit-related liabilities............................. $ 40,213 $ 38,721
Interest............................................................ 29,179 40,299
Other............................................................... 44,598 37,207
---------- ----------
$ 113,990 $ 116,227
========== ==========
</TABLE>
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at December 31, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Bally:
6% Convertible Subordinated Debentures due 1998................... $ 15,715 $ 18,969
10% Convertible Subordinated Debentures due 2006.................. 80,000 85,000
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998.................................... 149,281 139,418
Bally's Park Place:
9 1/4% First Mortgage Notes due 2004.............................. 425,000
11 7/8% First Mortgage Notes due 1999............................. 350,000
Revolving credit agreement........................................ 2,000
GNAC, CORP.:
10 5/8% First Mortgage Notes due 2003 (less unamortized discount
of $1,824 and $1,873).......................................... 273,176 273,127
Bally's Grand, Inc.:
10 3/8% First Mortgage Notes due 2003............................. 315,000 315,000
Bally's Casino*Lakeshore Resort:
Construction loan................................................. 4,358
Other secured and unsecured obligations............................. 3,660 2,771
---------- ----------
Total long-term debt................................................ 1,266,190 1,186,285
Current maturities of long-term debt................................ (7,200) (7,631)
---------- ----------
Long-term debt, less current maturities............................. $1,258,990 $1,178,654
========== ==========
</TABLE>
F-13
<PAGE> 78
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Bally 6% Convertible Subordinated Debentures due 1998 (the "6%
Debentures") require annual sinking fund payments of $2,587 through 1997, which
will retire 75% of these debentures prior to maturity. The Company may redeem
these debentures at any time, in whole or in part, without premium. At any time
prior to maturity or redemption, these debentures are convertible into Common
Stock (current conversion price of $28.99 per share, subject to adjustment for
certain subsequent changes in the Company's capitalization). In 1994, the
Company purchased $3,254 principal amount of these debentures to satisfy the
1994 and a portion of the 1995 sinking fund requirement, which resulted in a
pre-tax gain of $441 (included in "Other revenues").
The Bally 10% Convertible Subordinated Debentures due 2006 (the "10%
Debentures") require annual sinking fund payments of $5,000 through 2005, which
will retire 75% of these debentures prior to maturity. The Company may redeem
these debentures at any time, in whole or in part, with premiums ranging from
1.29% at December 31, 1994 to zero in December 1996 and thereafter. At any time
prior to maturity or redemption, these debentures are convertible into Common
Stock (current conversion price of $32.68 per share, subject to adjustment for
certain subsequent changes in the Company's capitalization). In 1994, the
Company purchased $5,000 principal amount of these debentures to satisfy the
1994 sinking fund requirement, which resulted in a pre-tax gain of $794
(included in "Other revenues").
The payment of the 6% Debentures and 10% Debentures is subordinated to the
prior payment, in full, of all senior indebtedness of Bally, as defined
(approximately $39,000 at December 31, 1994). In addition, almost all of the
Company's business is conducted through subsidiaries and claims of creditors of
subsidiaries are effectively senior to these debentures.
The Bally's Casino Holdings, Inc. ("Casino Holdings") $220,000 principal
amount of Senior Discount Notes due 1998 (the "Senior Discount Notes") were
issued at a discount to yield an interest rate of 10 1/2%. The Senior Discount
Notes are not subject to any sinking fund requirement, but may be redeemed at
any time, in whole or in part, at their accreted value plus a "make-whole
premium," as defined. In addition, on or before June 15, 1996, a portion of the
Senior Discount Notes may be redeemed with premiums ranging from 6.4% of the
accreted value at December 31, 1994 to 4.8% of the accreted value on June 15,
1996 out of the proceeds of an initial public offering by Casino Holdings if
such offering were to occur, provided that at least $154,000 principal amount of
the Senior Discount Notes remains outstanding after the redemption. The Senior
Discount Notes are effectively subordinated to all liabilities and guarantees of
Casino Holdings' subsidiaries, which were approximately $881,000 at December 31,
1994.
In March 1994, a subsidiary of Bally's Park Place issued $425,000 principal
amount of 9 1/4% First Mortgage Notes due 2004 (the "9 1/4% Notes"). The 9 1/4%
Notes are not subject to any sinking fund requirement, but may be redeemed
beginning March 1999, in whole or in part, with premiums ranging from 4.5% in
1999 to zero in 2002 and thereafter. In addition, on or before March 15, 1997, a
portion of the 9 1/4% Notes may be redeemed at a premium of 9.25% out of the
proceeds of one or more public equity offerings by Bally's Park Place or Casino
Holdings if such offerings were to occur, provided that at least $100,000
principal amount of the 9 1/4% Notes remains outstanding after the redemption.
The 9 1/4% Notes are secured by a first mortgage on and security interest in
substantially all property and equipment at Bally's Park Place, which had a net
book value of approximately $483,000 at December 31, 1994. Bally's Park Place
used the net proceeds from the sale of the 9 1/4% Notes to purchase and retire
certain of its 11 7/8% First Mortgage Notes due 1999 (the "11 7/8% Notes"),
defease the remaining 11 7/8% Notes at a price of 104.45% of their principal
amount plus accrued interest through the redemption date, thereby satisfying all
obligations thereunder, and pay dividends of $30,214 to Casino Holdings. In
connection with the sale of the 9 1/4% Notes, Bally's Park Place terminated its
former credit facility and entered into an agreement for a new $50,000 revolving
credit facility which expires on December 31, 1996, at which time all amounts
outstanding become due. The new credit facility provides for interest on
borrowings payable, at the option of Bally's Park Place, at the agent bank's
prime rate
F-14
<PAGE> 79
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
or the LIBOR rate plus 2%, each of which increases as the balance outstanding
increases. The new credit facility is secured by a pari passu lien on the
collateral securing the 9 1/4% Notes. Bally's Park Place pays a fee of 1/2% on
the unused commitment and the entire credit line was available at December 31,
1994.
The GNAC, CORP. 10 5/8% First Mortgage Notes due 2003 (the "10 5/8% Notes")
were issued at a discount to yield an interest rate of 10 3/4%. The 10 5/8%
Notes are not subject to any sinking fund requirement, but may be redeemed
beginning April 1998, in whole or in part, with premiums ranging from 5.25% in
1998 to zero in 2001 and thereafter. The 10 5/8% Notes are secured by a first
mortgage on and security interest in substantially all property and equipment of
GNAC, CORP.'s casino hotel resort in Atlantic City known as "The Grand," which
had a net book value of approximately $279,000 at December 31, 1994. GNAC, CORP.
has a $20,000 revolving credit facility expiring on December 31, 1996 which
provides for interest on borrowings at the rate of 1% above the agent bank's
prime rate and is secured by a pari passu lien on the
collateral securing the 10 5/8% Notes. GNAC, CORP. pays a fee of 1/2% on the
unused commitment and the entire credit line was available at December 31, 1994.
The Bally's Grand, Inc. 10 3/8% First Mortgage Notes due 2003 (the "10 3/8%
Notes") are not subject to any sinking fund requirement, but may be redeemed
beginning December 1998, in whole or in part, with premiums ranging from 5.19%
in 1998 to zero in 2001 and thereafter. In addition, on or before December 15,
1996, a portion of the 10 3/8% Notes may be redeemed at a premium of 9.375% out
of the proceeds of one or more public equity offerings by Bally's Grand, Inc. if
such offerings were to occur, provided that at least $100,000 principal amount
of the 10 3/8% Notes remains outstanding after the redemption. The 10 3/8% Notes
are secured by a first priority lien on the fee interests in the approximately
thirty-acre site comprising Bally's Las Vegas and by a security interest in
certain personal property of Bally's Grand, Inc., which together had a net book
value of approximately $340,000 at December 31, 1994.
In June 1994, Bally's Casino*Lakeshore Resort, which in 1995 commenced the
operation of a riverboat gaming facility in New Orleans, Louisiana ("Bally's New
Orleans"), entered into an agreement (as amended) for a construction loan
generally not to exceed $23,183. The construction loan provided for interest on
borrowings at the rate of 1% above a bank's stated prime rate (9.5% at December
31, 1994) and was guaranteed by Bally. Borrowings under the construction loan
were used by Bally's New Orleans to fund a substantial portion of the payments
for construction of the riverboat casino. Also in June 1994, Bally's New Orleans
received a commitment from another lender that enabled Bally's New Orleans to
replace the borrowings outstanding under the construction loan with a five-year
term loan upon completion of the riverboat casino.
Other secured and unsecured obligations are payable through 2018 and are
collateralized by land, buildings and equipment which have a net book value of
approximately $3,000 at December 31, 1994. Interest rates on other secured and
unsecured obligations averaged 7% at December 31, 1994. For 1994 and 1992, the
weighted average interest rate on short-term borrowings was 7.9%, and 6.5%,
respectively. There were no short-term borrowings in 1993.
Dividend and other restrictions
Each of Bally's principal subsidiaries presently have debt covenants which
limit the payment of dividends to Bally. The New Jersey Casino Control
Commission (the "New Jersey Commission") requires, among other things, that
dividends paid by Bally's Park Place to Casino Holdings which are not paid
pursuant to a net income test (generally limited to 50% of Bally's Park Place's
aggregate consolidated net income, as defined, earned since April 1, 1994)
receive prior approval from the New Jersey Commission. The indenture for the
9 1/4% Notes limits dividends that are not paid pursuant to the net income test
to $50,000 in the aggregate, of
F-15
<PAGE> 80
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
which $25,000 was paid in 1994. At December 31, 1994, $2,059 was available to be
paid by Bally's Park Place to Casino Holdings under the net income test.
Under the terms of the Senior Discount Notes, dividends received by Casino
Holdings other than from Bally's Park Place are not available to be paid to
Bally unless available pursuant to a net income test (generally limited to 50%
of Casino Holdings' consolidated net income exclusive of income attributable to
Bally's Park Place). At December 31, 1994, no amounts were available for the
payment of dividends to Bally under such net income test. However, any dividends
paid by Bally's Park Place to Casino Holdings pursuant to the net income test
may be declared as a dividend by Casino Holdings and paid to Bally. Under the
terms of the indenture for the 10 3/8% Notes, $2,614 was available as of
December 31, 1994 for the payment of dividends by Bally's Grand, Inc. Dividends
to Bally from subsidiaries other than Bally's Park Place are not presently
expected during 1995.
The indentures for Bally's debt do not contain cross-default provisions.
However, the indentures and credit agreements related to the indebtedness of
certain of Bally's subsidiaries require, among other things, that these
subsidiaries maintain certain financial ratios and restrict the amount of
additional indebtedness that can be incurred.
Except for Bally's New Orleans' construction loan, Bally has not guaranteed
the payment of principal or interest under the publicly traded debt securities
and credit agreements of its subsidiaries.
Annual maturities
Aggregate annual maturities of long-term debt for the five years after
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Bally............................................ $ 6,920 $ 7,587 $ 7,587 $ 13,621 $ 5,000
Casino Holdings.................................. 212,600
Other............................................ 280 304 535 53 55
------- ------- ------- -------- --------
$ 7,200 $ 7,891 $ 8,122 $226,274 $ 5,055
======= ======= ======= ======== ========
</TABLE>
Fair value
The fair value of the Company's long-term debt at December 31, 1994 and
1993 was $1,033,222 and $1,205,534, respectively. The fair value of publicly
held debt securities is based on quoted market prices. The fair value of
borrowings under revolving credit agreements and of other secured and unsecured
obligations approximates their carrying amount. The fair values are not
necessarily indicative of the amounts the Company could realize in a current
market exchange.
F-16
<PAGE> 81
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
INCOME TAXES
The income tax provision (benefit) applicable to income (loss) from
continuing operations before income taxes and minority interests consists of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 20,426 $ 28,536 $(12,365)
State.................................................... 4,332 3,860 605
-------- -------- --------
24,758 32,396 (11,760)
Deferred:
Federal.................................................. (22,879) (27,716) 3,494
State.................................................... 1,121 655 1,040
-------- -------- --------
(21,758) (27,061) 4,534
-------- -------- --------
$ 3,000 $ 5,335 $ (7,226)
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of December 31, 1994 and 1993, along with their
classification, are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Expenses which are not currently deductible for
tax purposes:
Bad debts.................................. $ 7,442 $ $ 7,545 $
Other...................................... 35,088 51,902
Depreciation and capitalized costs.............. 169,314 179,928
Basis difference of investments................. 27,067 24,154
Federal and state carryforwards................. 119,178 115,735
Other, net...................................... 31,440 62,953
-------- --------- -------- ---------
161,708 $ 227,821 175,182 $ 267,035
========= =========
Valuation allowance............................. (70,439) (77,982)
-------- --------
$ 91,269 $ 97,200
======== ========
Current......................................... $ 16,760 $ 461 $ 23,575 $ 1,522
Long-term....................................... 74,509 227,360 73,625 265,513
-------- --------- -------- ---------
$ 91,269 $ 227,821 $ 97,200 $ 267,035
======== ========= ======== =========
</TABLE>
The deferred income tax provision for the year ended December 31, 1992,
which was determined pursuant to Accounting Principles Board Opinion No. 11,
arose from the tax effect of timing differences primarily related Alternative
Minimum Tax ("AMT") credits and basis difference in Gaming common stock offset,
in part, by debt discharge income.
Based on federal income tax returns as filed, as adjusted for certain
agreements with the Internal Revenue Service ("IRS"), the Company had federal
loss and AMT credit carryforwards at December 31, 1994 of
F-17
<PAGE> 82
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
approximately $343,000 and $20,000, respectively. A substantial portion of such
carryforwards may no longer be available to Bally upon consummation of the
spin-off of Bally's Health & Tennis (the "Spin-off"). See "Discontinued
operations" included elsewhere herein. The Company's federal loss carryforwards
begin to expire in 2006 and fully expire in 2009, and the Company's AMT credits
have no expirations. In addition, the Company has substantial state tax loss
carryforwards which begin to expire in 1995 and fully expire in 2009. Because of
complex issues involved in the Company's tax situation and the Company's present
expectations of the ultimate resolution of such issues, the Company has provided
a valuation allowance for a substantial portion of the federal and state loss
carryforwards and a portion of its AMT credits.
A reconciliation of the income tax provision (benefit) with amounts
determined by applying the U.S. statutory tax rate to income (loss) from
continuing operations before income taxes and minority interests is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Provision (benefit) at U.S. statutory tax rate (35% in 1994
and 1993 and 34% in 1992)................................... $ 2,127 $ 5,275 $(2,472)
Add (deduct):
State income taxes, net of related federal income tax
benefit.................................................. 3,433 2,393 999
Nondeductible expenses --
Amortization and depreciation............................ 1,247 1,140 2,787
Other.................................................... 1,549
Effect of change in state (1994) and U.S. (1993) statutory
tax rates on deferred tax balances....................... (452) 1,492
Prior years' taxes and related changes in the valuation
allowance................................................ (5,327) (5,348) (8,794)
Other, net.................................................. 423 383 254
------- ------- -------
Income tax provision (benefit)................................ $ 3,000 $ 5,335 $(7,226)
======= ======= =======
</TABLE>
MINORITY INTERESTS
At December 31, 1994, minority interests represents: (i) the 35% share in
the Bally's Grand, Inc. common stockholders' equity that Bally does not own and
(ii) the $10,161 redemption value/liquidation preference of the preferred stock
of a Bally subsidiary that was issued to an executive officer of Bally in
December 1994 in connection with the acquisition of Bally's Grand, Inc. common
stock from that officer. The subsidiary preferred stock has cumulative annual
dividend requirements of $572 and can be exchanged at any time through 2001
(date the subsidiary must redeem the preferred stock) at the option of the
holder for 1,505,405 shares of Common Stock (lesser amounts can be exchanged in
the same ratio). In addition, at any time on or after June 30, 1997, the
preferred stock may be redeemed for cash at the option of either the subsidiary
or the holder.
STOCKHOLDERS' EQUITY
Preferred stock
The Series B Junior Participating Preferred Stock, par value $1 per share
(the "Series B Junior Stock"), if issued, will have a minimum preferential
quarterly dividend of $5 per share, but will be entitled to an aggregate
dividend of 100 times the dividend declared on shares of Common Stock. Each
share of Series B Junior Stock will have 100 votes, voting together with Common
Stock, except as Delaware law may otherwise provide. In the event of
liquidation, the holders of Series B Junior Stock will receive a preferred
liquidation
F-18
<PAGE> 83
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
payment of $100 per share, but will be entitled to receive an aggregate
liquidation payment equal to 100 times the payment made per share of Common
Stock.
The Series D Convertible Exchangeable Preferred Stock, par value $1 per
share (the "Preferred Stock"), with a face value of $34,725 as of December 31,
1994, bears a dividend rate of 8%. The holders of Preferred Stock do not have
voting rights, except that the holders would have the right to elect two
additional directors of Bally if dividends on the Preferred Stock are in arrears
in an amount equal to at least six quarterly dividends and except as Delaware
law may otherwise provide. The Preferred Stock is redeemable, in whole or in
part, at the option of Bally at $51.20 per share as of December 31, 1994,
declining each February 1 in equal annual amounts to $50 per share on and after
February 1, 1997, in each case plus accrued and unpaid dividends. The Preferred
Stock is convertible into Common Stock at a price of $25 per share, equivalent
to a conversion rate of two shares of Common Stock for each share of Preferred
Stock, subject to adjustment. The Preferred Stock is exchangeable at the option
of Bally, in whole but not in part, on any dividend payment date for 8%
Convertible Subordinated Debentures due February 1, 2007. In the event of
liquidation, the holders of the Preferred Stock will receive a preferred
liquidation payment of $50 per share, plus an amount equal to any dividends
accrued and unpaid to the payment date, before any distribution is made to
holders of junior securities.
Common stock
At December 31, 1994, shares of Common Stock were reserved for future
issuance as follows:
<TABLE>
<S> <C>
Stock options and awards........................................................ 5,921,613
Conversion of 10% Debentures and 6% Debentures.................................. 2,990,063
Acquisitions of businesses...................................................... 2,000,000
Conversion of preferred stock of Bally and a subsidiary......................... 2,894,399
Other........................................................................... 26,441
----------
13,832,516
==========
</TABLE>
STOCK PLANS, AWARDS AND RIGHTS
Incentive plans
In May 1989, the stockholders approved the 1989 Incentive Plan of Bally
(the "1989 Plan") for officers and key employees that provides for the grant of
stock options, stock appreciation rights ("SARs"), stock depreciation rights
("SDRs") and restricted stock (collectively "Awards"). Through December 31,
1994, 6,022,000 shares of Common Stock were reserved for issuance under the 1989
Plan. An amendment to the 1989 Plan increasing the aggregate number of shares of
Common Stock which may be sold or delivered under the 1989 Plan to 8,000,000
shares received stockholder approval in 1995. No Awards may be granted after
March 9, 1999.
The 1989 Plan provides for granting incentive as well as non-qualified
stock options. Generally, non-qualified stock options will be granted with an
option price equal to the fair market value of the stock at the date of grant.
Incentive stock options must be granted at not less than the fair market value
of the stock at the date of grant. Option grants generally become exercisable in
three equal annual installments commencing one year after the date of grant, but
the Compensation and Stock Option Committee (the "Compensation Committee") of
the Bally's Board of Directors (the "Board") in its discretion, may alter such
terms.
SARs are rights granted to an officer or key employee to receive shares of
stock and/or cash in an amount equal to the excess of the fair market value of
the stock on the date the SARs are exercised over the fair market value of the
stock on the date the SARs were granted or, at the discretion of the
Compensation
F-19
<PAGE> 84
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Committee, the date the option was granted, if granted in tandem with an option
granted on a different date. Upon exercise of stock appreciation rights, the
optionee surrenders the related option in exchange for payment, in cash, of the
excess of the fair market value on the date of surrender over the option price.
SDRs are rights granted to an officer or key employee in conjunction with
an option to receive a payment of stock and/or cash equal to the excess, if any,
of the option price of stock acquired on the exercise of the related option over
the greater of: (i) the fair market value of the stock, as of the date six
months and one day after the option was exercised (or such other date as the
Compensation Committee, in its discretion, shall determine), or (ii) if such
stock was sold prior to such date, the gross sale proceeds from the sale of such
stock. Stock options, SARs and SDRs granted under the 1989 Plan may be
exercisable for a term of not more than ten years after the date of grant. At
December 31, 1994, no SDRs had been granted and Bally has no current intention
of granting SDRs under the 1989 Plan.
Restricted stock awards are rights granted to an employee to receive shares
of stock without payment but subject to forfeiture and other restrictions as set
forth in the 1989 Plan. Generally, the restricted stock awarded, and the right
to vote such stock or to receive dividends thereon, may not be sold, exchanged
or otherwise disposed of during the restricted period. Except as otherwise
determined by the Compensation Committee, the restrictions and risks of
forfeiture will, after one year from the date of grant, lapse as to not more
than 20% of the stock originally awarded, after two years lapse as to an
aggregate of not more than 40% of the stock originally awarded, and after three
years shall lapse as to all the stock originally awarded. There have been no
restricted stock awards granted under this plan since 1989 and there are no
shares outstanding with restrictions under this plan at December 31, 1994.
In May 1994, the stockholders approved the 1993 Non-Employee Directors'
Stock Option Plan of Bally (the "1993 Plan"). The 1993 Plan provides for the
grant of non-qualified stock options to purchase an aggregate of 120,000 shares
of Common Stock to directors of the Company who are not officers or key
employees of Bally or any of its subsidiaries. Under this plan, stock options
are granted with an option price equal to the fair market value of the stock on
the date of grant. Option grants generally become exercisable in three equal
annual installments commencing one year after the date of grant, with such
options expiring ten years after the date of grant. No options may be granted
under this plan after October 13, 1998.
The Company also has a non-qualified and incentive stock option and stock
appreciation rights plan for officers and key employees (the "1985 Plan") which
has been terminated except as to options and stock appreciation rights
outstanding, all of which are vested.
A summary of 1994 stock option activity under the 1989 Plan, the 1993 Plan
and the 1985 Plan is as follows:
<TABLE>
<CAPTION>
SHARES
-----------------------
STOCK
PRICE STOCK APPRECIATION
PER SHARE OPTIONS RIGHTS
----------- --------- -------------
<S> <C> <C> <C>
Outstanding at December 31, 1993...................... $1.75-22.50 4,194,606 508,334
Granted............................................... 6.75 1,952,000
Exercised............................................. 3.88-6.75 (34,737)
Cancelled or expired.................................. 1.75-15.50 (459,428)
--------- -------
Outstanding at December 31, 1994...................... 1.75-22.50 5,652,441 508,334
========= =======
</TABLE>
At December 31, 1994, options on 2,566,662 shares were exercisable and
106,620 shares and 80,000 shares were reserved for future grants under the 1989
Plan and 1993 Plan, respectively. Outstanding options at December 31, 1994
expire between 1995 and 2004.
F-20
<PAGE> 85
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
In May 1994, the stockholders approved Bally's Employee Stock Purchase Plan
(the "Stock Purchase Plan"). The Stock Purchase Plan provides for the purchase
of Common Stock by eligible employees (as defined) electing to participate in
the plan. The stock can generally be purchased every six months at a price equal
to the lesser of: (i) 85% of the fair market value of the stock on the date when
a particular offering begins or (ii) 85% of the fair market value of the stock
on the date when a particular offering terminates. On each offering made under
the Stock Purchase Plan, each eligible employee electing to participate in the
Stock Purchase Plan will automatically be granted shares of Common Stock equal
to the number of full shares which may be purchased from the employee's elected
payroll deduction, with a maximum payroll deduction equal to 10% of eligible
compensation, as defined. The first offering under this plan commenced on July
1, 1994 and the last offering terminates on June 30, 2004. During 1994, 117,448
shares of Common Stock were purchased by employees electing to participate in
the Stock Purchase Plan. At December 31, 1994, 82,552 shares of Common Stock
were reserved for future purchases under the Stock Purchase Plan. Since the
Stock Purchase Plan is noncompensatory, no expense has been recorded by the
Company.
Awards of subsidiary stock
The Bally's Grand, Inc. Incentive Stock Plan is a general incentive stock
award plan for the benefit of its officers which provides for the grant of stock
awards for no consideration. During 1993, Bally's Grand, Inc. awarded 600,000
shares of its common stock, of which 300,000 shares were awarded through an
outright grant and were subsequently acquired by a subsidiary of Bally at their
fair market value. The remaining 300,000 shares were awarded subject to certain
restrictions and forfeiture if the participant's employment with Bally's Grand,
Inc. terminates before the restrictions lapse (forfeitures occurred in both 1994
and 1993). The restrictions applicable to these 300,000 shares lapse as to
approximately one-third of the shares awarded on each of December 31, 1993, 1994
and 1995, and Bally's Grand, Inc. acquired 180,175 of these shares at their fair
market value during 1994. The fair value of restricted shares awarded is
amortized to expense over the period the restrictions lapse. Pursuant to this
stock plan, forfeited shares are available to be awarded again. As of December
31, 1994, there were 37,800 shares of Bally's Grand, Inc. common stock available
for award under this plan.
Rights to purchase preferred stock
One preferred stock purchase right is attributable to each outstanding
share of Common Stock. Under certain conditions, each right may be exercised to
purchase for $60 one 1/100th of a share of Series B Junior Stock. The rights are
not exercisable or transferable apart from the stock until the occurrence of one
of the following: (i) ten days after the date ("Stock Acquisition Date") of a
public announcement by a person or a group of beneficial ownership of 20% or
more of Common Stock (an "Acquiring Person"), (ii) ten business days after a
public announcement by a person or group of a tender offer for 30% or more of
Common Stock, or (iii) the occurrence of a Flip-In Event. A Flip-In Event is any
of: (i) a final court or administrative order finding that a person or group
having beneficial ownership of 10% or more of Common Stock (a "10% Stockholder")
has violated Nevada or New Jersey gaming, casino or similar laws in connection
with such 10% Stockholder's interest in the Company, (ii) the failure of a 10%
Stockholder to eliminate or reduce to an acceptable level its beneficial
ownership of Common Stock within 20 days after a final court or administrative
order finding that such 10% Stockholder is unsuitable or unqualified to hold its
interest in the Company, (iii) the acquisition by a person or group of 20% or
more of Common Stock without having obtained prior Nevada Gaming Commission
approval to acquire control of the Company, and (iv) the consummation of certain
"self-dealing" transactions between an Acquiring Person and the Company,
including a merger with an Acquiring Person in which Bally is the surviving
corporation and Common Stock is not changed or exchanged. Upon the occurrence of
a Flip-In Event, each right, other than those held by the Acquiring Person or
10% Stockholder causing such occurrence, will entitle the holder to purchase
shares of Common Stock or, in
F-21
<PAGE> 86
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
certain cases, other assets or securities of the Company having a value of $120
for $60. In the event that the Company is acquired in a merger or other business
combination transaction (other than a merger with an Acquiring Person in which
the Company is the surviving corporation and Common Stock is not changed or
exchanged) or 50% or more of the Company's assets or earning power is sold or
transferred, each holder of a right shall have the right to receive, upon
exercise, common stock of the acquiring company having a calculated value equal
to twice the purchase price of the right. The rights, which do not have voting
privileges, are subject to adjustment to prevent dilution, expire on December 4,
1996 and may be redeemed by the Company at a price of five cents per right at
any time until 20 days (subject to extension by the Board) following the Stock
Acquisition Date.
EMPLOYEE BENEFIT PLANS
Bally and certain subsidiaries have defined contribution plans that provide
retirement benefits for eligible non-union employees. Eligible employees may
elect to participate by contributing a percentage of their pre-tax earnings to
the plans. Employee contributions to the plans, up to certain limits, are
matched in various percentages by the Company. The expense applicable to
continuing operations for the Company's defined contribution plans was $5,602,
$4,299 and $3,724 for 1994, 1993 and 1992, respectively.
In addition, Bally and Bally's Park Place have noncontributory supplemental
executive retirement plans for certain key executives. Normal retirement under
these plans is age 60 to 65 and participants receive benefits based on years of
service and compensation. Pension costs of these plans are unfunded except for
one executive's benefits which are funded through annual contributions to a
trust. Net periodic pension cost for these plans was $2,387, $4,482 and $1,627
for 1994, 1993 and 1992, respectively. The accrued pension liability related to
the unfunded supplemental executive retirement plans in the consolidated balance
sheet (principally classified as long-term) was $10,832 and $9,994 at December
31, 1994 and 1993, respectively. The weighted average discount rate and rate of
increase in future compensation levels used in determining actuarial present
value of the projected benefit obligations were 6.1% and 6.0% in each of 1994
and 1993, respectively, and 8.1% and 6.0% in 1992, respectively.
Certain employees of the Company's casinos are covered by union-sponsored,
collectively bargained, multi-employer defined benefit pension plans. The
contributions and charges to expense for these plans were $4,255, $1,314 and
$942 in 1994, 1993 and 1992, respectively.
DISCONTINUED OPERATIONS
On June 28, 1994, the Board approved the Spin-off, which is expected to be
accomplished by a stock dividend to Bally's stockholders of all shares of
Bally's Health & Tennis owned by Bally. The Spin-off is expected to be completed
on or about December 31, 1995. As a result of the Board's action regarding the
Spin-off, the Company recorded a charge in June 1994 of $23,731, net of income
taxes of $4,071, to provide for estimated operating losses until disposal.
Bally's Health & Tennis' fitness centers primarily offer a dues membership,
which permits members, after paying initial membership fees, to continue
membership on a month-to-month basis as long as monthly dues payments are made.
Revenues related to dues memberships recorded at the time of sale are limited to
the portion allocable to the initial membership fee. Dues memberships also
require the members to make monthly payments for services provided at which time
the revenue is recorded. In certain instances, memberships are sold whereby dues
may be waived for periods ranging up to thirty-six months, in which case a
portion of the initial membership fee is considered a service fee. The service
fee portion of such memberships is recorded as deferred revenues and is realized
over the term of the memberships. Prepaid dues and renewal revenues are recorded
in a similar manner. This policy approximates the "selling and service" method,
which provides for a
F-22
<PAGE> 87
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
profit being reported for both the selling and service functions. A substantial
portion of new membership revenues are collected in installments over periods
ranging up to thirty-six months. Installment contracts bear interest at, or are
adjusted for financial accounting purposes at the time the contracts are sold
to, rates for comparable consumer financing contracts. Unearned finance charges
are amortized over the term of the contracts on the sum-of-the-months-digits
method which approximates the interest method.
The Company's investment in and receivables from discontinued operations at
December 31, 1994 and 1993 consists of:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Investment in fitness centers segment................................. $229,438 $258,898
Income taxes receivable from fitness centers segment.................. 52,990 85,474
Other receivables from fitness centers segment........................ 8,584 9,788
-------- --------
$291,012 $354,160
======== ========
</TABLE>
Summarized financial information of the fitness centers segment is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
-------- --------
<S> <C> <C>
Financial position --
Current assets...................................................... $186,491 $208,282
Property and equipment, net......................................... 381,973 415,002
Total assets........................................................ 841,384 924,555
Current liabilities................................................. 240,256 213,498
Long-term debt, less current maturities............................. 289,711 305,735
Total liabilities................................................... 611,946 665,657
Total equity........................................................ 229,438 258,898
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Results of operations --
Revenues................................................ $661,505 $694,752 $742,884
Operating income (loss)................................. (36,327) 3,391 25,969
Loss before extraordinary item and cumulative effect on
prior years of change in accounting for income
taxes................................................ (46,091) (26,245) (8,984)
Extraordinary loss on extinguishment of debt............ (5,999)
Cumulative effect on prior years of change in accounting
for income taxes..................................... 20,711
Net loss................................................ (46,091) (11,533) (8,984)
</TABLE>
Bally's Health & Tennis' revolving credit agreement provides for borrowings
of up to $92,500 and letters of credit up to $20,000 (of which $10,592 was
outstanding) at December 31, 1994. The commitment under the revolving credit
facility (as amended March 17, 1995) is periodically reduced during 1995, 1996
and 1997 in varying amounts totalling $21,875, $25,000 and $45,625,
respectively. The rate of interest on the borrowings (9 1/4% at December 31,
1994) is at Bally's Health & Tennis' option, based upon either the agent bank's
prime rate plus 2 1/4% or the Euro-dollar rate plus 3 3/4%. Bally's Health &
Tennis pays an annual fee of 1 3/4% on outstanding letters of credit and a fee
of 1/2% per annum on each of the unused commitments. The amendment dated March
17, 1995 reduces the amount available for letters of credit to $14,375 at June
30, 1995. The
F-23
<PAGE> 88
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
revolving credit agreement, which expires December 31, 1997, is secured by
substantially all real and personal property of Bally's Health & Tennis, which
had a net book value of approximately $697,000 at December 31, 1994, and a
pledge of the stock of Bally's Health & Tennis.
Bally's Health & Tennis' $200,000 principal amount of 13% Senior
Subordinated Notes due 2003 (the "13% Notes") are not subject to any sinking
fund requirement, but may be redeemed beginning in January 1998, in whole or in
part, with premiums ranging from 6.5% in 1998 to zero in 2000 and thereafter.
The payment of the 13% Notes is subordinated to the prior payment in full of all
senior indebtedness of Bally's Health & Tennis, as defined (approximately
$112,000 at December 31, 1994). The more restrictive covenants under the 13%
Notes and the revolving credit agreement permit, but limit, payments of cash
dividends and the purchase or retirement of Bally's Health & Tennis common
stock. As of December 31, 1994, no amount was available to pay dividends or
retire common stock. In addition to limiting dividends, the covenants limit
transactions with affiliates and payments to Bally for principal and interest on
loans or advances by Bally to Bally's Health & Tennis and for other obligations
arising in the ordinary course of business. The covenants also limit the amounts
available for capital expenditures and additional borrowings, and require
maintenance of certain financial ratios. Certain provisions of the revolving
credit agreement applicable to those financial ratios were amended as of March
31, 1994. Amendments on December 22, 1994 and March 17, 1995 modified certain
performance covenants under the revolving credit agreement.
In 1993, the Company disposed of its remaining 1,752,400 shares of Gaming
common stock pursuant to stock exchange agreements. This disposition, including
the recognition of previously deferred cumulative translation adjustment credits
of $2,506, resulted in a gain of $6,215, including an income tax benefit of
$1,452. The income tax benefit resulted from the utilization of tax loss
carryforwards to offset taxable income arising from this disposition of Gaming
common stock. In 1992, the Company sold 4,547,600 shares of Gaming common stock
it owned in a public offering and received net proceeds of $51,243 which,
including the recognition of previously deferred cumulative translation
adjustment credits of $7,922, resulted in a gain of $6,706, net of income taxes
of $8,529 and other related costs. As a result of the Company's disposal of its
investment in Gaming, the consolidated financial statements reflect Gaming as a
discontinued operation. Income from discontinued operations in 1992 also
includes equity in earnings of Gaming of $2,879. Gaming's revenues in 1992 were
$163,781.
F-24
<PAGE> 89
BALLY ENTERTAINMENT CORPORATION
SUPPLEMENTARY DATA
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------- ---------------- ---------------- ----------------
1994 1993 1994 1993 1994 1993 1994 1993
------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................................... $212.3 $136.1 $238.4 $150.5 $261.3 $173.7 $230.3 $167.9
Operating income............................... 19.2 21.7 42.2 30.8 52.2 44.1 11.5 11.3
Income (loss) from continuing operations....... (9.7) .1 6.2 5.2 11.8 11.2 (10.2) (6.3)
Income (loss) from discontinued operations..... 5.0 3.7 (51.1) (2.8) (5.3) (15.6)
Income (loss) before extraordinary items and
cumulative effect on prior years of change in
accounting for income taxes.................. (4.7) 3.8 (44.9) 2.4 11.8 5.9 (10.2) (21.9)
Extraordinary gain (loss)...................... (20.7) (8.1) .3 (.4)
Cumulative effect on prior years of change in
accounting for income taxes.................. (28.2)
Net income (loss).............................. (25.4) (32.5) (44.9) 2.4 11.8 5.9 (9.9) (22.3)
Per common share:
Income (loss) from continuing operations..... $ (.23) $ (.01) $ .12 $ .10 $ .24 $ .22 $ (.23) $ (.15)
Income (loss) from discontinued operations... .11 .08 (1.09) (.06) (.11) (.33)
Extraordinary gain (loss).................... (.44) (.18) (.01)
Cumulative effect on prior years of change in
accounting for income taxes................ (.61)
Net income (loss)............................ (.56) (.72) (.97) .04 .24 .11 (.23) (.49)
</TABLE>
---------------
NOTES:
1. The quarterly consolidated financial information has been presented
(after restatement of prior period financial statements) to reflect
Bally's Health & Tennis Corporation as a discontinued operation as a
result of Bally's plan to spin-off its fitness centers segment. In
addition, Bally Gaming International, Inc. ("Gaming") has been reflected
as a discontinued operation as a result of the Company's disposition of
its remaining investment in September 1993.
2. Income (loss) from continuing operations for the quarters ended March
31, June 30, September 30 and December 31, 1994 includes charges of $2.5
million ($.05 per share), $.1 million, $2.9 million ($.06 per share) and
$5.2 million ($.11 per share), respectively, for costs incurred in the
pursuit and development of new gaming projects and for remaining
amortization of pre-opening costs.
3. Income (loss) from continuing operations for the quarters ended
September 30 and December 31, 1994 includes a gain from the sale of
equity securities (net of taxes and minority interests) of $1.1 million
($.02 per share) and $3.6 million ($.08 per share), respectively.
4. Loss from continuing operations for the quarter ended December 31, 1994
includes a charge of $8.5 million ($.18 per share) for the write-down of
certain assets deemed unrecoverable upon Bally's Tunica, Inc.'s
relocation of its operations closer to Memphis, Tennessee.
5. Loss from discontinued operations for the quarter ended June 30, 1994
includes a charge of $23.7 million ($.51 per share) to provide for
estimated operating losses of the Company's fitness center segment until
disposal (which is expected to be completed in 1995).
6. The extraordinary gain (loss) for the quarters ended March 31 and
December 31, 1994 are due to early redemptions of debt.
7. Income (loss) from continuing operations for the quarters ended March 31
and December 31, 1993 includes charges of $.2 million and $2.5 million
($.05 per share), respectively, for costs incurred in the pursuit and
development of new gaming projects and for amortization of pre-opening
costs.
F-25
<PAGE> 90
8. Income from continuing operations for the quarter ended September 30,
1993 includes a charge of $1.5 million ($.04 per share) as a result of
applying the change in the U.S. statutory tax rate from 34% to 35% to
deferred tax balances.
9. Loss from discontinued operations for the quarter ended September 30,
1993 includes a gain of $6.2 million ($.13 per share) from the sale of
Gaming common stock.
10. The extraordinary losses for the quarters ended March 31 and December
31, 1993 are due to early redemptions of debt.
11. The cumulative effect on prior years of change in accounting for income
taxes for the quarter ended March 31, 1993 is a result of the Company
changing its method of accounting for income taxes (effective January
1, 1993) as required by Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." As permitted by SFAS
No. 109, the Company elected to use the cumulative effect approach
rather than to restate the financial statements of any prior years to
apply the provisions of SFAS No. 109.
12. The Company's operations are subject to seasonal factors.
F-26
<PAGE> 91
BALLY ENTERTAINMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30
1995
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and equivalents......................................................... $ 145,859
Marketable securities, at fair value......................................... 11,911
Receivables, less allowances of $13,115...................................... 20,305
Inventories.................................................................. 8,690
Deferred income taxes........................................................ 13,862
Other current assets......................................................... 9,654
----------
Total current assets...................................................... 210,281
Property and equipment, less accumulated depreciation of $476,299.............. 1,240,217
Investment in and receivables from discontinued operations..................... 283,304
Intangible assets, less accumulated amortization of $26,625.................... 124,495
Other assets................................................................... 99,881
----------
$1,958,178
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 17,272
Income taxes payable......................................................... 28,745
Accrued liabilities.......................................................... 105,830
Current maturities of long-term debt......................................... 6,886
----------
Total current liabilities................................................. 158,733
Long-term debt, less current maturities........................................ 1,289,131
Deferred income taxes.......................................................... 151,082
Other liabilities.............................................................. 12,326
Minority interests............................................................. 39,137
Stockholders' equity........................................................... 307,769
----------
$1,958,178
==========
</TABLE>
See accompanying notes.
F-27
<PAGE> 92
BALLY ENTERTAINMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................................... $473,340 $450,726
Costs and expenses:
Cost of operations................................................... 292,619 287,605
Selling, general and administrative.................................. 57,290 60,156
Gaming development costs, including amortization of pre-opening costs
of $3,330 in 1994................................................. 2,179 3,984
Depreciation and amortization........................................ 34,837 37,619
-------- --------
386,925 389,364
-------- --------
Operating income....................................................... 86,415 61,362
Gain on sales of marketable securities................................. 1,125
Interest expense....................................................... (64,606) (65,083)
-------- --------
Income (loss) from continuing operations before income taxes and
minority interests................................................... 22,934 (3,721)
Income tax benefit (provision)......................................... (8,900) 1,500
Minority interests..................................................... (597) (1,258)
-------- --------
Income (loss) from continuing operations............................... 13,437 (3,479)
Loss from discontinued operations...................................... (46,091)
-------- --------
Income (loss) before extraordinary item................................ 13,437 (49,570)
Extraordinary gain (loss) on extinguishment of debt.................... 445 (20,735)
-------- --------
Net income (loss)...................................................... 13,882 (70,305)
Preferred stock dividend requirement................................... (1,389) (1,389)
-------- --------
Net income (loss) applicable to common stock........................... $ 12,493 $(71,694)
======== ========
Per common and common equivalent share:
Income (loss) from continuing operations............................. $ .24 $ (.10)
Loss from discontinued operations.................................... (.99)
Extraordinary gain (loss) on extinguishment of debt.................. .01 (.44)
-------- --------
Net income (loss).................................................... $ .25 $ (1.53)
======== ========
</TABLE>
See accompanying notes.
F-28
<PAGE> 93
BALLY ENTERTAINMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
SERIES D CAPITAL IN COMMON STOCK-
PREFERRED COMMON EXCESS OF ACCUMULATED STOCK IN HOLDERS'
DOLLAR AMOUNTS STOCK STOCK PAR VALUE DEFICIT TREASURY EQUITY
--------- ------- ---------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994... $ 694 $31,426 $295,110 $ (31,581) $ (2,037) $293,612
Net income................... 13,882 13,882
Preferred stock dividends --
$2.00 per share........... (1,389) (1,389)
Change in unrealized gain on
available-for-sale
securities................ 419 419
Issuance of common stock
under stock purchase and
option plans.............. 138 1,107 1,245
----- ------- -------- --------- -------- --------
Balance at June 30, 1995....... $ 694 $31,564 $296,217 $ (18,669) $ (2,037) $307,769
===== ======= ======== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SERIES D COMMON STOCK
PREFERRED -------------------
SHARE AMOUNTS STOCK ISSUED TREASURY
--------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1994................................. 694 47,138 147
Issuance of common stock under stock purchase and option
plans................................................... 207
--- ------ ---
Balance at June 30, 1995..................................... 694 47,345 147
=== ====== ===
</TABLE>
See accompanying notes.
F-29
<PAGE> 94
BALLY ENTERTAINMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1995 1994
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING:
Income (loss) from continuing operations............................ $ 13,437 $ (3,479)
Adjustments to reconcile to cash provided --
Depreciation and amortization (including pre-opening costs)...... 34,837 40,949
Interest accretion on discount notes and other amortization
included in interest expense.................................... 10,090 9,616
Deferred income taxes............................................ 381 (15,087)
Provision for doubtful receivables............................... 1,908 2,541
Change in operating assets and liabilities....................... (6,060) (26,406)
Other, net....................................................... (2,872) 231
-------- ---------
Cash provided by operating activities.......................... 51,721 8,365
INVESTING:
Purchases of property and equipment................................. (75,643) (56,548)
Acquisitions of Bally's Grand, Inc. common stock.................... (15,179) (11,549)
Advances to nonconsolidated gaming ventures......................... (13,600)
Purchases of marketable securities.................................. (7,141) (7,254)
Net proceeds from sales of marketable securities.................... 2,435
Other, net.......................................................... (5,216) 29
-------- ---------
Cash used in investing activities.............................. (114,344) (75,322)
FINANCING:
Debt transactions --
Proceeds from long-term borrowings............................... 35,925 428,907
Repayments of long-term debt..................................... (12,739) (379,993)
Debt issuance costs.............................................. (510) (15,199)
-------- ---------
Cash provided by debt transactions............................. 22,676 33,715
Equity transactions --
Preferred stock dividends........................................ (1,389) (1,389)
Proceeds from issuance of common stock under stock purchase and
option plans.................................................... 1,060 123
-------- ---------
Cash provided by financing activities.......................... 22,347 32,449
DISCONTINUED OPERATIONS:
Cash provided by discontinued operations....................... 7,708 785
-------- ---------
Decrease in cash and equivalents...................................... (32,568) (33,723)
Cash and equivalents, beginning of period............................. 178,427 192,078
-------- ---------
Cash and equivalents, end of period................................... $145,859 $ 158,355
======== =========
</TABLE>
See accompanying notes.
F-30
<PAGE> 95
BALLY ENTERTAINMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Changes in operating assets and liabilities were as follows --
Decrease in receivables........................................... $ 1,847 $ 1,891
Increase in inventories........................................... (576) (573)
(Increase) decrease in other current assets....................... 7,162 (676)
Increase in other assets.......................................... (12) (7,422)
Decrease in accounts payable and accrued liabilities.............. (14,435) (13,065)
Increase (decrease) in income taxes payable....................... 984 (5,828)
Decrease in other liabilities..................................... (1,030) (733)
-------- --------
$ (6,060) $(26,406)
======== ========
Cash payments for interest and income taxes for continuing operations
were as follows --
Interest paid................................................... $ 56,708 $ 58,872
Interest capitalized............................................ (2,036) (1,386)
Income taxes paid (net of refunds).............................. 7,628 19,415
Investing and financing activities exclude the following non-cash
transactions --
Contribution of net assets by minority interest................... $ 13,166 $
Purchases of marketable securities on margin (including unsettled
purchases)....................................................... 9,227 7,229
Sales of margined marketable securities (including unsettled
sales)........................................................... 9,148
Accrued purchases of property and equipment....................... 2,925 3,216
Discontinued operations --
Capital contribution to Bally's Health & Tennis Corporation
(forgiveness of income tax obligation)......................... 15,000
Reduction in income taxes receivable from Bally's Health &
Tennis Corporation............................................. 10,861
</TABLE>
See accompanying notes.
F-31
<PAGE> 96
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Bally Entertainment Corporation ("Bally"), and the subsidiaries
which it controls (collectively, the "Company"). The condensed consolidated
financial statements have been presented to reflect Bally's Health & Tennis
Corporation ("Bally's Health & Tennis"), which operates the nation's largest
chain of fitness centers, as a discontinued operation because of Bally's plan to
spin-off its fitness centers segment (see "Discontinued operations"). As a
result, the Company's continuing operations comprise one industry segment, with
all significant revenues presently arising from its casino operations and where
applicable, supporting hotel operations. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated balance sheet of
the Company at June 30, 1995, its condensed consolidated statements of
operations and cash flows for the six months ended June 30, 1995 and 1994, and
its condensed consolidated statement of stockholders' equity for the six months
ended June 30, 1995. All such adjustments were of a normal recurring nature,
except for those adjustments required to present Bally's Health & Tennis as a
discontinued operation and to reflect a refinancing of indebtedness of a
subsidiary in March 1994 (see "Long-term debt").
Certain reclassifications have been made to prior period financial
statements to conform with the 1995 presentation.
SEASONAL FACTORS
The Company's operations are subject to seasonal factors and, therefore,
the results of operations for the six months ended June 30, 1995 and 1994 are
not necessarily indicative of the results of operations for the full year.
ACQUISITIONS OF BALLY'S GRAND, INC. COMMON STOCK
Bally's Grand, Inc. owns and operates the casino hotel resort in Las Vegas,
Nevada known as "Bally's Las Vegas." During the six months ended June 30, 1995,
the Company acquired 850,810 shares of Bally's Grand, Inc. common stock in
several transactions for $8,747. Additionally, Bally's Grand, Inc. repurchased
600,000 shares of its common stock in several transactions during that period
for $6,432. As a result of the aforementioned transactions, Bally owns
approximately 80% of the Bally's Grand, Inc. common shares outstanding at June
30, 1995. The acquisitions of Bally's Grand, Inc. common stock have been
recorded using the purchase method of accounting and the excess of the purchase
price over the estimated fair value of net assets acquired ($2,253 in 1995) is
being amortized using the straight-line method over 20 years.
MARKETABLE SECURITIES
Marketable securities consist primarily of common stock of certain publicly
traded gaming companies. These securities are considered available-for-sale
securities and are carried at fair value with the change in unrealized gains or
losses reported net of tax, as a credit or charge to accumulated deficit. The
cost of securities sold is determined on the specific identification method.
F-32
<PAGE> 97
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at June 30, 1995 are
as follows:
<TABLE>
<S> <C>
Bally:
6% Convertible Subordinated Debentures due 1998................................ $ 15,390
10% Convertible Subordinated Debentures due 2006............................... 80,000
Bally's Casino Holdings, Inc.:
Senior Discount Notes due 1998................................................. 146,077
Bally's Park Place, Inc.:
9 1/4% First Mortgage Notes due 2004........................................... 425,000
GNAC, CORP.:
10 5/8% First Mortgage Notes due 2003, less unamortized discount of $1,753..... 273,247
Bally's Grand, Inc.:
10 3/8% First Mortgage Notes due 2003.......................................... 315,000
Bally's Casino*Lakeshore Resort:
Construction loan.............................................................. 22,783
Other secured and unsecured obligations.......................................... 18,520
----------
Total long-term debt............................................................. 1,296,017
Current maturities of long-term debt............................................. (6,886)
----------
Long-term debt, less current maturities.......................................... $1,289,131
==========
</TABLE>
In July 1995, Bally completed an exchange offer pursuant to which Bally
exchanged $13,586 of its 8% Convertible Senior Subordinated Debentures due 2000
(the "8% Debentures") for $13,586 of its 6% Convertible Subordinated Debentures
due 1998 (the "6% Debentures"). The exchange eliminated restrictive dividend
covenants and cash sinking fund requirements for the 6% Debentures. At any time
prior to maturity or redemption, the 8% Debentures are convertible into shares
of common stock of Bally, par value $.66 2/3 per share, at a current conversion
price of $13.85 per share. The consummation of the exchange offer enables Bally
to proceed with the spin-off of its fitness centers segment (see "Discontinued
operations").
The Company purchased $10,540 principal amount of the Bally's Casino
Holdings, Inc. Senior Discount Notes due 1998 (the "Senior Discount Notes")
during the six months ended June 30, 1995, which resulted in an extraordinary
gain of $445, net of income taxes of $240.
In March 1994, a subsidiary of Bally's Park Place, Inc. ("Bally's Park
Place") issued $425,000 principal amount of 9 1/4% First Mortgage Notes due 2004
(the "9 1/4% Notes"). Bally's Park Place used the net proceeds from the sale of
the 9 1/4% Notes to retire and defease its 11 7/8% First Mortgage Notes due 1999
(the "11 7/8% Notes") and pay dividends of $30,214 to Bally's Casino Holdings,
Inc. The retirement and defeasance of the 11 7/8% Notes resulted in an
extraordinary loss of $20,735, net of income taxes of $14,137.
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share is computed by
dividing net income (loss) applicable to common stock by the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period, which totalled 50,614,960 and 46,894,475 for the six months ended
June 30, 1995 and 1994, respectively. Common stock equivalents (which represent
the dilutive effect of the assumed exercise of certain outstanding stock options
and the assumed conversion of exchangeable preferred stock of a subsidiary)
increased the weighted average number of shares outstanding by 3,585,660 for
F-33
<PAGE> 98
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
the six months ended June 30, 1995. The assumed exercise of outstanding stock
options was not significant and the assumed conversion of preferred stock was
not applicable for the six months ended June 30, 1994.
DISCONTINUED OPERATIONS
On June 28, 1994, Bally's Board of Directors (the "Board") approved a plan
to spin-off Bally's Health & Tennis (the "Spin-off"), which is expected to be
accomplished by a stock dividend to Bally's stockholders during 1995 of all
shares of Bally's Health & Tennis owned by the Company. As a result of the
Board's action regarding the Spin-off, the Company recorded a charge in June
1994 of $23,731 ($.51 per share), net of income taxes of $4,071, to provide for
estimated operating losses until disposal.
The Company has encountered unexpected delays in effecting the Spin-off,
but recently satisfied two significant conditions in connection therewith. In
June 1995, Bally's Health & Tennis completed a $150,000 private placement of
asset-backed securities, the proceeds of which were primarily used to repay
restrictive bank debt. In July 1995, the Company completed the aforementioned
debt exchange to eliminate restrictions on dividends (see "Long-term debt"). The
Company expects to complete the Spin-off on or about December 31, 1995.
Management is forecasting that Bally's Health's & Tennis will not incur
cumulative losses through the date of the Spin-off in excess of the charge
recorded in June 1994. Accordingly, the Company has not recorded an additional
charge for phase-out period losses through June 30, 1995. However, there can be
no assurance that Bally's Health & Tennis will not incur additional losses or
that an additional charge for phase-out period losses will not be necessary
prior to completion of the Spin-off.
The Company's investment in and receivables from discontinued operations at
June 30, 1995 consists of:
<TABLE>
<S> <C>
Investment in fitness centers segment............................................. $229,438
Income taxes receivable from fitness centers segment.............................. 52,990
Other receivables from fitness centers segment.................................... 876
--------
$283,304
========
</TABLE>
F-34
<PAGE> 99
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Summarized financial information of the fitness centers segment is as
follows:
<TABLE>
<CAPTION>
JUNE 30
1995
--------
<S> <C>
Financial position --
Current assets.................................................................. $236,267
Property and equipment, net..................................................... 367,418
Total assets.................................................................... 890,587
Current liabilities............................................................. 218,977
Long-term debt, less current maturities......................................... 368,631
Total liabilities............................................................... 661,149
Total equity.................................................................... 229,438
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Results of operations --
Revenues........................................................... $339,242 $344,711
Operating income (loss)............................................ 12,342 (26,239)
Net income (loss).................................................. -- (22,360)
</TABLE>
F-35
<PAGE> 100
--------------------------------------------------------------------------------
[PHOTOGRAPH]
--------------------------------------------------------------------------------
Bally's Las Vegas has approximately 55,000 square feet of gaming space, more
than 2,800 guest rooms (including 237 suites) and one of the largest casino
hotel convention facilities in Las Vegas.
<TABLE>
<S> <C>
------------------------------------------- -----------------------------------
[PHOTOGRAPH] [PHOTOGRAPH]
------------------------------------------- -----------------------------------
Since June 1995, a monorail system has been In May 1995, the Company announced
transporting an average of nearly 20,000 plans to construct the Paris
passengers each day between Bally's Casino-Resort in Las Vegas.
Las Vegas and MGM Grand.
</TABLE>
<PAGE> 101
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 11
Price Range of Common Stock; Dividend
Policy............................... 17
Use of Proceeds........................ 17
Capitalization......................... 18
Selected Consolidated Financial Data... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 32
Description of Capital Stock........... 47
Description of PRIDES.................. 50
Certain Federal Income Tax
Considerations....................... 58
Underwriting........................... 61
Legal Matters.......................... 62
Experts................................ 62
Additional Information................. 62
Incorporation of Certain Information by
Reference............................ 63
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
10,000,000 SHARES
[BALLY LOGO]
BALLY ENTERTAINMENT
CORPORATION
% PRIDES(SM)
CONVERTIBLE PREFERRED STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
OPPENHEIMER & CO., INC.
DEAN WITTER REYNOLDS INC.
JEFFERIES & COMPANY, INC.
, 1995
SMService mark of Merrill Lynch & Co., Inc.
------------------------------------------------------
------------------------------------------------------
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 58,621
NASD Filing Fee.......................................................... 17,500
New York Stock Exchange Listing Application Fee.......................... 35,275
Accounting Fees and Expenses............................................. 50,000
Legal Fees and Expenses.................................................. 150,000
Blue Sky Fees and Expenses............................................... 20,000
Printing and Engraving Expenses.......................................... 350,000
Miscellaneous Expenses................................................... 18,604
--------
Total.................................................................. $700,000
========
</TABLE>
All expenses other than the Securities and Exchange Commission Registration
Fee, NASD Filing Fee and New York Stock Exchange Listing Application Fee are
estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the GCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests, and, for
criminal proceedings, had no reasonable cause to believe his conduct was
illegal. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation under the same conditions against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action, except that
no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation in the performance of his
duty. Where an officer or director is successful on the merits or otherwise in
the defense of any action referred to above, the corporation must indemnify him
against the expenses which he actually and reasonably incurred.
The Company's Restated Certificate provides, in accordance with the GCL,
for the indemnification of directors and officers of the Company, and persons
who serve or served at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA (as defined) excise taxes or penalties in amounts paid
or to be paid in settlement) reasonably incurred with respect to any action,
suit or proceeding, whether civil, criminal, administrative or investigative;
provided, however, that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the Board of Directors of the Company. In the
event a claim for indemnification by any person has not been paid in full by the
Company after written request has been received by the Company, the claimant may
at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
also be entitled to be paid the expense of prosecuting such claim. The right to
indemnification conferred in the Restated Certificate is a contract right and
includes the right to be paid by the Company the expenses incurred in defending
any such
II-1
<PAGE> 103
proceeding in advance of its final disposition. The Company may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Company or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss, whether
or not the Company would have the power to indemnify such person against such
expense, liability or loss under the GCL.
The Restated Certificate provides, in accordance with the GCL, that no
director shall be personally liable to the Company or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the GCL, or (iv) for any transaction from which the director derived an improper
personal benefit. If the GCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company, in addition to the limitation on personal liability, shall be
limited to the fullest extent permitted by the amended GCL.
The Company has purchased directors' and officers' liability insurance in
the amount of $35,000,000, covering certain liabilities incurred by its officers
and directors and those of its subsidiaries and affiliates in connection with
the performance of their duties.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Purchase Agreement.
4.1 Restated Certificate of Incorporation of the Company, as amended (filed as an
exhibit to the Company's Registration Statement on Form S-8 dated December 13,
1994, registration no. 33-56831 and incorporated by reference herein).
4.2 Certificate of Designations, Preferences and Rights of Series B Junior
Participating Preferred Stock, par value $1 per share, of the Company (filed as an
exhibit to the Company's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1992 and incorporated by reference herein).
4.3 Certificate of Designations, Preferences and Relative, Participating, Optional or
other Rights of Series D Convertible Exchangeable Preferred Stock, par value $1
per share, of the Company, as amended (filed as an exhibit to the Company's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1992
and incorporated by reference herein).
4.4 By-laws of the Company, as amended (filed as an exhibit to the Company's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1992
and incorporated by reference herein).
4.5 Form of Certificate of Designations, Preferences, Rights and Limitations of the
% PRIDES, Convertible Preferred Stock.
4.6 Form of Certificate of PRIDES, Convertible Preferred Stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the shares of PRIDES being
registered.
8 Opinion of Katten Muchin & Zavis as to tax matters.
12 Statement of Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its opinions filed as Exhibits 5
and 8 hereto).
24* Powers of Attorney.
</TABLE>
---------------
* Previously filed.
II-2
<PAGE> 104
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago, State of Illinois on the 13th
day of September, 1995.
BALLY ENTERTAINMENT CORPORATION
By: /s/ LEE S. HILLMAN
------------------------------------
Lee S. Hillman, Executive Vice
President,
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons,
in the capacities indicated, on September 13, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
------------------------------------- ---------------------------------------------------
<C> <S>
/s/ ARTHUR M. GOLDBERG* Chairman of the Board, President and Chief
------------------------------------- Executive Officer (Principal Executive Officer)
Arthur M. Goldberg
/s/ LEE S. HILLMAN Executive Vice President, Chief Financial Officer
------------------------------------- and Treasurer (Principal Financial Officer)
Lee S. Hillman
/s/ JOHN W. DWYER* Vice President and Corporate Controller (Principal
------------------------------------- Accounting Officer)
John W. Dwyer
/s/ GEORGE N. ARONOFF* Director
-------------------------------------
George N. Aronoff
/s/ BARRIE K. BRUNET* Director
-------------------------------------
Barrie K. Brunet
/s/ EDWIN M. HALKYARD* Director
-------------------------------------
Edwin M. Halkyard
/s/ J. KENNETH LOOLOIAN* Director
-------------------------------------
J. Kenneth Looloian
/s/ ROCCO J. MARANO* Director
-------------------------------------
Rocco J. Marano
/s/ PATRICK L. O'MALLEY* Director
-------------------------------------
Patrick L. O'Malley
/s/ JAMES M. ROCHFORD* Director
-------------------------------------
James M. Rochford
</TABLE>
* By: /s/ LEE S. HILLMAN
----------------------
Lee S. Hillman
Attorney-in-Fact, pursuant to Power
of Attorney
II-4
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<C> <S>
1.1 Form of Purchase Agreement.
4.1 Restated Certificate of Incorporation of the Company, as amended (filed
as an exhibit to the Company's Registration Statement on Form S-8 dated
December 13, 1994, registration no. 33-56831 and incorporated by
reference herein).
4.2 Certificate of Designations, Preferences and Rights of Series B Junior
Participating Preferred Stock, par value $1 per share, of the Company
(filed as an exhibit to the Company's Annual Report on Form 10-K, file
no. 1-7244, for the fiscal year ended December 31, 1992 and incorporated
by reference herein).
4.3 Certificate of Designations, Preferences and Relative, Participating,
Optional or other Rights of Series D Convertible Exchangeable Preferred
Stock, par value $1 per share, of the Company, as amended (filed as an
exhibit to the Company's Annual Report on Form 10-K, file no. 1-7244, for
the fiscal year ended December 31, 1992 and incorporated by reference
herein).
4.4 By-laws of the Company, as amended (filed as an exhibit to the Company's
Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended
December 31, 1992 and incorporated by reference herein).
4.5 Form of Certificate of Designations, Preferences, Rights and Limitations
of the % PRIDES, Convertible Preferred Stock.
4.6 Form of Certificate of PRIDES, Convertible Preferred Stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the shares of
PRIDES being registered.
8 Opinion of Katten Muchin & Zavis as to tax matters.
12 Statement of Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its opinions filed as
Exhibits 5 and 8 hereto).
24* Powers of Attorney.
</TABLE>
---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
10,000,000 Shares
BALLY ENTERTAINMENT CORPORATION
(a Delaware corporation)
Preferred Redeemable Increased Dividend Equity
Securities(SM), _____% PRIDES(SM), Convertible Preferred Stock
(Stated Liquidation Value $____ Per Share)
PURCHASE AGREEMENT
____________, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
OPPENHEIMER & CO., INC.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Bally Entertainment Corporation, a Delaware corporation (the
"Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Oppenheimer & Co.,
Inc. (together, the "Underwriters"), with respect to the sale by the Company
and the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of Preferred Redeemable Increased Dividend Equity
Securities(SM), _____% PRIDES(SM), Convertible Preferred Stock, stated
liquidation value $_____ per share, of the Company
_____________
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE> 2
(the "PRIDES") set forth in Schedule A hereto and with respect to the grant by
the Company to the Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of
1,500,000 additional shares of the PRIDES to cover over-allotments, in each
case except as may otherwise be provided in the Pricing Agreement, as
hereinafter defined. The aforesaid 10,000,000 shares of the PRIDES (the
"Initial Securities") to be purchased by the Underwriters and all or any part
of the 1,500,000 shares of the PRIDES subject to the option described in
Section 2(b) hereof (the "Option Securities") are collectively hereinafter
called the "Securities."
Prior to the purchase and public offering of the Securities by the
several Underwriters, the Company and Merrill Lynch, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form
of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take
the form of an exchange of any standard form of written telecommunication
between the Company and Merrill Lynch and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the
Securities will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the
Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing
Agreement.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 covering the
registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus, or
prospectuses, and either (A) has prepared and proposes to file, prior to the
effective date of such registration statement, an amendment to such
registration statement, including a final prospectus or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations"), will prepare
and file a prospectus, in accordance with the provisions of Rule 430A and Rule
424(b) ("Rule 424(b)") of the 1933 Act Regulations, promptly after execution
and delivery of the Pricing Agreement. Additionally, if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, the
Company
2
<PAGE> 3
will prepare and file a term sheet (a "Term Sheet") in accordance with the
provisions of Rule 434 and Rule 424(b), promptly after execution and delivery
of the Pricing Agreement. The information, if any, included in such prospectus
that was omitted from the prospectus included in such registration statement at
the time it becomes effective but that is deemed, (i) pursuant to paragraph (b)
of Rule 430A, to be part of such registration statement at the time it becomes
effective is referred to herein as the "Rule 430A Information," and (ii)
pursuant to paragraph (d) of Rule 434, to be part of such registration
statement at the time it becomes effective is referred to herein as the "Rule
434 Information." Each prospectus used before the time such registration
statement becomes effective, and any prospectus that omits the Rule 430A
Information or the Rule 434 Information, if applicable, that is used after such
effectiveness and prior to the execution and delivery of the Pricing Agreement,
is herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto and the documents incorporated by reference
therein pursuant to Item 12 ("Item 12") of Form S-3 under the 1933 Act, as
amended, at the time it becomes effective and including, if applicable, the
Rule 430A Information or the Rule 434 Information, is herein called the
"Original Registration Statement." Any registration statement filed pursuant to
Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and the Original Registration Statement and any
Rule 462(b) Registration Statement are herein referred to collectively as the
"Registration Statement." The prospectus, including the documents incorporated
by reference therein pursuant to Item 12, included in the Original Registration
Statement at the time it becomes effective is herein called the "Prospectus,"
except that, (i) if the final prospectus first furnished to the Underwriters
after the execution of the Pricing Agreement for use in connection with the
offering of the Securities differs from the prospectus included in the Original
Registration Statement at the time it becomes effective (whether or not such
prospectus is required to be filed pursuant to Rule 424(b)), the term
"Prospectus" shall refer to the final Prospectus first furnished to the
Underwriters for such use, and (ii) if Rule 434 is relied upon, the term
"Prospectus" shall refer to the preliminary prospectus last furnished to the
3
<PAGE> 4
Underwriters in connection with the offering of the Securities, together with
the Term Sheet.
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Underwriters deem advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
Section 1. Representations and Warranties.
(a) The Company represents and warrants to each Underwriter
as of the date hereof and as of the date of the Pricing Agreement (such latter
date being hereinafter referred to as the "Representation Date") as follows:
(i) The Company meets the requirements for Form S-3 under
the 1933 Act, and at the time the Registration Statement becomes
effective and at the Representation Date, the Registration Statement
will comply in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, at the Representation Date (unless the
term "Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Company for use in connection with the offering of
the Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective, in
which case at the time it is first provided to the Underwriters for
such use) and at Closing Time referred to in Section 2 hereof, will not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
confor-
4
<PAGE> 5
mity with information furnished to the Company in writing by or on
behalf of any Underwriter through Merrill Lynch expressly for use in the
Registration Statement or Prospectus.
(ii) The accountants who certified the financial statements
and supporting schedules included in the Registration Statement are
independent public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iii) The financial statements included in the Registration
Statement and the Prospectus present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates
indicated and the results of their operations for the periods
specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved and subject, in the case of any interim
statements, to normal recurring year-end audit adjustments; and the
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. The financial
information and statistical data set forth in the Prospectus under
the captions "Prospectus Summary," "Capitalization," "Selected
Financial Data," and "Management's Discussion and Analysis of Results
of Operations and Financial Condition" are prepared on an accounting
basis consistent with such financial statements.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, (B) there have been no transactions entered into by
the Company or any
5
<PAGE> 6
of its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its
subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with corporate power and authority to own, lease and
operate its properties and to conduct its business as described in
the Prospectus and to enter into and perform its obligations under this
Agreement and the Pricing Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify would not have a
material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise.
(vi) Each of Bally Services Corporation, Bally's Health &
Tennis Corporation, Bally's Casino, Inc., Bally's Grand, Inc., Bally's
Intermediate Sub, Inc., Bally's Intermediate Sub No. 1, Inc., Bally's
Intermediate Sub No. 2, Inc., Bally's Intermediate Sub No. 3, Inc.,
Bally's Intermediate Sub No. 4, Inc., Bally's Intermediate Sub No. 5,
Inc., Bally's Intermediate Sub No. 6, Inc., BGR, Inc., Bally's Casino
Holdings, Inc., GNAC, CORP., GNOC, CORP., GNF, CORP., Bally's Park
Place, Inc. (New Jersey), Bally's Park Place, Inc. (Delaware), Bally's
Park Place Funding, Inc., Bally's Intermediate Casino Holdings, Inc.,
Bally's Louisiana, Inc., Belle of Orleans, L.L.C., Bally's Tunica,
Inc., Bally's Operator, Inc., Bally's Olympia Limited Partnership,
Bally's CHLV, Inc. and Grand Resorts, Inc.
6
<PAGE> 7
(collectively, the "Material Subsidiaries") has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material adverse
effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise; all of the issued and
outstanding capital stock of each such Material Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity, except as set forth on Schedule 1(a)(vi).
(vii) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under "Capitalization"
(except for subsequent issuances, if any, pursuant to this Agreement or
pursuant to reservations, agreements, employee benefit plans or the
exercise of convertible securities referred to in the Prospectus); the
shares of issued and outstanding Common Stock, par value $.66 2/3 per
share, of the Company (the "Common Stock") have been duly authorized
and validly issued and are fully paid and non-assessable; the
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be validly
issued and fully paid and non-assessable; the Securities conform to the
provisions of the
7
<PAGE> 8
Certificate of Designations related thereto (the "Certificate of
Designations"); the relative rights, preferences, interests and powers
of the Securities are as set forth in the Certificate of Designations,
and all such provisions are valid under the Delaware General Corporation
Law; each of the Securities and the Common Stock into which the
Securities are convertible or for which the Securities may be redeemed
conforms to all statements relating thereto contained in the Prospectus;
and the issuance of the Securities is not subject to preemptive or
similar rights.
(viii) The shares of Common Stock issuable upon conversion
or at redemption of the Securities have been duly and validly
authorized and reserved for issuance upon such conversion or redemption
by all necessary corporate action and such shares, when issued upon
such conversion or redemption, will be duly and validly issued and
fully paid and non-assessable, and the issuance of such shares upon
such conversion or redemption will not be subject to preemptive or
similar rights.
(ix) Neither the Company nor any of its subsidiaries is in
violation of its charter or in default in the performance or observance
of any material obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, except where such violation or default would not have a
material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Company
and its subsidiaries, considered as one enterprise; and the execution,
delivery and performance of this Agreement and the Pricing Agreement
and the consummation of the transactions contemplated herein and
therein and compliance by the Company with its obligations hereunder
and there-
8
<PAGE> 9
under have been duly authorized by all necessary corporate action and
will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any of its
subsidiaries is subject other than any such breaches, defaults or
impositions which, singly or in the aggregate, would not have a
materially adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Company and
its subsidiaries, considered as one enterprise, nor will such action
result in any violation of the provisions of the charter or bylaws of
the Company or any applicable law, administrative regulation or
administrative or court decree, other than any violation of law,
regulation or decree which, singly or in the aggregate, as would not
have a materially adverse effect on the condition, financial or
otherwise, or the earnings, business affairs, or business prospects of
the Company and its subsidiaries, considered as one enterprise.
(x) No labor dispute with the employees of the Company or
any of its Material Subsidiaries exists or, to the knowledge of the
Company, is imminent; and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors which might reasonably be
expected to result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as
one enterprise.
(xi) There is no action, suit or proceeding before or by any
court or governmen-
9
<PAGE> 10
tal agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company
or any of its subsidiaries, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might result in any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise, or
which might materially and adversely affect the properties or assets
thereof or which might materially and adversely affect the consummation
of this Agreement; all pending legal or governmental proceedings to
which the Company or any subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, are, in the reasonable judgment of the
Company, considered in the aggregate, not material; and there are no
contracts or documents of the Company or any of its subsidiaries which
are required to be filed as exhibits to the Registration Statement by
the 1933 Act or by the 1933 Act Regulations which have not been so filed
or incorporated by reference therein.
(xii) The Company and its Material Subsidiaries own, license
or possess, or can acquire on reasonable terms, the patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names (collectively, "patent and proprietary rights")
presently employed by them in connection with the businesses now
operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any patent or
proprietary rights, or of any facts which are reasonably likely to
render any pat-
10
<PAGE> 11
ent and proprietary rights invalid or inadequate to protect the
interests of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise.
(xiii) No authorization, approval or consent of any
court or governmental authority or agency is necessary in connection
with the offering, issuance or sale of the Securities hereunder, except
such as may be required under the 1933 Act or the 1933 Act Regulations
or state securities laws, and except such as may be required by the
Nevada Gaming Commission, which has been obtained, and except for any
approval which may be required by the Louisiana Gaming Authorities (as
defined) for a sale of Securities by the Underwriters convertible into
a number of shares equal to 5% or greater than 5% of the issued and
outstanding shares of Common Stock on the date hereof to any one
individual or entity.
(xiv) The Company and its subsidiaries possess such
certificates, authorities or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct
the business now operated by them, and neither the Company nor any of
its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would in the reasonable judgment of the
Company materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise.
11
<PAGE> 12
(xv) This Agreement has been, and, at the Representation
Date, the Pricing Agreement will have been, duly executed and delivered
by the Company and, upon execution, are valid and binding obligations
of the Company, enforceable against the Company in accordance with
their terms, except as such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or thereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforcement may be sought in a proceeding in equity or at law) and
except as rights to indemnity and contribution hereunder may be limited
by state or federal securities laws or the public policy underlying
such laws.
(xvi) There are no persons with registration or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act, other than those rights that have been waived in writing.
(xvii) The documents incorporated or deemed to be
incorporated by reference in the Prospectus, at the time they were or
hereafter are filed with the Commission, complied and will comply in
all material respects with the requirements of the 1934 Act and the
rules and regulations of the Commission under the 1934 Act (the "1934
Act Regulations"), and, when read together with the other information
in the Prospectus, at the time the Registration Statement and any
amendments thereto become effective and at the Closing Time, will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(xviii) No order preventing or suspending the use of any
preliminary prospectus has been issued and no proceedings for that
purpose are pending, threatened, or, to the
12
<PAGE> 13
knowledge of the Company, contemplated by the Commission; to the
knowledge of the Company, no order suspending the offering of the
Securities in any jurisdiction designated by the Underwriters pursuant
to Section 3(f) of this Agreement has been issued and, to the knowledge
of the Company, no proceedings for that purpose have been instituted or
threatened or are contemplated, and any request of the Commission for
additional information (to be included in the Registration Statement or
Prospectus or otherwise) has been complied with.
(xix) The Company has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and
the Pricing Agreement and the Company has full corporate power and
authority to issue, sell and deliver the Securities.
(xx) The Company and each of its Material Subsidiaries have
good and marketable title to their respective owned properties, free
and clear of all material liens, charges and encumbrances except as
such are (A) described in the Prospectus, (B) set forth in Schedule
1(a)(xx) or (C) are not material and do not interfere with the conduct
of the business of the Company and its subsidiaries, considered as one
enterprise. The properties of the Company and its Material
Subsidiaries are, in the aggregate, in good repair (reasonable wear and
tear excepted), adequately insured and suitable for their respective
uses. Any real properties held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the conduct of the business of the Company and its subsidiaries,
considered as one enterprise.
(xxi) All United States federal income tax returns of the
Company and its consolidated subsidiaries required by law to be filed
have been filed and all taxes shown by the said returns or otherwise
assessed which
13
<PAGE> 14
are due and payable have been paid, except assessments against
which appeals have been or will be promptly taken. The United States
federal income tax returns of the Company and its consolidated
subsidiaries, through the fiscal year ended _________ have been settled
and no assessment in connection therewith has been made against the
Company in connection therewith. The Company and its subsidiaries have
filed all other tax returns which are required to have been filed by
them pursuant to applicable state, local or other law except insofar as
the failure to file such returns individually and in the aggregate would
not have a material adverse effect on the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise, and have
paid (or there has been paid on their behalf) all taxes due pursuant to
said returns or pursuant to any assessment received by the Company or
its subsidiaries, except for such taxes, if any, as are being contested
in good faith and as to which adequate reserves have been provided. The
charges, accruals and reserves on the consolidated books of the Company
in respect of any income and corporation tax liability for any years not
finally determined are adequate to meet any assessments or
re-assessments for additional income tax for any years not finally
determined, except to the extent of any inadequacy which would not
have a material adverse effect on the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise.
(xxii) The Company and its consolidated subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
14
<PAGE> 15
maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization,
(D) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences and (E) the tax accounting method used by the
Company's subsidiaries to report income from health club membership
contracts is the proper method of accounting for United States federal
income tax purposes and is in accordance with agreements reached with
the Internal Revenue Service.
(xxiii) The Company has not taken, directly or indirectly,
any action designed to, or that might be reasonably expected to, cause
or result in stabilization or manipulation of the price of the PRIDES
or Common Stock.
(xxiv) The Company and its Material Subsidiaries have all
governmental licenses and other authorizations necessary to carry on
its gaming businesses, as such businesses are presently conducted, and
to otherwise own their respective properties and conduct their
respective businesses as described in the Prospectus. Neither the
Company nor any of its subsidiaries has reason to believe that any of
the Nevada Gaming Commission, the Nevada State Gaming Control Board and
the Clark County Liquor and Gaming Licensing Board (the "Nevada Gaming
Authorities"), the New Jersey Casino Control Commission and the New
Jersey Division of Gaming Enforcement (the "New Jersey Gaming
Authorities"), the Louisiana Riverboat Gaming Commission and the
Riverboat Gaming Enforcement Division of the Louisiana State Police
(the "Louisiana Gaming Authorities"), the Mississippi Gaming Commission
and the Mississippi State Tax Commission (collectively, the "Gaming
Authorities") are considering modifying, suspending or revoking any of
the gaming licenses held by the Company or any subsidiary necessary to
carry on a gaming business in New Jersey, Nevada, Mississippi or
Louisiana and neither the Gaming Authorities nor any other governmen-
15
<PAGE> 16
tal agency is investigating either the Company or any of its
subsidiaries or any directors or executive officers of the Company or
any of its subsidiaries other than in the ordinary course of
administrative review or in the ordinary course of investigation of
applications on file. To the best knowledge of the Company and any of
its subsidiaries, there is no existing basis for the Gaming Authorities
to deny the renewal of the current licenses held by the Company or any
of its subsidiaries to conduct gaming operations in New Jersey,
Nevada, Mississippi or Louisiana.
(xxv) The Company and its subsidiaries have conducted and
are conducting their business in compliance with all applicable
federal, state and local laws, rules, regulations, decisions,
directives and orders, except where the failure to do so would not, in
the aggregate, have a material adverse effect on the condition,
financial or otherwise, or on the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as
one enterprise.
(b) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
Section 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price per share set forth in the Pricing Agreement, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter.
(1) If the Company has elected not to rely upon Rule 430A,
the initial public offer-
16
<PAGE> 17
ing price and the purchase price per share to be paid by the
several Underwriters for the Securities have each been determined and
set forth in the Pricing Agreement, dated the date hereof, and an
amendment to the Original Registration Statement and the Prospectus
will be filed before the Original Registration Statement becomes
effective.
(2) If the Company has elected to rely upon Rule
430A, the purchase price per share to be paid by the several
Underwriters for the Securities shall be an amount equal to the initial
public offering price, less an amount per share to be determined by
agreement between the Underwriters and the Company. The initial public
offering price per share of the Securities shall be a fixed price to be
determined by agreement between the Underwriters and the Company. The
initial public offering price and the purchase price, when so
determined, shall be set forth in the Pricing Agreement. In the event
that such prices have not been agreed upon and the Pricing Agreement
has not been executed and delivered by all parties thereto by the close
of business on the fourteenth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability
of any party to any other party, unless otherwise agreed to by the
Company and the Underwriters.
(b) In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the Underwriters,
severally and not jointly, to purchase up to an additional 1,500,000 shares of
PRIDES at the price per share set forth in the Pricing Agreement, less an
amount per share equal to any dividends declared by the Company and payable on
the Initial Securities but not payable on the Option Securities. The option
hereby granted will expire 30 days after (i) the later of the date upon which
the Original Registration Statement and any Rule 462(b) Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A, or (ii)
the Representation Date, if the Company has elected to rely on
17
<PAGE> 18
Rule 430A, and may be exercised in whole or in part only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Underwriters to the Company setting forth the number of Option Securities as to
which the Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Underwriters, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined,
unless otherwise agreed by the Underwriters and the Company. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase that proportion
of the total number of Option Securities then being purchased which the number
of Initial Securities set forth in Schedule A opposite the name of such
Underwriter bears to the total number of Initial Securities (except as
otherwise provided in the Pricing Agreement), subject in each case to such
adjustments as are required to eliminate any sales or purchases of fractional
shares.
(c) Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, or at such other place as shall be agreed upon by the Underwriters and
the Company, at 10:00 A.M. either (i) on the third full business day following
the later of the date upon which the Original Registration Statement and any
Rule 462(b) Registration Statement becomes effective or (ii) if the Company has
elected to rely upon Rule 430A, on the third full business day after execution
of the Pricing Agreement (or, if pricing of the Securities occurs after 4:30
p.m. Eastern time, on the fourth full business day thereafter) (unless, in
either case, postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Underwriters and the Company (such time and date of payment
and delivery being herein called "Closing Time"). In addition, in the event
that any or all of the Option Securities are purchased by the Underwriters,
payment of the purchase price for, and delivery of certificates for, such
Option Securities shall be made at the above-mentioned offices of
18
<PAGE> 19
Skadden, Arps, Slate, Meagher & Flom, or at such other place as shall be agreed
upon by the Underwriters and the Company, on each Date of Delivery as specified
in the notice from the Underwriters to the Company. Payment shall be made to
the Company by certified or official bank check or checks drawn in New York
Clearing House funds or similar next day funds payable to the order of the
Company, against delivery to the Underwriters of certificates for the
Securities to be purchased by them. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and
registered in such names as the Underwriters may request in writing at least
two business days before the Closing Time or the relevant Date of Delivery, as
the case may be.
Section 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) The Company will notify the Underwriters immediately, and
confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective amendment),
(ii) of the receipt of any comments from the Commission, (iii) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose. The Company will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) The Company will give the Underwriters notice of its
intention to prepare or file any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement, any Term Sheet or any amendment or supplement to the Prospectus
(including any revised prospectus or Term Sheet and preliminary prospectus
which the Company proposes for use by the Underwriters in connection with
the offering of the Securities which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether or
not such revised prospectus or Term Sheet and preliminary prospec-
19
<PAGE> 20
tus is required to be filed pursuant to Rule 424(b)), whether pursuant to the
1933 Act, the 1934 Act or otherwise, will furnish the Underwriters with copies
of any Rule 462(b) Registration Statement, Term Sheet, amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such Rule 462(b) Registration Statement, Term Sheet,
amendment or supplement or use any such prospectus to which the Underwriters or
counsel for the Underwriters shall object.
(c) The Company will deliver to the Underwriters as many
signed and conformed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed to be
incorporated by reference therein) as the Underwriters may reasonably request.
(d) The Company will furnish to each Underwriter,
from time to time during the period when the Prospectus is required to
be delivered under the 1933 Act or the 1934 Act, such number of copies of
the Prospectus (as amended or supplemented) as such Underwriter may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act
or the respective applicable rules and regulations of the Commission thereunder.
(e) If any event shall occur as a result
of which it is necessary, in the opinion of counsel for the
Underwriters, to amend or supplement the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, the Company will forthwith amend or
supplement the Prospectus (in form and substance satisfactory to counsel for
the Underwriters) so that, as so amended or supplemented, the Prospectus will
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, and the Company will furnish to the Underwriters a reasonable
number of copies of such amendment or supplement.
(f) The Company will endeavor, in cooperation with the
Underwriters, to qualify the Securities
20
<PAGE> 21
for offering and sale under the applicable securities laws of such states and
other jurisdictions of the United States as the Underwriters may designate;
provided, however, that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified. In
each jurisdiction in which the Securities have been so qualified, the Company
will file such statements and reports as may be required by the laws of such
jurisdiction so long as is required for distribution of the Securities.
(g) The Company will make generally available to
its security holders as soon as practicable, but not later than 90 days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations) covering
a twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in said Rule
158) of the Registration Statement.
(h) The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds."
(i) If, at the time that the Registration
Statement becomes effective, any Rule 430A Information or Rule 434
Information shall have been omitted therefrom, then immediately following the
execution of the Pricing Agreement, the Company will prepare, and file or
transmit for filing with the Commission in accordance with Rule 430A or Rule
434 and Rule 424(b), copies of a Prospectus or Term Sheet containing such Rule
430A Information and Rule 434 Information, respectively, or, if required by
Rule 430A, a post-effective amendment to the Registration Statement (including
an amended Prospectus), containing such Rule 430A Information.
(j) If the Company elects to rely upon Rule 462(b),
the Company shall both file a Rule 462(b) Registration Statement with
the Commission in compliance with Rule 462(b) and pay the applicable fees in
accordance with Rule 111 of the 1933 Act Regulations by the earlier of (i)
10:00 p.m. Eastern time on the date of the Pricing Agreement and (ii) the time
confirmations are sent or given, as specified by Rule 462(b)(2).
21
<PAGE> 22
(k) The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission pursuant
to Section 13, 14 or 15 of the 1934 Act within the time periods required by the
1934 Act and the 1934 Act Regulations.
(l) During a period of 90 days from the date of
the Pricing Agreement, the Company will not, without Merrill Lynch's
prior written consent, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, Common Stock or any security
convertible into Common Stock (except for Common Stock issued pursuant to this
Agreement or pursuant to reservations, agreements, conversions or employee or
director benefit plans or the exercise of convertible securities referred to in
Section 1(a)(vii) hereof).
(m) The Company will supply the Underwriters
with copies of all correspondence to and from, and all documents issued
to and by, the Commission in connection with the registration of the Securities
under the Act.
(n) Prior to the Closing Date, the Company
shall furnish to the Underwriters, as soon as they have been prepared,
copies of any unaudited interim consolidated financial statements of the
Company and its subsidiaries, for any periods subsequent to the periods covered
by the financial statements appearing in the Registration Statement and the
Prospectus.
(o) Prior to the Closing Date, the Company
will issue no press release or other communications directly or
indirectly and hold no press conference with respect to the Company or any of
its subsidiaries, the condition, financial or otherwise, or the earnings,
business affairs or business prospects of any of them, or the offering of the
Securities, without the prior written consent of the Underwriters unless in the
judgment of the Company and its counsel, and after notification to the
Underwriters, such press release or communication is required by law.
(p) The Company has complied and comply with all
provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida
statutes, and all
22
<PAGE> 23
regulations promulgated thereunder relating to issuers doing business with
Cuba.
(q) The Company will use its best efforts to
effect the listing on the New York Stock Exchange of the Securities and
the Common Stock into which the Securities may be converted or for which the
Securities may be redeemed.
(r) The Company will not take, directly
or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the PRIDES or Common Stock.
Section 4. Payment of Expenses. The Company will pay
all expenses incident to the performance of its obligations under this
Agreement, including (i) the printing and filing of the Registration Statement
as originally filed and of each amendment thereto, (ii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters, (iii) the fees and disbursements of the Company's counsel and
accountants, (iv) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees
and the fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue Sky Survey and any
Legal Investment Survey, (v) the printing and delivery to the Underwriters of
copies of the Registration Statement as originally filed and of each amendment
thereto, of each preliminary prospectus, and of the Prospectus and any
amendments or supplements thereto, (vi) the typing and duplication and delivery
to the Underwriters of copies of the Blue Sky Survey and any Legal Investment
Survey, (vii) the fee of the National Association of Securities Dealers, Inc.,
(viii) the fees and expenses incurred in connection with the listing of the
Securities on the New York Stock Exchange and (ix) the fees charged by the
rating agencies in connection with the rating of the Securities.
If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses,
23
<PAGE> 24
including the reasonable fees and disbursements of counsel for the
Underwriters.
Section 5. Conditions of Underwriters' Obligations. The
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company herein contained, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) The Original Registration Statement shall
have become effective not later than 5:30 P.M. on the date hereof, or
with the consent of Merrill Lynch, at a later time and date, not later,
however, than 5:30 P.M. on the first business day following the date hereof,
and if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective not later than the earlier
of (i) 10:00 p.m. Eastern time on the date of the Pricing Agreement, and (ii)
the time confirmations are sent or given, as specified by Rule 462(b)(2), or,
with respect to the Original Registration Statement, at such later time and
date as may be approved by Merrill Lynch; and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by
the Commission. If the Company has elected to rely upon Rule 430A, Rule 430A
Information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) within the prescribed time period and prior to Closing
Time and the Company shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A. If the Company has elected to
rely upon Rule 434, a Term Sheet shall have been transmitted to the Commission
for filing pursuant to Rule 424(b) within the prescribed time period and prior
to Closing Time.
(b) At Closing Time the Underwriters shall have received:
(1) The favorable opinion, dated as of Closing Time,
of Katten Muchin & Zavis, counsel for the Company, in form and
substance satis-
24
<PAGE> 25
factory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware.
(ii) The Company has corporate power and authority
to enter into and perform its obligations under this Agreement and the
Pricing Agreement.
(iii) The Securities have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and non-assessable;
the Securities conform to the provisions of the Certificate of
Designations; the relative rights, preferences, interests and powers
of the Securities are as set forth in the Certificate of Designations;
and all such provisions are valid under the Delaware General
Corporation Law.
(iv) The shares of Common Stock issuable upon
conversion or redemption of the Securities have been duly authorized
and reserved for issuance upon such conversion or redemption by all
necessary corporate action; such shares, when issued upon such
conversion or redemption, will be duly and validly issued and fully
paid and non-assessable.
(v) This Agreement and the Pricing Agreement have
been duly authorized, executed and delivered by the Company.
(vi) The Registration Statement is effective under
the 1933 Act and, to their knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under the
1933 Act nor have any proceed-
25
<PAGE> 26
ings therefor been initiated or threatened by the Commission.
(vii) At the time the Registration Statement became
effective and at the Representation Date, the Registration Statement
(other than the financial statements and supporting schedules included
therein, as to which no opinion need be rendered) complied as to form
in all material respects with the requirements of the 1933 Act and the
1933 Act Regulations.
(viii) Each of the Securities and the Common Stock
conforms to the description thereof contained in the Prospectus, and
the form of certificate used to evidence each of the Securities and the
Common Stock to be issued upon the conversion or redemption of the
Securities is in proper form and complies with all applicable statutory
requirements.
(ix) The information in the Prospectus under "The
Spin-Off," "Description of Capital Stock" and "Description of PRIDES"
conforms in all material respects with the requirements of the 1933
Act.
(x) No authorization, approval, consent or order
of any court or governmental authority or agency is required in
connection with the offering, issuance or sale of the Securities to the
Underwriters, except such as may be required under the 1933 Act or the
1933 Act Regulations or state securities law or state gaming laws or
regulations; and the execution, delivery and performance of this
Agreement and the Pricing Agreement and the consummation of the
transactions contemplated herein and therein and compliance by the
Company with its obligations hereunder and thereunder will not conflict
with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to, any contract, indenture, mortgage, loan agreement, note, lease or
other instrument which is known
26
<PAGE> 27
to such counsel to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject,
nor will such action result in any violation of the provisions of the
charter or bylaws of the Company, or any applicable law, administrative
regulation or, to their knowledge, administrative or court decree.
(2) The favorable opinion of James S. Montana, Jr.,
General Counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters to the effect that:
(i) To his knowledge, the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required.
(ii) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under
"Capitalization" (except for subsequent issuances, if any, pursuant to
reservations, agreements, employee benefit plans or the exercise of
convertible securities referred to in the Prospectus), and the shares
of issued and outstanding Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable.
(iii) The issuance of the Securities and of the
shares of Common Stock upon such conversion or redemption is not
subject to preemptive rights under the charter or bylaws of the
Company or arising by operation of law or contract.
(iv) The Company and each Material Subsidiary of the
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its busi-
27
<PAGE> 28
ness as described in the Registration Statement and, to his knowledge
and information, is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to have such
qualification, singly or in the aggregate, would not have a material
adverse effect on the Company and its subsidiaries considered as one
enterprise; all of the issued and outstanding capital stock of each such
Material Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and, to his knowledge, is owned by the
Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity,
except as set forth in Schedule 1(a)(vi). The Company and its Material
Subsidiaries have not granted or entered into any outstanding rights,
warrants or options to acquire, or instruments convertible into or
exchangeable for, or agreements to which the Company or any Material
Subsidiary is a party with respect to the sale or issuance of, any
shares of capital stock of or other equity interest in any Material
Subsidiary of the Company.
(v) There are no legal or governmental proceedings pending
or, to his knowledge, threatened which are required to be disclosed in
the Registration Statement, other than those disclosed therein.
(vi) There are no contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be described
or referred to in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto conforms in all material respects with
the requirements of the 1933 Act and the 1934 Act, and, to his
knowledge, no default exists in the due performance or observance of
any material obligation,
28
<PAGE> 29
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument so described,
referred to, or filed or incorporated by reference except such defaults
which, singly or in the aggregate, would not have a material adverse
effect on the Company and its subsidiaries considered as one enterprise.
(vii) There are no persons with registration or
other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act, except who have waived such rights in writing.
(viii) Each document filed pursuant to the 1934 Act
(other than the financial statements and supporting schedules and other
financial and statistical data included therein, as to which no opinion
need be rendered) and incorporated or deemed to be incorporated by
reference in the Prospectus complied when so filed as to form in all
material respects with the 1934 Act and the 1934 Act Regulations.
(3) The favorable opinion of Dennis P. Venuti, counsel for
the Company, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) To his knowledge, there is no pending or
threatened action by the New Jersey Gaming Authorities to modify,
suspend or revoke any of the gaming licenses held by the Company or any
of its subsidiaries necessary to carry on a gaming business in New
Jersey which would have a material adverse effect on such gaming
licenses, and neither the New Jersey Gaming Authorities nor any other
governmental agency is investigating either the Company or any of its
subsidiaries or any directors or executive officers of the Company or
any of its subsidiaries other than in the ordinary course of
administrative review.
29
<PAGE> 30
(ii) No authorization, approval, consent or order of
the New Jersey Gaming Authorities is required in connection with the
transactions contemplated hereby.
(iii) The information in the Prospectus under the
heading "Business--Gaming Regulation" as it relates to gaming
regulation in New Jersey to the extent that it constitutes matters of
law or summaries of legal matters, documents or proceedings has been
reviewed by him and is correct in all material respects.
(4) The favorable opinion of Schreck, Jones,
Bernhard, Woloson & Godfrey, counsel for the Company, in form and
substance satisfactory to counsel to the Underwriters, to the effect
that:
(i) To their knowledge, there is no pending or
threatened action by the Nevada Gaming Authorities to modify, suspend
or revoke any of the gaming licenses held by the Company or any of its
subsidiaries necessary to carry on a gaming business in Nevada which
would have a material adverse effect on such gaming licenses, and
neither the Nevada Gaming Authorities nor any other governmental agency
is investigating either the Company or any of its subsidiaries or any
directors or executive officers of the Company or any of its
subsidiaries other than in the ordinary course of administrative review
or in the ordinary course of investigations of applications on file.
(ii) Any authorization, approval, consent or order
of the Nevada Gaming Authorities required in connection with the
transactions contemplated hereby has been obtained.
(iii) The information in the Prospectus
under the heading "Business--Gaming Regulation" as it relates to gaming
regulation in Nevada to the extent that it constitutes matters of law
or summaries of legal matters, documents or proceedings has been
reviewed by them and is correct in all material respects.
30
<PAGE> 31
(5) The favorable opinion of Smith Martin et al.,
counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, to the effect that:
(i) To their knowledge, there is no pending or
threatened action by the Louisiana Gaming Authorities to
modify, suspend or revoke any of the gaming licenses held by the
Company or any of its subsidiaries necessary to carry on a gaming
business in Louisiana which would have a material adverse effect on
such gaming licenses, and neither the Louisiana Gaming Authorities nor
any other governmental agency is investigating either the Company or
any of its subsidiaries or any directors or executive officers of the
Company or any of its subsidiaries other than in the ordinary course of
administrative review.
(ii) Assuming the Underwriters do not sell
Securities convertible into more than 5% of the shares of Common Stock
issued and outstanding on the date hereof to one individual or entity,
no authorization, approval, consent or order of the Louisiana Gaming
Authorities is required in connection with the transactions
contemplated hereby.
(iii) The information in the Prospectus under the
heading "Business--Gaming Regulation" as it relates to gaming
regulation in Louisiana to the extent that it constitutes matters of
law or summaries of legal matters, documents or proceedings has been
reviewed by them and is correct in all material respects.
(6) The favorable opinion, dated as of Closing Time, of
Skadden, Arps, Slate, Meagher & Flom, counsel for the Underwriters with
respect to the issuance and sale of the Securities, the Registration
Statement and the Prospectus and such other related matters as the
Underwriters shall reasonably request.
(7) In giving their opinions required by subsections
(b)(1), (b)(2) and (b)(6), respec-
31
<PAGE> 32
tively, of this Section, Katten Muchin & Zavis, James S. Montana, Jr.
and Skadden, Arps, Slate, Meagher & Flom shall each additionally state
that nothing has come to their attention that would lead them to believe
that the Registration Statement (except for financial statements and
schedules and other financial or statistical data included or
incorporated by reference therein, as to which counsel need make no
statement), at the time it became effective or at the Representation
Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus (except for
financial statements and schedules and other financial or statistical
data included or incorporated by reference therein, as to which counsel
need make no statement), at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Company for use in connection with the offering of
the Securities which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective, in
which case at the time it is first provided to the Underwriters for such
use) or at Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(c) At Closing Time there shall not have been, since the
date hereof or since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Underwriters shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the
32
<PAGE> 33
effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1 hereof are true and correct with
the same force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been initiated or
threatened by the Commission.
(d) At the time of the execution of this
Agreement, the Underwriters shall have received from Ernst & Young LLP a letter
dated such date, in form and substance satisfactory to the Underwriters, to the
effect that (i) they are independent public accountants with respect to the
Company and its subsidiaries within the meaning of the 1933 Act and the 1933
Act Regulations; (ii) it is their opinion that the financial statements and
supporting schedules included in the Registration Statement and covered by
their opinions therein comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations; (iii) based upon limited procedures set forth in detail in such
letter, nothing has come to their attention which causes them to believe that
(A) the unaudited financial statements and supporting schedules of the Company
and its subsidiaries included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act Regulations or are not presented in conformity
with generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement or (B) at a specified date not more than five days prior
to the date of this Agreement, there has been any change in the capital stock
of the Company or any increase in the consolidated long-term debt of the
Company and its subsidiaries or any decrease in consolidated net current assets
or net assets as compared with the amounts shown in the June 30, 1995 balance
sheet included in the Registration Statement or, during the period from June
30, 1995 to a specified date not more than five days prior to the date of this
Agreement, there were any decreases, as compared with the corresponding period
in the preceding year, in consoli-
33
<PAGE> 34
dated revenues, net income or net income per share of the Company and its
subsidiaries, except in all instances for changes, increases or decreases which
the Registration Statement and the Prospectus disclose have occurred or may
occur; and (iv) in addition to the examination referred to in their opinions
and the limited procedures referred to in clause (iii) above, they have carried
out certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information which are included in
the Registration Statement and Prospectus and which are specified by the
Underwriters, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting, financial and
other records of the Company and its subsidiaries identified in such letter.
(e) At Closing Time the Underwriters shall have
received from Ernst & Young LLP a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (d) of this Section, except that the specified date
referred to shall be a date not more than five days prior to Closing Time.
(f) At the Closing Time and at each Date of
Delivery, if any, the Securities and the Common Stock issuable upon
conversion or redemption shall have been approved for listing on the New York
Stock Exchange upon notice of issuance.
(g) In the event that the Underwriters exercise
their option provided in Section 2(b) hereof to purchase all or
any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates
furnished by the Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Underwriters shall have
received:
(1) A certificate, dated such Date of Delivery, of the
President or a Vice President of the Company and of the chief financial
or chief accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(c)
hereof remains true and correct as of such Date of Delivery.
34
<PAGE> 35
(2) The favorable opinion of Katten Muchin & Zavis,
counsel for the Company, and James S. Montana, Jr., General Counsel to
the Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Sections 5(b)(l), 5(b)(2)
and 5(b)(7) hereof.
(3) The favorable opinions of each of Dennis P.
Venuti, Schreck, Jones, Bernhard, Woloson & Godfrey, and Smith Martin
et al., counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Sections
5(b)(3), 5(b)(4) and 5(b)(5) hereof, respectively.
(4) The favorable opinion of Skadden, Arps, Slate, Meagher &
Flom, counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Sections 5(b)(6) and 5(b)(7) hereof.
(5) A letter from Ernst & Young LLP, in form and
substance satisfactory to the Underwriters and dated such Date of
Delivery, substantially the same in form and substance as the letter
furnished to the Underwriters pursuant to Section 5(e) hereof, except
that the "specified date" in the letter furnished pursuant to this
Section 5(g)(4) shall be a date not more than five days prior to such
Date of Delivery.
(h) At Closing Time counsel for the Underwriters
shall have been furnished with such documents and opinions as they may require
for the purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties or the
fulfillment of any of the conditions herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be
35
<PAGE> 36
satisfactory in form and substance to the Underwriters and counsel for the
Underwriters.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriters by written notice to the Company at any time at
or prior to Closing Time, and such termination shall be without liability of
any party to any other party except as provided in Section 4 hereof.
Notwithstanding any such termination, the provisions of Sections 6, 7 and 8
shall remain in effect.
Section 6. Indemnification
(a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) or the omission
or alleged omission therefrom of a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
36
<PAGE> 37
untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements
of counsel chosen by Merrill Lynch), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, to the extent that any such expense is
not paid under (i) or (ii) above; provided, however, that this
indemnity agreement shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement
or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the
Company by any Underwriter through or on behalf of Merrill Lynch
expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) or (ii), with respect to the sale of
Securities by an Underwriter to any person, a failure by such
Underwriter to give a copy of the Prospectus to such person within the
time required by the 1933 Act (unless such failure was the result of
the Company's failure to furnish to such Underwriter sufficient copies
of the Prospectus on a timely basis) if, but only if, the untrue state-
ment or alleged untrue statement or omission or alleged omission of a
material fact was corrected in the Prospectus.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of
37
<PAGE> 38
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through or on behalf of Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at its own expense
in the defense of any such action. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to any
local counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances.
Section 7. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 hereof is for any reason held to be unenforceable
by the indemnified parties although applicable in accordance with its terms,
the Company and the Underwriters shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by
said indemnity agreement incurred by the Company and one or more of the
Underwriters, as incurred, in such proportions that the Underwriters are
responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover page of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bears to the
initial public offering price appearing thereon and the Company is
responsible for the balance; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of
38
<PAGE> 39
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as the Company.
Section 8. Representations, Warranties and Agreements
to Survive Delivery. All representations, warranties and agreements
contained in this Agreement and the Pricing Agreement, or contained in
certificates of officers of the Company submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
Section 9. Termination of Agreement.
(a) The Underwriters may terminate this Agreement, by
notice to the Company, at any time at or prior to Closing Time (i) if there has
been, since the date of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or any outbreak of hostilities or escalation thereof or other
calamity or crisis the effect of which is such as to make it, in the judgment
of the Underwriters, impracticable to market the Securities or to enforce
contracts for the sale of the Securities, or (iii) if trading in the Common
Stock or the PRIDES has been suspended by the Commission, or if trading
generally on either the American Stock Exchange or the New York Stock Exchange
has been suspended, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices for securities have been re-
39
<PAGE> 40
quired, by either of said Exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by either
Federal, New York or Illinois authorities.
(b) If this Agreement is terminated pursuant
to this Section, such termination shall be without liability of any
party to any other party except as provided in Section 4 hereof.
Notwithstanding any such termination, the provisions of Sections 6, 7 and 8
shall remain in effect.
Section 10. Default by an Underwriter. If an Underwriter shall
fail at Closing Time to purchase the Initial Securities which it is obligated
to purchase under this Agreement and the Pricing Agreement (the "Defaulted
Securities"), the non-defaulting Underwriter shall have the right, within 24
hours thereafter, to make arrangements for the non-defaulting Underwriter, or
any other underwriters, to purchase all, but not less than all, of the
Defaulted Securities in such amounts as may be agreed upon and upon the terms
herein set forth; if, however, the non-defaulting Underwriter shall not have
completed such arrangements within such 24-hour period, then this Agreement
shall terminate without liability on the part of the non-defaulting
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the non-defaulting Underwriter or the
Company shall have the right to postpone Closing Time for a period not
exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
Section 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Underwriters at Merrill Lynch & Co.,
Inc., 5500 Sears Tower, Chicago, Illinois 60606, attention of Todd Kaplan,
Director; notices to the Company shall be directed to it at 8700
40
<PAGE> 41
West Bryn Mawr Avenue, Chicago, Illinois 60631, attention of Lee S. Hillman,
Executive Vice President, Chief Financial Officer and Treasurer.
Section 12. Parties. This Agreement and the
Pricing Agreement shall each inure to the benefit of and be binding
upon the Underwriters and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement or the Pricing Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or the Pricing Agreement or any
provision herein or therein contained. This Agreement and the Pricing Agreement
and all conditions and provisions hereof and thereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
Section 13. Governing Law and Time. This
Agreement and the Pricing Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day
refer to New York City time.
41
<PAGE> 42
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
BALLY ENTERTAINMENT
CORPORATION
By
-----------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
OPPENHEIMER & CO., INC.
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
----------------------------------
Authorized Signatory
42
<PAGE> 43
SCHEDULE A
<TABLE>
<CAPTION>
Number
Name of Underwriter of Securities
------------------- -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . .
Oppenheimer & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
----------
</TABLE>
<PAGE> 44
EXHIBIT A
10,000,000 Shares
BALLY ENTERTAINMENT CORPORATION
(a Delaware corporation)
Preferred Redeemable Increased Dividend Equity
Securities(SM), _____% PRIDES(SM), Convertible Preferred Stock
(Stated Liquidation Value $_____ Per Share)
PRICING AGREEMENT
____________, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
OPPENHEIMER & CO., INC.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Reference is made to the Purchase Agreement dated __________,
1995 (the "Purchase Agreement") relating to the purchase by the Underwriters
named in Schedule A thereto of the above shares of Preferred Redeemable
Increased Dividend Equity Securities(SM), _____% PRIDES(SM), Convertible
Preferred Stock (the "Securities"), of Bally Entertainment Corporation, a
Delaware corporation (the "Company").
_______________
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE> 45
Pursuant to Section 2 of the Purchase Agreement, the Company
agrees with each Underwriter as follows:
1. The initial public offering price per share for
the Securities, determined as provided in said Section 2, shall be
$__________.
2. The purchase price per share for the Securities
to be paid by the several Underwriters shall be $ __________, being an
amount equal to the initial public offering price set forth above
less $ _____ per share; provided that the purchase price per share for
any Option Securities (as defined in the Purchase Agreement) purchased
upon exercise of the over-allotment option described in Section 2(b)
of the Purchase Agreement shall be reduced by an amount per share
equal to any dividends declared by the Company and payable on the
Initial Securities (as defined in the Purchase Agreement) but not
payable on the Option Securities.
3. The dividend shall be $________ per share per
annum.
4. The Minimum Redemption Rate and Optional
Conversion Rate shall be _____________.
5. The Call Price per share for the three quarterly
periods and the one month preceding the Mandatory Conversion Date
shall be $________, $________, $________ and $________, respectively.
2
<PAGE> 46
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
BALLY ENTERTAINMENT
CORPORATION
By
-----------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
OPPENHEIMER & CO., INC.
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
--------------------------------
Authorized Signatory
3
<PAGE> 1
EXHIBIT 4.5
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, RIGHTS AND LIMITATIONS OF
Preferred Redeemable Increased Dividend Equity
Securities(SM), _____% PRIDES(SM), Convertible Preferred Stock
of
BALLY ENTERTAINMENT CORPORATION
______________________________
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
______________________________
BALLY ENTERTAINMENT CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
under (i) authority conferred upon the Board of Directors by the Restated
Certificate of Incorporation of the Corporation, as amended to date, (ii) the
provisions of Sections 141(c) and 151 of the General Corporation Law of the
State of Delaware, and (iii) resolutions adopted by the Board of Directors at
its meeting on _________ ___, 1995, the Board of Directors duly adopted the
following resolutions:
RESOLVED, that under authority conferred upon the Board of Directors by
the Restated Certificate of Incorporation, as amended (the "Restated
Certificate of Incorporation"), the Board of Directors hereby authorizes the
issuance of up to ___________ shares of authorized and unissued stock, par
value _____, of the Corporation, and hereby fixes the designation, powers,
preferences and relative participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of such shares, in
addition to those set forth in the Restated Certificate of Incorporation, as
follows, to be set forth in a certificate of designations (the "Certificate
of Designations"):
__________________
(SM) Service Mark of Merrill Lynch & Co., Inc.
<PAGE> 2
Section 1. Designation and Size of Issue; Ranking. (a) The
distinctive designation of the series of Preferred Stock shall be "Preferred
Redeemable Increased Dividend Equity Securities(SM), _____% PRIDES(SM),
Convertible Preferred Stock" (the "PRIDES"). The number of shares constituting
the PRIDES shall be _____ shares. Each share of PRIDES shall have a stated
liquidation value of $__________.
(b) Any shares of the PRIDES which at any time have been
redeemed for, or converted into, Common Stock, par value $.66 2/3, of the
Corporation (the "Common Stock") or otherwise reacquired by the Corporation
shall, after such redemption, conversion of other acquisition, resume the
status of authorized and unissued shares of preferred stock, par value $1.00 of
the Corporation (the "Preferred Stock"), without designation as to series until
such shares are once more designated as part of a particular series by the
Board of Directors.
(c) The shares of PRIDES shall rank on a parity, both as payment
of dividends and distribution of assets upon liquidation, with any Preferred
Stock issued by the Corporation after the date of this Certificate of
Designations that by its terms ranks pari passu with the PRIDES ("Parity
Preferred Stock").
Section 2. Dividends. (a) The holders of record of the
shares of PRIDES shall be entitled to receive, when and as declared by the
Board of Directors out of funds legally available therefor, cash dividends
("Preferred Dividends") from the date of the issuance of the shares of PRIDES
at the rate per annum of _____ percent of the stated liquidation value per
share (equivalent to $_____ per annum or $_____ per quarter for each share of
PRIDES), payable quarterly in arrears, on each _________, _________, _________
and _________ (each a "Dividend Payment Date") or, if any such date is not a
business day (as defined herein), the Preferred Dividend due on such Dividend
Payment Date shall be paid on the next succeeding business day; provided,
however, that, with respect to any dividend period during which a redemption
occurs, the Corporation may, at its option, declare accrued Preferred Dividends
to, and pay such Preferred Dividends on, the date fixed for redemption, in
which case such Preferred Dividends shall be payable to the holders of shares
of PRIDES as of the record date for such dividend payment and shall not be
included in the calculation of the related PRIDES Call Price (as defined
herein). The first dividend period shall be from the date of initial issuance
of the shares of
2
<PAGE> 3
PRIDES to but excluding _____ and the first Preferred Dividend shall be payable
on _________________. Preferred Dividends on shares of PRIDES shall be
cumulative and shall accumulate from the date of the original issuance.
Preferred Dividends on shares of PRIDES shall cease to accrue from and after
the Mandatory Conversion Date (as defined herein) or on and after the date of
their earlier conversion or redemption, as the case may be. Preferred
Dividends shall be payable to holders of record as they appear on the stock
register of the Corporation on such record date, not less than 15 nor more than
60 days preceding the payment date thereof, as shall be fixed by the Board of
Directors. Preferred Dividends payable on shares of PRIDES for any period less
than a full quarterly dividend period (or, in the case of the first Preferred
Dividend, from the date of initial issuance of the shares of PRIDES to but
excluding the first Dividend Payment Date) shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days elapsed in
any period less than one month. Preferred Dividends shall accrue on a daily
basis whether or not there are funds of the Corporation legally available for
the payment of such dividends and whether or not such Preferred Dividends are
declared. Accrued but unpaid Preferred Dividends shall cumulate as of the
Dividend Payment Date on which they first become payable, but no interest shall
accrue on accumulated but unpaid Preferred Dividends.
(b) As long as shares of PRIDES are outstanding, no dividends
(other than dividends payable in shares of, or warrants, rights or options
exercisable for or convertible into, shares of Common Stock or any other
capital stock of the Corporation ranking junior to the shares of PRIDES as to
the payment of dividends and the distribution of assets upon liquidation
(collectively, the "Junior Stock") and cash in lieu of fractional shares of
such Junior Stock in connection with any such dividend) shall be paid or
declared in cash or otherwise, nor shall any other distribution be made (other
than a distribution payable in Junior Stock and cash in lieu of fractional
shares of such Junior Stock in connection with any such distribution), on any
Junior Stock unless (i) full dividends on Preferred Stock (including the shares
of PRIDES) that does not constitute Junior Stock ("Senior Preferred Stock")
have been paid, or declared and set aside for payment, for all dividend periods
terminating at or before the date of such Junior Stock dividend or distribution
payment to the extent such dividends are cumulative; (ii) dividends in full for
the current quarterly dividend period have been paid, or declared and set aside
for payment, on
3
<PAGE> 4
all Senior Preferred Stock to the extent such dividends are cumulative; (iii)
the Corporation has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement, and sinking
funds, if any, for any Senior Preferred Stock; and (iv) the Corporation is not
in default on any of its obligations to redeem any Senior Preferred Stock.
(c) As long as any shares of PRIDES are outstanding, no shares of
any Junior Stock may be purchased, redeemed, or otherwise acquired by the
Corporation or any of its subsidiaries (except in connection with a
reclassification or exchange of any Junior Stock through the issuance of other
Junior Stock (and cash in lieu of fractional shares of such Junior Stock in
connection therewith) or the purchase, redemption or other acquisition of any
Junior Stock with any Junior Stock (and cash in lieu of fractional shares in
connection therewith)) nor may any funds be set aside or made available for any
sinking fund for the purchase or redemption of any Junior Stock unless: (i)
full dividends on Senior Preferred Stock have been paid, or declared and set
aside for payment, for all dividend periods terminating at or before the date
of such purchase, redemption or other acquisition to the extent such dividends
are cumulative; (ii) dividends in full for the current quarterly dividend
period have been paid, or declared and set aside for payment, on all Senior
Preferred Stock to the extent such dividends are cumulative; (iii) the
Corporation has paid or set aside all amounts, if any, then or theretofore
required to be paid or set aside for all purchase, retirement and sinking
funds, if any, for any Senior Preferred Stock; and (iv) the Corporation is not
in default on any of its obligations to redeem any Senior Preferred Stock.
(d) As long as any shares of PRIDES are outstanding, dividends or
other distributions may not be declared or paid on any Parity Preferred Stock
(other than dividends or other distributions payable in Junior Stock and cash
in lieu of fractional shares of such Junior Stock in connection therewith) and
the Corporation may not purchase, redeem or otherwise acquire any Parity
Preferred Stock or PRIDES (except with any Junior Stock and cash in lieu of
fractional shares of such Junior Stock in connection therewith), unless either
(a) (i) full dividends on Senior Preferred Stock have been paid, or declared
and set aside for payment, for all dividend periods terminating at or before
the date of such Parity Preferred Stock dividend, distribution, purchase,
redemption or other acquisition payment to the extent such dividends are
cumulative; (ii)
4
<PAGE> 5
dividends in full or the current quarterly dividend period have been paid, or
declared and set aside for payment, on all Senior Preferred Stock to the extent
such dividends are cumulative; (iii) the Corporation has paid or set aside all
amounts, if any, then or theretofore required to be paid or set aside for all
purchase, retirement, and sinking funds, if any, for any Senior Preferred
Stock; and (iv) the Corporation is not in default on any of its obligations to
redeem any Senior Preferred Stock; or (b) with respect to the payment of
dividends only, any such dividends on the Parity Preferred Stock shall be
declared and paid pro rata so that the amounts of any dividends declared and
paid per share of PRIDES and each other share of Senior Preferred Stock shall
in all cases bear to each other the same ratio that accrued dividends
(including any accumulation with respect to unpaid dividends for prior dividend
periods, if such dividends are cumulative) per share of PRIDES and such other
shares of Parity Preferred Stock bear to each other.
Section 3. Conversion or Redemption. (a) Unless previously
either redeemed or converted at the option of the holder in accordance with the
provisions of Section 3(c), on ___________, 1999 (the "Mandatory Conversion
Date"), each outstanding share of PRIDES shall mandatorily convert ("Mandatory
Conversion") into (i) shares of authorized Common Stock at the PRIDES Common
Equivalent Rate (as defined herein) in effect on the Mandatory Conversion Date
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
Preferred Dividends on such share of PRIDES (other than previously declared
dividends payable to a holder of record as of a prior date) from and after the
Mandatory Conversion Date, whether or not declared, out of funds legally
available for the payment of Preferred Dividends, subject to the right of the
Corporation to redeem the shares of PRIDES on or after _________, 1998 (the
"Initial Redemption Date") and before the Mandatory Conversion Date and subject
to the conversion of the shares of PRIDES at the option of the holder at any
time before the Mandatory Conversion Date. The "PRIDES Common Equivalent Rate"
shall initially be one (1) share of Common Stock for each share of PRIDES and
shall be subject to adjustment as set forth in Sections 3(d) and 3(e) below.
Shares of PRIDES shall cease to be outstanding from and after the Mandatory
Conversion Date. The Corporation shall make such arrangements as it deems
appropriate for the issuance of certificates representing Shares of Common
Stock and for the payment of cash in respect of such accrued and unpaid
dividends, if any, or cash in lieu of fractional shares of Common Stock, if
any, in exchange for and contingent upon surrender of certificates representing
5
<PAGE> 6
shares of PRIDES, and the Corporation may defer the payment of dividends on
such shares of Common Stock and the voting thereof until, and make such payment
and voting contingent upon, the surrender of certificates representing the
shares of PRIDES; provided that the Corporation shall give the holders of the
shares of PRIDES such notice of any such actions as the Corporation deems
appropriate and upon surrender such holders shall be entitled to receive such
dividends declared and paid, if any, on such shares of Common Stock subsequent
to the Mandatory Conversion Date.
(b) (i) Shares of PRIDES are not redeemable by the Corporation
before the Initial Redemption Date. At any time and from time to time on or
after the Initial Redemption Date until immediately before the Mandatory
Conversion Date, the Corporation shall have the right to redeem, in whole or in
part, the outstanding shares of PRIDES (subject to the notice provisions set
forth in Section 3(b)(iv)). Upon any such redemption, the Corporation shall
deliver to each holder thereof, in exchange for each such share of PRIDES
subject to redemption, the greater of (A) the number of shares of Common Stock
equal to the applicable PRIDES Call Price (as defined herein) in effect on the
redemption date divided by the Current Market Price (as defined herein) of the
Common Stock, determined as of the second Trading Day (as defined herein)
immediately preceding the Notice Date (as defined herein); or (B)
shares of Common Stock (the "Minimum Redemption Rate" which is subject to
adjustment in the same manner as the PRIDES Optional Conversion Rate (as
defined herein) is adjusted). Preferred Dividends on the shares of PRIDES
shall cease to accrue on and after the date fixed for their redemption.
(ii) The "PRIDES Call Price" of each share of PRIDES shall be the
sum of (x) $___________ on and after the Initial Redemption Date, to and
including ____________________; $__________ on and after ____________________,
to and including ___________________; $__________ on and after
_____________________, to and including _______________________; $__________ on
and after ______________, to and including ______________; and $__________
(being the price at which shares of PRIDES are initially sold to the public) on
and after ________________, to and including ___________________; and (y) all
accrued and unpaid Preferred Dividends thereon to but not including the date
fixed for redemption (other than previously declared Preferred Dividends
payable to a holder of record as of a prior date). If fewer than all the
outstanding shares of PRIDES are to be called for redemp-
6
<PAGE> 7
tion, shares of PRIDES to be called shall be selected by the Corporation from
outstanding shares of PRIDES not previously called by lot or pro rata (as
nearly as may be) or by any other method determined by the Board of Directors
in its sole discretion to be equitable.
(iii) The term "Current Market Price" per share of the Common
Stock on any date of determination means the lesser of (x) the average of the
Closing Prices (as defined herein) of the Common Stock for the 15 consecutive
Trading Days ending on and including such date of determination, and (y) the
Closing Price of the Common Stock on such date of determination; provided,
however, that, with respect to any redemption of shares of PRIDES, if any event
resulting in an adjustment of the PRIDES Common Equivalent Rate occurs during
the period beginning on the first day of such 15-day period and ending on the
applicable redemption date, the Current Market Price as determined pursuant to
the foregoing shall be appropriately adjusted to reflect the occurrence of such
event.
(iv) The Corporation shall provide notice of any redemption of the
shares of PRIDES to holders of record of the shares of PRIDES to be called for
redemption not less than 15 nor more than 60 days before the date fixed for
redemption. Any such notice shall be provided by mail, sent to the holders of
record of the shares of PRIDES to be called at each such holder's address as it
appears on the stock register of the Corporation, first-class postage prepaid;
provided, however, that failure to give such notice or any defect therein shall
not affect the validity of the proceeding for redemption of any shares of
PRIDES to be redeemed except as to the holder to whom the Corporation has
failed to give such notice or whose notice was defective. A public
announcement of any call for redemption shall be made by the Corporation
before, or at the time of, the mailing of such notice of redemption. The term
"Notice Date" with respect to any notice given by the Corporation in connection
with a redemption of the shares of PRIDES means the date on which first occurs
either the public announcement of such redemption or the commencement of
mailing of the notice to the holders of shares of PRIDES, in each case pursuant
to this Section 3(b)(iv).
Each such notice shall state, as appropriate, the following and may contain
such other information as the Corporation deems advisable:
(A) the redemption date;
7
<PAGE> 8
(B) that all outstanding shares of PRIDES are to be redeemed
or, in the case of a redemption of fewer than all outstanding shares
of PRIDES, the number of such shares held by such holder to be
redeemed;
(C) the PRIDES Call Price, the number of shares of Common
Stock deliverable upon redemption of each share of PRIDES to be
redeemed and the Current Market Price used to calculate such number
of shares of Common Stock;
(D) the place or places where one or more certificates for
such shares of PRIDES are to be surrendered for redemption; and
(E) that dividends on the shares of PRIDES to be redeemed
shall cease to accrue on and after such redemption date (except as
otherwise provided herein).
(v) The Corporation's obligation to deliver shares of Common Stock
and provide funds upon redemption in accordance with this Section 3(b) shall be
deemed fulfilled if, on or before a redemption date, the Corporation shall
deposit with a bank or trust company, or an affiliate of a bank or trust
company, having a combined capital and surplus of at least $50,000,000
according to its last published statement of condition, or shall set aside or
make other reasonable provision for the issuance of, such number of shares of
Common Stock as are required to be delivered by the Corporation pursuant to
this Section 3(b) upon the occurrence of the related redemption of shares of
PRIDES and for the payment of cash in lieu of the issuance of fractional share
amounts and accrued and unpaid dividends payable in cash on the shares of
PRIDES to be redeemed as required by this Section 3(b), in trust for the
account of the holders of such shares of PRIDES to be redeemed (and so as to be
and continue to be available therefor), with irrevocable instructions and
authority to such bank or trust company that such shares and funds be delivered
upon redemption of the shares of PRIDES so called for redemption. Any interest
accrued on such funds shall be paid to the Corporation from time to time. Any
shares of Common Stock or funds so deposited and unclaimed at the end of three
years from such redemption date shall be repaid and released to the
Corporation, after which the holder or holders of such shares of PRIDES so
called for redemption shall look only to the Corporation for delivery of shares
of Common Stock and the payment of any other
8
<PAGE> 9
funds due in connection with the redemption of the shares of PRIDES.
(vi) Each holder of shares of PRIDES called for redemption must
surrender the certificates evidencing such shares (properly endorsed or
assigned for transfer, if the Board of Directors shall so require and the
notice shall so state) to the Corporation at the place designated in the notice
of such redemption and shall thereupon be entitled to receive certificates
evidencing shares of Common Stock and to receive any funds payable pursuant to
this Section 3(b) following such surrender and following the date of such
redemption. In case fewer than all the shares represented by any such
surrendered certificate are called for redemption, a new certificate shall be
issued at the expense of the Corporation representing the unredeemed shares.
If such notice of redemption shall have been given, and if on the date fixed
for redemption shares of Common Stock and funds necessary for the redemption
shall have been irrevocably either set aside by the Corporation separate and
apart from its other funds or assets in trust for the account of the holders of
the shares to be redeemed (and so as to be and continue to be available
therefor) or deposited with a bank or trust company or an affiliate thereof as
provided herein or the Corporation shall have made other reasonable provision
therefor, then notwithstanding that the certificates evidencing any shares of
PRIDES so called for redemption shall not have been surrendered, the shares
represented thereby so called for redemption shall be deemed no longer
outstanding and Preferred Dividends with respect to the shares so called for
redemption and all rights with respect to the shares so called for redemption
shall forthwith on and after such date cease and terminate (unless the
Corporation defaults on the payment of the redemption price), except for (i)
the rights of the holders to receive the shares of Common Stock and funds, if
any, payable pursuant to this Section 3 (b) without interest upon surrender of
their certificates therefor and (ii) the right of the holders, pursuant to
Section 3 (c) to convert the shares of PRIDES called for redemption until
immediately before the close of business on any redemption date; provided,
however, that holders of shares of PRIDES at the close of business on a record
date for any payment of Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding the redemption of such shares following such record date
and before the Dividend Payment Date. Holders of shares of PRIDES that are
redeemed shall not be entitled to receive dividends declared and paid on such
shares of Common Stock,
9
<PAGE> 10
and such shares of Common Stock shall not be entitled to vote, until such
shares of Common Stock are issued upon the surrender of the certificates
representing such shares of PRIDES, and upon such surrender such holders shall
be entitled to receive such dividends declared and paid on such shares of
Common Stock subsequent to such redemption date.
(c) Shares of PRIDES are convertible, in whole or in part, at
the option of the holders thereof ("Optional Conversion"), at any time before
the Mandatory Conversion Date, unless previously redeemed, into shares of
Common Stock at a rate of shares of Common Stock for each share of
PRIDES (the "PRIDES Optional Conversion Rate"), subject to adjustment as set
forth below. The right of Optional Conversion of shares of PRIDES called for
redemption shall terminate immediately before the close of business on any
redemption date with respect to such shares.
Optional Conversion of shares of PRIDES may be effected by delivering
certificates evidencing such shares of PRIDES, together with written notice of
conversion and a proper assignment of such certificates to the Corporation or
in blank (and, if applicable, cash payment of an amount equal to the Preferred
Dividend attributable to the current quarterly dividend period payable on such
shares), to the office of the transfer agent for the shares of PRIDES or to any
other office or agency maintained by the Corporation for that purpose and
otherwise in accordance with Optional Conversion procedures established by the
Corporation. Each Optional Conversion shall be deemed to have been effected
immediately before the close of business on the date on which the foregoing
requirements shall have been satisfied. The Optional Conversion shall be at
the PRIDES Optional Conversion Rate in effect at such time and on such date.
Holders of shares of PRIDES at the close of business on a record date for
any payment of declared Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares of PRIDES on the corresponding
Dividend Payment Date notwithstanding the Optional Conversion of such shares of
PRIDES following such record date and before such Dividend Payment Date.
However, shares of PRIDES surrendered for Optional Conversion after the close
of business on a record date for any payment of declared Preferred Dividends
and before the opening of business on the next succeeding Dividend Payment Date
must be accompanied by payment in cash of an amount
10
<PAGE> 11
equal to the Preferred Dividends attributable to the current quarterly dividend
period payable on such date (unless such shares of PRIDES are subject to
redemption on a redemption date between such record date established for such
Dividend Payment Date and such Dividend Payment Date). Except as provided
above, upon any Optional Conversion of shares of PRIDES, the Corporation shall
make no payment of or allowance for unpaid Preferred Dividends, whether or not
in arrears, on such shares of PRIDES as to which Optional Conversion has been
effected or for previously declared dividends or distributions on the shares of
Common Stock issued upon Optional Conversion.
(d) The PRIDES Common Equivalent Rate, the PRIDES Minimum
Redemption Rate and the PRIDES Optional Conversion Rate (collectively, referred
to as the "Rates") are each subject to adjustment from time to time as provided
below in this paragraph (d).
(i) If the Corporation shall pay a stock dividend or make a
distribution with respect to its Common Stock in shares of Common Stock
(including by way of reclassification of any shares of its Common Stock), the
Rates in effect at the opening of business on the day following the date fixed
for the determination by stockholders entitled to receive such dividend or
other distribution shall each be increased by multiplying such Rates by a
fraction of which the numerator shall be the sum of the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination, immediately before such dividend or distribution, plus the total
number of shares of Common Stock constituting such dividend or other
distribution, and of which the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination, immediately before such dividend or distribution, such increase
to become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
clause (i), the number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Corporation but shall include
shares issuable in respect of certificates issued in lieu of fractions of
shares of Common Stock.
(ii) In case outstanding shares of Common Stock shall be
subdivided or split into a greater number of shares of Common Stock, the Rates
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall each be proportionately
11
<PAGE> 12
increased, and, conversely, in case outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Rates in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall each be proportionately reduced, such
increases or reductions, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iii) If the Corporation shall, after the date of this Certificate
of Designations, issue rights or warrants to all holders of its Common Stock
entitling them (for a period not exceeding 45 days from the date of such
issuance) to subscribe for or purchase shares of Common Stock at a price per
share less than the Current Market Price of the Common Stock (determined
pursuant to Section 3(b)(ii)) on the record date for the determination of
stockholders entitled to receive such rights or warrants, then in each case the
Rates shall each be adjusted by multiplying the Rates in effect on such record
date by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants,
immediately before such issuance, plus the number of additional shares of
Common Stock offered for subscription or purchase pursuant to such rights or
warrants, and of which the denominator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants,
immediately before such issuance, plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock so offered for subscription or purchase pursuant to such rights or
warrants would purchase at such Current Market Price (determined by multiplying
such total number of shares by the exercise price of such rights or warrants
and dividing the product so obtained by such Current Market Price). Shares of
Common Stock held by the Corporation or by another corporation of which a
majority of the shares entitled to vote in the election of directors are held,
directly or indirectly, by the Corporation shall not be deemed to be
outstanding for purposes of such computation. Such adjustment shall become
effective at the opening of business on the business day next following the
record date for the determination of stockholders entitled to receive such
rights or warrants. To the extent that shares of Common Stock are not
delivered after the expiration of such rights or warrants, the Rates shall each
be readjusted to the Rates which would then be in effect had the adjustments
made after the issuance of such rights or warrants been made upon the basis of
12
<PAGE> 13
issuance of rights or warrants in respect of only the number of shares of
Common Stock actually delivered.
(iv) If the Corporation shall pay a dividend or make a
distribution to all holders of its Common Stock consisting of evidences of its
indebtedness, cash or other assets (including shares of capital stock of the
Corporation other than Common Stock and shares of capital stock of any other
corporation (except for shares of Bally's Health & Tennis Corporation or any
subsidiary or parent thereof other than the Corporation, which shall be dealt
with exclusively by paragraph (v) below) but excluding any cash dividends or
distributions, other than Extraordinary Cash Distributions (as defined herein)
and dividends referred to in clauses (i) and (ii) above), or shall issue to all
holders of its Common Stock rights or warrants to subscribe for or purchase any
of its securities (other than those referred to in clause (iii) above), then in
each such case, the Rates shall each be adjusted by multiplying such Rates in
effect on the record date for such dividend or distribution or for the
determination of stockholders entitled to receive such rights or warrants, as
the case may be, by a fraction of which the numerator shall be the Current
Market Price per share of the Common Stock (determined pursuant to 3(b)(ii) on
such record date), and of which the denominator shall be such Current Market
Price per share of Common Stock less either (i) the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive)
on such record date of the portion of the assets or evidences of indebtedness
so distributed, or of such subscription rights or warrants, applicable to one
share of Common Stock, or (ii) if applicable, the amount of the Extraordinary
Cash Distributions. Such adjustment shall become effective on the opening of
business on the business day next following the record date for such dividend
or distribution or for the determination of holders entitled to receive such
rights or warrants, as the case may be.
(v) If the Corporation shall pay a dividend or make a distribution
in shares of capital stock of Bally's Health & Tennis Corporation or any
subsidiary or parent thereof (other than the Corporation), the Rates shall be
adjusted pursuant to the formula contained in paragraph (iv) above, except that
the fair market value shall be determined based on the average of the high and
low sales prices of such capital stock on the national securities exchange on
which such security is listed, and if not so listed, on the Nasdaq National
Market, for the 20 consecutive Trading Days beginning on the first Trading Day
13
<PAGE> 14
after the record date for holders of the Common Stock entitled to receive such
dividend or distribution, and such adjustment shall be retroactively effective
to the opening of business on the business day next following such record date.
(vi) Any shares of Common Stock issuable in payment of a dividend
or other distribution (other than as described in clause (i) above) shall be
deemed to have been issued immediately before the close of business on the
record date for such dividend or other distribution for purposes of calculating
the number of outstanding shares of Common Stock under this Section 3.
(vii) Anything in this Section 3 notwithstanding, the Corporation
shall be entitled (but shall not be required) to make such upward adjustments
in the Rates and the PRIDES Call Price in addition to those set forth by this
Section 3, as the Corporation, in its sole discretion, shall determine to be
advisable, in order that any stock dividends, subdivision of stock,
distribution of rights to purchase stock or securities, or distribution of
securities convertible into or exchangeable for stock (or any transaction that
could be treated as any of the foregoing transactions pursuant to Section 305
of the Internal Revenue Code of 1986, as amended) hereafter made by the
Corporation to its stockholders shall not be taxable. The term "Extraordinary
Cash Distribution" means, with respect to any consecutive 12-month period, all
cash dividend and cash distributions on the Common Stock during such period
(other than cash dividends and cash distributions for which a prior adjustment
to the Rates was previously made) to the extent such dividends and
distributions exceed, on a per share of Common Stock basis, 10% of the average
daily Closing Price of the Common Stock over such period.
(viii) In any case in which this Section 3(d) shall require that
an adjustment as a result of any event become effective at the opening of
business on the business day next following a record date and (a) the date
fixed for conversion pursuant to Section 3(a) or redemption pursuant to Section
3(b) occurs after such record date, but before the occurrence of such event or
(b) such adjustment is retroactively effected pursuant to a final determination
of fair market value pursuant to paragraph (v) above, the Corporation may, in
its sole discretion, elect to defer the following until after the occurrence of
such event or the date of final determination of such fair market value: (A)
issuing to the holder of any shares of PRIDES surrendered for conversion or
redemption the additional shares of
14
<PAGE> 15
Common Stock issuable over the shares of Common Stock issuable before giving
effect to such adjustment; and (B) paying to such holder any amount in cash in
lieu of a fractional share of Common Stock pursuant to Section 4.
(ix) All adjustments to the Rates shall be calculated to the
nearest 1/100th of a share of Common Stock. No adjustment in any of the Rates
shall be required unless such adjustment would require an increase or decrease
of at least one percent therein; provided, however, that any adjustments which
by reason of this Section 3(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All adjustments
to the Rates shall be made successively.
(x) Before redeeming any shares of PRIDES, the Corporation shall
taken any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock upon such redemption.
(e) In case of any consolidation or merger to which the
Corporation is a party (other than a consolidation or merger in which the
Corporation is the surviving or continuing corporation and in which the shares
of Common Stock outstanding immediately before the merger or consolidation
remain unchanged) or in the case of any sale or transfer to another corporation
of the property of the Corporation as an entirety or substantially as an
entirety, or in the case of a statutory exchange of securities with another
corporation (other than in connection with a merger or acquisition), each share
of PRIDES shall, after consummation of such transaction, be subject to (i)
conversion at the option of the holder into the kind and amount of securities,
cash, or other property receivable upon consummation of such transaction by a
holder of the number of shares of Common Stock into which such shares of PRIDES
might have been converted immediately before consummation of such transaction,
(ii) conversion on the Mandatory Conversion Date into the kind and amount of
securities, cash, or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock into which such
share of PRIDES would have been converted if the conversion on the Mandatory
Conversion Date had occurred immediately before the date of consummation of
such transaction, plus the right to receive cash in an amount equal to all
accrued and unpaid dividends on such share of PRIDES (other than previously
declared
15
<PAGE> 16
dividends payable to a holder of record as of a prior date), and (iii)
redemption on any redemption date in exchange for the kind and amount of
securities, cash, or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock that would have
been issuable at the PRIDES Call Price in effect on such redemption date upon a
redemption of such share of PRIDES immediately before consummation of such
transaction, assuming that, if the Notice Date for such redemption is not
before such transaction, the Notice Date had been the date of such transaction;
and assuming in each case that such holder of shares of Common Stock failed to
exercise rights of election, if any, as to the kind or amount of securities,
cash, or other property receivable upon consummation of such transaction
(provided that, if the kind or amount of securities, cash, or other property
receivable upon consummation of such transaction is not the same for each
non-electing share, then the kind and amount of securities, cash, or other
property receivable upon consummation of such transaction for each non-electing
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). The kind and amount of securities into
or for which the shares of PRIDES shall be convertible or redeemable after
consummation of such transaction shall be subject to adjustment as described in
Section 3(d) following the date of consummation of such transaction. The
Corporation may not become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
(f) Whenever the Rates are adjusted as provided in Section 3(d),
the Corporation shall:
(i) forthwith compute the Rates in accordance with this Section 3
and prepare a certificate signed by the Chief Financial Officer, any Vice
President, the Treasurer or the Controller of the Corporation setting forth the
adjusted Rates, the method of calculation thereof in reasonable detail and the
facts requiring such adjustment and upon which such adjustment is based, which
certificate shall be conclusive, final and binding evidence of the correctness
of the adjustment, and shall file such certificate forthwith with the transfer
agent for the shares of the PRIDES and the Common Stock;
(ii) make a prompt public announcement stating that the Rates have
been adjusted and setting forth the adjusted Rates; and
16
<PAGE> 17
(iii) mail a notice stating that the Rates have been adjusted, the
facts requiring such adjustment and upon which such adjustment is based and
setting forth the adjusted Rates, to the holders of record of the outstanding
shares of PRIDES, at or prior to the time the Corporation mails an interim
statement, if any, to its stockholders covering the fiscal quarter period
during which the facts requiring such adjustment occurred, but in any event
within 45 days of the end of such fiscal quarter period.
(g) In case, at any time while any of the shares of PRIDES are
outstanding,
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock, excluding any cash dividends other than
Extraordinary Cash Distributions; or
(ii) the Corporation shall authorize the issuance to all holders
of the Common Stock of rights or warrants to subscribe for or purchase shares
of the Common Stock or of any other subscription rights or warrants; or
(iii) the Corporation shall authorize any reclassification of the
Common Stock (other than a subdivision or combination thereof) or any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required (except for a
merger of the Corporation into one of its subsidiaries solely for the purpose
of changing the corporate domicile of the Corporation to another state of the
United States and in connection with which there is no substantive change in
the rights or privileges of any securities of the Corporation other than
changes resulting from differences in the corporate statutes of the state the
Corporation was then domiciled in and the new state of domicile), or the sale
or transfer of all or substantially all of the assets of the Corporation;
then the Corporation shall cause to be filed at each office or agency
maintained for the purpose of conversion of the shares of PRIDES, and shall
cause to be mailed to the holders of shares of PRIDES at their last addresses
as they shall appear on the stock register of the Corporation, at least 10
business days before the date hereinafter specified in clause (A) or (B) below
(or the earlier of the dates hereinafter specified, in the event that more than
one date is specified), a notice stating (A) the date on which a record is to
be taken for the purpose of such dividend, distribution, rights or warrants,
or, if a record
17
<PAGE> 18
is not be taken, the date as of which the holders of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to be
determined, or (B) the date on which any such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property (including cash), if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. The failure to give or receive the notice required
by this paragraph (g) or any defect therein shall not affect the legality or
validity of any such dividend, distribution, right or warrant or other action.
Section 4. No Fractional Shares. No fractional shares of
Common Stock shall be issued upon redemption or conversion of any shares of the
PRIDES. In lieu of any fractional share otherwise issuable in respect of the
aggregate number of shares of the PRIDES of any holder that are redeemed or
converted on any redemption date or upon Mandatory Conversion or Optional
Conversion, such holder shall be entitled to receive an amount in cash
(computed to the nearest cent) equal to the same fraction of the (i) Current
Market Price of the Common Stock (determined as of the second Trading Day
immediately preceding the Notice Date) in the case of redemption, or (ii)
Closing Price of the Common Stock determined (A) as of the fifth Trading Day
immediately preceding the Mandatory Conversion Date, in the case of Mandatory
Conversion, or (B) as of the second Trading Day immediately preceding the
effective date of conversion, in the case of an Optional Conversion by a
holder. If more than one share of PRIDES shall be surrendered for conversion
or redemption at one time by or for the same holder, the number of full shares
of Common Stock issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of the PRIDES so surrendered or redeemed.
Section 5. Reservation of Common Stock. The Corporation
shall at all times reserve and keep available out of its authorized and
unissued Common Stock, solely for issuance upon the conversion or redemption of
shares of PRIDES, as herein provided, free from preemptive rights, such maximum
number of shares of Common Stock as shall from time to time be issuable upon
the Mandatory Conversion or Optional Conversion or redemption of all the shares
of PRIDES then outstanding.
18
<PAGE> 19
Section 6. Definitions. As used in this Certificate of
Designations:
(i) the term "business day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close;
(ii) the term "Closing Price", on any day, shall mean the last
reported sales price of the Common Stock, regular way on such day, or, if no
sale takes place on such day, the average of the reported closing bid and asked
prices on such day, regular way, in either case as reported on the New York
Stock Exchange or, if such security is not listed or admitted for trading on
the New York Stock Exchange, on the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or, if such security is not quoted on such Nasdaq National Market, the average
of the closing bid and asked prices on such day in the over-the-counter market
as reported by NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid and asked
prices on such day, as furnished by any New York Stock Exchange member firm
making a market in the Common Stock selected from time to time by the Board of
Directors for that purpose;
(iii) the term "record date" shall be such date as from time to
time shall be fixed by the Board of Directors with respect to the receipt of
dividends, the receipt of a redemption price upon redemption or the taking of
any action or exercise of any voting rights permitted hereby; and
(iv) the term "Trading Day" shall mean a date on which the New
York Stock Exchange (or any successor) is open for the transaction of business.
Section 7. Payment of Taxes. The Corporation shall pay any
and all documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on the redemption or
conversion of shares of PRIDES pursuant to Section 3; provided, however, that
the Corporation shall not be required to pay any tax which may be payable in
respect of any registration of transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the registered holder of
shares of PRIDES redeemed or converted or to be redeemed or converted, and no
such
19
<PAGE> 20
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
Section 8. Liquidation Rights. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the Corporation, and
subject to the rights of holders of any other series of Preferred Stock, the
holders of outstanding shares of PRIDES are entitled to receive the sum of
____________ per share, plus an amount equal to any accrued and unpaid
Preferred Dividends thereon, out of the assets of the Corporation available for
distribution to stockholders, before any distribution of assets is made to
holders of Junior Stock. If, upon any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the assets of the Corporation
are insufficient to permit the payment of the full preferential amounts payable
with respect to the shares of PRIDES and all other series of Parity Preferred
Stock, the holders of shares of PRIDES and of all other series of Parity
Preferred Stock shall share ratably in any distribution of assets of the
Corporation in proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of PRIDES shall
not be entitled to any further participation in any distribution of assets by
the Corporation. A consolidation or merger of the Corporation with or into one
or more other corporations (whether or not the Corporation is the corporation
surviving such consolidation or merger), or a sale, lease or exchange of all or
substantially all of the assets of the Corporation shall not be deemed to be a
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation.
Section 9. Voting Rights. (a) The holders of shares of
PRIDES shall have the right with the holders of Common Stock to vote in the
election of Directors and upon each other matter coming before any meeting of
the holders of Common Stock on the basis of 4/5 of a vote for each share of
PRIDES held. The holders of shares of PRIDES and the holders of Common Stock
will vote together as one class on such matters except as otherwise provided by
law or the Restated Certificate of Incorporation of the Corporation.
(b) In the event that dividends on the shares of PRIDES or any
other series of Preferred Stock shall be in arrears and unpaid for six
quarterly dividend periods, or if any series of Preferred Stock (other than
20
<PAGE> 21
the PRIDES) shall be entitled for any other reason to exercise voting rights,
separate from the Common Stock, to elect any directors of the Corporation
("Preferred Stock Directors"), the holders of the shares of PRIDES (voting
separately as a class with holders of all other series of Preferred Stock upon
which like voting rights have been conferred and are exercisable with the
PRIDES as a class), with each share of PRIDES entitled to one vote on this and
other matters in which such Preferred Stock votes as a group, shall be entitled
to vote for the election of two directors of the Corporation, such directors to
be in addition to the number of directors constituting the Board of Directors
immediately before the accrual of such right. Such right, when vested, shall
continue until all cumulative dividends accumulated and payable on the shares
of PRIDES and such other series of Preferred Stock shall have been paid in full
and the right of any other such series of Preferred Stock to exercise voting
rights, separate from the Common Stock, to elect Preferred Stock Directors
shall terminate or have terminated, and, when so paid and any such termination
occurs or has occurred, such right of the holders of the shares of PRIDES shall
cease. The term of office of any director elected by the holders of the shares
of PRIDES and such other series shall terminate on the earlier of (i) the next
annual meeting of stockholders at which a successor shall have been elected and
qualified or (ii) the termination of the right of holders of the shares of
PRIDES and such other series to vote for such directors.
(c) The Corporation shall not, without the approval of the holders
of at least 66-2/3 percent of the shares of PRIDES then outstanding: (i)
amend, alter, or repeal any of the provisions of the Restated Certificate of
Incorporation of the Corporation so as to affect adversely the powers,
preferences or rights of the holders of the shares of PRIDES then outstanding
or reduce the minimum time for any required notice to which the holders of the
shares of PRIDES then outstanding may be entitled (an amendment of the Restated
Certificate of Incorporation to authorize or create, or to increase the
authorized amount of, Junior Stock or any stock of any class ranking on a
parity with the PRIDES being deemed not to affect adversely the powers,
preferences, or rights of the holders of the shares of PRIDES); (ii) authorize
or create, or increase the authorized amount of, any stock (whether or not
convertible into capital stock of any class), ranking prior to the shares of
PRIDES either as to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Corporation; or (iii) merge or
consolidate with or into any other corporation,
21
<PAGE> 22
unless each holder of shares of PRIDES immediately preceding such merger or
consolidation shall receive or continue to hold in the resulting corporation
the same number of shares, with substantially the same rights and preferences,
including, without limitation, as set forth in Section 3(e) hereof, as
correspond to the shares of PRIDES so held.
(d) The Corporation shall not, without the approval of the holders
of at least a majority of the shares of PRIDES then outstanding, increase the
authorized number of shares of Preferred Stock to greater than ___________
shares.
(e) Notwithstanding the provisions set forth in Sections 9(c) and
9(d), no such approval described therein of the holders of the shares of PRIDES
shall be required if, at or before the time when such amendment, alteration or
repeal is to take effect or when the authorization, creation, increase or
issuance of any such prior or parity stock or convertible security is to be
made, or when such consolidation or merger, voluntary liquidation, dissolution,
or winding up, sale, lease, conveyance, purchase, or redemption is to take
effect, as the case may be, provision is made for the redemption of all shares
of PRIDES at the time outstanding.
22
<PAGE> 23
IN WITNESS WHEREOF, BALLY ENTERTAINMENT CORPORATION has caused this
certificate to be signed and attested this ____ day of _________, 1995.
BALLY ENTERTAINMENT CORPORATION
By:____________________________
Name:
Title:
Attest:
_________________________
Name:
Title:
23
<PAGE> 1
EXHIBIT 4.6
<TABLE>
<CAPTION>
% PRIDES (SM), CONVERTIBLE PREFERRED STOCK
PAR VALUE $1.00 PER SHARE
STATED LIQUIDATION VALUE $ PER SHARE
Number
BP INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
Shares
BALLY ENTERTAINMENT CORPORATION CUSIP 05873C 30 4
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN THE CITY OF NEW YORK
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF % PRIDES, CONVERTIBLE PREFERRED STOCK OF
Bally Entertainment Corporation, transferable on the books of the Corporation by the holder hereof in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all the provisions of the Restated Certificate of
Incorporation, as amended, of the Corporation, a copy of which is on file with the Transfer Agent, to all of which the
holder by acceptance hereof assents. This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
<S> <C> <C>
[SEAL]
Dated:
COUNTERSIGNED AND REGISTERED:
CHAIRMAN OF THE BOARD BY TRANSFER AGENT AND REGISTRAR.
SECRETARY AUTHORIZED SIGNATURE.
(SM) Service mark of Merrill Lynch & Co., Inc.
</TABLE>
<PAGE> 2
BALLY ENTERTAINMENT CORPORATION
<TABLE>
<CAPTION>
NOTICE OF CONVERSION
The undersigned hereby irrevocably exercises the option to convert the shares of % PRIDES represented by this Certificate
or a portion thereof below designated by the undersigned into Common Shares of the Corporation, par value $.66 2/3 per share
("Common Shares"), in accordance with the terms of the % PRIDES, and directs that the Common Shares issuable and deliverable
upon conversion, together with any check in payment of accrued and unpaid dividends and in lieu of fractional shares, and any
Certificate representing any unconverted shares of % PRIDES be issued and delivered to the undersigned unless, in the case of
such Common Shares or Certificates, a different name has been indicated below. If Common Shares or Certificates are to be issued in
the name of a person other than the undersigned, the undersigned will pay all transfer taxes with respect thereto.
<S> <C>
Dated:_____________________________________________________ ____________________________________________________________
Number of shares of % PRIDES to be converted: Signature of Holder must conform in all respects to the name
of the Holder appearing on the face hereof in every particular
without alteration or enlargement, or any change whatever.
___________________________________________________________
Signature Guaranteed By:
Fill in for registration of Common Shares and/or Certificates
if to be issued otherwise than to Holder: ___________________________________________________________
___________________________________________________________ ___________________________________________________________
Name (Social Security or Other Taxpayer Identifying Number of
Assignee of Common Shares and/or Certificates)
___________________________________________________________
Address ___________________________________________________________
___________________________________________________________
</TABLE>
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --___________ Custodian ______________
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
JT TEN -- as joint tenants with right of
survivorship and not as tenants Act _________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
The Corporation will furnish without charge to each stockbroker who so
request the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
Transfer Agent.
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ________________________________________________________________________
________________________________________________________________________________
attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, ________________________
_______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5
September 13, 1995
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
Re: Registration Statement on Form S-3 (Reg. No. 33-61571)
Ladies and Gentlemen:
We have acted as counsel for Bally Entertainment Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing of a Registration Statement on Form S-3, Registration Statement No.
33-61571 (the "Registration Statement") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act"). The
Registration Statement relates to the offering of (i) up to 11,500,000 shares
of Preferred Redeemable Increased Dividend Equity Securities, % PRIDES,
Convertible Preferred Stock, par value $1.00 per share, of the Company (the
"Preferred Shares"), and (ii) an indeterminate number of shares (the "Common
Shares") of Common Stock, par value $.66 2/3 per share (the "Common Stock"), of
the Company issuable upon conversion or redemption of the Preferred Shares.
The maximum number of Common Shares into which the Preferred Shares may be
converted without application of antidilution adjustments are referred to
herein as the "Initial Common Shares," and the Preferred Shares and the Common
Shares are collectively referred to herein as the "Shares."
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the 1933 Act.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and
upon affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We also have examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and
necessary to examine for the purpose of this opinion, including (a) the
Registration Statement, (b) the Restated Certificate of Incorporation of the
Company, as amended (the "Restated Certificate of Incorporation"), (c) the
By-Laws of the Company, (d) the Purchase Agreement (as defined in the
Registration Statement), (e) certain resolutions adopted by the Board of
Directors
<PAGE> 2
Bally Entertainment Corporation
September 13, 1995
Page 2
of the Company (the "Resolutions"), and (f) the Certificate of Designations,
Preferences, Rights and Limitations of the Preferred Shares (the "Certificate
of Designations").
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the
genuineness of all signatures, the authenticity of the documents submitted to
us as originals and the conformity to authentic original documents of all
documents submitted to us as certified, conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and
existing under the laws of the State of Delaware.
2. The issuance of the Preferred Shares will be duly
authorized by all necessary corporate action of the Company upon (i)
approval by the Company's Board of Directors of the terms of the
Preferred Shares, including the number of shares, dividend rate,
mandatory conversion rate, optional conversion rate and liquidation
preference thereof, and (ii) the completion with appropriate
insertions, execution and filing with the Secretary of State of the
State of Delaware of the Certificate of Designations and its
effectiveness in accordance with the Delaware General Corporation Law.
3. The Preferred Shares, when duly authorized as
provided in paragraph 2 and, assuming that (i) in accordance with the
Resolutions, the pricing committee of the Company's Board of Directors
adopts resolutions fixing the price per share at which the Preferred
Shares are sold to the Underwriters pursuant to the Purchase Agreement
and such price is at least equal to the par value of the Preferred
Shares, and (ii) the form of certificate evidencing the Preferred
Shares complies with applicable law, when sold to the Underwriters or
otherwise delivered in accordance with the terms of the Purchase
Agreement, will be validly issued, fully paid and nonassessable.
4. The Initial Common Shares have been duly authorized.
Assuming the Preferred Shares are authorized asprovided in paragraph
2, the Initial Common Shares, when issued upon conversion or
redemption of the Preferred Shares in accordance with the provisions
of the Company's Restated Certificate of Incorporation, as amended by
the Certificate of Designations, will be validly issued, fully paid
and nonassessable.
We hereby consent to the use of our name under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement
and to the use of this opinion for filing
<PAGE> 3
Bally Entertainment Corporation
September 13, 1995
Page 3
as Exhibit 5 to the Registration Statement. We hereby consent to the
incorporation by reference of this opinion into a subsequent registration
statement filed by the Company pursuant to Rule 462(b) under the 1933 Act
relating to the offering covered by the Registration Statement.
Very truly yours,
KATTEN MUCHIN & ZAVIS
/s/ KATTEN MUCHIN & ZAVIS
<PAGE> 1
EXHIBIT 8
September 13, 1995
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, IL 60631
Re: Registration Statement on Form S-3 (Reg. No. 33-61571)
Ladies and Gentlemen:
In connection with the filing by Bally Entertainment Corporation (the
"Company") of the Registration Statement on Form S-3, No. 33- 61571 (the
"Registration Statement"), with the Securities and Exchange Commission, you
have requested our opinion concerning certain Federal income tax considerations
to persons who purchase shares of PRIDES offered thereby.
The facts, as we understand them, and upon which we rely in rendering
our opinion expressed herein, are set forth in the Registration Statement in
its entirety. Based upon and subject to (i) the accuracy of such facts and
(ii) the offering of shares of PRIDES being consummated in the manner described
in the Registration Statement, the information in such prospectus included in
the Registration Statement under the heading "Certain Federal Income Tax
Considerations," while not purporting to discuss all possible Federal income
tax consequences to persons who purchase shares of PRIDES, expresses our
opinion as to the material Federal income tax considerations believed to be
applicable to such persons.
This opinion is furnished to you solely for use in connection with the
Registration Statement and may not be used, circulated, quoted or otherwise
referred to for any other purposes without our express written permission. We
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our name under the caption, "Legal Matters"
in the prospectus included in the Registration Statement. We hereby consent to
the incorporation by reference of this opinion into a subsequent registration
statement filed by the Company pursuant to Rule 462(b) under the Securities Act
of 1933 relating to the offering covered by the Registration Statement. In
giving this consent, we do not agree that we come within the category of
persons whose consent is required.
Very truly yours,
KATTEN MUCHIN & ZAVIS
/s/ KATTEN MUCHIN & ZAVIS
<PAGE> 1
EXHIBIT 12
BALLY ENTERTAINMENT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(ALL DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
income taxes and minority interests............. $22,934 $ (3,721) $ 6,078 $ 15,070 $(7,270) $(50,917) $(82,706)
Add:
Interest expense(1)............................. 64,606 65,083 130,834 92,876 93,795 117,156 136,941
Amortization of capitalized interest............ 534 443 915 849 839 828 645
Interest component of rent expense(2)........... 570 566 1,132 421 231 1,015 1,939
Preferred stock dividends of subsidiaries....... 467
------- -------- -------- -------- ------- -------- --------
Earnings available for combined fixed charges and
preferred stock dividends....................... $89,111 $ 62,371 $138,959 $109,216 $87,595 $ 68,082 $ 56,819
======= ======== ======== ======== ======= ======== ========
Fixed charges:
Interest expense(1)............................. $64,606 $ 65,083 $130,834 $ 92,876 $93,795 $117,156 $136,941
Capitalized interest............................ 2,036 1,386 2,067 422 74 149 2,557
Interest component of rent expense(2)........... 570 566 1,132 421 231 1,015 1,939
Preferred stock dividends(3).................... 2,737 1,389 5,490 4,300 2,778 2,778 4,819
------- -------- -------- -------- ------- -------- --------
Combined fixed charges and preferred
stock dividends................................. $69,949 $ 68,424 $139,523 $ 98,019 $96,878 $121,098 $146,256
======= ======== ======== ======== ======= ======== ========
Ratio of earnings to combined fixed charges and
preferred stock dividends....................... 1.3x (4) 1.0x 1.1x (4) (4) (4)
</TABLE>
---------------
(1) Includes amortization of debt issuance costs and discount.
(2) Assumed interest component to be one-third of rent expense.
(3) Includes preferred stock dividend requirements of Bally Entertainment
Corporation and its subsidiaries.
(4) Earnings were insufficient to cover combined fixed charges and preferred
stock dividends for the six months ended June 30, 1994 by $6,053 and for the
years ended December 31, 1992, 1991 and 1990 by $9,283, $53,016, and
$89,437, respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 15, 1995, except for the "Discontinued
operations" note, as to which the date is March 17, 1995, in Amendment No. 1 to
this Registration Statement (Form S-3 No. 33-61571) and related Prospectus of
Bally Entertainment Corporation for the registration of Convertible Preferred
Stock.
ERNST & YOUNG LLP
Chicago, Illinois
September 13, 1995
