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PART I
Except as otherwise stated, the information contained in this Annual Report is
as of December 31, 1994, the end of the registrant's last fiscal year.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
The registrant, Bally Entertainment Corporation ("Bally"), formerly known as
Bally Manufacturing Corporation, and the subsidiaries which it controls
(collectively, the "Company"), are engaged primarily in the operation of: (i)
casinos, some with adjacent hotels and (ii) fitness centers. Principal casino
operations include: (i) Bally's Park Place casino hotel resort in Atlantic City,
New Jersey ("Bally's Park Place") through Bally's Park Place, Inc., (ii) The
Grand casino hotel resort in Atlantic City ("The Grand") through GNAC, CORP.
("GNAC"), (iii) Bally's Las Vegas casino hotel resort in Las Vegas, Nevada
("Bally's Las Vegas") through Bally's Grand, Inc. and (iv) Bally's Saloon and
Gambling Hall dockside gaming facility in Tunica, Mississippi through Bally's
Tunica, Inc. ("Bally's Mississippi"). In addition, Bally's Casino Lakeshore
Resort ("Bally's New Orleans"), which is expected to operate a riverboat casino
facility in New Orleans, Louisiana through Bally's Louisiana, Inc., is expected
to commence operations by mid-1995.
Bally's Health & Tennis Corporation ("Bally's Health & Tennis") operates the
nation's largest chain of fitness centers, with 332 facilities primarily located
in major metropolitan markets. On June 28, 1994, Bally's Board of Directors (the
"Board") approved a plan to spin-off Bally's Health & Tennis (the "Spin-off").
The Spin-off is expected to be accomplished by distributing substantially all of
the issued and outstanding stock of Bally's Health & Tennis to Bally's
stockholders. The Spin-off, which is expected to be completed by mid-1995, is
subject to satisfaction of certain conditions and receipt of certain consents.
As a result of the Board's action regarding the Spin-off, Bally's Health &
Tennis has been reflected as a discontinued operation and the Company's
continuing operations comprise one segment, with all significant revenues
arising from its casino operations and, where applicable, supporting hotel
operations. See Notes to consolidated financial statements -- Basis of
presentation and Discontinued operations.
CASINOS
FACILITIES
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 centrally located among
the nine other casino hotels adjacent to the Boardwalk and is 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. 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,
currently encompassing approximately 2.2 million square feet of space, including
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. At December 31,
1994, Bally's Park Place offered over 2,200 slot machines and 95 table games
including baccarat, blackjack, craps, roulette and poker, among others.
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 machine areas to further develop and compete for slot
machine play.
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Bally's Park Place has more than 1,250 guest rooms (including 98 suites), making
it the largest four-star hotel in New Jersey, and 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 offers a variety
of other facilities and amenities to its patrons.
Bally's Park Place's operating strategy continues to capitalize on its central
location and quality facilities, which serves to maximize the profitability of
Bally's Park Place and allows Bally's Park Place to increase its gaming
offerings 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
tier slot player segments, Bally's Park Place intends to broaden its appeal and
target premium table game and slot players through enhanced facility
accommodations without compromising its focus on mid-level slot play. During
1994, Bally's Park Place expanded its marketing efforts to attract table game
players. Increased spending for marketing and promotional programs, as well as
the hiring of additional host and player development personnel, were implemented
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 Boston Avenue
and Pacific Avenue 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, primarily customers that drive in by automobile or
bus, to avoid much of the traffic congestion experienced in the midtown section
of Atlantic City when visiting The Grand. As Atlantic City International Airport
continues to develop, and as the new Atlantic City convention corridor develops,
management believes The Grand is well-positioned to benefit from an increase in
destination-oriented patrons.
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. At December 31, 1994, The Grand had approximately 46,300
square feet of gaming space featuring approximately 1,400 slot machines and
approximately 90 table games. The Grand regularly updates and modernizes the
type of slot games it 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, red dog and roulette, among others. In April 1995, The Grand expects
to complete a 30% expansion of its gaming space to include approximately 400
additional slot machines (approximately 250 machines were placed in operation
during February 1995), poker, horse race simulcasting and keno, in an area
formerly occupied by certain ancillary services.
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
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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's operating strategy is to capitalize on its first-class facility. In
addition to providing a full selection of casino games, The Grand offers its
guests several categories of deluxe rooms, a variety of specialty restaurants,
headline entertainment and other amenities. The first-class nature of the
facility is complemented by an emphasis on personalized service, which is
facilitated by the size of the facility, thereby lending itself to a more
intimate, personal atmosphere for guests. Consistent with this strategy, The
Grand targets both high-end and destination-oriented patrons, primarily drive-in
patrons. The quality of the facility, together with its proximity to a major
highway, assist in attracting these gaming patrons. The Grand directs its
marketing efforts towards expanding its domestic customer base and attracting
international gaming patrons.
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. Bally and certain of its wholly owned subsidiaries owned
approximately 65% of the Bally's Grand, Inc. common shares outstanding as of
December 31, 1994, and their ownership increased through March 23, 1995 to
approximately 80%. Bally's Grand, Inc. owns and operates the Bally's Las Vegas
casino hotel resort in Las Vegas, Nevada. Bally's Las Vegas is situated 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 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 guests and
convention business. In addition, separate subsidiaries of Bally's Grand, Inc.
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 containing
a 56,000-square foot casino. The casino features approximately 1,500 slot
machines, 72 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, which completed an extensive renovation program of its main
tower during 1993, 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 the construction of improvements to its frontage
area along the Strip which include moving walkways that transport patrons to and
from the main entrance through gardens and water displays. In addition, Bally's
Las Vegas has commenced construction of and expects to operate by June 1995 a
monorail that will transport passengers between Bally's Las Vegas and The MGM
Grand Hotel and Theme Park through a joint venture formed with a subsidiary of
MGM Grand, Inc.
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
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individuals from other regions of the United States and foreign countries. These
individuals, who are primarily mid-week oriented, 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 and attention,
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. Convention business
is also a major marketing target for Bally's Las Vegas as it provides the resort
with mid-week occupancy and generally higher room rates than standard mid-week
rates. Management believes that the size of Bally's Las Vegas' convention
meeting space combined with its extensive convention amenities and services,
including the ability to provide customized shows and other presentations,
specialized graphics, advanced business support services and banquet services
for up to 3,000 people in a single seating makes it one of the most desirable
convention forums in Las Vegas.
Business at Bally's Las Vegas is somewhat seasonal, usually declining in the
summer and mid-winter months. Bally's Las Vegas employs approximately 4,000
persons in the operation of its business.
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 ceased operations
at its Mhoon Landing site and entered into a venture agreement with Lady Luck
Gaming Corporation ("Lady Luck") under which Bally's Mississippi is expected to
relocate its dockside casino to Lady Luck's site in Robinsonville, Mississippi
(which is presently the closest gaming site to Memphis) and contribute the
dockside casino and related assets to the venture. Bally's Mississippi, through
an affiliate which is general manager of the venture, plans to commence
operations at the Robinsonville site (where Lady Luck has been operating a
240-room hotel since August 1994) by mid-1995. Lady Luck, which will contribute
the hotel and related assets to the venture, does not currently have a casino
operating at the site. Bally's Mississippi will be the majority owner of the
venture.
The Robinsonville site encompasses over 50 acres. Upon commencement of
operations, the 40,000 square-foot dockside casino is expected to feature
approximately 1,150 slot machines and 50 table games (including blackjack,
craps, mini-baccarat and roulette, among others). Prior to the commencement of
operations, the venture expects to develop the site to include a restaurant, an
entertainment lounge, administrative facilities and parking for approximately
1,500 vehicles. The existing hotel encompasses approximately 150,000 square feet
of space.
The venture's operating strategy is expected to provide its patrons with an
enjoyable gaming experience through a well-trained, friendly staff in a
well-maintained 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 with 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 intended to generate a high volume of play from casino customers in
the regional area, which is expected to be enhanced by the Robinsonville site's
close proximity to Memphis and the 240-room hotel.
The venture is expected to employ approximately 800 persons in the operation of
its business.
BALLY'S NEW ORLEANS. A subsidiary of Bally's Casino Holdings, Inc. ("Casino
Holdings") owns an equity interest of approximately 50% in Bally's New Orleans,
which is expected to operate a riverboat casino facility 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. 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 will receive management
fees based on a percentage of the
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earnings of Bally's New Orleans. Construction of the 130,000 square-foot
riverboat (which measures 350 feet long and 83 feet wide) commenced in January
1994 and was approximately 85% complete as of March 23, 1995. Bally's New
Orleans expects to commence operations by mid-1995, subject to the issuance of a
Certificate of Final Approval by the Louisiana Riverboat Gaming Commission.
The riverboat will be located on the south shore of Lake Pontchartrain in
Orleans Parish, which is approximately eight miles from the French Quarter of
New Orleans. The riverboat is expected to accommodate up to 2,500 passengers and
feature a 30,000 square-foot casino (the maximum size currently allowed under
Louisiana law) on the two upper decks of the vessel. The casino is expected to
feature approximately 1,200 state-of-the-art slot machines with embedded bill
acceptors and approximately 46 table games, including blackjack, roulette, craps
and poker. The lower level of the vessel (which will have an additional 20,000
square feet of gaming space available in the event current Louisiana law is
amended) is expected to feature a full service bar and giant screen television.
The vessel is being built to resemble a traditional paddle-wheel riverboat and
is expected to feature an "Americana" theme in red, white and blue. On-shore
facilities include a 34,000 square-foot terminal building that was acquired from
Showboat Star Partnership in February 1995, which is expected to house a buffet
restaurant, cocktail lounge and waiting area. Parking facilities to accommodate
over 1,000 vehicles are available.
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 expects to operate
seven cruises daily with no admission charge. Bally's New Orleans' operating
strategy is expected to provide its patrons with an enjoyable gaming experience
through a well-trained, friendly staff in a well-maintained facility. The
marketing strategy of Bally's New Orleans is expected to generate a high volume
of casino play from both local residents and tourists (including
conventioneers). Expansion plans being considered include a 25,000 to
30,000-square foot performance arena, which would feature various headline
entertainment.
Bally's New Orleans is expected to employ approximately 900 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.
During the past two years, the Company has expended over $20 million in the
pursuit of gaming opportunities (including land option costs) in jurisdictions
including Pennsylvania, Florida, Missouri, Ontario, Alabama and Indiana, among
others, and on Native American and First Nation lands in various locations. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for additional information.
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. 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. The Company also
competes with other forms of legalized gaming, including state-sponsored
lotteries and off-track wagering. In
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markets in which the Company commences operations or seeks to commence
operations, it faces intense competition for licenses, desirable sites,
qualified personnel and, ultimately, customers from other companies in the
gaming industry. Legalization of gaming in additional jurisdictions will 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 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. These expansions will increase competition in the Atlantic City
market, particularly as additional slot machines and rooms are added. 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 30 major casino
hotels located on or near the Las Vegas Strip, approximately 10 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,
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 new casino projects in
Las Vegas which, 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 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.
Further, Bally's Las Vegas has completed an extensive renovation of its main
tower and improvements to its frontage area along the Strip, and has commenced
construction of the monorail, renovation of the south tower hotel rooms and
corridors and redesign of the lower-level retail mall, all of which are intended
to enhance its competitiveness in the Las Vegas market.
MISSISSIPPI. The Mississippi gaming legislation does not limit the number of
gaming licenses that may be granted and management believes this resulted in a
saturation of gaming facilities in and around the Memphis market. As of March
23, 1995, nine gaming facilities were operating in this market and six
additional operators' licenses (excluding Bally's Mississippi's) had been issued
by the Mississippi Gaming Commission for operation there (although three of
these licenses are for facilities which have already closed). Gaming facilities
which have already commenced or subsequently commence operations in or near the
Memphis market present potential significant competition for the venture between
Bally's Mississippi and Lady Luck. The Company anticipates improved
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operating results at the Robinsonville site, but there can be no assurance that
such improved results will be attained given these competitive conditions.
NEW ORLEANS. Louisiana law limits the number of riverboat gaming licenses that
may be granted to fifteen (all 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 and an additional three riverboats (including Bally's New
Orleans) are expected to commence operations there during the remainder of 1995.
In addition to the riverboat casinos, a license for a single, large-scale
land-based casino has been awarded by the City of New Orleans to a competitor.
This casino, which is expected to commence operations at a temporary location in
April or May 1995 and at a permanent location in mid-1996, is expected to be the
largest land-based casino in the United States. As a result, Bally's New Orleans
is expected to face significant competition in the New Orleans market.
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 United States Coast Guard regulations.
NEW JERSEY REGULATION. 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 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 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 has 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 two 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 acted 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. An amendment to the New Jersey Act
signed into law in January 1995 provides that casino licenses may be renewed for
a period up to four years.
The New Jersey Act imposes certain restrictions on the ownership and transfer of
securities
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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, 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.
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
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institutional holder is entitled to a 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 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 license suspended or revoked.
If a casino license 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
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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, Inc.
and GNAC.
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 Gaming Control Act and the regulations
promulgated thereunder (collectively, the "Nevada Act"), and (ii) various local
ordinances and regulations. Bally's Grand, Inc.'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."
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.
Bally is registered by the Nevada Commission as a publicly traded corporation (a
"Registered Corporation") and has been found suitable to acquire control of
Bally's Grand, Inc. Casino Holdings is also a Registered Corporation by virtue
of its outstanding debt securities and has been found suitable to own the
capital stock of Bally's Grand Management Co., Inc. ("Management Co."), which is
the manager of Bally's Grand, Inc. Casino Holdings has also been found suitable
to own the capital stock of Bally's CHLV, Inc. ("BCHLV"), which has been
registered by the Nevada Commission as an intermediary company and has been
found suitable to own more than 10% of the Bally's Grand, Inc. voting
securities. Bally's Grand, Inc. is also 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 licenses held by GRI require the payment of fees
and taxes and are not transferable. GRI is also licensed as a manufacturer and
distributor of gaming devices. Such manufacturer's and distributor's licenses
are not transferable and require the annual payment of fees. Management Co. is
licensed by the Nevada Commission as a manager for Bally's Grand, Inc. and such
license is also 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,
Bally, Casino Holdings and Bally's Grand, Inc. 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. Bally, Casino Holdings, Bally's Grand, Inc., BCHLV
and the Corporate Licensees have obtained from the Nevada Gaming Authorities the
various registrations, findings of suitability, 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, Bally, Casino Holdings, Bally's
Grand, Inc. or the Corporate Licensees in order to determine whether such
individual is suitable or should be licensed as a business associate of a gaming
licensee. Officers, directors and certain key employees of the Corporate
Licensees must file applications with
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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 Bally, Casino Holdings or Bally's Grand, Inc. 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 Bally, Casino Holdings, Bally's Grand, Inc. or the Corporate
Licensees, the companies involved would have to sever all relationships with
such person. In addition, the Nevada Commission may require Bally, Casino
Holdings, Bally's Grand, Inc. 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.
Bally, Casino Holdings, Bally's Grand, Inc. 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, Bally, Casino Holdings, Bally's Grand,
Inc. 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 Bally's or Bally's Grand, Inc.'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
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. 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'
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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 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. Bally, Casino Holdings and Bally's Grand, Inc. 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 Bally,
Casino Holdings, Bally's Grand, Inc. or the Corporate Licensees, Bally, Casino
Holdings or Bally's Grand, Inc.: (i) pays that person any dividend or interest
upon the voting securities of Bally or Bally's Grand, Inc., (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.
Bally, Casino Holdings and Bally's Grand, Inc. 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. Bally,
Casino Holdings and Bally's Grand, Inc. 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 Bally, Casino
Holdings and Bally's Grand, Inc. 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 Bally or
Bally's Grand, Inc. to date.
None of Bally, Casino Holdings or Bally's Grand, Inc. 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 25, 1994, the Nevada Commission granted
Bally prior approval to make
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offerings of its common stock, warrants or rights to acquire its common stock,
or other equity securities that do not have a cash dividend requirement, for a
period of one year, subject to certain conditions (the "Shelf Approval").
However, 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 herewith renewed annually. 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 for such public
offering or the investment merits of the securities offered. Any representation
to the contrary is unlawful.
Changes in control of Bally or Bally's Grand, Inc. 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 Bally, the Nevada
Commission has conditioned Casino Holdings' registration 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
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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.
MISSISSIPPI REGULATION. Mississippi has 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. 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. 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.
LOUISIANA 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 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 Louisiana
Riverboat Gaming Enforcement Division 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
Enforcement Division issued Bally's New Orleans a Certificate of Preliminary
Approval in June 1993 and a riverboat gaming license in March 1994. Upon
completion of the riverboat and related land-based facilities, Bally's New
Orleans must apply to and receive from the Louisiana Riverboat Gaming Commission
a Certificate of Final Approval before commencing gaming operations.
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
As described previously, Bally's Health & Tennis has been reflected as a
discontinued operation because of the Spin-off, which is expected to be
completed by mid-1995.
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 332 fitness centers located in 27
states with approximately 4.2 million members. The fitness centers operate under
the "Bally's" name in conjunction with various well-recognized names, including
Holiday Health, Jack LaLanne, Holiday Spa, Chicago Health Clubs, Scandinavian,
President's First Lady, Vic Tanny and Aerobics Plus, and as The Vertical Clubs.
Most of the Company's fitness centers are located in major metropolitan markets
in the United States, including Los Angeles, New York, Chicago, Washington,
D.C., Philadelphia, Houston, Dallas, Minneapolis, Detroit, Miami, Atlanta,
Cleveland, Seattle, Phoenix and Denver. In addition, the Company operates four
fitness centers in Canada. 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' strategy is to offer members value by providing
state-of-the-art facilities and membership programs at economical prices. The
fitness centers offer
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prospective members the option of financing their initial membership fees as an
alternative to a lump sum cash payment, and management considers payment
flexibility to be a competitive advantage over most 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.
Bally's Health & Tennis offers, on a membership basis, the use of its fitness
centers, including planned exercise programs and instruction stressing
cardiovascular conditioning, strength development and improved appearance. 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 its 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 accessibility 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 can also choose from several payment mechanisms and
downpayment options. 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 in every major market in which it has fitness centers. Management
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 retail stores selling
home-use fitness equipment. However, Bally's Health & Tennis believes that its
operating experience, its ability to allocate advertising costs over all of its
fitness centers, and its account processing and collection infrastructure give
it 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 targeted
market group.
Bally's Health & Tennis' focus is on increasing cash flows and revenues from its
existing fitness centers through greater penetration of its target market. The
fitness centers have programs such as "Step Aerobics" and "The 30-Minute
Workout" to expand the appeal of its services. Additional amenities planned for
1995 include providing its fitness center members with offerings of health and
fitness-related merchandise. Bally's Health & Tennis believes that the spread of
the fitness commitment to older Americans represents a substantial growth
opportunity. Accordingly, the fitness centers seek to capitalize on this
opportunity by providing and marketing special fitness programs for the 35 to
49-year old and older age groups. Special fitness activities such as personal
training, water and other low-impact aerobics and walking programs as well as
special services such as child care at many fitness centers are examples of
Bally's Health & Tennis' efforts to attract prospective members in these age
groups. In addition, in 1995, Bally's Health & Tennis began to offer
comprehensive fitness and wellness programs to major corporations which are
designed to reduce workers compensation costs and improve productivity. Bally's
Health & Tennis expects these efforts to enhance its ability to attract new
members and retain existing members as they age.
Bally's Health & Tennis intends to continue its program of upgrading its fitness
centers by remodeling, expanding or replacing older, smaller fitness centers,
closing selected existing facilities that management believes do not present
sufficient growth opportunities and selectively
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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 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 the 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
employs approximately 17,400 persons in the operation of its business, including
approximately 9,700 part-time employees.
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.
ITEM 3. LEGAL PROCEEDINGS
Several purported derivative actions against Bally and certain of its current
and former directors, originally filed in December 1990 and January 1991, have
been consolidated under the caption In re: Bally Entertainment Corporation
Shareholders Litigation in the Court of Chancery of the State of Delaware, New
Castle County. The consolidated complaint alleges, among other things, breach of
fiduciary duty, corporate mismanagement, and waste of corporate assets in
connection with certain actions including, among other things, payment of
compensation, certain acquisitions by Bally, the dissemination of allegedly
materially false and misleading information, the proposed restructuring of
Bally's debt, and a subsidiary's allegedly discriminatory practices. The
plaintiffs seek, among other things: (i) injunctions against payment of certain
termination compensation benefits and implementation of the proposed
restructuring plan, (ii) rescission of consummated transactions and a
declaration that the complained of transactions are null and void, (iii) an
accounting by individual defendants of damages to Bally and benefits received by
such defendants, (iv) the appointment of a representative to negotiate on behalf
of the stockholders in connection with any proposed restructuring, and (v) costs
and disbursements, including a reasonable allowance for the fees and expenses of
plaintiffs' attorneys, accountants and experts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is inapplicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Arthur M. Goldberg was elected Chairman of the Board of Directors and Chief
Executive Officer of the Company in October 1990 and President of the Company in
January 1993. He is also Chairman of the Company's Executive Committee. In June
1993, he was elected Chairman of the Board of Directors, President and Chief
Executive Officer of Casino Holdings. Since January 1993, Mr. Goldberg has been
Chairman of the Board of Directors and Chief Executive Officer of both Bally's
Park Place, Inc. and GNAC. He has also served as a director of Bally's Health &
Tennis since 1990. Mr. Goldberg was elected Chairman of the Board of Directors
and President of Bally's Grand, Inc. in August 1992 and its Chief Executive
Officer in September 1992. Since 1990, he has been Chairman of the Board of
Directors, Chief Executive Officer and President of Di Giorgio Corporation, a
food distributor. Mr. Goldberg is also Managing Partner of Arveron Investments
L.P. and a director of First Fidelity Bancorp. Mr. Goldberg is 53 years of age.
Lee S. Hillman was elected Vice President, Chief Financial Officer and Treasurer
of the Company in November 1991 and Executive Vice President in August 1992. He
has been an Executive Vice President, Chief Financial Officer and a director of
Casino Holdings since June 1993. Mr. Hillman has served as a director of Bally's
Park Place, Inc. since January 1993 and a director of GNAC since February 1993.
He has also been Vice President -- Administration of Bally's Grand, Inc. since
August 1993. In addition, he has served as Senior Vice President of Bally's
Health & Tennis since April 1991, one of its directors since September 1992 and
its Treasurer since October 1992, and was Chief
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Financial Officer of that company from January 1992 through May 1994. From
October 1989 to April 1991, he was a partner with the accounting firm of Ernst &
Young LLP. Mr. Hillman is 39 years of age.
Robert G. Conover was elected Vice President, Management Information Systems and
Chief Information Officer of the Company in December 1992. He has been Senior
Vice President, Management Information Systems of Casino Holdings since June
1993 and Senior Vice President of GNOC, CORP. (a subsidiary of GNAC) since 1987.
Mr. Conover was elected a Senior Vice President of Bally's Park Place, Inc. in
January 1993 and for approximately ten years prior thereto, he was a Vice
President of that company. Mr. Conover has also been President of the Bally
Systems division of Bally Gaming International, Inc. ("Gaming"), a former
subsidiary of the Company, since October 1990. From January 1987 to September
1992, he was Vice President, Management Information Systems of Bally's Grand,
Inc. Mr. Conover is 49 years of age.
John W. Dwyer was elected Corporate Controller of the Company in June 1992 and
Vice President in December 1992. He has been a Vice President and Controller of
Casino Holdings since June 1993 and Vice President and Chief Financial Officer
of Bally's Health & Tennis since May 1994. From October 1989 to June 1992, he
was a partner with the accounting firm of Ernst & Young LLP. Mr. Dwyer is 42
years of age.
Harold Morgan was elected Vice President, Human Resources of the Company in
December 1992. Since August 1991, he has been employed by Bally's Health &
Tennis and was elected a Vice President of that company in January 1992. From
1985 until August 1991, Mr. Morgan was Director of Employee and Labor Relations
of the Hyatt Corporation. Mr. Morgan is 38 years of age.
Bernard J. Murphy was elected Vice President, Corporate Affairs and Governmental
Relations of the Company in November 1991. From March 1991 to November 1991, Mr.
Murphy was employed as an executive of Bally and since March 1991, he has been a
Senior Vice President of Bally's Health & Tennis. For 20 years prior to 1991, he
had been with the Federal Bureau of Investigation. Mr. Murphy is 48 years of
age.
Jerry W. Thornburg was elected Vice President, Audit of the Company in July
1993. For approximately five years prior thereto, he was Director of Internal
Audit of the Company. Mr. Thornburg is 51 years of age.
Carol Stone DePaul was elected Secretary of the Company in December 1992. She
has been a Vice President and Secretary of Casino Holdings since June 1993. For
more than three years prior to December 1992, she was Assistant Secretary of the
Company and a member of its law department. Ms. DePaul is 38 years of age.
------------------------------------
Wallace R. Barr was elected President and a director of Bally's Park Place, Inc.
in February 1993 and its Chief Operating Officer in January 1993. He has also
been an Executive Vice President, Chief Operating Officer and a director of
Casino Holdings since June 1993. Mr. Barr was a Senior Vice President of GNAC
from June 1991 to February 1993 and has served as its Chief Operating Officer
since January 1993 and its President and a director since February 1993. From
March 1984 to June 1991, he served as Senior Vice President -- Operations of
Bally's Park Place, Inc. and from January 1987 to September 1992, he was Senior
Vice President and Treasurer of Bally's Grand, Inc. Mr. Barr is 49 years of age.
Michael G. Lucci, Sr. was elected President of Bally's Health & Tennis in April
1993 and its Chief Operating Officer in October 1992. He has been a director of
Bally's Health & Tennis since September 1992. From 1991 to April 1993, he served
as Executive Vice President of Bally's Health & Tennis and supervised the
eastern region of that company for more than two years prior to 1991. Mr. Lucci
is 55 years of age.
Darrell A. Luery was elected Senior Vice President of Bally's Grand, Inc. in
August 1989 and its Chief Operating Officer in September 1992. Mr. Luery is 54
years of age.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
Bally Common Stock, par value 66 2/3c per share (the "Common Stock"), is traded
on the New York Stock Exchange and Chicago Stock Exchange. The Company suspended
cash dividend payments on the Common Stock beginning with the fourth quarter of
1990 and does not presently intend to pay any dividends on the Common Stock in
the foreseeable future. The high and low quarterly sales prices on the New York
Stock Exchange for the past two years are as follows:
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
High..................................................... $9 5/8 $7 5/8 $8 1/8 $7 5/8
Low...................................................... 6 3/4 6 3/8 6 1/2 5 1/4
1993:
High..................................................... 8 1/8 12 3/4 10 3/4 10 3/8
Low...................................................... 6 6 3/8 8 1/8 8 3/8
</TABLE>
The number of holders of record of the Common Stock at March 23, 1995 was
16,249.
For restrictions on the ability of Bally's subsidiaries to pay dividends, see
Liquidity and Capital Resources in Item 7 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Years ended December 31:
Revenues.................................... $ 942.3 $ 628.2 $ 556.0 $ 544.5 $ 564.8
Equity in net loss of Bally's Grand, Inc.
(pre-reorganization)..................... (186.6)
Income (loss) from continuing operations.... (1.9) 10.2 -- (33.4) (248.6)
Income (loss) from continuing operations per
common and common equivalent share....... (.10) .16 (.06) (1.07) (9.03)
Cash dividends per common share............. .225
At December 31:
Total assets................................ $1,936.2 $1,991.6 $1,357.6 $1,389.8 $1,620.9
Total debt.................................. 1,266.2 1,186.3 731.2 795.4 1,076.4
Minority interests.......................... 37.4 42.4
Stockholders' equity........................ 293.6 364.1 410.2 364.7 332.5
<FN>
---------------
Notes:
(1) The consolidated financial statements have been presented (after restatement
of prior years' financial statements) to reflect Bally's Health & Tennis as
a discontinued operation because of the Spin-off. See Notes to consolidated
financial statements -- Discontinued operations for additional information.
(2) Bally's Las Vegas has been consolidated since December 1, 1993 as a result
of Bally's controlling interest in reorganized Bally's Grand, Inc. at that
date. Prior to December 1, 1993, Bally's investment in Bally's Grand, Inc.
was principally recorded on the equity method of accounting. As of December
31, 1994, wholly owned subsidiaries of Bally owned approximately 65% of the
outstanding common stock of Bally's Grand, Inc. See Notes to consolidated
financial statements -- Acquisition of Bally's Grand, Inc. for additional
information.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As described previously, Bally's Health & Tennis has been reflected as a
discontinued operation in the Company's financial statements because of the
Spin-off. As a result, the Company's continuing operations comprise one industry
segment, with all significant revenues arising from its casino operations and,
where applicable, supporting hotel operations. The following discussion and
analysis of financial condition and results of operations is that of the
Company's continuing operations.
RESULTS OF OPERATIONS
<TABLE>
Revenues, operating income before depreciation, amortization and abandonment
loss ("EBITDA") and operating income (loss) for the Company and each of its
casino properties were as follows (in millions):
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated:
Revenues..................................................... $ 942.3 $ 628.2 $ 556.0
EBITDA (a)................................................... 217.5 159.1 135.1
Operating income (d)......................................... 125.1 107.9 86.5
Bally's Park Place:
Revenues..................................................... $ 377.0 $ 352.8 $ 331.1
EBITDA (a)................................................... 120.1 112.4 90.1
Operating income............................................. 88.3 85.8 62.7
The Grand:
Revenues..................................................... $ 249.5 $ 239.8 $ 223.7
EBITDA (a)................................................... 43.0 40.6 49.0
Operating income............................................. 23.7 21.7 30.6
Bally's Las Vegas (b):
Revenues..................................................... $ 271.9 $ 21.1
EBITDA (a)................................................... 61.4 3.3
Operating income............................................. 40.3 1.0
Bally's Mississippi (c):
Revenues..................................................... $ 39.1 $ 4.1
EBITDA (a)................................................... 5.9 1.6
Operating loss (d)........................................... (13.9) (1.7)
<FN>
---------------
Notes:
(a) The Company has presented EBITDA supplementally because the Company believes
it allows for a more complete analysis of its results of operations. 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.
(b) Bally's Las Vegas (through Bally's Grand, Inc.) has been consolidated since
December 1, 1993. See Notes to consolidated financial
statements -- Acquisition of Bally's Grand, Inc. for additional information.
(c) Bally's Mississippi commenced operations on December 6, 1993.
(d) Includes charges in 1994 of $13.1 million for the write-down of certain
assets deemed unrecoverable upon Bally's Mississippi's planned relocation of
its operations and $3.3 million for amortization of pre-opening costs
(compared to $3.1 million in 1993). See Notes to consolidated financial
statements -- Abandonment loss for additional information.
</TABLE>
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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 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. Despite the increase in operating expenses, the 1994 operating margin
(before depreciation and amortization) remained unchanged from 1993's level of
nearly 32%. 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,
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. The 1994 operating margin (before depreciation and amortization)
remained unchanged from 1993's level. 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
20
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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 increases in advertising
and various other expenses.
Management believes that the reduced rate of slot revenue growth in Atlantic
City as compared to the last several years, in conjunction with the expanded
number of slot machines, has caused and will continue to cause intense
promotional efforts to attract slot players as the Company's Atlantic City
casinos and their competitors seek to expand their share of slot revenues and
maximize the utilization of their slot machine inventory. 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,
the addition of poker, horse race simulcasting and keno over the last year has
had a favorable impact on the Atlantic City gaming environment. The Company
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 February 1994, Bally's Park Place expanded its casino
floor space from 68,100 to 71,400 square feet and in June 1994, Bally's Park
Place added another 8,700 square feet of gaming space to offer horse race
simulcasting and keno, and to relocate and expand its poker operations. In July
1994, Bally's Park Place placed in operation an additional 127 high denomination
slot machines in the gaming space formerly occupied by its poker operations.
Further, 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, and reconfigured its slot machine layout, adding
additional slot stools and aisle space. The Grand also reconfigured its casino
floor, widening the aisles, adding additional slot stools and replacing the
majority of its slot machine inventory with state-of-the-art machines with
embedded bill acceptors during the second quarter of 1994. Additionally, The
Grand is expanding its casino floor and other gaming space by 30% to accommodate
approximately 400 additional slot machines, poker, horse race simulcasting and
keno, with completion expected in April 1995.
LAS VEGAS. Revenues of Bally's Las Vegas for 1994 were $271.9 million compared
to $21.1 million for December 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. The 1994
operating margin (before depreciation and amortization) was 23%.
Three new major casino hotels opened for business in Las Vegas during the latter
part of 1993 that contain 370,000 total square feet of casino space, 10,400
total hotel guest rooms and a theme park. In addition, there have been several
public announcements concerning new casino projects in Las Vegas which, 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 properties attract. Further, Bally's Las Vegas has
completed an extensive renovation of its main tower and improvements to its
frontage area along the Strip, and has commenced construction of the monorail,
renovation of the south tower hotel rooms and corridors and redesign of the
lower-level retail mall, all of which are intended to enhance its
competitiveness in the Las Vegas market.
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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 is expected to relocate its dockside casino to
Lady Luck's site in Robinsonville, Mississippi (which is presently the closest
gaming site to Memphis) and contribute the dockside casino and related assets to
the venture. 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 planned
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 by mid-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 the Company
will be granted gaming licenses in any of these new jurisdictions.
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 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 of Bally 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, Bally's Grand, Inc. 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 Bally's Grand, Inc. 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
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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 Notes to consolidated financial
statements -- Income taxes.
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.
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.
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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. As described previously, Bally's Las Vegas was consolidated effective
December 1, 1993. Revenues of Bally's Las Vegas for December 1993 were $21.1
million. 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.
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).
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 interests is included in Notes to consolidated financial
statements -- Income taxes.
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
24
<PAGE> 25
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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
Bally is a holding company without operations of its own. Nevertheless, Bally
has certain cash obligations that must be satisfied by obtaining cash from its
subsidiaries or disposing of or leveraging certain assets. Bally's corporate
cash operating costs in the foreseeable future are expected to be recovered
substantially by allocations to its subsidiaries. Bally has debt service and
preferred stock dividend payments of approximately $19 million in 1995. Cash
requirements for Bally in 1995 also include income tax payments, which
management expects to be recovered substantially from subsidiaries pursuant to
tax sharing agreements. Additionally, the Company is authorized by the Board to
purchase, on the open market, up to 2 million shares of Common Stock, of which
37,000 shares were purchased in December 1994.
Sources of cash available to Bally are generally limited to existing cash
balances ($24.1 million at December 31, 1994), dividends, management fees or
cost allocations to subsidiaries, receipts pursuant to tax sharing agreements,
capital transactions and asset sales. In addition, a subsidiary of Casino
Holdings has an obligation to Bally of $6.7 million to be paid in 1995 for
shares of Bally's Grand, Inc. common stock purchased from Bally. Each of Bally's
principal operating subsidiaries presently have debt covenants which limit the
payment of dividends to Bally and the redemption of stock owned by Bally. 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, Inc. to Casino Holdings may
be declared as a dividend by Casino Holdings and paid to Bally. In 1994,
dividends totalling $12.8 million were paid by Bally's Park Place, Inc. to
Casino Holdings and by Casino Holdings to Bally and additional dividends of $2.1
million were available at December 31, 1994. Dividends to Bally from
subsidiaries other than Bally's Park Place, Inc. are not presently expected
during 1995. Bally believes it will be able to satisfy its cash needs in 1995,
although it remains dependent upon the ability of its subsidiaries to pay
dividends (primarily Bally's Park Place, Inc.) and other obligations to meet its
future cash requirements.
The Spin-off of Bally's Health & Tennis, which is subject to satisfaction of
certain conditions and receipt of certain consents, is expected to be
accomplished by distributing substantially all of the issued and outstanding
stock of Bally's Health & Tennis to Bally's stockholders. Because the Spin-off
is expected to be a dividend, stockholders' equity of the Company will be
reduced by the amount of its investment in Bally's Health & Tennis, and the
Company's debt to equity ratio will increase substantially.
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 ($36.6 million
at December 31, 1994) 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 the total
development costs of new gaming ventures from a combination of third party
sources, including banks, suppliers and debt markets.
Bally's Park Place, Inc. and Bally's Grand, Inc. 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 1994, Bally's Park Place, Inc. paid
Casino Holdings dividends totalling $55.2 million, exclusive of dividends
ultimately paid to Bally. An additional $25.0 million dividend is still
available to Casino Holdings from Bally's Park Place, Inc. pursuant to the
indenture of the Bally's Park Place, Inc. 9 1/4% First Mortgage Notes due 2004
(the "9 1/4% Notes"). Such dividend is subject to the approval of the New Jersey
Commission and is not available to be paid by Casino Holdings to Bally. Bally's
Grand, Inc. is presently not expected to pay dividends during
25
<PAGE> 26
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1995. Bally's Mississippi and Casino Holdings have an arrangement whereby
Bally's Mississippi borrows amounts as dictated by working capital requirements
and uses excess cash generated to reduce amounts outstanding. However, due to
Bally's Mississippi's planned relocation of its operations by mid-1995 (as
described in "Results of Operations" included elsewhere herein), Bally's
Mississippi is not expected to generate cash flows from operations of any
significance in the first half of 1995.
Both Bally's New Orleans and Bally's Mississippi, which are expected to commence
operations by mid-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 funded by Casino Holdings. Casino Holdings
believes it will be able to satisfy its cash needs in 1995, although it remains
dependent upon the ability of its subsidiaries to generate cash to repay
advances and pay dividends.
BALLY'S PARK PLACE, INC. Bally's Park Place, Inc. has no scheduled principal
payments under its public indebtedness until 2004, and its scheduled principal
payments under other indebtedness outstanding at December 31, 1994 are not
significant. Management plans to make capital expenditures of approximately $13
million during 1995 for the completion of the penthouse floor in the hotel
tower, restaurant and kitchen renovations and other improvements and equipment
necessary to maintain Bally's Park Place in first-class condition. In December
1994, Bally's Park Place acquired 3.1 acres of land adjacent to its existing
facility, which Bally's Park Place intends to develop to provide additional
casino space and a state-of-the-art entertainment complex. This project is
presently in the planning stage, therefore, the cost and specifics of the design
and funding of this project have yet to be determined. As of December 31, 1994,
Bally's Park Place, Inc. had an unused line of credit totalling $50 million. The
Company believes that Bally's Park Place, Inc. will be able to satisfy its debt
service and capital expenditure requirements and pay dividends in 1995 out of
existing cash balances ($13.9 million at December 31, 1994) and cash flow from
operations.
BALLY'S LAS VEGAS. Bally's Grand, Inc. has no scheduled principal payments on
its indebtedness outstanding at December 31, 1994 until 2003; however, several
major capital improvements are in process or planned. Bally's Las Vegas has
commenced construction of and expects to operate by June 1995 a monorail that
will transport passengers between Bally's Las Vegas and The MGM Grand Hotel and
Theme Park through a joint venture formed with a subsidiary of MGM Grand, Inc.
Bally's Las Vegas expects its portion of the total cost of this project to be
approximately $15 million, of which approximately $10 million was expended
through December 31, 1994. Significant capital improvement projects planned for
1995, certain of which have already commenced, include the renovation of the
south tower hotel rooms and corridors, redesign of the lower-level retail mall
and relocation of the race and sports book area to space formerly occupied by a
theatre (which will enable Bally's Las Vegas to add approximately 7,500 square
feet of gaming space, primarily for additional slot machines). These and certain
other public area improvements for 1995 are expected to cost approximately $34
million. In addition, annual capital expenditures of approximately $8 million
are required to maintain Bally's Las Vegas in first-class condition. Bally's
Grand, Inc. is considering the development of a separate, themed casino hotel
resort on the 24 acres of land situated on the Strip adjacent to Bally's Las
Vegas. This project, which is presently expected to include high-tech convention
facilities, entertainment venues and outdoor attractions, is in the preliminary
planning phase of development. As a result, the cost and specifics of the design
and funding of this project have yet to be determined. The Company believes that
Bally's Grand, Inc. will be able to satisfy its debt service and capital
expenditure requirements in 1995 out of existing cash balances ($86.4 million at
December 31, 1994) and cash flow from operations.
BALLY'S MISSISSIPPI. As described previously, Bally's Mississippi ceased
operations on February 9, 1995 and entered into a venture agreement with Lady
Luck under which Bally's Mississippi is expected to relocate its dockside casino
from Mhoon Landing to Lady Luck's site in Robinsonville, Mississippi (which is
presently the closest gaming site to Memphis) and
26
<PAGE> 27
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contribute the dockside casino and related assets to the venture. Prior to the
commencement of operations, the venture expects to develop the site to include a
restaurant, an entertainment lounge, administrative facilities and additional
parking, all of which are expected to cost approximately $10 million, the
majority of which is expected to be funded by third-party financing. In the
event third-party financing cannot be obtained, Bally's Mississippi and
affiliates are committed to provide financing up to $5 million in the aggregate,
and certain of these improvements may be staged or postponed.
BALLY'S NEW ORLEANS. Construction of Bally's New Orleans' riverboat casino
commenced in January 1994, and operations are expected to begin by mid-1995.
Management estimates that a total of approximately $55 million will be required
to construct and equip the riverboat and to develop related landside
improvements. Management anticipates the cost will be funded by third parties
and Casino Holdings. Bally's New Orleans, to date, has a construction loan for
borrowings of up to approximately $23 million (which will be replaced with a
five-year term loan upon completion of the riverboat casino pursuant to a
commitment from another lender) and Casino Holdings had funded approximately $19
million of the project cost through December 31, 1994. Bally's New Orleans
expects to seek third-party financing to enable it to finance equipment
purchases, fund pre-opening costs and working capital requirements or repay
amounts funded by Casino Holdings. There can be no assurance that additional
third-party financing will be available on terms favorable to Bally's New
Orleans.
OTHER. A subsidiary of Casino Holdings has an option agreement enabling it to
acquire a 31-acre site along the Delaware River in Philadelphia for the purpose
of developing a dockside gaming facility if gaming were to be legalized in
Pennsylvania. The site includes a 550-foot pier and is easily accessed from
Interstate 95. Pursuant to the terms of the agreement, Casino Holdings agreed to
pay $10 million through 1997, of which $6 million was paid through December 31,
1994. Additionally, in the event that Casino Holdings elects to take title to
the property, it will be required to deliver, at the closing of the transaction,
the balance of the purchase price in the form of a pre-payable, non-recourse
note for approximately $55 million (including interest), which is payable in
various installments over the five-year period subsequent to the closing of the
transaction. Assuming legalization, the closing of the transaction is scheduled
for January 1997, unless accelerated by Casino Holdings. Certain of Casino
Holdings' obligations under the agreement are guaranteed by Bally.
THE GRAND
The Grand has no scheduled principal payments under its public indebtedness
until 2003. Management expects to make capital expenditures of approximately $15
million during 1995 for the expansion of its casino floor and other gaming space
and for certain other public area improvements. As of December 31, 1994, The
Grand had an unused line of credit totalling $20 million. The Company believes
that The Grand will be able to satisfy its debt service and capital expenditure
requirements in 1995 out of existing cash balances ($14.2 million at December
31, 1994) and cash flow from operations.
27
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ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND
SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
REFERENCE
-----------
<S> <C>
Report of independent auditors....... 29
Consolidated balance sheet........... 30
Consolidated statement of
operations......................... 32
Consolidated statement of
stockholders' equity............... 33
Consolidated statement of cash
flows.............................. 34
Notes to consolidated financial
statements......................... 36
Supplementary data:
Quarterly consolidated financial
information (unaudited)......... 49
</TABLE>
28
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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. Our audits also
included the financial statement schedules listed in the Index at Item 14 (a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
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
29
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BALLY ENTERTAINMENT CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEET
<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.
30
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--------------------------------------------------------------------------------
<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>
31
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BALLY ENTERTAINMENT CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<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.
32
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BALLY ENTERTAINMENT CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Retained
Capital earnings
Series D in (accumu- Cumulative Common
preferred Common excess of lated translation stock in
DOLLAR AMOUNTS stock stock par value deficit) adjustments treasury
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Balance at December 31, 1991............... $ 694 $ 25,021 $264,094 $ 82,565 $10,353 $(17,709)
Net income............................... 11,774
Issuance of common stock/treasury stock:
In satisfaction of certain interest
obligations........................ 3,873 23,719
In satisfaction of preferred stock
dividends -- $8.00 per share....... 780 4,776 (5,556)
In exchange for debt................. (10,090 ) 15,581
For acquisition of business.......... 648 3,966
In settlement of litigation.......... 166 1,396
Under stock option and other benefit
plans.............................. 243 1,450 330
Amortization of unearned compensation....
Effect of disposal of discontinued
operations............................. (7,922)
Foreign currency translation
adjustments............................ 75
--------- -------- --------- -------- ----------- --------
Balance at December 31, 1992............... 694 30,731 289,311 88,783 2,506 (1,798)
Net loss................................. (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
Under stock option plans............... 193 1,313
Effect of disposal of discontinued
operations............................. (2,506)
--------- -------- --------- -------- ----------- --------
Balance at December 31, 1993............... 694 31,325 294,413 39,507 -- (1,798)
Net loss................................. (68,389)
Unrealized gain on available-for-sale
marketable securities.................. 79
Preferred stock dividends -- $4.00 per
share.................................. (2,778)
Issuance of common stock under stock
purchase and option plans.............. 101 697
Purchases of common stock................ (239)
--------- -------- --------- -------- ----------- --------
Balance at December 31, 1994............... $ 694 $ 31,426 $295,110 $(31,581) $ -- $ (2,037)
========= ========= ========= ========= ============ =========
<CAPTION>
Total
Unearned stock-
compen- holders'
DOLLAR AMOUNTS sation equity
------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Balance at December 31, 1991............... $ (326 ) $364,692
Net income............................... 11,774
Issuance of common stock/treasury stock:
In satisfaction of certain interest
obligations........................ 27,592
In satisfaction of preferred stock
dividends -- $8.00 per share.......
In exchange for debt................. 5,491
For acquisition of business.......... 4,614
In settlement of litigation.......... 1,562
Under stock option and other benefit
plans.............................. 2,023
Amortization of unearned compensation.... 326 326
Effect of disposal of discontinued
operations............................. (7,922)
Foreign currency translation
adjustments............................ 75
-------- --------
Balance at December 31, 1992............... -- 410,227
Net loss................................. (46,498)
Issuance of common stock:
In satisfaction of preferred stock
dividends -- $4.00 per share.........
In satisfaction of certain
obligations.......................... 1,412
Under stock option plans............... 1,506
Effect of disposal of discontinued
operations............................. (2,506)
-------- --------
Balance at December 31, 1993............... -- 364,141
Net loss................................. (68,389)
Unrealized gain on available-for-sale
marketable securities.................. 79
Preferred stock dividends -- $4.00 per
share.................................. (2,778)
Issuance of common stock under stock
purchase and option plans.............. 798
Purchases of common stock................ (239)
-------- --------
Balance at December 31, 1994............... $ -- $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.
33
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BALLY ENTERTAINMENT CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<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.
34
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BALLY ENTERTAINMENT CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
<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.
35
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--------------------------------------------------------------------------------
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 presently 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.
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.
36
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--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Company periodically evaluates whether the remaining estimated useful life
of goodwill may warrant revision or the remaining balance of goodwill may not be
recoverable, generally based upon expectations of nondiscounted cash flows and
operating income for each subsidiary having goodwill of significance. Based on
present operations and strategic plans, the Company believes that no impairment
of goodwill has occurred.
Revenue recognition
<TABLE>
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 interdepartment allocations from
the departments granting the services, were as follows:
<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 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 is
expected to relocate its dockside casino from Mhoon Landing to Lady Luck's site
in Robinsonville, Mississippi (which is presently the closest gaming site to
Memphis) and contribute the dockside casino and related assets to the venture.
The Robinsonville site presently includes a 240-room hotel 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 operations at the
Robinsonville site by mid-1995. Bally's Mississippi, which will be 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 are 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
37
<PAGE> 38
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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.
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
38
<PAGE> 39
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 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>
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
<TABLE>
The carrying amounts of the Company's long-term debt at December 31, 1994 and
1993 are as follows:
<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>
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").
39
<PAGE> 40
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 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
40
<PAGE> 41
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 is expected to operate 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 is available for fifteen months, provides
for interest on borrowings at the rate of 1% above a bank's stated prime rate
(9.5% at December 31, 1994) and is guaranteed by Bally. Borrowings under the
construction loan are being 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 will
enable 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 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
41
<PAGE> 42
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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
<TABLE>
Aggregate annual maturities of long-term debt for the five years after December
31, 1994 are as follows:
<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.
INCOME TAXES
<TABLE>
The income tax provision (benefit) applicable to income (loss) from continuing
operations before income taxes and minority interests consists of the following:
<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>
<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:
<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 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.
42
<PAGE> 43
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
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:
<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 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.
43
<PAGE> 44
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Common stock
<TABLE>
At December 31, 1994, shares of Common Stock were reserved for future issuance
as follows:
<S> <C>
Stock options and awards (includes
500,000 shares reserved subject
to stockholder approval in
1995)........................... 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.
A 1995 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 is subject to 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
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
44
<PAGE> 45
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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.
<TABLE>
A summary of 1994 stock option activity under the 1989 Plan, the 1993 Plan and
the 1985 Plan is as follows:
<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 (includes
451,100 shares
granted subject to
stockholder
approval)............ 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.
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
45
<PAGE> 46
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 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 distributing substantially all of the issued and outstanding
stock of Bally's Health & Tennis to
46
<PAGE> 47
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Bally's stockholders. The Spin-off, which is expected to be completed by
mid-1995, is subject to satisfaction of certain conditions and receipt of
certain consents. 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 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>
47
<PAGE> 48
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 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 addition, the
financial covenants in the revolving credit agreement, as amended, become
substantially more restrictive in 1996. While it is necessary to replace or
amend the revolving credit agreement to permit the Spin-off, there are no
assurances that such amendments, if sought, could be obtained.
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.
48
<PAGE> 49
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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)
<FN>
---------------
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 planned
relocation of its operations closer to Memphis, Tennessee by mid-1995.
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 by mid-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.
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.
</TABLE>
49
<PAGE> 50
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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.
50
<PAGE> 51
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Item 9 is inapplicable.
PART III
Part III, except for certain information relating to Executive Officers included
in Part I, is omitted inasmuch as the Company intends to file with the
Securities and Exchange Commission within 120 days of the close of the fiscal
year ended December 31, 1994 a definitive proxy statement containing such
information pursuant to Regulation 14A of the Securities Exchange Act of 1934,
and such information shall be deemed to be incorporated herein by reference from
the date of filing such document.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) 1. INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REFERENCE
---------
<S> <C>
Report of independent auditors...... 29
Consolidated balance sheet at
December 31, 1994 and 1993........ 30
For each of the three years in the
period ended December 31, 1994:
Consolidated statement of
operations................... 32
Consolidated statement of
stockholders' equity......... 33
Consolidated statement of cash
flows........................ 34
Notes to consolidated financial
statements........................ 36
Supplementary data:
Quarterly consolidated
financial information
(unaudited).................. 49
</TABLE>
(A) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
REFERENCE
---------
<S> <C>
Schedule I -- Condensed financial
information of registrant:
Condensed balance sheet at
December 31, 1994 and 1993..... S-1
Condensed statement of operations
for each of the three years in
the period ended December 31,
1994........................... S-2
Condensed statement of cash flows
for each of the three years in
the period ended December 31,
1994........................... S-3
Notes to condensed financial
information.................... S-5
Schedule II -- Valuation and
qualifying accounts for each of
the three years in the period
ended December 31, 1994........... S-6
</TABLE>
All other schedules specified under Regulation
S-X are omitted because they are not applicable, not required under the
instructions or all information required is set forth in the Notes to
consolidated financial statements.
51
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(A) 3. INDEX TO EXHIBITS
<TABLE>
<C> <S>
*3.(i)-1 Restated Certificate of Incorporation of Bally, as amended (filed as an exhibit to
Bally's Registration Statement on Form S-8 dated December 13, 1994, registration no.
33-56831).
*3.(i)-2 Certificate of Designation, Preferences and Rights of Series B Junior Participating
Preferred Stock, par value $1 per share, of Bally (filed as an exhibit to Bally's
Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31,
1992).
*3.(i)-3 Certificate of Designations, Preferences and Relative, Participating, Optional or
other Rights of the Series D Convertible Exchangeable Preferred Stock, par value $1
per share, of Bally, as amended (filed as an exhibit to Bally's Annual Report on Form
10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*3.(ii) By-laws of Bally, as amended (filed as an exhibit to Bally's Annual Report on Form
10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*4.(ii)-1 Registration Statement on Form 8-A dated July 24, 1975 (file no. 1-7244).
*4.(ii)-2 Registration Statement on Form S-7 (registration no. 2-62399) filed September 19,
1978 and Indenture dated as of September 15, 1978, between Bally and United States
Trust Company of New York, as successor Trustee, filed as an exhibit thereto.
*4.(ii)-3 Registration Statement on Form 8-A, as amended, relating to 6% Convertible
Subordinated Debentures due 1998 of Bally (filed as an exhibit to Bally's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*4.(ii)-4 Registration Statement on Form S-16 (registration no. 2-75379) filed December 31,
1981 and Indenture dated as of December 15, 1981, between Bally and United States
Trust Company of New York, as successor Trustee, filed as an exhibit thereto.
*4.(ii)-5 Registration Statement on Form 8-A, as amended, relating to 10% Convertible
Subordinated Debentures due 2006 of Bally (filed as an exhibit to Bally's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*4.(ii)-6 Registration Statement on Form S-1 (registration no. 33-26464) filed August 24, 1989
and Indenture dated as of August 31, 1989, between Bally's Park Place Funding, Inc.,
Bally's Park Place, Inc.(a Delaware corporation), Bally's Park Place, Inc. (a New
Jersey corporation), Bally's Park Place Realty Co. and First Fidelity Bank, National
Association, New Jersey, as Trustee, filed as an exhibit thereto.
*4.(ii)-7 Registration Statement on Form S-1 (registration no. 33-52868) filed January 15, 1993
by Bally's Health & Tennis Corporation.
*4.(ii)-8 Indenture dated as of January 15, 1993 between Bally's Health & Tennis Corporation
and Amalgamated Bank of Chicago, as Trustee (filed as an exhibit to Bally's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1993).
*4.(ii)-9 Registration Statement on Form 8-A dated December 11, 1986, relating to Preferred
Stock Purchase Rights (file no. 1-7244).
*4.(ii)-10 Registration Statement on Form S-1 (registration no. 33-65438) filed May 11, 1994
and Indenture dated as of June 15, 1993 between Bally's Casino Holdings, Inc.
and Amalgamated Bank of Chicago, as Trustee, filed as an exhibit thereto.
*4.(ii)-11 Amendment dated as of February 8, 1994 to Indenture between Bally's Casino Holdings,
Inc. and Amalgamated Bank of Chicago, as Trustee (filed as an exhibit to Bally's
Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31,
1993).
*4.(ii)-12 Registration Statement on Form S-1 (registration no. 33-51765) filed February 28,
1994 by Bally's Park Place Funding, Inc. and Bally's Park Place, Inc. (a Delaware
corporation).
*4.(ii)-13 Indenture dated as of March 8, 1994 among Bally's Park Place Funding, Inc., Bally's
Park Place, Inc. (a Delaware corporation), Bally's Park Place, Inc. (a New Jersey
corporation), Bally's Park Place Realty Co. and First Bank, National Association, as
Trustee (filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244,
for the fiscal year ended December 31, 1993).
*4.(ii)-14 Registration Statement on Form S-1 (registration no. 33-59660) filed May 11, 1993 by
GNF, CORP. and GNAC, CORP. and Indenture dated as of March 10, 1993 between GNF,
CORP., GNAC, CORP., GNOC, CORP. and Amalgamated Bank of Chicago, as Trustee (filed as
an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal
year ended December 31, 1992).
*4.(ii)-15 Registration Statement on Form S-1 (registration no. 33-74330) filed January 24, 1994
and Indenture dated as of December 15, 1993 between Bally's Grand, Inc. and
Continental Bank, National Association, as Trustee, filed as an exhibit thereto.
</TABLE>
52
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<TABLE>
<C> <S>
*10.(i)-2 Amended and Restated Intercorporate Agreement dated as of July 8, 1992, between Bally
and Bally Gaming International, Inc. (filed as an exhibit to Bally's Annual Report on
Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*10.(i)-3 Agreement dated January 8, 1993, between Bally and Bally Gaming International, Inc.
(filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1992).
*10.(i)-4 Amended and Restated Credit Agreement dated as of January 25, 1993 among Bally's
Health & Tennis Corporation and a group of banks with Chemical Bank, as agent (filed
as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal
year ended December 31, 1992).
*10.(i)-5 First Amendment dated as of February 24, 1993 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's
Quarterly Report on Form 10-Q, file no. 1-7244, for the quarter ended September 30,
1993).
*10.(i)-6 Second Amendment dated as of September 30, 1993 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's
Quarterly Report on Form 10-Q, file no. 1-7244, for the quarter ended September 30,
1993).
*10.(i)-7 Third Amendment dated as of April 6, 1994 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's Health
& Tennis Corporation's Quarterly Report on Form 10-Q, file no. 33-52868 for the
quarter ended March 31, 1994).
*10.(i)-8 Fourth Amendment dated as of September 16, 1994 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's Health
& Tennis Corporation's Quarterly Report on Form 10-Q, file no. 33-52868 for the
quarter ended September 30, 1994).
*10.(i)-9 Fifth Amendment dated as of December 22, 1994 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's Health
& Tennis Corporation's Annual Report on Form 10-K, file no 33-52868, for the fiscal
year ended December 31, 1994).
*10.(i)-10 Sixth Amendment dated as of February 8, 1995 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's Health
& Tennis Corporation's Annual Report on Form 10-K, file no. 33-52868, for the fiscal
year ended December 31, 1994).
*10.(i)-11 Seventh Amendment dated as of March 17, 1995 to the Amended and Restated Credit
Agreement dated as of January 25, 1993 among Bally's Health & Tennis Corporation and
a group of banks with Chemical Bank, as agent (filed as an exhibit to Bally's Health
& Tennis Corporation's Annual Report on Form 10-K, file no. 33-52868, for the fiscal
year ended December 31, 1994).
*10.(iii)-1 1985 Stock Option and Stock Appreciation Right Plan of Bally Entertainment
Corporation, effective February 22, 1985 (filed as an exhibit to Bally's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1985).
*10.(iii)-2 First Amendment to the 1985 Stock Option and Stock Appreciation Right Plan of Bally
Entertainment Corporation, effective as of January 1, 1987 (filed as an exhibit to
Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended
December 31, 1986).
*10.(iii)-3 Second Amendment to the 1985 Stock Option and Stock Appreciation Right Plan of Bally
Entertainment Corporation, effective December 9, 1988 (filed as an exhibit to Bally's
Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31,
1988).
*10.(iii)-4 1989 Incentive Plan of Bally Entertainment Corporation, effective March 9, 1989
(filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1989).
*10.(iii)-5 Amendment to 1989 Incentive Plan of Bally Entertainment Corporation effective June
16, 1992 (filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244,
for the fiscal year ended December 31, 1993).
10.(iii)-6 Amendment to 1989 Incentive Plan of Bally Entertainment Corporation, effective May
17, 1994.
</TABLE>
53
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<TABLE>
<C> <S>
*10.(iii)-7 Bally's Employee Stock Purchase Plan (filed as an exhibit to Bally's Registration
Statement on Form S-8, dated December 13, 1994, registration no. 33-56831).
10.(iii)-8 Bally's 1993 Non-Employee Directors Stock Option Plan.
10.(iii)-9 Bally Entertainment Corporation Management Retirement Savings Plan effective October
1, 1994.
*10.(iii)-10 Bally's Executive Medical Plan, underwritten by Connecticut General Life Insurance
Company, effective January 1, 1994 (filed as an exhibit to Bally's Annual Report on
Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1993).
*10.(iii)-11 Employment Agreement effective as of November 1, 1990, between Bally and Arthur M.
Goldberg (filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244,
for the fiscal year ended December 31, 1990).
*10.(iii)-12 First Amendment to Employment Agreement effective as of November 1, 1991, between
Bally and Arthur M. Goldberg (filed as an exhibit to Bally's Annual Report on Form
10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*10.(iii)-13 Second Amendment to Employment Agreement dated as of September 29, 1993, between
Bally and Arthur M. Goldberg (filed as an exhibit to Bally's Annual Report on Form
10-K, file no. 1-7244, for the fiscal year ended December 31, 1993).
*10.(iii)-14 Award Agreements dated as of July 9, 1991, between Bally and Arthur M. Goldberg
(filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1992).
*10.(iii)-15 Amended and Restated Award Agreement dated as of March 25, 1992, between Bally and
Arthur M. Goldberg (filed as an exhibit to Bally's Annual Report on Form 10-K, file
no. 1-7244, for the fiscal year ended December 31, 1992).
*10.(iii)-16 Split-Dollar Life Insurance Agreement and Collateral Assignment by and between Bally
and Veronica Goldberg and Richard B. Neff, as trustees of the Arthur M. Goldberg 1989
Irrevocable Trust dated November 14, 1989 (filed as an exhibit to Bally's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1991).
*10.(iii)-17 Option Agreement dated as of October 25, 1991, between Bally and Arthur M. Goldberg
(filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1991).
10.(iii)-18 Stock Subscription Agreement dated as of December 30, 1994, between Bally's Casino,
Inc., Arthur M. Goldberg, Bally Entertainment Corporation and Orloff, Lowenbach,
Stifelman & Siegel, P.A., as Escrow Agent.
*10.(iii)-19 Amended and Restated Employment Agreement effective as of November 12, 1991, between
Bally, Bally's Health & Tennis Corporation and Lee S. Hillman (filed as an exhibit to
Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended
December 31, 1991).
*10.(iii)-20 Second Amendment to Employment Agreement effective as of December 8, 1993, between
Bally, Bally's Health & Tennis Corporation and Lee S. Hillman (filed as an exhibit to
Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended
December 31, 1993).
*10.(iii)-21 Employment Agreement effective as of July 1, 1992, between Bally and Robert G.
Conover (filed as an exhibit to Bally's Casino Holdings, Inc.'s Registration
Statement on Form S-1, registration no. 33-65438, filed May 11, 1994).
*10.(iii)-22 Employment Agreement effective as of July 6, 1992, between Bally and John W. Dwyer
(filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the
fiscal year ended December 31, 1992).
*10.(iii)-23 Employment Agreement effective as of January 1, 1993, between Bally, Bally's Health &
Tennis Corporation and Harold Morgan (filed as an exhibit to Bally's Annual Report on
Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1992).
*10.(iii)-24 Letter Agreement dated March 17, 1991, between Bally and Bernard J. Murphy (filed as
an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal
year ended December 31, 1991).
*10.(iii)-25 Employment Agreement effective as of July 28, 1993, between Bally and Jerry W.
Thornburg (filed as an exhibit to Bally's Annual Report on Form 10-K, file no.
1-7244, for the fiscal year ended December 31, 1993).
*10.(iii)-26 Employment Agreement effective as of January 1, 1993, between Bally and Wallace R.
Barr (filed as an exhibit to Bally's Casino Holdings, Inc.'s Registration Statement
on Form S-1, registration no. 33-65438, filed May 11, 1994).
</TABLE>
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<TABLE>
<C> <S>
*10.(iii)-27 Employment Agreement effective as of January 1, 1994, between Bally's Health & Tennis
Corporation and Michael G. Lucci, Sr. (filed as an exhibit to Bally's Health & Tennis
Corporation's Annual Report on Form 10-K, file no. 33-52868, for the year ended
December 31, 1994.).
*10.(iii)-28 Bally's Park Place, Inc. Supplemental Executive Retirement Plan, effective January 1,
1987 (filed as an exhibit to Bally's Annual Report on Form 10-K, file no. 1-7244, for
the fiscal year ended December 31, 1992).
21 Listing of subsidiaries of Bally.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
<FN>
---------------
* Incorporated herein by reference as indicated.
</TABLE>
55
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALLY ENTERTAINMENT CORPORATION
Dated: March 29, 1995 By /s/ ARTHUR M. GOLDBERG
----------------------
Arthur M. Goldberg
Chairman of the Board,
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. This Annual Report
may be signed in multiple identical counterparts all of which, taken together,
shall constitute a single document.
<TABLE>
<S> <C>
Dated: March 29, 1995 /s/ ARTHUR M. GOLDBERG
----------------------
Arthur M. Goldberg
Chairman of the Board, Chief Executive Officer and
President (Principal Executive Officer)
Dated: March 29, 1995 /s/ LEE S. HILLMAN
----------------------
Lee S. Hillman
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
Dated: March 29, 1995 /s/ JOHN W. DWYER
----------------------
John W. Dwyer
Vice President and Corporate Controller
(Principal Accounting Officer)
Dated: March 29, 1995 /s/ GEORGE N. ARONOFF
----------------------
George N. Aronoff
Director
Dated: March 29, 1995 /s/ BARRIE K. BRUNET
----------------------
Barrie K. Brunet
Director
Dated: March 29, 1995 /s/ EDWIN M. HALKYARD
----------------------
Edwin M. Halkyard
Director
Dated: March 29, 1995 /s/ J. KENNETH LOOLOIAN
----------------------
J. Kenneth Looloian
Director
Dated: March 29, 1995 /s/ ROCCO J. MARANO
----------------------
Rocco J. Marano
Director
Dated: March 29, 1995 /s/ PATRICK L. O'MALLEY
----------------------
Patrick L. O'Malley
Director
Dated: March 29, 1995 /s/ JAMES M. ROCHFORD
----------------------
James M. Rochford
Director
</TABLE>
56
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<TABLE>
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BALLY ENTERTAINMENT CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET (PARENT COMPANY ONLY)
DECEMBER 31, 1994 AND 1993
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......................................... $ 24,056 $ 43,516
Note receivable from a subsidiary............................. 6,722 12,563
Receivables --
Subsidiaries............................................... 1,763 832
Other...................................................... 88 116
Income taxes refundable....................................... 20,277
Other current assets.......................................... 570 657
-------- --------
Total current assets.................................. 53,476 57,684
Investments in subsidiaries related to continuing operations.... 161,699 204,687
Investment in and receivables from discontinued operations...... 291,012 347,620
Other assets.................................................... 7,702 8,065
-------- --------
$513,889 $618,056
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to a subsidiary................................. $ 2,771 $ 2,324
Accounts payable.............................................. 237 363
Income taxes payable.......................................... 32,678 43,765
Deferred income taxes......................................... 12,192
Deferred revenues............................................. 2,061
Accrued liabilities........................................... 16,674 24,107
Current maturities of long-term debt.......................... 6,920 7,587
-------- --------
Total current liabilities............................. 59,280 92,399
Long-term debt, less current maturities......................... 88,795 96,382
Long-term payables to subsidiaries.............................. 38,654 39,363
Deferred income taxes........................................... 32,915 5,623
Other liabilities............................................... 633 20,148
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
-------- --------
$513,889 $618,056
========= =========
</TABLE>
See accompanying notes.
S-1
<PAGE> 58
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
<TABLE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS (PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest --
Subsidiaries............................................... $ 403 $ 65 $
Other...................................................... 1,635 1,845 508
Loss on the sale/contribution of subsidiary debentures........ (1,272)
Other......................................................... 1,673 5,919 1,107
-------- -------- --------
3,711 7,829 343
Costs and expenses:
General and administrative.................................... 1,522 5,752 6,698
Interest --
Subsidiaries............................................... 242 298 1,219
Other...................................................... 9,436 9,328 13,962
-------- -------- --------
11,200 15,378 21,879
-------- -------- --------
Loss from continuing operations before income taxes and
equity in net income (loss) of subsidiaries related to
continuing operations......................................... (7,489) (7,549) (21,536)
Income tax benefit.............................................. 8,488 22,996 15,520
Equity in net income (loss) of subsidiaries related to
continuing operations......................................... (2,902) (3,428) 4,433
-------- -------- --------
Income (loss) from continuing operations........................ (1,903) 12,019 (1,583)
Equity in income (loss) and gains from dispositions of
subsidiaries related to discontinued operations, net.......... (46,091) (21,830) 2,140
-------- -------- --------
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:
Equity in extraordinary items of subsidiaries................. (20,395) (8,490)
Gain on extinguishment of debt................................ 612
Credit for utilization of tax loss carryforwards.............. 10,605
Cumulative effect on prior years of change in accounting for
income taxes.................................................. (6,535)
Equity in cumulative effect on prior years of change in
accounting for income taxes of subsidiaries................... (21,662)
-------- -------- --------
Net income (loss)............................................... $(68,389) $(46,498) $ 11,774
========= ========= =========
</TABLE>
See accompanying notes.
S-2
<PAGE> 59
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
<TABLE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING:
Income (loss) from continuing operations...................... $ (1,903) $ 12,019 $ (1,583)
Adjustments to reconcile to cash provided --
Deferred income taxes...................................... (20,821) (44,292) (14,266)
Equity in net (income) loss of subsidiaries related to
continuing operations.................................... 2,902 3,428 (4,433)
Gain on repurchase of debt for sinking fund requirements... (1,235) (596) (598)
Cash dividends from subsidiaries........................... 12,845 24,200
Change in operating assets and liabilities................. (13,871) 31,214 (15,009)
Other, net................................................. 296 637 4,062
-------- -------- --------
Cash provided by (used in) operating activities....... (21,787) 26,610 (31,827)
INVESTING:
Other, net.................................................... 7 (200) 3,090
-------- -------- --------
Cash provided by (used in) investing activities....... 7 (200) 3,090
FINANCING:
Debt transactions --
Retirement of long-term debt............................... (7,169) (2,496) (32,304)
Repayments of advances to subsidiaries, net................ 10,547 5,946 4,707
-------- -------- --------
Cash provided by (used in) debt transactions.......... 3,378 3,450 (27,597)
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....... 1,116 4,040 (26,898)
DISCONTINUED OPERATIONS:
Proceeds from disposal..................................... 51,243
Dividends received from discontinued operations............ 15,000
Other, net................................................. 1,204 (3,248) 3,207
-------- -------- --------
Cash provided by discontinued operations.............. 1,204 11,752 54,450
-------- -------- --------
Increase (decrease) in cash and equivalents..................... (19,460) 42,202 (1,185)
Cash and equivalents, beginning of year......................... 43,516 1,314 2,499
-------- -------- --------
Cash and equivalents, end of year............................... $ 24,056 $ 43,516 $ 1,314
========= ========= =========
</TABLE>
See accompanying notes.
S-3
<PAGE> 60
-------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
<TABLE>
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash payments for interest and income taxes for continuing
operations were as follows --
Interest paid............................................ $ 9,568 $ 2,422 $ 9,878
Income taxes paid (refunded)............................. 17,597 3,351 (3,696)
Operating, investing and financing activities exclude the
following non-cash activities --
Non-cash dividends from subsidiaries..................... $ 8,000 $ $122,000
Receivables of a merged subsidiary....................... 6,540
Receipt of promissory note in connection with sale of
Bally's Grand, Inc. common stock to a subsidiary...... 22,533
Acquisition of Bally's Grand, Inc. common stock in
exchange for other equity securities.................. 18,838
Issuance of common stock in satisfaction of preferred
stock dividends, interest and other obligations....... 4,190 34,710
Stock option and benefit plan transactions............... 500 98
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 (forgiveness of indebtedness).......... 23,731 32,000
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........................ 8,525
</TABLE>
S-4
<PAGE> 61
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
BASIS OF PRESENTATION
The accompanying condensed financial information of Bally Entertainment
Corporation ("Bally") includes the accounts of Bally, and on an equity basis,
the subsidiaries which it controls. The accompanying condensed financial
information has been presented (after restatement of prior years' financial
statements) to reflect Bally's Health & Tennis Corporation, a subsidiary 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.
Certain reclassifications have been made to prior years' condensed financial
statements to conform with the 1994 presentation. The accompanying condensed
financial information should be read in conjunction with the consolidated
financial statements of Bally.
LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt
---------------------
1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
6% Convertible Subordinated Debentures due 1998........ $ 15,715 $ 18,969
10% Convertible Subordinated Debentures due 2006....... 80,000 85,000
-------- --------
Total long-term debt................................... 95,715 103,969
Current maturities of long-term debt................... (6,920) (7,587)
-------- --------
Long-term debt, less current maturities................ $ 88,795 $ 96,382
======== ========
</TABLE>
S-5
<PAGE> 62
--------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
<TABLE>
SCHEDULE II-- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
Additions
------------------
Balance Charged
at to Charged
beginning costs to Balance
of and other at end
Description period expenses accounts Deductions of period
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
Allowance for doubtful
receivables................... $ 7,872 $ 6,829 $ -- $ 2,505 $12,196
======== ======== ====== ======== =========
1993:
Allowance for doubtful
receivables................... $10,935 $ 2,201 $ 314 $ 5,578 $ 7,872
======== ======== ====== ======== =========
1992:
Allowance for doubtful
receivables................... $19,007 $ 1,153 $ -- $ 9,225 $10,935
======== ======== ====== ======== =========
</TABLE>
---------------
NOTES:
(1) Additions charged to accounts other than costs and expenses result from the
acquisition of a business.
(2) Deductions include write-offs of uncollectible amounts, net of recoveries.
S-6
<PAGE> 1
EXHIBIT 10(iii)6
AMENDMENT TO 1989 INCENTIVE PLAN OF BALLY MANUFACTURING CORPORATION (THE "PLAN")
Section 3 of the Plan was amended to increase the number of shares
reserved for issuance under the Plan from 4,000,000 to 6,022,000
shares.
The Board of Directors had also adopted an amendment which would limit
the number of options, stock appreciation rights ("SARs") or options
in tandem with SARs that may be granted during any one calendar year
to the Company's chief executive officer and certain other highly
compensated executives of the Company. The amendment states that no
such executive officer may be granted options, SARs or options in
tandem with SARs to acquire more than 1,000,000 shares of Common Stock
during any one calendar year.
Both amendments were approved by the stockholders of Bally
Entertainment Corporation on May 17, 1994.
<PAGE> 1
EXHIBIT 10(iii)8
1993 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN OF
BALLY MANUFACTURING CORPORATION
1. PURPOSE OF THE PLAN. This 1993 Non-Employee Directors' Stock
Option Plan of Bally Manufacturing Corporation adopted on this 13th day of
October, 1993, is intended to encourage directors of the Company who are not
officers or key employees of the Company or any of its subsidiaries to acquire
or increase their ownership of common stock of the Company. The opportunity so
provided is intended to foster in participants an incentive to put forth
maximum effort for the continued success and growth of the Company and its
subsidiaries, to aid in retaining individuals who put forth such efforts, and
to assist in attracting the best available individuals to the Company in the
future.
2. DEFINITIONS. When used herein, the following terms shall have
the meaning set forth below:
2.1 "BOARD" means the Board of Directors of Bally
Manufacturing Corporation.
2.2 "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act (as
in effect on the date the Plan is adopted by the Board); provided, that,
without limitation, such a change in control shall be deemed to have occurred
if:
(a) any "person" (as defined in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent
<PAGE> 2
(25%) or more of the combined voting power of the Company's then
outstanding securities; or
(b) During any period of two (2) consecutive years (not
including any period prior to the date the Plan is adopted by the
Board) there shall cease to be a majority of the Board comprised of
Continuing Directors; or
(c) (i) the stockholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least eighty percent
(80%) of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
(ii) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
2.3 "CODE" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and any reference to
any specific provisions of the Code shall refer to the corresponding
provisions of the Code as it may hereafter be amended or replaced.
<PAGE> 3
2.4 "COMMITTEE" means the Compensation and Stock Option
Committee of the Board or any other committee appointed by the Board
which is invested by the Board with responsibility for the
administration of the Plan.
2.5 "COMPANY" means Bally Manufacturing Corporation.
2.6 "CONTINUING DIRECTORS" means individuals who at the
beginning of any period of two (2) consecutive years (not including
any period prior to the adoption of this Plan) constitute the Board
and any new director(s) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved.
2.7 "DIRECTORS" means directors who serve on the Board
and who are not officers or key employees of the Company or any of its
50% or more direct or indirect subsidiaries.
2.8 "EFFECTIVE DATE" means October 13, 1993.
2.9 "ERISA" means the Employee Retirement Income Security
Act of 1974, as in effect at the time of reference, or any successor
law which may hereafter be adopted in lieu thereof, and any reference
to any specific provisions of ERISA shall refer to the corresponding
provisions of ERISA as it may hereafter be amended or replaced.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of
1934, as in effect at the time of reference, or any successor law
which may hereafter be adopted in lieu
3
<PAGE> 4
thereof, and any reference to any specific provisions of the Exchange
Act shall refer to the corresponding provisions of the Exchange Act as
it may be amended or replaced.
2.11 "FAIR MARKET VALUE" means with respect to the
Shares, the closing price of the Shares on the last business day prior
to the date on which the value is to be determined on which
transactions in Shares occurred, as reported on the New York Stock
Exchange Composite Tape or such other source of quotation for, or
reports of, trading activity in Shares as the Committee may from time
to time select.
2.12 "INITIAL GRANT DATE" means the first November 1st
following the date a Director joins the Board, but only if the
Director was not a Director on the Effective Date.
2.13 "OPTION" means the right to purchase the number of
Shares specified by the Plan at a price and for a term fixed by the
Plan, and subject to such other limitations and restrictions as the
Plan and the Committee imposes.
2.14 "OPTION AGREEMENT" means a written agreement in such
form as may be, from time to time, hereafter approved by the
Committee, which shall be duly executed by the Company and the
Director and which shall set forth the terms and conditions of an
Option under the Plan.
2.15 "PLAN" means the 1993 Non-Employee Directors' Stock
Option Plan of Bally Manufacturing Corporation.
2.16 "REGULATION T" means Part 220, chapter II, title 12
of the Code of Federal Regulations, issued by the Board of Governors of
the Federal Reserve System pursuant to the Exchange Act, as amended
from time to time.
4
<PAGE> 5
2.17 "SHARES" means shares of the Company's $.66 2/3 par
value common stock or, if by reason of the adjustment provisions
contained herein, any rights under an Option under the Plan pertain to
any other security, such other security.
2.18 "SUCCESSOR" means the legal representative of the
estate of a deceased Director or the person or persons who shall
acquire the right to exercise or receive an Option by bequest or
inheritance or by reason of the death of the Director.
2.19 "TERM" means the period during which a particular
Option may be exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use,
upon the exercise of Options to be granted from time to time under the Plan, an
aggregate of 120,000 Shares, which Shares may be, in whole or in part, as the
Board shall from time to time determine, authorized but unissued Shares, or
issued Shares which shall have been reacquired by the Company. Any Shares
subject to issuance upon exercise of Options but which are not issued because
of a surrender, lapse, expiration or termination of any such Option prior to
issuance of the Shares shall once again be available for issuance in
satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. Subject to the provisions of the
Plan, the Committee shall have full authority, in its discretion, to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, and generally to interpret and determine any and all matters whatsoever
relating to the administration of the Plan and the granting of Options
hereunder. The Board may, from time to time, appoint members to the Committee
in substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and
5
<PAGE> 6
shall hold its meetings at such times and places as it shall deem advisable. A
majority of its members shall constitute a quorum. Any action of the Committee
may be taken by a written instrument signed by all of the members, and any
action so taken shall be fully as effective as if it had been taken by a vote
of a majority of the members at a meeting duly called and held. The Committee
shall make such rules and regulations for the conduct of its business as it
shall deem advisable and shall appoint a Secretary who shall keep minutes of
its meetings and records of all action taken in writing without a meeting. No
member of the Committee shall be liable, in the absence of bad faith, for any
act or omission with respect to his service on the Committee.
5. GRANT OF OPTIONS.
5.1 EXISTING DIRECTORS. Each Director who is a Director on
the Effective Date shall be granted an Option on such date to purchase
5,000 Shares without further action by the Board or the Committee. On
the second anniversary date of the Effective Date, each such Director
who is still a Director on such anniversary date shall be granted an
additional Option to purchase 5,000 Shares without further action by
the Board or the Committee.
5.2 FUTURE DIRECTORS. Each Director who joins the Board
after the Effective Date shall be granted an Option on the Initial
Grant Date (which is the first anniversary date of the Effective Date
following the date the Director joined the Board) to purchase 5,000
Shares without further action by the Board or the Committee. On the
second anniversary of the Initial Grant Date, if the Director is still
a Director on such anniversary date, such Director shall be granted
an additional Option to purchase 5,000 Shares without further action
by the Board or the Committee.
6
<PAGE> 7
5.3 LIMITATIONS. If the number of Shares available to grant
under the Plan on a scheduled date of grant is insufficient to make
all automatic grants required to be made pursuant to the Plan on such
date, then each eligible Director shall receive an Option to purchase
a pro rata number of the remaining Shares available under the Plan;
provided further, however, that if such proration results in
fractional Shares, then such Option shall be rounded down to the
nearest number of whole Shares.
6. BASIC STOCK OPTION PROVISIONS.
6.1 OPTION PRICE. The option price per share of any
Option granted under the Plan shall be the Fair Market Value of the
Shares covered by the Option on the date the Option is granted.
6.2 TERMS OF OPTIONS.
(a) Options granted hereunder shall be
exercisable for a Term of ten (10) years from the date of
grant thereof, but shall be subject to earlier termination as
hereinafter provided, and
(b) Except as otherwise provided in the Plan,
prior to its expiration or termination, any Option granted
hereunder may be exercised within the following time
limitations:
(i) After one (1) year from the date of
grant, it may be exercised as to not more than
one-third (1/3) of the Shares originally subject to
the Option.
7
<PAGE> 8
(ii) After two (2) years from the date of
grant, it may be exercised as to not more than an
aggregate of two-thirds (2/3) of the Shares
originally subject to the Option.
(iii) After three (3) years from the date
of grant, it may be exercised as to any part or all
of the Shares originally subject to the Option.
6.3 TERMINATION OF DIRECTORSHIP. In the event a Director
ceases to be a member of the Board (other than by reason of death or
disability), then:
(a) an Option may be exercised by the Director
(to the extent that the Director was entitled to do so at the
termination of his directorship) at any time within the later
of (i) three (3) months after he ceases to be a member of the
Board, and (ii) nine (9) months after the most recent grant of
an Option to the Director pursuant to the Plan, but not beyond
the Term of the Option, and
(b) the portion of any Option that has not vested
as of the date the Director ceases to be a member of the Board
shall automatically terminate.
6.4 DEATH OR DISABILITY OF DIRECTOR. If a Director dies
or becomes disabled while he is a member of the Board, an Option
may be exercised in full, by his Successor in the event of death, or
by him or his personal representative, as the case may be, in the
event of disability, at any time within twelve (12) months after he
ceases to be a member of the Board on account of such death or
disability, but not beyond the Term of the Option; provided, however,
in the event of disability, the Option may not be exercised prior to
the six month anniversary of the date the Option was granted. If a
8
<PAGE> 9
Director, following the termination of his directorship, shall die
within the later of (i) three (3) months after the date he ceases to
be a member of the Board, and (ii) nine (9) months after the most
recent grant of an Option to the Director pursuant to the Plan, an
Option may be exercised (to the extent the Director shall have been
entitled to do so at the time of his death), by his Successor, at any
time within twelve (12) months after his death, but not beyond the
Term of the Option.
7. EXERCISE OF RIGHTS UNDER AWARDS.
7.1 NOTICE OF EXERCISE. A Director entitled to exercise
an Option may do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option is
being exercised and any other information the Committee may require.
The notice shall be accompanied by payment in full of the purchase
price of any Shares to be purchased, which payment shall be made in
cash or by certificates of Shares held for more than six (6) months,
duly endorsed in blank, equal in value to the purchase price of the
Shares to be purchased based on their Fair Market Value at the time of
exercise or a combination thereof. No Shares shall be issued upon
exercise of an Option until full payment has been made therefor. All
notices or requests provided for herein shall be delivered to the
Treasurer of the Company. No fractional Shares shall be issued.
7.2 CASHLESS EXERCISE PROCEDURES. The Company, in its
sole discretion, may establish procedures whereby a Director, subject
to the requirements of Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise
an Option or a portion thereof without making a direct payment of the
option price to the Company. If the Company elects to establish a
cashless exercise program,
9
<PAGE> 10
a Director may utilize such program but only in accordance with such
administrative procedures and policies as the Company deems
appropriate and such procedures and policies shall be binding on any
Director wishing to utilize the cashless exercise program.
8. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have
any of the rights of a stockholder with respect to the Shares subject to
purchase or receipt under his Option, except to the extent that one or more
certificates for such Shares shall be issuable to the holder upon the due
exercise of the Option and the payment in full of the purchase price therefor.
9. NONTRANSFERABILITY OF OPTIONS. An Option shall not be
transferable, other than: (a) by will or the laws of descent and distribution,
and an Option may be exercised, during the lifetime of the holder of the
Option, only by the holder, or in the event of death, the holder's Successor,
or in the event of disability, the holder's personal representative, or (b)
pursuant to a qualified domestic relation order, as defined in the Code or
ERISA or the rules thereunder.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
changes in all of the outstanding Shares by reason of stock dividends, stock
splits, reclassifications, recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, separations, reorganizations or
liquidations, or similar events, or in the event of extraordinary cash or
non-cash dividends being declared with respect to the Shares, or similar
transactions or events, the number and class of Shares available under the Plan
in the aggregate, the number and class of Shares subject to Options theretofore
granted, applicable purchase prices and all other applicable provisions, shall,
subject to the provisions of the Plan, be equitably adjusted by the Committee
(which adjustment may, but need not, include payment to the holder of an
Option, in cash or in shares, in an amount equal to the difference between the
price at which such Option may be
10
<PAGE> 11
exercised and the then current fair market value of the Shares subject to such
Option as equitably determined by the Committee). The foregoing adjustment and
the manner of application of the foregoing provisions shall be determined by
the Committee, in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an
Option.
11. CHANGE IN CONTROL. Notwithstanding anything to the contrary
herein or in any Option Agreement, in the case of a Change in Control of the
Company, each Option granted under the Plan shall terminate on the later of (i)
ninety (90) days after the occurrence of such Change in Control, and (ii) seven
(7) months following the date of grant of each such Option, and an Option
holder shall have the right, commencing at least five (5) days prior to such
Change in Control and subject to any other limitation on exercise of an Option
in effect on the date of exercise, to immediately exercise any Option in full,
without regard to any vesting limitations, to the extent it shall not have been
previously exercised.
12. FORMS OF OPTIONS. An Option shall be granted hereunder on the
date or dates specified in the Plan. Whenever the Plan provides for the
receipt of an Option by a Director, the Secretary or the President of the
Company, or such other person as the Committee shall appoint, shall forthwith
send notice thereof to the Director, in such form as the Committee shall
approve, stating the number of Shares subject to the Option, its Term, and the
other terms and conditions thereof. The notice shall be accompanied by a
written Option Agreement, in such form as may from time to time hereafter be
approved by the Committee, which shall have been duly executed by or on behalf
of the Company. Execution by the Director to whom such Option
11
<PAGE> 12
is granted of said Option Agreement in accordance with the provisions set forth
in this Plan shall be a condition precedent to the exercise of any Option.
13. TAXES. The Company shall have the right to require a person
entitled to receive Shares pursuant to the exercise of an Option under the Plan
to pay the Company the amount of any taxes which the Company is or will be
required to withhold, if any, with respect to such Shares before the
certificate for such Shares is delivered pursuant to the Option.
14. TERMINATION OF THE PLAN. The Plan shall terminate five (5)
years from the Effective Date, and an Option shall not be granted under the
Plan after that date although the terms of any Option may be amended at any
date prior to the end of its Term in accordance with the Plan. Any Option
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms and conditions of the Option and this Plan.
15. AMENDMENT OF THE PLAN. The Plan may be amended at any time
and from time to time by the Board. Notwithstanding the foregoing, the Plan
may not be amended more than once every six (6) months to change the Plan
provisions listed in section (c)(2)(ii)(A) of Rule 16b-3 of the General Rules
and Regulations of the Exchange Act, other than to comport with changes in the
Code, ERISA or Rule 16b-3. Notwithstanding any discretionary authority granted
to the Committee in Section 4 of the Plan, no amendment of the Plan or any
Option granted under the Plan shall impair any of the rights of any holder,
without the holder's consent, under any Option theretofore granted under the
Plan.
16. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for
Shares pursuant to an Option exercise may be postponed by the Company for such
period as may be required for it with reasonable diligence to comply with any
applicable requirements of any federal, state or
12
<PAGE> 13
local law or regulation or any administrative or quasi-administrative
requirement applicable to the sale, issuance, distribution or delivery of such
Shares. The Committee may, in its sole discretion, require a Director to
furnish the Company with appropriate representations and a written investment
letter prior to the exercise of an Option or the delivery of any Shares
pursuant thereto.
17. FEES AND COSTS. The Company shall pay all original issue
taxes on the exercise of any Option granted under the Plan and all other fees
and expenses necessarily incurred by the Company in connection therewith.
18. EFFECTIVENESS OF THE PLAN. The Plan shall become effective on
the Effective Date. The Plan shall thereafter be submitted to the Company's
stockholders for approval by the affirmative votes of the holders of shares
having a majority of the voting power of all shares either (i) represented at a
meeting duly held in accordance with Delaware law within twelve (12) months
after the Plan is approved by the Board, or (ii) obtained by a written consent
in accordance with Delaware law within twelve (12) months after the Plan is
approved by the Board.
19. OTHER PROVISIONS. As used in the Plan, and in Option
Agreements and other documents prepared in implementation of the Plan,
references to the masculine pronoun shall be deemed to refer to the feminine or
neuter, and references in the singular or the plural shall refer to the plural
or the singular, as the identity of the person or persons or entity or entities
being referred to may require. The captions used in the Plan and in such
Option Agreements and other documents prepared in implementation of the Plan
are for convenience only and shall not affect the meaning of any provision
hereof or thereof.
13
<PAGE> 14
20. DELAWARE LAW TO GOVERN. This Plan shall be governed by and
construed in accordance with the laws of the State of
Delaware.
14
<PAGE> 1
EXHIBIT 10(iii)9
BALLY ENTERTAINMENT CORPORATION
MANAGEMENT RETIREMENT SAVINGS PLAN
EFFECTIVE OCTOBER 1, 1994
<PAGE> 2
BALLY ENTERTAINMENT CORPORATION
MANAGEMENT RETIREMENT SAVINGS PLAN
Table of Contents Page
----------------- ----
ARTICLE I - GENERAL
Section 1.1 Effective Date..................... 1
Section 1.2 Purpose of Plan.................... 1
Section 1.3 Intent............................. 1
ARTICLE II - DEFINITIONS AND USAGE
Section 2.1 Definitions........................ 2
Section 2.2 Usage.............................. 6
ARTICLE III - ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility........................ 7
Section 3.2 Participation and Termination...... 7
Section 3.2 Agreement Procedure................ 7
ARTICLE IV - PARTICIPANT ACCOUNTS
Section 4.1 Accounts........................... 8
Section 4.2 Participant Deferrals.............. 8
Section 4.3 Company Matching Contributions..... 9
Section 4.4 Investment Procedures.............. 9
Section 4.5 Valuation of Accounts.............. 9
Section 4.6 Rollover Accounts.................. 10
ARTICLE V - PAYMENT OF BENEFITS
Section 5.1 Entitlement to Benefit Payments.... 11
Section 5.2 Commencement of Benefit Payments... 11
Section 5.3 In-Service Withdrawals............. 11
ARTICLE VI - PAYMENT OF BENEFIT ON OR AFTER DEATH
Section 6.1 Commencement of Payments........... 13
Section 6.2 Designation of Beneficiary......... 13
ARTICLE VII - ADMINISTRATION
Section 7.1 General............................ 14
Section 7.2 Administrative Rules............... 14
Section 7.3 Duties............................. 14
Section 7.4 Fees............................... 14
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<PAGE> 3
Page
----
ARTICLE VIII - CLAIMS PROCEDURE
Section 8.1 General............................... 15
Section 8.2 Denials............................... 15
Section 8.3 Notice................................ 15
Section 8.4 Appeals Procedure..................... 15
Section 8.5 Review................................ 15
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 9.1 Amendment............................. 16
Section 9.2 Termination........................... 16
Section 9.3 No Assignment......................... 16
Section 9.4 Incapacity............................ 16
Section 9.5 Successors and Assigns................ 16
Section 9.6 Governing Law......................... 16
Section 9.7 No Guarantee of Employment............ 16
Section 9.8 Severability.......................... 16
Section 9.9 Notification of Addresses............. 17
Section 9.10 Bonding............................... 17
Section 9.11 Change in Control..................... 17
ARTICLE X - ADOPTING EMPLOYERS
Section 10.1 Employer Participation in Plan........ 18
Section 10.2 Administration........................ 18
Section 10.3 Company as Agent...................... 18
Section 10.4 Payments.............................. 18
Section 10.5 Termination........................... 18
ARTICLE XI - TRUST
Section 11.1 Trust................................. 19
Section 11.2 Contributions and Expense............. 19
Section 11.3 Trustee Duties........................ 19
Section 11.4 Reversion to the Grantor.............. 19
-ii-
<PAGE> 4
BALLY ENTERTAINMENT CORPORATION
MANAGEMENT RETIREMENT SAVINGS PLAN
ARTICLE I
GENERAL
1.1 EFFECTIVE DATE. The provisions of the Plan shall be effective as of
October 1, 1994. The rights, if any, of any person whose status as an
employee of the Company, or its subsidiaries and affiliates, if
any, has terminated shall be determined pursuant to the Plan as in
effect on the date such employee terminated, unless a subsequently
adopted provision of the Plan shall apply to such person, as described
in Section 9.1 of the Plan.
1.2 PURPOSE OF PLAN. The Plan shall permit a select group of management
or highly compensated employees to enhance the security of themselves
and their beneficiaries following retirement or other termination of
their employment with the Company or an Employer (as defined herein)
by deferring until that time a portion of the compensation which may
otherwise be payable to them at an earlier date. By allowing such
employees to participate in the Plan, the Company expects the Plan to
benefit it in attracting and retaining the most capable individuals to
fill its executive positions.
The parties intend that the arrangements described herein be unfunded
for tax purposes and for purposes of Title I in the Employee
Retirement Income Security Act of 1974, as amended from time to time
("ERISA").
1.3 INTENT. The Plan is intended to be (and shall be construed and
administered as) an "employee pension benefit plan" under the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA") which is unfunded and maintained by the Company or an
Employer solely to provide retirement income to a select group of
management or highly compensated employees as such group is described
under Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA as
interpreted by the U.S. Department of Labor. The Plan is not intended
to be a plan described in Section 401(a) of the Code, or Parts 2, 3
and 4 of Subtitle B of Title I of ERISA. The obligation of the
Company and an Employer to make payments under this Plan constitutes
nothing more than an unsecured promise to make such payments and any
property of the Company or an Employer that may be set aside for the
payment of benefits under the Plan shall in the event of the Company's
or Employer's bankruptcy or insolvency, remain subject to the claims
of the Company's general creditors and the Employer's general
creditors, respectively, until such benefits are distributed in
accordance with Article V herein.
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<PAGE> 5
ARTICLE II
DEFINITIONS AND USAGE
2.1 DEFINITIONS. Wherever used in the Plan, the following words and
phrases shall have the meaning set forth below unless the context
plainly requires a different meaning:
- "ACCOUNTS" means the accounts established on behalf of the
Participant as described in Article IV.
- "ADMINISTRATOR" means the person or persons described in
Article VII.
- "BASE COMPENSATION" means cash compensation, exclusive of
bonus, commission and non-cash earnings, which is receivable
(prior to the operation of Section 4.2 of the Plan) by a
Participant for a Compensation Year.
- "BOARD" means the Board of Directors of the Company.
- "BONUS COMPENSATION" means that compensation, designated as
Bonus Compensation, or as a commission, by the Company or an
Employer, which is receivable (prior to the operation of
Section 4.2 of the Plan) by a Participant for a Compensation
Year.
- "CHANGE IN CONTROL" means a change in control of the Company
of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (as in effect on the
date the Plan is adopted by the Board) (the "Exchange Act"),
whether or not the Company is then subject to such reporting
requirement; provided, that, without limitation, such a Change
in Control shall be deemed to have taken place upon the
occurrence of both (1) and (2) below:
(1) (a) any "person" (as defined in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five
percent (25%) or more of the combined voting power of
the Company's then outstanding securities; or
(b) during any period of two (2) consecutive
years (not including any period prior to the adoption
of this Plan) there shall cease to be a majority of
the Board comprised of Continuing Directors; or
(c) (i) the stockholders of the Company
approve a merger or consolidation of the Company with
any other corporation, other than a merger or
consolidation which would result in the voting
securities of the Company outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity) at least
eighty percent (80%) of the combined voting
- 2 -
<PAGE> 6
power of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation, or (ii) the stockholders of
the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or substantially
all of the Company's assets.
AND
(2) the involuntary termination from the service of the
Company, or any Employer, of a Participant, within
two years after a Change in Control as defined in (a)
through (c) above.
Notwithstanding anything in this Section to the contrary, an
event or occurrence (or a series of events or occurrences)
which would otherwise constitute a Change in Control under the
foregoing shall not constitute a Change in Control for
purposes of this Plan if the Board, by majority vote,
determines that a Change in Control does not result therefrom;
but only if Continuing Directors constitute a majority of the
directors voting in favor of such determination. Further, an
event or occurrence (or a series of events or occurrences)
which would not otherwise constitute a Change in Control under
the foregoing shall be deemed to constitute a Change in
Control for purposes of this Plan if the Board, by majority
vote, determines that a Change in Control does result
therefrom; but only if Continuing Directors constitute a
majority of the directors voting in favor of such
determination. The term "Continuing Director" means
individuals who at the beginning of any period of two (2)
consecutive years (not including any period prior to the
adoption of this Plan) constitute the Board and any new
director(s) whose election by the Board or nomination of or
election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved. A determination by directors under
the provisions of this paragraph shall be made solely for
purposes of this Plan and shall not directly or indirectly
affect any determination or analysis of whether a change in
control results for any other purpose. Any determination made
with respect to whether a change in control results for
purposes of any other plan or agreement of the Company shall
have no effect for purposes of this Plan.
Anything in this Section to the contrary notwithstanding, one
or more transactions which results in Bally's Health & Tennis
Corporation no longer being part of the controlled or
affiliated group (as defined in Code Section 414), within one
year of the effective date of this Plan shall not constitute a
Change in Control for purposes of this Plan.
- "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
- "COMMITTEE" means the Compensation and Stock Option Committee
of the Board, otherwise, the Board or its designate.
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<PAGE> 7
- "COMPANY" means Bally Entertainment Corporation and any
successor thereto.
- "COMPANY MATCHING CONTRIBUTIONS" means those Company, or
Employer, contributions as described in Section 4.3 of the
Plan.
- "COMPENSATION YEAR" means the calendar year.
- "DEFERRED COMPENSATION ACCOUNT" means the account established
on behalf of the Participant as described in Section 4.2 of
the Plan.
- "EMPLOYEE" means an employee of the Company or of an Employer.
- "EMPLOYER" means any subsidiary or affiliate of the Company
which is included in the Company's consolidated financial
statements pursuant to Statement of Financial Accounting
Standards No. 94, as amended, and which is designated by the
Board to become a participating Employer in the Plan.
- "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
- "PARTICIPANT" means an eligible Employee of the Company or an
Employer who is participating in the Plan in accordance with
Section 3.2.
- "PLAN" means the Bally Entertainment Corporation Management
Retirement Savings Plan.
- "PLAN YEAR" means the initial period commencing with the
Plan's effective date and ending on December 31, and each
subsequent twelve (12) month period ending on December 31.
- "REGULAR MATCHING ACCOUNT" means the account established on
behalf of the Participant as described in Section 4.3 of the
Plan.
- "ROLLOVER ACCOUNT" means the account established on behalf of
the Participant as described in Section 4.6 of the Plan.
- "SALARY REDUCTION AGREEMENT" or "AGREEMENT" means an agreement
between the Participant and the Company, or an Employer,
respectively, as his employer, pursuant to which the
Participant agrees to a reduction in his Base and/or Bonus
Compensation before such Base and/or Bonus Compensation is
earned by the Participant in exchange for the promise of an
equal amount to be paid by the Company or the Employer to the
Participant under this Plan.
- "TERMINATED FOR CAUSE" means the termination of the employment
of an Employee by the Company or an Employer for any of the
following reasons:
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<PAGE> 8
(a) the Employee's fraud, dishonesty, willful misconduct
or gross negligence in the performance of his duties
hereunder, including willful failure to perform such
duties as may reasonably be assigned to him
hereunder;
(b) the Employee's material breach of any provision of
his Employment Agreement, if any; or
(c) the Employee's failure to qualify (or having so
qualified, being thereafter disqualified) under any
suitability or licensing requirement to which the
Employee may be subject by reason of his position
with the Company or an Employer, whether under the
laws of New Jersey or otherwise.
Any termination by reason of the foregoing shall not be in
limitation of any other right or remedy the Company or an
Employer may have under this Plan or otherwise.
- "TRUST" means the Trust, or trusts, under the Bally
Entertainment Corporation Management Retirement Savings Plan,
as established in accordance with the terms of Article XI.
- "TRUSTEE" means that person, persons, entity or entities who
administer the Trust (or trusts) in accordance with its terms
and the terms of Article XI.
- "VALUATION DATE" means the last business day of each Plan Year
and such other dates as determined from time to time by the
Administrator.
- "VESTED ACCOUNT BALANCE" means that portion of a Participant's
Account(s) that is vested, if any, determined as follows: (i)
subject to Section 5.3, a Participant's Deferred Compensation
and Rollover Accounts and earnings thereon (attributable to
contributions made pursuant to Section 4.2 of the Plan) shall
be 100% vested at all times, and (ii) subject to Section
9.11(a), a Participant's Regular Matching Account and earnings
thereon (attributable to contributions made pursuant to
Section 4.3) shall be vested as follows:
Percentage of Vesting of
Years of Deferral Regular Matching Account
----------------- ------------------------
More than 1 but less than 2 33-1/3%
More than 2 but less than 3 66-2/3%
More than 3 100%
The determination of vesting as described herein shall apply
independently to deferrals made during each Plan Year of participation.
Notwithstanding any of the foregoing, a Participant shall become fully
vested in his Accounts upon his termination of employment with the
Company or an Employer if
- 5 -
<PAGE> 9
upon such termination, the Participant meets any one of the
following requirements: (i) the Participant is 55 or older and
has at least 10 years of service; (ii) the Participant is 60 or
older and has at least 5 years of service; or (iii) the
Participant is 65 or older and has at least 3 years of service.
- "YEARS OF DEFERRAL" means the number of complete years from the
January 1 of the year following the year in which a
Participant's Base or Bonus Compensation is deferred, and for
which a Participant's Company Matching Contributions (in
accordance with Section 4.3) are made, pursuant to the Plan.
- "YEARS OF SERVICE" means the period of time from a Participant's
date of hire with the Company, or an Employer, to the twelve
month anniversary of that date, and each succeeding twelve month
period until the Participant separates from service with the
Company and all Employers.
2.2 USAGE. Except where otherwise indicated by the context, any masculine
terminology used herein shall also include the feminine and vice
versa, and the definition of any term herein in the singular shall
also include the plural and vice versa.
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<PAGE> 10
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Upon an Employee's date of hire with the Employer, each
Employee who is designated as eligible under the Plan by the Board, in
its sole discretion, shall be eligible to participate herein. Such
Employee shall be a management or highly compensated employee, as
determined by the Board, in its sole discretion.
3.2 PARTICIPATION AND TERMINATION. An Employee identified as eligible to
participate herein may commence participation in the Plan by
completing a Salary Reduction Agreement in accordance with Section
3.3.
An Employee's right to defer compensation hereto shall cease as of the
earlier of the termination of his employment or the date on which the
Employee ceases to meet the requirements of 3.1 above.
3.3 AGREEMENT PROCEDURE.
(a) Each Participant and the Company or Employer that employs him
may execute one or more Agreements for the portion of the
Participant's Compensation that shall be credited to his Account
in accordance with Section 4.2. Such Agreement shall be
effective only with respect to Compensation earned after the
Agreement becomes effective. No more than one Salary Reduction
Agreement may be entered into with respect to a single calendar
month.
(b) For the initial Plan Year of participation, the Agreement shall
be properly completed, executed and delivered to the
Administrator prior to the later of (i) the first day of the
Plan Year in which the Participant's participation commences, or
(ii) thirty (30) days after the date on which the Participant
became eligible for participation.
(c) For any subsequent Plan Year in which a new Participant becomes
eligible to participate in the Plan, or in which an existing
Participant executes a new Agreement, such Agreement shall be
properly completed, executed and delivered to the Administrator
prior to the pay period for which the Agreement shall be
effective.
(d) An Agreement shall be effective no earlier than the date on
which it is delivered to the Administrator and shall continue in
effect for all succeeding Plan Years unless otherwise provided
under the Plan.
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<PAGE> 11
ARTICLE IV
PARTICIPANT ACCOUNTS
4.1 ACCOUNTS. The Administrator shall establish and maintain, pursuant to
the terms of the Plan, one or more Accounts for each Participant
consisting of amounts credited to such Accounts pursuant to Sections
4.2, 4.3 and 4.6 below. All amounts which are credited to a
Participant's Accounts shall be credited solely for purposes of
accounting and computation, and shall remain assets of the Company or
the Participant's Employer subject to the claims of the Company's
general creditors or the Employer's general creditors, respectively.
A Participant shall not have any interest or right in or to such
Accounts at any time except as otherwise specified herein.
4.2 PARTICIPANT DEFERRALS. In accordance with Section 3.3, upon becoming
eligible to participate in the Plan, a Participant may submit his
Salary Reduction Agreement to the Company, or to his Employer,
indicating the amount of his Base Compensation for such Compensation
Year which he elects deferred hereunder. The Company, or his
Employer, shall, consistent with such election, defer all or such
portion of such Participant's Base Compensation earned in such
Compensation Year. If a Participant elects to defer all or a portion
of the Base Compensation that may become payable to him, the Company,
or his Employer, shall reduce his Base Compensation by the entire
amount deferred when otherwise payable.
In accordance with Section 3.3, upon becoming eligible to participate
in the Plan, a Participant may also submit his Salary Reduction
Agreement to the Company, or to his Employer, indicating the amount of
his Bonus Compensation for such Compensation Year which he elects
deferred hereunder. The Company, or his Employer, shall, consistent
with such election, defer all or such portion of his Bonus
Compensation earned in such Compensation Year. If a Participant
elects to defer all or a portion of the Bonus Compensation that may
become payable to him, the Company, or his Employer, shall reduce his
Bonus Compensation by the entire amount deferred when otherwise
payable.
As of the time a Participant's Base and/or Bonus Compensation would
have been paid to the Participant but for the application of this
Section 4.2, the Company, or the Participant's Employer, shall credit
to a Participant's Deferred Compensation Account, for a Compensation
Year, the amount of such Participant's Base Compensation and Bonus
Compensation as is deferred by him in accordance with the Agreement
which is in effect for the Compensation Year.
At any time during the Compensation Year, but no more frequently than
one time per calendar month, a Participant may request in writing that
the percentage of his deferral election be increased or decreased;
provided, however, that in any event, such request is made prior to
the time that the service for which the amounts are earned would be
performed.
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<PAGE> 12
4.3 COMPANY MATCHING CONTRIBUTIONS. With respect to the first 10% of Base
and/or Bonus Compensation that a Participant chooses to defer for a
Compensation Year, the Company, or his Employer, will credit the
Participant's Regular Matching Account with a Company Matching
Contribution which matches the Participant's Base and/or Bonus
Compensation deferrals at a rate of 100%.
With respect to the second 10% of Base and/or Bonus Compensation that
a Participant chooses to defer for a Compensation Year, the Company,
or the Employer, will credit the Participant with a Company Matching
Contribution which matches the Participant's Base and/or Bonus
Compensation deferrals at a rate of 50%.
Base and/or Bonus Compensation deferrals made at a rate greater than
20% for a Compensation Year shall not be matched.
Company Matching Contributions for a Participant for each Compensation
Year shall be credited to his Regular Matching Account.
4.4 INVESTMENT PROCEDURES. The Committee may establish investment
vehicles in which a Participant's Account may be invested.
Participants shall complete written investment elections at such time
and in such manner as the Administrator shall establish. The
Committee shall retain overriding discretion over the selection of
investment vehicles and the Committee may change, alter or modify its
investment policy as it deems appropriate, from time to time. Any
such change, alteration or modification shall be communicated to the
Participants under procedures adopted by the Committee.
4.5 VALUATION OF ACCOUNTS. The value of a Participant's Accounts shall be
determined by the Administrator, on the Valuation Date, and in the
following manner:
(a) The income and expense, gains, and losses, both realized and
unrealized, from such investments as are required under
Section 4.4 shall be determined by the Administrator. The
amount so determined shall be allocated to the Accounts of a
Participant proportionately in accordance with the procedures
established by the Administrator.
(b) All Company and/or Employer contributions for a Participant
shall be credited to the Accounts of the Participant in
accordance with Sections 4.2, 4.3 and 4.4 as applicable.
(c) Each Participant's Accounts shall be valued as of the
Valuation Date of each Plan Year or more frequently as
determined in the sole discretion of the Administrator, and
shall again be valued as of the date that a Participant
receives a payment under the Plan, in accordance with the
procedures established by the Administrator.
(d) A Participant's Accounts shall be reduced by the amount of any
benefits distributed to, or on behalf of, the Participant
pursuant to Article V.
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<PAGE> 13
(e) All allocations to, and deductions from, a Participant's
Accounts under this Section 4.5 shall be made on the
applicable Valuation Date in the order of priority set forth
in this Section 4.5, even though actually determined at a
later date.
4.6 ROLLOVER ACCOUNTS. From time to time, a Participant's Vested Account
Balances may be increased to reflect the addition of amounts from
other Company or Employer sponsored plans specified by the Board, in
its sole discretion. Such additional amounts for a Participant shall
be credited to the Participant's Rollover Account and shall be subject
to the terms of this Plan.
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<PAGE> 14
ARTICLE V
PAYMENT OF BENEFITS
5.1 ENTITLEMENT TO BENEFIT PAYMENTS. Upon a Participant's separation from
service from the Company and all Employers, the Participant shall be
entitled to his Vested Account Balance payable by the Company, by his
Employer, or by the Trust, in the form set forth in Section 5.2.
Notwithstanding the foregoing, if a Participant's separation from
service is the result of his being Terminated for Cause, no benefits
shall be payable to the Participant from his Regular Matching Account
under the Plan; and his Regular Matching Account balance shall be
zero. A Participant who is Terminated for Cause shall receive
payments from his Deferred Compensation Account and his Rollover
Account.
5.2 COMMENCEMENT OF BENEFIT PAYMENTS.
Upon a Participant's separation from service with the Company and all
Employers, the Employer or the Trustee shall pay an amount equaling
the entire Vested Account Balance of a Participant's Deferred
Compensation, Regular Matching and Rollover Accounts to the
Participant in a lump sum or installments, (as such terms are defined
in (a) and (b) below) as elected by the Participant.
(a) LUMP SUM. A lump sum payment shall occur within the first 120
days immediately following the Participant's separation from service.
Such payment shall cancel the balance in the Participant's Deferred
Compensation, Regular Matching and Rollover Accounts.
(b) INSTALLMENTS. Monthly installment payments shall be made over a
period of no more than five years, as elected by the Participant,
commencing no later than the fourth month after the calendar month
during which such Participant separates from service. Notwithstanding
the foregoing, if a Participant's total Vested Account Balances are
equal to an amount which is greater than $1,000,000, then such
Participant may elect to receive monthly installment payments over a
period of no more than ten (10) years, in accordance with the terms of
this paragraph. The amount of each monthly installment shall equal
the quotient obtained upon dividing the Participant's Vested Account
Balances as of the first day of the month of payment by the number of
installments then remaining to be paid (including the installment
being paid). The Administrator shall reduce the balance in such
Participant's Deferred Compensation, Regular Matching and Rollover
Accounts by the amount of such payment immediately upon the occurrence
of such payment.
5.3 IN-SERVICE WITHDRAWALS. At any time, and from time to time, a
Participant may request a withdrawal of all, or any portion of, the
Vested Account Balance in his Accounts. Such a withdrawal shall be
made first from his Deferred Compensation Account, second from his
Rollover Account and third from his Regular Matching Account. A
withdrawal request under the Plan must be made in writing, on such
forms and in such manner as the Administrator, in its sole discretion,
shall prescribe.
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<PAGE> 15
At such time as the Participant's Withdrawal Request is granted, the
Participant shall forfeit a portion of the total value in his Accounts
in an amount equal to 10% of the amount withdrawn under this section.
If a Participant, consistent with the immediately preceding
paragraphs, receives an in-service withdrawal, he must cease making
deferrals for a period of at least six months following the month
during which such withdrawal was made; and he may not resume deferrals
until the pay period following the end of such six month period.
Notwithstanding any of the foregoing, a Participant's withdrawal made
in accordance with this Section shall be disallowed to the extent that
such withdrawal would cause the Participant's remuneration from the
Company, and any Employer, to exceed the limit set forth in Section
162(m) of the Code.
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<PAGE> 16
ARTICLE VI
PAYMENT OF BENEFITS ON OR AFTER DEATH
6.1 COMMENCEMENT OF PAYMENTS. If a Participant dies before receiving his
entire Vested Account Balance, the remainder of the Accounts otherwise
payable with respect to the Participant shall be paid to the
Participant's beneficiary or beneficiaries as a single lump-sum amount
within one hundred and twenty (120) days following the date on which
the Administrator is notified of the Participant's death.
6.2 DESIGNATION OF BENEFICIARY. A Participant may, by written instrument
delivered to the Administrator during the Participant's lifetime,
designate one or more primary and contingent beneficiaries to receive
the Vested Account Balance which may be payable to the Participant
hereunder following the Participant's death, and may designate the
proportions in which such beneficiaries are to receive such payments.
A Participant may change such designations from time to time, and the
last written designation filed with the Administrator prior to the
Participant's death shall control. If a Participant fails to
specifically designate a beneficiary or, if no designated beneficiary
survives the Participant, payment shall be made by the Administrator
in the following order of priority:
(a) to the Participant's surviving spouse; or if none,
(b) to the Participant's children, per stirpes; or if none,
(c) to the Participant's estate.
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<PAGE> 17
ARTICLE VII
ADMINISTRATION
7.1 GENERAL. The Administrator of the Plan shall be the Board, or such
other person or persons as designated by the Board. Except as
otherwise specifically provided in the Plan, the Administrator shall
be responsible for the administration of the Plan. The Administrator
shall be the "named fiduciary" within the meaning of Section 402(c)(2)
of ERISA.
7.2 ADMINISTRATIVE RULES. The Administrator may adopt such rules of
procedure as it deems desirable for the conduct of its affairs, except
to the extent that such rules conflict with the provisions of the Plan.
7.3 DUTIES. The Administrator shall have the following rights, powers and
duties:
(a) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon each
Employer and upon any other person affected by such decision,
subject to the claims procedure hereinafter set forth.
(b) The Administrator shall have the duty, authority and sole
discretion to interpret and construe the provisions of the
Plan, to decide any question which may arise regarding the
rights of employees, Participants and beneficiaries, and the
amounts of their respective interests, to adopt such rules and
to exercise such powers as the Administrator may deem
necessary for the administration of the Plan, and to exercise
any other rights, powers or privileges granted to the
Administrator by the terms of the Plan.
(c) The Administrator shall maintain full and complete records of
its decisions. Its records shall contain all relevant data
pertaining to the Participant and his rights and duties under
the Plan. The Administrator shall have the duty to maintain
Account records of all Participants.
(d) The Administrator shall cause the principal provisions of the
Plan to be communicated to the Participants, and a copy of the
Plan and other documents shall be available at the principal
office of the Company for inspection by the Participants at
reasonable times determined by the Administrator.
(e) The Administrator shall periodically report to the Committee
with respect to the status of the Plan.
7.4 FEES. No fee or compensation shall be paid to any person for services
as the Administrator.
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<PAGE> 18
ARTICLE VIII
CLAIMS PROCEDURE
8.1 GENERAL. Any claim for benefits under the Plan shall be filed by the
Participant or beneficiary ("claimant") with the Administrator on the
form prescribed by the Administrator for such purpose.
8.2 DENIALS. If a claim for benefits under the Plan is wholly or
partially denied, notice of the decision shall be furnished to the
claimant by the Administrator within a reasonable period of time after
receipt of the claim by the Administrator.
8.3 NOTICE. Any claimant who is denied a claim for benefits shall be
furnished written notice setting forth:
(a) the specific reason or reasons for the denial;
(b) specific reference to the pertinent provision of the Plan upon
which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim; and
(d) an explanation of the claim review procedure under the Plan.
8.4 APPEALS PROCEDURE. In order that a claimant may appeal a denial of a
claim, the claimant or the claimant's duly authorized representative
may:
(a) request a review by written application to the Administrator,
or its designate, no later than sixty (60) days after receipt
by the claimant of written notification of denial of a claim;
(b) review pertinent documents; and
(c) submit issues and comments in writing.
8.5 REVIEW. A decision on review of a denied claim shall be made not
later than sixty (60) days after receipt of a request for review,
unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered within a
reasonable period of time, but not later than one hundred and twenty
(120) days after receipt of a request for review. The decision on
review shall be in writing and shall include the specific reason(s)
for the decision and the specific reference(s) to the pertinent
provisions of the Plan on which the decision is based.
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<PAGE> 19
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 AMENDMENT. The Company reserves the right to amend the Plan in any
manner that it deems advisable by a resolution of the Board. No
amendment shall, without the Participant's consent, affect the amount
of the Participant's Vested Account Balance at the time the amendment
becomes effective or the right of the Participant to receive a
distribution of his Vested Account Balance.
9.2 TERMINATION. The Company reserves the right to terminate the Plan at
any time by a fully executed resolution of the Board. No termination
shall, without the Participant's consent, affect the amount of the
Participant's Vested Account Balance prior to the termination or the
right of the Participant to receive a distribution of his Vested
Account Balance.
9.3 NO ASSIGNMENT. The Participant shall not have the power to pledge,
transfer, assign, anticipate, mortgage or otherwise encumber or
dispose of in advance any interest in amounts payable hereunder or any
of the payments provided for herein, nor shall any interest in amounts
payable hereunder or in any payments be subject to seizure for
payments of any debts, judgments, alimony or separate maintenance, or
be reached or transferred by operation of law in the event of
bankruptcy, insolvency or otherwise.
9.4 INCAPACITY. If any person to whom a benefit is payable under the Plan
is an infant or if the Administrator determines that any person to
whom such benefit is payable is incompetent by reason of physical or
mental disability, the Administrator may cause the payments becoming
due to such person to be made to another for his benefit. Payments
made pursuant to this Section shall, as to such payment, operate as a
complete discharge of the liabilities, responsibilities and duties
under the Plan of the Company, each Employer, the Committee and the
Administrator.
9.5 SUCCESSORS AND ASSIGNS. The provisions of the Plan are binding upon
and inure to the benefit of the Company, each Employer, its respective
successors and assigns, and the Participant, his beneficiaries, heirs,
legal representatives and assigns.
9.6 GOVERNING LAW. The Plan shall be subject to and construed in
accordance with the laws of the State in which the Company maintains
its principal place of business to the extent not pre-empted by the
provisions of ERISA.
9.7 NO GUARANTEE OF EMPLOYMENT. Nothing contained in the Plan shall be
construed as a contract of employment or deemed to give any
Participant the right to be retained in the employ of the Company or
any Employer or any equity or other interest in the assets, business
or affairs of the Company or any Employer. No Participant hereunder
shall have a security interest in the assets of the Company or any
Employer used to make contributions or pay benefits.
9.8 SEVERABILITY. If any provision of the Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect
the remaining provisions of the Plan, but the
- 16 -
<PAGE> 20
Plan shall be construed and enforced as if such illegal or invalid
provision had never been included herein.
9.9 NOTIFICATION OF ADDRESSES. Each Participant and each beneficiary
shall file with the Administrator, from time to time, in writing, the
post office address of the Participant, the post office address of
each beneficiary, and each change of post office address. Any
communication, statement or notice addressed to the last post office
address filed with the Administrator (or if no such address was filed
with the Administrator, then to the last post office address of the
Participant or beneficiary as shown on the Company's or Employer's
records) shall be binding on the Participant and each beneficiary for
all purposes of the Plan and neither the Administrator nor the Company
or an Employer shall be obligated to search for or ascertain the
whereabouts of any Participant or beneficiary.
9.10 BONDING. The Administrator and all agents and advisors employed by it
shall not be required to be bonded, except as otherwise required by
ERISA.
9.11 CHANGE IN CONTROL.
(a) As soon as possible, but in no event more than five business
days, after a Change in Control, the Administrator shall cause
all of the affected Participant's Accounts to become 100%
vested.
(b) As soon as possible, but in no event more than five business
days, after a Change in Control, the Company shall wire
transfer funds, to the extent that such funds have not been
transferred previously, to the Trustee in an amount equal to
the aggregate value of the affected Participant's Vested
Account Balances determined as of the Valuation Date
immediately preceding, or coincident with, such Change in
Control.
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<PAGE> 21
ARTICLE X
PARTICIPATING EMPLOYERS
10.1 EMPLOYER PARTICIPATION IN PLAN. The Board shall designate each
Employer which shall become a participating Employer under the Plan.
10.2 ADMINISTRATION. As a condition to participating in the Plan, each
participating Employer shall be deemed to have authorized the
Administrator to act for it in all matters arising under or with
respect to the Plan and shall comply with such other terms and
conditions as may be imposed by the Administrator.
10.3 COMPANY AS AGENT. Each participating Employer hereby irrevocably
grants the Company full and exclusive power to exercise, enforce or
waive any right which such Employer might otherwise have under the
terms of the Plan, and each participating Employer irrevocably
appoints the Company as its agent for such purpose.
10.4 PAYMENTS. Each participating Employer shall be solely responsible for
the payment of a Participant's Vested Account Balance as determined
under Article IV with respect to its employees.
10.5 TERMINATION. Each participating Employer may cease to participate in
the Plan with respect to its employees by resolution of its governing
body, if authorized to do so by the Company.
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<PAGE> 22
ARTICLE XI
TRUST
11.1 TRUST. One or more trusts have been established under the Bally
Entertainment Corporation Management Retirement Savings Plan
(singularly or collectively referred to as the "Trust") by the
execution of separate Trust agreements with one or more Trustees.
Each Trust is intended to be maintained as a "grantor trust" under
section 677 of the Code. The assets of each Trust will be held,
invested and disposed of by its Trustee, in accordance with the terms
of each Trust, for the exclusive purpose of providing Plan benefits
for those Participants employed by the grantor of the Trust.
Notwithstanding any provision of the Plan or the Trust to the
contrary, the assets of each Trust shall at all times be subject to
the claims of the general creditors of the grantor of such Trust.
The Trust shall be a means of segregating and accumulating funds to be
used to pay benefits pursuant to the terms of the Plan, and no part of
the assets of any Trust shall be recoverable by the Company, or any
Employer, until all benefits payable under the Plan have been paid to
Participants and Beneficiaries; provided, however, that the assets of
each Trust shall be subject at all times to the claims of the
grantor's (the Company's or an Employer's) creditors. The Company and
all Employers shall be relieved of any obligation to pay any benefits
under this Plan to the extent that such obligation has been discharged
through payments made under the Trust. Except as otherwise provided
in this Article XI, neither the Company nor any Employee shall be
under any obligation to contribute funds to any Trust.
11.2 CONTRIBUTIONS AND EXPENSE. Each grantor that establishes a Trust may,
in its sole discretion and from time to time, make contributions to
the Trust from which shall be paid all benefits under the Plan
attributable to such grantor's employees and expenses chargeable under
the Plan to such grantor, to the extent not paid directly by the
grantor.
11.3 TRUSTEE DUTIES. The powers, duties and responsibilities of the
Trustee shall be as set forth in each Trust agreement and nothing
contained in the Plan, either expressly or by implication, shall
impose any additional powers, duties or responsibilities upon the
Trustee.
11.4 REVERSION TO THE GRANTOR. No grantor that establishes a Trust shall
have any beneficial interest in the Trust and no part of the Trust
shall ever revert or be repaid to such grantor prior to the payment of
all Plan benefits to Participants employed by such grantor, except
with respect to amounts allocable to forfeited benefits and as
otherwise reasonably determined by the Committee not to be necessary
to pay benefits to Participants employed by such grantor.
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<PAGE> 23
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer effective as of this 7th day of September, 1994.
ATTEST/WITNESS: BALLY ENTERTAINMENT CORPORATION
/s/ Susan R. Rehorst By: /s/ Carol S. DePaul
------------------------------ ----------------------------------
Susan R. Rehorst Carol S. DePaul
Assistant Secretary Secretary
Date: September 7, 1994 Date: September 7, 1994
------------------------ --------------------------------
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<PAGE> 1
EXHIBIT 10(iii)18
STOCK SUBSCRIPTION AGREEMENT
----------------------------
This Stock Subscription Agreement (the "Subscription Agreement") dated
as of the 30th day of December, 1994, is entered into by and among Bally's
Casino, Inc., a Delaware corporation ("Casino"), Arthur M. Goldberg
("Goldberg"), Bally Entertainment Corporation, a Delaware corporation ("BEC")
and Orloff, Lowenbach, Stifelman & Siegel, P.A., a professional corporation
(the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Casino was formed to serve as a holding company for certain
of the gaming operations of BEC;
WHEREAS, BEC intends to subscribe for, and Casino intends to issue 100
shares of Casino's common stock, par value $1.00 per share ("Common Shares");
WHEREAS, Goldberg intends to subscribe for, and Casino intends to
issue to Goldberg One Million Six Hundred Eighty-Five Thousand Nine Hundred
Ninety-Four (1,685,994) shares of Casino's Series A Cumulative Exchangeable
Preferred Shares, par value $1.00 per share (the "Shares"), on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. AUTHORIZED CAPITAL STOCK. The authorized capital stock of
Casino consists of One Thousand (1,000) shares of common stock, par value $1.00
per share and One Million Six Hundred Eighty-Five Thousand Nine Hundred
Ninety-Four (1,685,994) shares of preferred stock, par value $1.00 per share.
2. SUBSCRIPTION FOR STOCK.
(a) Goldberg hereby subscribes for the Shares subject to
the terms and conditions of this Agreement. In exchange for the
issuance of the Shares by Casino, Goldberg agrees to convey to Casino
all of his right, title and interest in and to 752,676 shares of
common stock of Bally's Grand, Inc., a Delaware corporation ("Nevada
Shares").
(b) BEC hereby subscribes for the Common Shares subject
to the terms and conditions of this Agreement. In exchange for the
Common Shares BEC agrees to convey to Casino all of its right, title
and interest in and to all the shares of Bally Intermediate Sub, Inc.,
a Delaware corporation ("Sub Shares");
<PAGE> 2
3. WARRANTIES AND REPRESENTATIONS.
(a) Goldberg hereby warrants and represents that on the
date of this Agreement and at the time the Documents are disbursed
pursuant to subparagraph (c)(i) of Section 8:
(i) He is aware of the fact that no federal or
state agency has made any finding or determination as to the
fairness for public or private investment, nor any
recommendation or endorsement of the Shares for investment.
(ii) He recognizes that Casino has only recently
been organized and has no meaningful financial or operating
history and, further, that the Shares, as an investment,
involve a high degree of risk.
(iii) He is aware of the fact that there is no
public market for the Shares and that it may not be possible
to readily liquidate his investment at any time.
(iv) The Shares to be purchased by him will be
purchased for his own account entirely.
(b) BEC hereby warrants and represents that:
(i) It is aware of the fact that no federal or
state agency has made any finding or determination as to the
fairness for public or private investment, nor any
recommendation or endorsement of the Common Shares for
investment.
(ii) It recognizes that Casino has only recently
been organized and has no meaningful financial or operating
history and, further, that the Common Shares, as an
investment, involve a high degree of risk.
(iii) It is aware of the fact that there is no
public market for the Common Shares and that it may not be
possible to readily liquidate its investment at any time.
(iv) The Common Shares to be purchased by it will
be purchased for its own account entirely.
4. WARRANTIES AND REPRESENTATIONS OF CASINO. Casino hereby
represents and warrants that on the date of this Agreement and at the time the
Documents are disbursed pursuant to subparagraph (c)(i) of Section 8, upon the
issuance of the Shares and Common Shares in accordance with the terms hereof,
all such Shares and Common Shares will be duly authorized, validly issued,
fully paid and non assessable, and free and clear of any and all liens and
encumbrances, and that Casino is acquiring the Nevada Shares for its own
account, for investment and without a view to the distribution thereof.
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<PAGE> 3
5. EFFECTUATION OF THE TRANSACTION. The transactions
contemplated by this Agreement shall be effectuated by the following:
(a) Goldberg shall deliver to the Escrow Agent, as
promptly as practicable, a certificate or certificates evidencing the
Nevada Shares endorsed in blank;
(b) Casino shall deliver to the Escrow Agent, by December
31, 1994, a guaranty of Bally's Park Place, Inc., a Delaware
corporation ("BPP Guaranty") substantially in the form of Exhibit "A"
to this Agreement;
(c) Casino shall deliver to the Escrow Agent, by December
31, 1994, a stock certificate for the Shares to be issued in exchange
for the Nevada Shares.
(d) BEC shall deliver to the Escrow Agent, by Deccember
31, 1994, a certificate evidencing the Sub Shares endorsed in blank.
(e) Casino shall deliver to the Escrow Agent, by December
31, 1994, a stock certificate for the Common Shares to be issued in
exchange for the Sub Shares.
(f) The Escrow Agent shall disburse the share
certificates and other documents referred to in this Section 5
(collectively the "Documents") pursuant to Section 8.
6. REGISTRATION RIGHTS.
(a) SECURITIES SUBJECT TO THIS AGREEMENT. For purposes
of this Agreement, "Registrable Securities" shall mean the shares of
Common Stock, par value $.66-2/3 of BEC ("BEC Common") acquired by
Goldberg pursuant to exercise of the exchange right provided by the
Shares (including shares received in respect of such shares pursuant
to any stock dividend or other recapitalization of BEC) until such
time as (i) a registration statement covering such Registrable
Securities has been declared effective and such Registrable Securities
have been disposed of pursuant to such effective registration
statement; (ii) such Registrable Securities are transferred pursuant
to Rule 144 (or any similar provision then in force) under the
Securities Act of 1933, as amended (the "Securities Act"); (iii) all
Registrable Securities are eligible to be sold under Rule 144 in any
period of three (3) months; or (iv) all Registrable Securities are
transferred to any person other than Goldberg, whichever is earlier.
(b) PIGGY-BACK REGISTRATION. If BEC proposes to file a
registration statement under the Securities Act with respect to an
offering by BEC for its own account (other than a registration
statement on Forms S-4 or S-8 or filed in connection with an exchange
offer or an offering of securities solely to BEC's existing
stockholders) of the BEC Common, then BEC shall in each case give
written notice of such proposed filing to Goldberg at least ten (10)
days before the anticipated filing date, and such notice shall offer
Goldberg the opportunity to register such Registrable Securities as
Goldberg may
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<PAGE> 4
request (a "Piggy-back Registration"). On request of Goldberg (which
request shall specify the number of Registrable Securities intended to
be disposed of and the intended method of distribution), received by
BEC within five (5) days after the receipt by Goldberg of BEC's notice
of intention to file the proposed registration statement, BEC shall
include in such registration and qualification for sale under the blue
sky or securities laws of the various states, the number of shares of
Registrable Securities held and requested to be registered by
Goldberg, which may be all or a part of the Registrable Securities.
Notwithstanding the foregoing, if at any time prior to the effective
date of the registration statement filed in connection with a
Piggy-back Registration, BEC shall determine for any reason not to
register or to delay registration of the securities proposed to be
registered by BEC under such registration statement, BEC may, at its
election, give written notice of such determination to Goldberg and,
thereupon, (i) in the case of a determination not to register its
securities, BEC shall be relieved of its obligation to register any
Registrable Securities in connection with such registration, and (ii)
in the case of a determination to delay registering its securities,
BEC shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities.
If BEC at any time proposes to register any of its
securities in a Piggy-back Registration and such securities are to be
distributed by or through one or more underwriters, BEC shall use its
best efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit Goldberg to include such
Registrable Securities in such offering on the same terms and
conditions as any of the BEC Common Stock included therein. In such
case, Goldberg shall be a party to the underwriting agreement between
BEC and such underwriter or underwriters, shall be obligated to sell
those Registrable Securities which Goldberg desires to sell in such
Piggy-back Registration through such underwriters on the basis
provided in such underwriting agreement and shall complete and execute
all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting
agreement. If Goldberg disapproves of the terms of an underwriting,
he may elect to withdraw therefrom and from such Piggy-back
Registration by notice to BEC and the managing underwriter.
Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering delivers a written opinion to Goldberg
that the number of shares which Goldberg or BEC intends to include in
such offering (including for the account of other stockholders) is so
large as to materially and adversely affect the success of such
offering (including by reducing the price anticipated to be received
in such offering), then the amount of securities to be offered for the
account of Goldberg shall be reduced to the extent necessary to reduce
the number of shares to be included in such offering to the number
recommended by such managing underwriter or underwriters.
(c) DEMAND REGISTRATION. At any time Goldberg may, on
two (2) occasions, demand that BEC file a registration statement (a
"Demand Registration") under the Securities Act with respect to an
offering of not less than twenty-five percent (25%) of
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<PAGE> 5
the Registerable Securities held by Goldberg by giving written notice
to BEC of such demand (the "Demand Notice") which shall indicate an
intention on Goldberg's part to exercise the exchange feature of the
Shares. Within sixty (60) days from the Demand Notice, BEC shall use
its best efforts to file a registration statement under the Securities
Act with respect to the Registerable Securities included in the Demand
Notice provided, however, that BEC may postpone the filing of such
registration statement for a period of up to 60 days if BEC reasonably
determines that i) such a filing would adversely affect any proposed
financing or acquisition by BEC or ii) such filing would otherwise
represent undue hardship for BEC. Goldberg shall be permitted to
withdraw all or any part of the Registerable Securities included in
the Demand Notice from the Demand Registration at any time prior to
the effective date of such Demand Registration. If at any time a
registration statement is filed pursuant to Demand Notice and
subsequently a sufficient number of Registerable Securities are
withdrawn from the Demand Registration so that the registration
statement does not cover at least twenty-five percent (25%) of the
Registerable Securities owned by Goldberg, BEC may withdraw its
registration statement. In addition, Goldberg shall be deemed to have
used one of the rights to demand registration of Registerable
Securities under this Section 6.
BEC shall maintain the effectiveness of any registration
statement until consummation of distribution by Goldberg of the
Registerable Securities included in the registration statement or as
long as Goldberg reasonably requests.
(d) REGISTRATION PROCEDURES. Subject to BEC's right to
delay or withdraw a Registration set forth in paragraphs (b) and (c)
of this Section 6, whenever any Registrable Securities are to be
registered pursuant to this Section 6, BEC will use its best efforts
to effect the registration and the sale of such Registrable Securities
in accordance (subject to paragraphs (b) and (c) of this Section 6)
with the intended method of disposition thereof promptly, and in
connection with any registrations, BEC will promptly:
(i) Prepare and file with the Securities and
Exchange Commission (the "Commission") a registration
statement which includes the Registrable Securities and use
its best efforts to cause such registration statement to
become effective;
(ii) Prepare and file with the Commission such
amendments and post-effective amendments to the registration
statement as may be necessary to keep the registration
statement effective for the applicable period referred to in
Section 6 (but not prior to the applicable period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder,
if applicable); cause the prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to
it with respect to the disposition of all securities covered
by such registration statement during the applicable period
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<PAGE> 6
in accordance with the intended methods of disposition thereof
set forth in such registration statement or supplement to the
prospectus;
(iii) Furnish to Goldberg and the underwriter or
underwriters, if any, without charge, such number of conformed
copies of the registration statement and any post-effective
amendment thereto and such number of copies of the prospectus
(including each preliminary prospectus) and any amendments or
supplements thereto, and any documents incorporated by
reference therein, as Goldberg or such underwriter may
reasonably request in order to facilitate the disposition of
the Registrable Securities being sold by Goldberg;
(iv) Notify Goldberg at any time when a prospectus
relating to the Registrable Securities is required to be
delivered under the Securities Act, when BEC becomes aware of
the happening of any event as a result of which the prospectus
included in such registration statement (as then in effect)
contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein
in light of the circumstances under which they were made, not
misleading and, as promptly as practicable thereafter, prepare
and file with the Commission and furnish a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Registrable Securities, such
prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
(v) Make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the
registration statement at the earliest possible moment;
(vi) As promptly as practicable after filing with
the Commission of any document which is incorporated by
reference into a registration statement, deliver a copy of
such document to Goldberg;
(vii) On or prior to the date on which the
registration statement is declared effective, use its best
efforts to register or qualify, and cooperate with Goldberg,
the underwriter or underwriters, if any, and their counsel, in
connection with the registration or qualification of the
Registrable Securities covered by the registration statement
for offer and sale under the securities or blue sky laws of
each state and other jurisdiction of the United States as
Goldberg or any such underwriter requests in writing, to use
its best efforts to keep each such registration or
qualification effective, including through new filings, or
amendments or renewals, during the period such registration
statement is required to be kept effective and to do any and
all other acts or things necessary or advisable to enable the
disposition in all such jurisdictions of the Registrable
Securities covered by the applicable registration statement;
provided that BEC
-6-
<PAGE> 7
will not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of
process or to taxation in any such jurisdiction where it is
not then so subject;
(viii) Cooperate with Goldberg and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any
restrictive legends) representing securities sold under the
registration statement, and enable such securities to be in
such denominations and registered in such names as the
managing underwriter or underwriters, if any, or Goldberg may
request;
(ix) If applicable, enter into such customary
agreements (including an underwriting agreement in customary
form) and take such other actions as Goldberg or the
underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;
(x) At reasonable times and upon reasonable
notice, make available for inspection by Goldberg, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other
agent retained by Goldberg or any such underwriter
(collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of BEC
(collectively, the "Records"), as shall be reasonably
necessary to enable them to meet their due diligence
responsibility, and cause BEC's officers, directors and
employees to supply all information reasonably requested by
any such Inspector in connection with such registration
statement; provided that BEC shall not be required to provide
any information under this paragraph if to do so would cause
BEC to forfeit an attorney-client privilege that was
applicable to such information; provided, further that all
such information reviewed or obtained pursuant to this
paragraph shall be subject to a confidentiality agreement
between the parties prior to inspection.
(xi) Use reasonable efforts to obtain a cold
comfort letter from BEC's independent public accountants in
customary form and covering such matters of the type
customarily covered by cold comfort letters as Goldberg or the
underwriters, if any, shall reasonably request.
Upon receipt of any notice from BEC of the
happening of any event of the kind described in subsection (d)
of this Section 6, Goldberg will forthwith discontinue
disposition of the Registrable Securities until receipt of the
copies of the supplemented or amended prospectus contemplated
by subsection (d) of this Section 6 or until it is advised in
writing (the "Advice") by BEC that the use of the prospectus
may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in
the prospectus and,
-7-
<PAGE> 8
if so directed by BEC, Goldberg will, or will request the
managing underwriter or underwriters, if any, to, deliver to
BEC (at BEC's expense) all copies, other than permanent file
copies then in Goldberg's possession, of the prospectus
covering such Registrable Securities current at the time of
receipt of such notice. In the event BEC shall give any such
notice, the time periods mentioned in subsection (b) of this
Section 6 shall be extended by the number of days during the
period from and including the date of the giving of such
notice to and including the date when Goldberg shall have
received the copies of the supplemented or amended prospectus
contemplated by subsection (d) of this Section 6 or the
Advice.
(e) REGISTRATION EXPENSES. All expenses incident to
BEC's performance of or compliance with this Agreement, including,
without limitation, all Commission and securities exchange or NASD
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), rating agency fees, printing expenses, messenger and
delivery expenses, internal expenses (including, without limitation,
all salaries and expenses of BEC's officers and employees performing
legal or accounting duties), the fees and expenses incurred in
connection with the listing of the securities to be registered, if
any, on each securities exchange on which similar securities issued by
BEC are then listed and fees and disbursement of counsel for BEC and
its independent certified public accountants (including the expenses
of any special audit or "cold comfort" letters required by or incident
to such performance), securities act liability insurance (if BEC
elects to obtain such insurance) and the fees and expenses of any
special experts retained by BEC in connection with such registration
(but not including any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities which shall be paid
by Goldberg) (all such expenses being herein called "Registration
Expenses") will be borne by BEC.
(f) HOLDBACK AGREEMENT. Goldberg, by acquisition of the
Registrable Securities, agrees, if so requested by the managing
underwriters, not to effect any public sale or distribution (including
a sale under Rule 144) of such securities during the seven (7) days
prior to the effective date of any registration statement filed by BEC
in connection with an underwritten public offering of the BEC Common
Stock (or for such shorter period of time as is sufficient and
appropriate, in the opinion of the managing underwriter, in order to
complete the sale and distribution of the securities included in such
registration).
(g) INDEMNIFICATION; CONTRIBUTION.
(i) BEC agrees to indemnify and hold harmless
Goldberg, and any agent, against all losses, claims, damages,
liabilities and expenses (including reasonable attorneys fees
and costs of investigation) arising out of or based upon any
untrue or alleged untrue statement of material fact contained
in any
-8-
<PAGE> 9
registration statement which includes Registrable Securities,
any amendment or supplement thereto, any prospectus or
preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
except insofar as the same arise out of or are based upon any
such untrue statement or omission based upon information with
respect to Goldberg furnished in writing to BEC by or on
behalf of Goldberg expressly for use therein; provided that,
in the event that the prospectus shall have been amended or
supplemented and copies thereof, as so amended or supplemented
shall have been furnished to Goldberg prior to the
confirmation of any sales of Registrable Securities, such
indemnity with respect to the prospectus shall not inure to
the benefit of Goldberg if the person asserting such loss,
claim, damage or liability did not, at or prior to the
confirmation of the sale of the Registrable Securities to such
person, receive a copy of the prospectus as so amended or
supplemented and the untrue statement or omission of a
material fact contained in the prospectus was corrected in the
prospectus as so amended or supplemented. In connection with
an underwritten offering, BEC will indemnify the underwriters
thereof, their officers and directors and each person who
controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with
respect to the indemnification of Goldberg except with respect
to information provided by the underwriter specifically for
inclusion therein.
(ii) INDEMNIFICATION BY GOLDBERG. In connection
with any registration statement in which Goldberg
participates, Goldberg will furnish to BEC in writing such
information with respect to Goldberg as BEC reasonably
requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to the extent
permitted by law, BEC, its directors and officers and each
person who controls BEC (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of a material
fact or any omission of a material fact required to be stated
in the registration statement or prospectus or any amendment
thereof or supplement thereto or necessary to make the
statements therein not misleading, to the extent, but only to
the extent, that such untrue statement is contained in or such
omission relates to any information with respect to Goldberg
so furnished in writing by Goldberg specifically for inclusion
in any prospectus or registration statement. In no event
shall the liability of Goldberg hereunder be greater in amount
than the dollar amount of the proceeds received by Goldberg
upon the sale of the Registrable Securities giving rise to
such indemnification obligation.
(iii) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any
person entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying party after the
receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation
or threat thereof made in writing for which such person will
claim indemnification or contribution
-9-
<PAGE> 10
pursuant to this Agreement and, unless in the reasonable
judgment of counsel of such indemnified party a conflict of
interest may exist between such indemnified party and the
indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claim.
Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to,
assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel with respect to
such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between
such indemnified party and any other indemnified parties with
respect to such claim, in which event the indemnifying party
shall be obligated to pay the fees and expenses of such
additional counsel or counsels as are required due to such
conflict of interest.
(iv) CONTRIBUTION. If the indemnification
provided for in this Section 6 from the indemnifying party is
unavailable to an indemnified party hereunder in respect of
any losses, claims, damages, liabilities or expenses referred
to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties and
the relative benefits received by the indemnifying party and
the indemnified parties in connection with the actions which
resulted in such losses, claims damages, liabilities or
expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact, has
been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in
Section 6, any reasonable legal or other fees or expenses
reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6 were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6,
Goldberg shall not be required
-10-
<PAGE> 11
to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of Goldberg
were offered to the public exceeds the amount of any damages
which Goldberg has otherwise been required to pay by reason of
such untrue statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
7. GENERAL.
(a) ENTIRE AGREEMENT. This Agreement and the documents
referred to herein contain the entire understanding of the parties
hereto with respect to the subject matter hereof and there are no
restrictions, representations, warranties, covenants or undertakings
of the parties hereto except those expressly set forth herein or in a
document referred to herein.
(b) SURVIVAL. The representations, warranties, covenants
and agreements of the parties contained herein shall survive the
execution and delivery of this Agreement and the exchange of the
Nevada Shares and the Sub Shares, and the issuance of the Shares and
the Common Shares contemplated hereby.
(c) FURTHER ASSURANCES, SPECIFIC PERFORMANCE. The
parties hereto each agree to execute and deliver such other
instruments, documents or agreements as may be reasonably necessary or
desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby. In the event
any party fails to deliver to the Escrow Agent any of the documents
required by Section 5 by the time specified in Section 5, any other
party shall be entitled, in addition to all other remedies, to a
decree for specific performance of the provisions of this Agreement
that relate to delivery of the items set forth in Section 5.
(d) AMENDMENT; WAIVER. This Agreement may be amended and
any provisions hereof may be waived only by a written instrument
signed by the party against whom enforcement thereof is sought.
(e) NOTICES. All notices and other communications
provided for or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by
telex or telecopier, registered or certified mail (return receipt
requested), postage prepaid or courier to the parties at the following
addresses (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notice sent by mail
shall be effective five days after mailing; notices sent by telex
shall be effective when answered back, notices sent by telecopier
shall be effective when receipt is acknowledged, and notices sent by
courier guaranteeing next day delivery shall be effective on the next
business day after timely delivery to the courier:
-11-
<PAGE> 12
(i) if to Goldberg, at the following address:
Bally Entertainment Corporation
2 Executive Drive
Somerset, NJ 09973
Telephone: 908/469-4444
Facsimile: 908/469-3876
(ii) if to BEC or Casino, at the following address:
Bally Entertainment Corporation
8700 West Bryn Mawr Avenue
Chicago, IL 60631
Attention: Secretary
Telephone: 312/399-1300
Facsimile: 312/399-1231
or
(iii) if to Escrow Agent, at the following address:
Orloff, Lowenbach, Stifelman & Siegel, P.A.
101 Eisenhower Parkway
Roseland, NJ 07068
Attention: F. Stifelman
Telephone: 201/622-6200
Facsimile: 201/622-3073
(f) SECTION HEADINGS. The section headings contained in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
(g) SEVERABILITY. If at any time subsequent to the date
of this Agreement, any provision of this Agreement shall be held by
any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force or effect but the
illegality or unenforceability of such provision shall have no effect
upon or impair the enforceability of any other provision.
(h) BEC COMMON. The parties hereto acknowledge that BEC
is not obligated to contribute BEC Common to Casino in connection with
the issuance of the Shares or the subsequent exercise of the exchange
feature of the Shares. Nothing in this subsection (h) is intended to
or shall serve to relieve Casino of the obligation to deliver BEC
Common upon the exercise of the exchange feature of the Shares. In
the event the
-12-
<PAGE> 13
exchange feature of the Shares is exercised, BEC agrees to sell to
Casino such number of shares of BEC Common as Casino requires to
satisfy its obligation in connection with the exercise of the exchange
feature of the Shares. The price per share for BEC Common to be paid
by Casino shall be the average closing price for BEC Common as
reported on the New York Stock Exchange (or such other principal
market for BEC Common if not listed on the New York Stock Exchange)
for the five (5) trading days ending five (5) days prior to the date
Casino is required to deliver the BEC Common after exercise of the
exchange right of the Shares. Casino may purchase such shares of BEC
Common for cash or a combination of cash and notes. If Casino chooses
to pay for such shares of BEC Common for a combination of cash and
notes, the cash portion must be at least an amount calculated by
multiplying the number of shares of BEC Common to be purchased by the
par value of the BEC Common. The terms of any note to be issued by
Casino to BEC shall be at least as favorable as BEC would have
received at that time from an unaffiliated third party. As a
condition to the issuance of the BEC Common, Casino shall deliver to
BEC, at the time the note is delivered, a written opinion of a
nationally recognized expert (reasonably satisfactory to BEC) with
experience in appraising the terms and conditions of such note that
the terms of such note are fair to BEC from a financial point of view.
Casino agrees to amend the terms of such note to the extent required
to obtain such an opinion.
(i) ASSIGNMENT. In the event Goldberg transfers any
Shares or BEC Common he receives by exercising the exchange feature of
the Shares to any of (i) his spouse or issue, (ii) the trustees of any
trust made primarily for the benefit of Goldberg, his spouse or issue,
(iii) a corporation in which Goldberg has a controlling interest or
(iv) the beneficiaries of any trust described in clause (ii) of this
sentence (collectively, the "Permitted Assigns"), by accepting
transfer of the Shares or BEC Common, the Permitted Assigns shall be
deemed to be bound by and to receive the benefits of the provisions of
this Agreement. Notwithstanding the foregoing, there shall not be
more than 10 Permitted Assigns. In addition, for purposes of Section
6 of this Agreement, those portions of Section 7 of this Agreement
which relate to Section 6 and Section 8 the term "Goldberg" shall be
deemed to include any Permitted Assigns.
(j) LITIGATION COSTS. In the event of litigation among
the parties or between any of them, relating to the Subscription
Agreement or the transactions contemplated by the Subscription
Agreement, the prevailing party in such litigation shall be entitled
to recover from the other party or parties, as the case may be, the
costs and expenses incurred by the prevailing party in such
litigation, including reasonable attorneys' fees.
(k) COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but
all of which when taken together shall constitute one and the same
document.
-13-
<PAGE> 14
8. ESCROW.
(a) APPOINTMENT. Orloff, Lowenbach, Stifelman & Siegel,
P.A. is hereby appointed Escrow Agent to hold and dispose of the
Documents in accordance with the terms of this Agreement.
(b) DUTIES. The Escrow Agent shall hold and safeguard
the Documents until the earlier of (i) February 15, 1995, or (ii) such
time as it receives an officer's certificate of BEC ("Officer's
Certificate") stating that (y) BEC has received a written opinion from
a nationally recognized investment banking firm to the effect that the
exchange of the Nevada Shares for the Shares, with the terms presently
included are fair to BEC from a financial point, and (z) that BEC has
received evidence of approval of the New Jersey Casino Control
Commission to the transactions contemplated by this Agreement.
(c) DISTRIBUTION OF DOCUMENTS.
(i) Upon receipt by the Escrow Agent of the
Officer's Certificate, the Escrow Agent shall disburse to
Casino the certificate or certificates evidencing the Nevada
Shares, disburse to Goldberg the BPP Guaranty and the
certificate for the Shares, disburse to Casino a certificate
evidencing the Sub Shares and disburse to BEC a certificate
for the Common Shares.
(ii) In the event that the Escrow Agent does not
receive the Officer's Certificate by February 15, 1995, the
Escrow Agent shall return to Goldberg the certificate or
certificates evidencing the Nevada Shares, return to Casino
the BPP Guaranty and the certificate for the Shares, return to
BEC the certificate evidencing the Sub Shares and return to
Casino the certificate for the Common Shares.
(d) OTHER. Escrow Agent shall hold and safeguard the
Documents and shall treat such Documents as a trust in accordance with
the terms hereof and not as property of the Escrow Agent. Each party
depositing any Document shall retain the voting rights and rights to
any dividend or distribution with respect to the capital stock, if
any, represented by such Document until such time as the Documents are
disbursed by the Escrow Agent pursuant to subparagraph (c)(i) of this
Section 8. It is understood and agreed that the duties of the Escrow
Agent are only such as are herein specifically provided, being purely
ministerial in nature, and it shall have no responsibility for the
genuineness or validity of any document or other items deposited with
it. The Escrow Agent may act upon any notice, certificate, instrument
or other document believed to be genuine and to have been made, sent,
signed or prescribed by the proper party or parties, and shall not be
liable for any action taken or omitted by it in connection with the
performance by it of its duties pursuant to this Agreement, except for
any willful misconduct, gross negligence or bad faith of it, its
employees or agents and it shall be under no obligation to institute
or defend any action, suit or legal proceeding in
-14-
<PAGE> 15
connection herewith or take any other action likely to involve it in
expenses unless first indemnified to its satisfaction. The Escrow
Agent shall not be liable for the sufficiency or correctness as to
form, manner of execution, or validity of any instrument deposited, or
as to identity, authority or rights of any person executing the same.
Liability as the Escrow Agent shall be confined to the things
specifically provided for in this Agreement. Should the Escrow Agent
before or after the close of escrow receive or become aware of any
conflicting demands or claims with respect to the Documents, the
Escrow Agent shall have the right to discontinue any or all further
acts on its part until such conflict is resolved to the parties
satisfaction, and the Escrow Agent shall have the further right to
commence or defend any action or proceedings for the determination of
such conflict. The parties other than the Escrow Agent hereto jointly
and severally agree to pay all costs, damages, judgments and expenses
including reasonable attorneys fees, suffered or incurred by the
Escrow Agent in connection with or arising out of this escrow,
including, but not limited to the generality of the foregoing, a suit
in interpleader brought by the Escrow Agent provided, however, that
the Escrow Agent shall not be entitled to any indemnification for any
willful misconduct, gross negligence or bad faith on the part of it,
its employees or agents. The Escrow Agent shall be reimbursed by BEC
for any out-of-pocket expenses incurred in connection with its
services hereunder. Serving as the Escrow Agent hereunder shall not
in any way prevent the Escrow Agent from continuing to represent
Goldberg as legal counsel.
9. INDEMNIFICATION. BEC and Casino jointly and severally agree
to indemnify and hold harmless Goldberg from and on account of any and all
federal, state, and local Income Taxes (as defined in the next sentence)
payable by Goldberg solely as the result of the transfer by Goldberg of the
Nevada Shares into escrow pursuant to Section 8 hereof and/or the return of the
Nevada Shares to Goldberg by the Escrow Agent pursuant to subparagraph c(ii) of
Section 8 hereof. "Income Taxes" as used in the preceding sentence shall mean
all taxes, interest, penalties, and additions to tax resulting from the payment
to or for the benefit of Goldberg of any of the foregoing, whether applicable
to Goldberg's 1994 or 1995 income, or both.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BALLY'S CASINO, INC.
By: /S/ LEE HILLMAN
--------------------------------
BALLY ENTERTAINMENT CORPORATION
By: /S/ LEE HILLMAN
--------------------------------
/S/ ARTHUR M. GOLDBERG
------------------------------------
Arthur M. Goldberg
ORLOFF, LOWENBACH, STIFELMAN & SIEGEL, P.A.
/S/ RALPH M. LOWENBACH
------------------------------------
15
<PAGE> 1
EXHIBIT 21
<TABLE>
LIST OF SUBSIDIARIES OF
-----------------------
BALLY ENTERTAINMENT CORPORATION (a)
-----------------------------------
<CAPTION>
NAME OF CORPORATION PLACE OF INCORPORATION
------------------- ----------------------
<S> <C>
Bally Services Corporation Delaware
Bally's Health & Tennis Corporation (b) Delaware
Health & Tennis Corporation of America (b) Delaware
Scandinavian Health Spa, Inc. (b) Ohio
Houston Health Clubs, Inc. (b) Texas
Jack LaLanne Holding Corp. (b) New York
Vic Tanny International, Inc. (b) Michigan
Chicago Health Clubs, Inc. (b) Illinois
U.S. Health, Inc. (b) Delaware
Bally's PacWest, Inc. (b) Washington
So. Cal Nautilus Fitness Centers, Inc. (b) California
Bally's Casino, Inc. Delaware
Bally's Intermediate Sub, Inc. Delaware
Bally's Intermediate Sub No. I, Inc. (b) Delaware
Bally's Intermediate Sub No. 2, Inc. (b) Delaware
Bally's Intermediate Sub No. 3, Inc. (b) Delaware
Bally's Intermediate Sub No. 4, Inc. (b) Delaware
Bally's Intermediate Sub No. 5, Inc. (b) Delaware
Bally's Intermediate Sub No. 6, Inc. (b) Delaware
Bally's Sub, Inc. (b) Delaware
Bally's Casino Holdings, Inc. (b) Delaware
Bally's Park Place, Inc. (b) Delaware
Bally's Park Place, Inc. (b) New Jersey
Bally Warwick, Inc. (b) New Jersey
Bally's Park Place Funding, Inc. (b) Delaware
Bally's Grand Management Co., Inc. (b) Nevada
Bally's Intermediate Casino Holdings, Inc. (b) Delaware
Bally's Tunica, Inc. (b) Mississippi
Bally's Louisiana, Inc. (b) Louisiana
Belle of Orleans, L.L.C. (b) (c) Louisiana
Bally's CHLV, Inc. (b) Delaware
Bally's Grand, Inc. (b) (d) Delaware
Grand Resorts, Inc. (b) Nevada
Bally's Grand Property Sub I, Inc. Nevada
BGR, Inc. Nevada
GNAC, CORP. New Jersey
GNOC, CORP. (b) New Jersey
GNF, CORP. (b) New Jersey
(a) A number of subsidiaries, principally name holding corporations, have been omitted from the list of subsidiaries. The
unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
(b) Subsidiaries of subsidiary companies are indented and follow the respective companies by which they are controlled.
(c) Limited liability company 49.9% owned by Bally's Louisiana, Inc.
(d) Approximately 65% of outstanding stock owned by Bally's CHLV, Inc., BGR, Inc. and Bally's Casino, Inc.
NOTE: With the exception of (c) and (d), percentage of ownership is 100%.
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement No.
33-56831 on Form S-8, No. 33-44219 on Form S-8, No. 33-41888 on Form S-8, No.
2-99188 on Form S-8 and No. 2-98002 on Form S-3 of our report dated February
15, 1995, except for the "Discontinued operations" note, as to which the date
is March 17, 1995, with respect to the consolidated financial statements and
schedules of Bally Entertainment Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1994, the Consolidated Statement of
Operations and the Consolidated Statement of Stockholders' Equity for the year
ended December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 178,427
<SECURITIES> 6,031
<RECEIVABLES> 35,646
<ALLOWANCES> 12,196
<INVENTORY> 8,113
<CURRENT-ASSETS> 248,693
<PP&E> 1,632,107
<DEPRECIATION> 445,239
<TOTAL-ASSETS> 1,936,161
<CURRENT-LIABILITIES> 177,642
<BONDS> 1,258,990
<COMMON> 31,426
0
694
<OTHER-SE> 261,492
<TOTAL-LIABILITY-AND-EQUITY> 1,936,161
<SALES> 0
<TOTAL-REVENUES> 942,255
<CGS> 0
<TOTAL-COSTS> 584,135<F1>
<OTHER-EXPENSES> 27,300<F1>
<LOSS-PROVISION> 6,829<F1>
<INTEREST-EXPENSE> 130,834
<INCOME-PRETAX> 6,078
<INCOME-TAX> 3,000
<INCOME-CONTINUING> (1,903)
<DISCONTINUED> (46,091)
<EXTRAORDINARY> (20,395)
<CHANGES> 0
<NET-INCOME> (68,389)
<EPS-PRIMARY> (1.52)
<EPS-DILUTED> 0
<FN>
<F1>These amounts are included in costs and expenses in the Consolidated Statement
of Operations for the year ended December 31, 1994. These amounts exclude
Selling, General and Administration expenses and Depreciation and Amortization.
</FN>
</TABLE>
