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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER: 1-7244
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BALLY ENTERTAINMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OR OTHER JURISDICTION OF INCORPORATION)
8700 West Bryn Mawr Avenue, Chicago, Illinois
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
36-2512405
(I.R.S. EMPLOYER IDENTIFICATION NO.)
60631
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 399-1300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
Common Stock, par value $.66 2/3 New York Stock Exchange
8% PRIDES Convertible Preferred Stock, par
value $1.00 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
6% Convertible Subordinated Debentures due
1998 New York Stock Exchange
8% Convertible Senior Subordinated
Debentures due 2000 New York Stock Exchange
10% Convertible Subordinated Debentures
due 2006 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant as of March 25, 1996 was approximately $1.0
billion. As of March 25, 1996, 48,322,791 shares of the registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement which the registrant intends to file
with the Securities and Exchange Commission within 120 days of the close of the
fiscal year ended December 31, 1995 pursuant to Regulation 14A of the Securities
Exchange Act of 1934 shall be deemed to be incorporated by reference in Part III
of this Annual Report on Form 10-K from the date of filing such document.
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PART I
Except as otherwise stated, the information contained in this Annual Report is
as of December 31, 1995, the end of the registrant's last fiscal year.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
The registrant, Bally Entertainment Corporation ("Bally") and its subsidiaries
(collectively, the "Company") are engaged in the operation of casinos, some with
supporting hotel operations. Principal operations of the Company include: (i)
Bally's Park Place casino hotel resort in Atlantic City, New Jersey ("Bally's
Park Place"), (ii) The Grand casino hotel resort in Atlantic City ("The Grand"),
(iii) Bally's Las Vegas casino hotel resort in Las Vegas, Nevada ("Bally's Las
Vegas"), (iv) Bally's Saloon * Gambling Hall * Hotel, the Company's dockside
casino and hotel in Robinsonville, Mississippi ("Bally's Mississippi") and (v)
Bally's Casino * Lakeshore Resort, the Company's riverboat casino in
New Orleans, Louisiana ("Bally's New Orleans"). Certain information regarding
the Company's existing properties as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
GAMING
AREA RES-
(SQ. SLOT TABLE HOTEL TAURANT PARKING
FT.) MACHINES GAMES ROOMS SEATING SPACES
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<S> <C> <C> <C> <C> <C> <C>
Bally's Park Place......................... 80,059 2,326 114 1,265 1,307 2,309
The Grand.................................. 59,641 1,835 105 509 986 1,798
Bally's Las Vegas.......................... 62,231 1,737 76 2,814 1,501 2,546
Bally's Mississippi........................ 40,000 1,193 55 238 230 1,200
Bally's New Orleans........................ 30,000 1,213 46 -- 180 1,200
-------- -------- ----- ----- ------- -------
Company totals........................ 271,931 8,304 396 4,826 4,204 9,053
======== ======== ===== ===== ======= =======
</TABLE>
On June 28, 1994, the Board of Directors of Bally (the "Board") approved a plan
to spin off its fitness centers segment operated by Bally Total Fitness Holding
Corporation ("BFIT"), formerly Bally's Health & Tennis Corporation. On November
6, 1995, the Board declared a spin-off distribution to holders of Bally common
stock at the close of business on November 15, 1995 (the "Spin-off"), with one
share of BFIT common stock to be distributed for every four shares of Bally
common stock then outstanding. The BFIT common stock was distributed on January
9, 1996; however, the Spin-off was reflected in the Company's consolidated
financial statements as of the November 15, 1995 record date. See Notes to
consolidated financial statements -- Discontinued operations.
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 adjacent to the Boardwalk
and within four blocks of both the existing Atlantic City Convention Hall and
the new convention center, which is currently under construction. A corridor
project, which is expected to beautify the area linking 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 business, including strong crossover business from competing casino
hotels located nearby. Equipped with two multi-story parking garages and surface
valet parking lots providing over 2,300 parking spaces, management believes that
Bally's Park Place is also strongly positioned to attract desirable drive-in
business.
With 1,265 guest rooms (including 104 suites) in a 30-story hotel tower and a
12-story hotel facility, Bally's Park Place is the largest casino hotel resort
in Atlantic City. Bally's Park Place has approximately 2.6 million square feet
of space, including 80,100 square feet of gaming space. At December 31, 1995,
Bally's Park Place offered 2,326 slot machines and 114 table games, including
blackjack, craps, roulette and poker, among others.
During the first quarter of 1995, Bally's Park Place completed a slot machine
upgrade which was initiated in 1994, replacing the majority of its slot machine
inventory with state-of-the-art machines with embedded bill acceptors and
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reconfigured its slot machine layout, adding slot stools and increasing aisle
space. Bally's Park Place competes for higher margin slot business by employing
the latest slot machine technology and placing particular attention to the
location, design, signage and lighting of its slot machine areas.
Bally's Park Place, the largest four-star hotel in New Jersey as rated by the
Mobil Travel Guide, contains approximately 50,000 square feet of meeting and
exhibition space, a 38,000 square-foot health spa facility and a premium
players' lounge. 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's operating strategy capitalizes on its central location and
quality facilities, which allows it 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 expects to
continue targeting and marketing to premium table game and slot players through
enhanced facility accommodations without compromising its focus on mid-level
slot play. Successful promotional marketing campaigns and special events
augmented by diverse advertising programs continue to expand the customer base.
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 has announced its intention to develop a western-themed
casino complex on approximately four acres of Boardwalk property it owns
adjacent to its existing facility. The complex is presently planned to include
approximately 70,000 square feet of casino space and cost between $80 and $100
million, with completion anticipated in mid-1997. The planned expansion is
subject to various governmental approvals. Construction of the complex is
expected to commence in the second quarter of 1996.
Bally's Park Place's operations are conducted 24 hours a day every day of the
year. 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 and has collective bargaining
contracts with unions covering approximately 1,600 of these employees.
THE GRAND. The Grand is situated on approximately three acres at the
intersection of Boston and Pacific Avenues at the southern end of the Boardwalk
in proximity to one of the major highways that leads into Atlantic City. This
location enables destination-oriented patrons visiting The Grand, primarily
customers who arrive by automobile or bus, to avoid much of the traffic
congestion experienced in the midtown section of Atlantic City.
The Grand encompasses approximately 1.2 million square feet of space contained
within a 22-story tower, a low-rise complex and a multi-story parking garage and
transportation center. The facility has approximately 60,000 square feet of
gaming space featuring 1,835 slot machines and 105 table games. The Grand
continuously updates and modernizes the type of slot games it offers, including
state-of-the-art machines with embedded bill acceptors, to attract slot
customers and provide diversity of play. In addition, The Grand offers a full
selection of table games including baccarat, blackjack, craps, pai gow poker and
roulette, among others, and in April 1995, commenced operation of poker, horse
race simulcasting and keno.
The Grand, a four-diamond hotel as rated by the American Automobile Association,
has 509 oceanview guest rooms (including 117 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 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's multi-story parking garage and
transportation center 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
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Grand also owns a six-story structure, encompassing approximately 67,000 square
feet, which is utilized for storage and maintenance facilities and is located
nearby. In addition, The Grand leases from Bally's Park Place approximately
287,000 square feet of surface parking space accommodating approximately 700
cars located directly across the street from The Grand. The Grand also leases
from Bally's Park Place approximately 191,000 square feet of surface parking
space and a building with approximately 26,000 square feet of space containing
offices and a garage in Ventnor, New Jersey for employee parking, shuttle
service and limousine servicing.
The Grand's operating strategy is to capitalize on its first-class facility,
with an emphasis on personalized service for high-end patrons. In addition to
providing a full selection of casino games, The Grand offers its guests a
variety of specialty restaurants and other amenities which include, among other
things, The Grand Theater, an 18,000 square-foot arena with seating capacity of
up to 2,000 used for headline entertainment, sports events and production shows.
In March 1996, The Grand broke ground for construction of a 300-room hotel
tower, including restaurants, meeting rooms and other related amenities. The
expansion of The Grand is expected to cost approximately $50 million, exclusive
of the receipt of over $10 million of New Jersey Casino Reinvestment Development
Authority (the "CRDA") investment obligation credits, with completion
anticipated in the second quarter of 1997.
The Grand's operations are conducted 24 hours a day every day of the year.
Revenues and earnings peak during the summer season, with less favorable
operating results during the winter. The Grand employs approximately 3,200
persons in the operation of its business and has collective bargaining contracts
with unions covering approximately 1,100 of these employees.
BALLY'S LAS VEGAS. A subsidiary of Bally owned approximately 81% of the Bally's
Grand, Inc. common shares outstanding as of December 31, 1995. Bally's Grand,
Inc. owns and operates the casino hotel resort in Las Vegas, Nevada known as
"Bally's Las Vegas." Bally's Las Vegas is situated on an approximately 30-acre
site at the well-known intersection of Las Vegas Boulevard South and Flamingo
Road. Bally's Las Vegas is located at the center of the "Golden Mile" of the Las
Vegas "Strip" and is within walking distance of many of the other major casino
hotels situated there, which management believes enhances its visibility and
provides it with an advantage in attracting hotel guest and convention business.
In addition, separate subsidiaries of Bally's Grand, Inc. own approximately 14
acres of land situated adjacent to Bally's Las Vegas on which a parking lot used
by Bally's Las Vegas is located and 5 acres of land situated in North Las Vegas,
Nevada on which supporting facilities used by Bally's Las Vegas are located.
Bally's Las Vegas currently encompasses approximately 3.2 million square feet of
space in two high-rise hotel towers connected by a low-rise structure and has
approximately 62,200 square feet of gaming space. Bally's Las Vegas features
1,737 slot machines, 76 table games, several keno areas and a race and sports
book room. In order to promote slot machine play, Bally's Las Vegas emphasizes
the configuration and location of its slot machine areas. In addition, Bally's
Las Vegas offers a full selection of table games including baccarat, blackjack,
craps, roulette, pai gow poker, caribbean stud poker, let it ride and a big-six
wheel.
Bally's Las Vegas has 2,814 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 which is
presently being renovated into a premium players' slot 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.
Bally's Las Vegas recently completed an extensive capital improvement program.
During 1994, Bally's Las Vegas completed improvements to its frontage area along
the Strip, including the addition of moving walkways that transport patrons to
and from the main entrance through gardens and water displays. In June 1995,
Bally's Las Vegas and MGM Grand jointly opened a new monorail system, connecting
the two major
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"Four Corners" on the Strip through their respective properties. Renovation of
the 800 hotel rooms in Bally's Las Vegas' south tower was completed in August
1995, complementing the 1993 renovation of the approximately 2,000 hotel rooms
in the main tower.
Convention business is a major marketing focus for Bally's Las Vegas, as it
provides the resort with mid-week occupancy and generally higher than standard
mid-week rates. Management believes that Bally's Las Vegas' convention meeting
space and substantial convention amenities and services make it one of the most
desirable convention forums in Las Vegas.
In addition to its focus on convention business, Bally's Las Vegas markets to
two distinct groups of customers identified as "consistent wagerers" in the
middle to upper-middle tier of the gaming market. The first group consists of
individuals traveling to Las Vegas from southern California and the southwestern
states by automobile and, to a lesser extent, by airplane. These individuals are
primarily weekend-oriented and represent a significant portion of Bally's Las
Vegas' customers. The second group consists of primarily mid-week oriented
individuals who tend to take advantage of travel "packages" offered by tour and
travel agents. Bally's Las Vegas' operating strategy is designed to attract and
retain these customer groups by capitalizing on the quality of its facilities
and providing its guests with a full range of resort amenities and personalized
services, emphasizing its "Touch of Class" motto. Management believes that the
spacious configuration of Bally's Las Vegas' casino and the size of its standard
hotel rooms, which are among the largest offered on the Strip, contribute to its
upscale image and help to attract these targeted customers. Also, in connection
with a recent alliance between a worldwide casino consulting company and Bally's
Las Vegas and the planned redesign and expansion of its baccarat area in 1996,
Bally's Las Vegas intends to target and market to high-end baccarat players from
Asia and the Pacific Rim.
Bally's Grand, Inc. also owns approximately 24 acres of land situated on the
Strip adjacent to Bally's Las Vegas on which a small retail shopping center is
presently located. In 1995, Bally's Grand, Inc. announced its intention to
develop a separate casino hotel resort with a Paris, France theme (the "Paris
Casino-Resort") on this land. The Paris Casino-Resort is presently planned to
include, among other things, an 85,000 square-foot casino, 3,000 guest rooms and
a 50-story Eiffel Tower attraction. The cost of the project, exclusive of the
value of the land, is presently estimated to be between $375 million and $425
million, with construction expected to commence in the third quarter of 1996.
Bally's Las Vegas' operations are conducted 24 hours a day every day of the
year. Business is somewhat seasonal, usually declining in the summer and
mid-winter months. Bally's Las Vegas employs approximately 4,100 persons in the
operation of its business and has collective bargaining contracts with unions
covering approximately 2,500 of these employees.
BALLY'S MISSISSIPPI. Through subsidiaries, Bally owns a 58% equity interest in
Bally's Mississippi, which reopened its dockside casino in December 1995 in
Robinsonville, Mississippi (near Memphis, Tennessee), and manages the property
for an indefinite term for a management fee equal to the sum of 2% of the net
win from gaming activities plus 7% of earnings before interest, depreciation and
amortization of Bally's Mississippi.
Bally's Mississippi features a dockside casino and saloon with an adjacent
land-based facility and a hotel located on approximately 64 acres. At December
31, 1995, the 40,000 square-foot dockside casino featured 1,193 slot machines,
55 table games (including blackjack, craps, mini-baccarat, poker, roulette and a
big-six wheel, among others) and the Maverick High Stakes Parlor, a premium
players' room. The casino is complemented by a 4,000 square-foot saloon
featuring nightly entertainment ranging from "top 40" bands to the area's
hottest country acts. Bally's Mississippi's 30,000 square-foot land-based
facility has a two-story open atrium at its entrance and features a
theater/lounge, a restaurant, a snack bar and administrative facilities. The
theater/lounge is a renovated authentic grain silo with a seating capacity of
approximately 250 and features revues and various headline entertainment. The
Cornucopia restaurant features a buffet, an a la carte menu and overlooks Old
River Lake. Bally's Mississippi's 150,000 square-foot hotel has 238
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rooms, an Olympic size pool, an outdoor spa and a health club.
The operating strategy of Bally's Mississippi is to provide an enjoyable gaming
experience for its patrons through a well-trained, friendly staff in an
attractive facility, complemented by comfortable hotel accommodations,
entertainment, varied dining options and parking for approximately 1,200
vehicles. The atmosphere of the casino is open and airy, with wide aisles and
ample space between games. A "Bayou" theme featuring weathered metal siding and
exposed wooden beams creates a fun environment with destination appeal. Hotel
guests receive a complimentary breakfast at the Cornucopia each day of their
stay. The marketing strategy of Bally's Mississippi is to generate a high volume
of play from casino customers in the regional area, which management believes is
enhanced by the hotel and Bally's Mississippi's close proximity to Memphis,
Tennessee.
Bally's Mississippi's operations are conducted 24 hours a day every day of the
year. Bally's Mississippi employs approximately 1,000 persons in the operation
of its business.
BALLY'S NEW ORLEANS. Through subsidiaries, Bally owns an equity interest of
approximately 50% in and has effective control of Bally's New Orleans, which
commenced the operation of a riverboat casino in July 1995 in New Orleans,
Louisiana. Pursuant to a management agreement with an initial term of five years
(effective March 1994) and an option for a second five-year term, these Bally
subsidiaries developed and manage the property for a management fee initially
equal to approximately 7% of the earnings before interest, depreciation and
amortization of Bally's New Orleans.
Bally's New Orleans' riverboat operates out of South Shore Harbor on Lake
Pontchartrain in Orleans Parish, which is approximately eight miles from the
French Quarter of New Orleans. The riverboat can accommodate up to 2,500
passengers and features a 30,000 square-foot casino (the maximum size currently
allowed under Louisiana law) on the two upper decks of the vessel. The casino
features 1,213 state-of-the-art slot machines with embedded bill acceptors and
46 table games, including blackjack, roulette, craps and poker, among others.
The lower level of the vessel has an additional 20,000 square feet of space
(presently being used for special events and headline entertainment) which could
be utilized for gaming in the event current Louisiana law is amended. The vessel
was built to resemble a traditional paddle-wheel riverboat and features an
"Americana" theme in red, white and blue. Onshore facilities include a 34,000
square-foot terminal building that houses a buffet restaurant, cocktail lounge
and an entertainment/waiting area and parking for approximately 1,200 vehicles.
Bally's New Orleans' operating strategy is to provide its patrons with an
enjoyable gaming experience through a well-trained, friendly staff in an
attractive facility. The marketing strategy of Bally's New Orleans is to
generate a high volume of casino play from local residents, as well as tourists.
Louisiana law provides for 24-hour, unlimited stakes gaming on a riverboat.
Barring adverse weather and water conditions, gaming is not permitted while a
riverboat is docked other than during a period no longer than 45 minutes between
excursions. Each round-trip riverboat cruise may not be less than three nor more
than eight hours in duration. Bally's New Orleans operates eight cruises daily
with no admission charge. Bally's New Orleans employs approximately 800 persons
in the operation of its business.
OTHER. The Company continues to explore opportunities for gaming expansion in
jurisdictions where gaming is presently authorized or may become authorized. New
gaming projects may be wholly owned and operated by the Company or may be
developed, owned and/or operated through ventures in which the Company
participates. Exclusive of costs incurred in the development of Bally's New
Orleans and Bally's Mississippi, the Company has expended approximately $24
million during the past three years in the pursuit of gaming opportunities,
including capitalized land option costs of approximately $11 million. In
addition, the Company entered into agreements with a third party in June 1995
whereby the Company loaned approximately $11 million to finance the acquisition
of and is managing two harness racing facilities in Maryland: (i) Rosecroft
Raceway, located in suburban Washington, D.C. and (ii) Delmarva Downs Raceway,
located near Ocean City, Maryland. The loans are secured
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by first mortgages and contain options to purchase equity interests in the
racing facilities.
In April 1995, Bally's Grand, Inc. entered into several agreements relating to
the prospective acquisition of an 85% equity interest in Excelsior/Chehalis,
L.P., which presently manages the Lucky Eagle Casino in Rochester, Washington.
In connection therewith, Bally's Grand, Inc. deposited $3 million to
collateralize certain indebtedness of the partnership and applied for the
required gaming licenses and regulatory approvals. In August 1995, Bally's
Grand, Inc. received the necessary license from the Washington State Gambling
Commission, but the acquisition remains contingent upon the receipt of a license
from the National Indian Gaming Commission, which is pending.
COMPETITION
GENERAL. The Company's casinos face considerable competition from both
established casinos and newly emerging gaming operations. Management 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 present operations.
However, proposals have been made for casinos, generally water-based, in a
number of other jurisdictions and several large metropolitan areas, including
Chicago, where the Company is headquartered, and Philadelphia, where the Company
holds an option on a large tract of waterfront property. Legalization of gaming
in additional jurisdictions would also provide opportunities for expansion by
the Company's competitors, some of which have greater financial resources than
the Company, which could adversely affect the Company's existing operations.
Management believes that the adoption of legislation approving casino gaming and
the opening of significant gaming establishments in any jurisdiction near New
Jersey or Nevada or the advent of full-scale gaming on nearby Native American
lands could have a material adverse effect on its present operations. Similarly,
the legalization of gaming in jurisdictions adjacent to Mississippi could have a
material adverse effect upon the operations of Bally's Mississippi. The Company
also competes with other forms of legalized gaming, including state-sponsored
lotteries and off-track wagering. In markets in which the Company commences
operations or seeks to commence operations, it often faces intense competition
for licenses, desirable sites, qualified personnel and, ultimately, customers
from other companies in the gaming industry.
Management believes that patrons distinguish among casinos based on a number of
factors including, but not limited to, 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, and competition increases as additional slot machines and hotel
rooms are added. In addition, proposals for several casino hotel resorts were
recently announced for the marina district in Atlantic City and, if and when
such resorts are opened, capacity and competition will further increase. To
enhance their competitiveness in the Atlantic City market, Bally's Park Place
recently completed six penthouse suites in its hotel tower and intends to
develop the aforementioned western-themed casino complex, and The Grand intends
to develop the aforementioned 300-room hotel tower. In addition, Bally's Park
Place has a central location which positively affects its competitive position,
whereas The Grand is geographically removed from most other Atlantic City casino
hotels, which has historically adversely affected its competitive position.
LAS VEGAS. Bally's Las Vegas competes principally with other casino hotels
located in Las Vegas. Currently, there are approximately thirty major casino
hotels located on or near the Strip, approximately ten major casino hotels
located in the Las Vegas downtown area and several major facilities located
elsewhere in the Las
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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
gaming space increased significantly and hotel and motel room capacity increased
by approximately 13,500 rooms or 18%. A significant portion of the increase is a
result of the opening during the latter part of 1993 of three major casino
hotels that contain approximately 370,000 total square feet of gaming space,
10,400 total guest rooms and a theme park. In addition, there have been several
public announcements concerning major casino hotel projects in Las Vegas,
certain of which have commenced construction. In particular, two casino hotel
resorts are expected to open on the Strip in 1996 with a total of approximately
170,000 square feet of gaming space and 5,400 guest rooms. Management believes
that the additional casino and hotel room capacity resulting from the opening of
new casino hotels may have 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 1995 increased approximately 33% over the number in
1992. To enhance its competitiveness in the Las Vegas market, Bally's Las Vegas
recently completed the aforementioned capital improvement program. In addition,
Bally's Grand, Inc. has announced its intention to develop the Paris
Casino-Resort.
MISSISSIPPI. Mississippi gaming law does not limit the number of gaming licenses
that may be granted. As a result, management believes there was a saturation of
gaming facilities in and around the Memphis, Tennessee market, which led to the
closing of six casinos in that market since April 1994 (including Bally's
Mississippi, which was moved and reopened). As of March 25, 1996, eight gaming
facilities were operating in this market, three of which are located immediately
adjacent to Bally's Mississippi. In addition, two casinos are expected to
commence operations in this market during 1996, one of which is located somewhat
closer to Memphis than Bally's Mississippi. These gaming facilities, as well as
any others which subsequently commence operations there, present significant
competition for Bally's Mississippi.
NEW ORLEANS. Louisiana law currently limits to fifteen the number of riverboat
gaming licenses that may be granted (all but one have been granted as of March
25, 1996), with a maximum of six riverboats in any one parish. Four riverboats
are presently operating in the New Orleans area (including Bally's New Orleans).
During 1995, Bally's New Orleans also competed with a land-based casino which
was operating at a temporary location and was expected to become the largest
land-based casino in the United States when it moved to its permanent location.
However, in November 1995, the competitor ceased operations at the temporary
location and suspended construction at the permanent site. It is presently not
known if, or when, construction of the permanent land-based facility will
resume.
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.
Changes in these regulations could have a material adverse effect on the
operations of the Company. In addition, floating gaming ventures require
compliance with certain maritime laws and U. S. Coast Guard regulations. The
Company believes it is in material compliance with all such regulations.
NEW JERSEY REGULATION. Gaming activities in Atlantic City are subject to the New
Jersey 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,
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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 CRDA. 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, reduced 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 four years (subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time),
and must be renewed by filing an application which must be 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.
The New Jersey Act imposes certain restrictions on the ownership and transfer of
securities issued by a corporation that holds a casino license or is deemed a
holding company, intermediary company, subsidiary or entity qualifier (each, an
"affiliate") of a casino licensee. "Security" is defined by the New Jersey Act
to include instruments that evidence either a beneficial ownership in an entity
(such as common stock or preferred stock) or a creditor interest in an entity
(such as a bond, note or mortgage). Pursuant to the New Jersey Act, the
corporate charter of a publicly traded affiliate of a casino licensee must
require that a holder of the company's securities dispose of such securities if
the holder's continued holding would result in the company or any other
affiliate being no longer qualified to continue as a casino licensee under the
New Jersey Act. The corporate charter of a casino licensee or any privately held
affiliate of the licensee must: (i) establish the right of prior approval by the
New Jersey Commission with regard to a transfer of any security in the company
and (ii) create the absolute right of the company to repurchase at the market
price or purchase price, whichever is less, any security in the company in the
event the New Jersey Commission disapproves a transfer of such security under
the New Jersey Act. The corporate charters of the Company's subsidiaries that
operate Bally's Park Place and The Grand and the charters of their privately
held affiliates conform with the New Jersey Act's requirements described above
for privately held companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of such corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action. The New Jersey Commission may require divestiture of the
securities held by any disqualified holder who is required to be qualified under
the New Jersey Act (e.g., officers, directors, security holders and key casino
and other employees). In the event that disqualified persons fail to divest
themselves of such securities, the New Jersey Commission may revoke or suspend
the license. However, if an affiliate of a casino licensee is a publicly traded
company and the New Jersey Commission finds disqualified any holder of any
security thereof who is required to be qualified, and the New Jersey Commission
also finds that: (i) such company has complied with aforesaid charter
provisions, (ii) such company has made a good faith effort, including the
prosecution of all legal remedies, to comply with any order of the New Jersey
Commission requiring the divestiture of the security interest held by the
disqualified holder, and (iii) such disqualified holder does not have the
ability to control the corporate licensee or the affiliate, or to elect one or
more
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members of the board of directors of such affiliate, the New Jersey Commission
will not take action against the casino licensee or its affiliate with respect
to the continued ownership of the security interest by the disqualified holder.
For purposes of the New Jersey Act, a security holder is presumed to have the
ability to control a publicly traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if such
holder owns or beneficially holds 5% or more of any class of the equity
securities of such corporation, unless such presumption of control or ability to
elect is rebutted by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly traded holding or intermediary company of a casino licensee and: (i)
the holdings were purchased for investment purposes only, (ii) there is no cause
to believe the institutional investor may be found unqualified, and (iii) upon
request by the New Jersey Commission, the institutional investor files a
certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its other
affiliates. The New Jersey Commission may grant a waiver of qualification to an
institutional investor holding 10% or more of such securities upon a showing of
good cause and if the conditions specified above are met.
With respect to debt securities, the New Jersey Commission generally requires a
person holding 15% or more of a debt issue of a publicly traded affiliate of a
casino licensee to qualify as a "financial source" where the use of the proceeds
from the debt issue is related in any way to the financing of the casino
licensee. There can be no assurance that the New Jersey Commission will continue
to apply the 15% threshold, and the New Jersey Commission could at any time
establish a lower threshold for qualification. An exception to the qualification
requirement is made for institutional investors, in which case the institutional
holder is entitled to 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
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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 of any licenses or the
appointment of a conservator by the New Jersey Commission would have a material
adverse effect on the businesses of Bally's Park Place and The Grand.
In 1994, the New Jersey Commission renewed the casino licenses of Bally's
subsidiaries that operate Bally's Park Place and The Grand through June 1996 and
July 1996, respectively. The Company is not aware of any reasons that the
licenses would not be renewed during 1996 for four years.
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.
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. Bally's Casino Holdings, Inc. ("Casino Holdings"), an
indirect wholly owned subsidiary of Bally, is a Registered Corporation by virtue
of its outstanding debt securities. Casino Holdings has been found suitable to
own the capital stock of Bally's Grand Management Co., Inc. ("Management Co."),
and Bally's CHLV, Inc. ("BCHLV"), which has been registered by the Nevada
Commission as an intermediary company
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and has been found suitable to own more than 10% of the voting securities of the
Company. Management Co. is licensed by the Nevada Commission as a manager for
Bally's Grand, Inc. and such license is not transferable. Bally's Grand, Inc. is
a Registered Corporation and has been found suitable to own the capital stock of
Grand Resorts, Inc. ("GRI"), which operates the Bally's Las Vegas casino. GRI is
required to be licensed by the Nevada Gaming Authorities. The gaming license
held by GRI requires the payment of fees and taxes and is not transferable. 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. 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, BCHLV, Bally's Grand, Inc.
and the Corporate Licensees have obtained from the Nevada Gaming Authorities the
various registrations, approvals, findings of suitability, 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 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
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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' 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, they: (i) pay
that person any dividend or interest upon the voting securities of Bally or
Bally's Grand, Inc., (ii) allow that person to exercise, directly or indirectly,
any voting right conferred through securities held by that person, (iii) pay
remuneration in any form to that person for services rendered or otherwise, or
(iv) fail 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 has reason to believe that
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such ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. 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.
Neither Bally, Casino Holdings nor 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 24, 1995, the Nevada
Commission granted Bally approval to make offerings for a period of one year,
subject to certain conditions (the "Shelf Approval"). The Shelf Approval may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board and must be renewed
annually. The Shelf Approval also applies to any affiliated company wholly owned
by Bally (an "Affiliate") which is a publicly traded corporation or would
thereby become a publicly traded corporation pursuant to a public offering. The
Shelf Approval also includes approval for Management Co. to guarantee any
security issued by, or to hypothecate its assets to secure the payment or
performance of any obligations evidenced by securities issued by, Bally or an
Affiliate in a public offering under the Shelf Approval. The Shelf Approval does
not constitute a finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus 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
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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 manufacturer's or distributor's license, such as GRI, also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of such Licensees' participation in such foreign gaming. The
revolving fund is subject to increase or decrease at the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operations, fail to conduct the foreign gaming operations in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the grounds of personal
unsuitability.
MISSISSIPPI REGULATION. The ownership and operation of casino gaming facilities
in Mississippi are subject to extensive state and local regulation, but
primarily the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission. Bally's Mississippi and its
related holding companies must register under the Mississippi Gaming Control Act
(the "Mississippi Act") and its gaming operations are subject to the licensing
and regulatory control of the Mississippi Gaming Commission and various local,
city and county regulatory agencies. Although not identical, the Mississippi Act
is similar to the Nevada Act. The adopted regulations of the Mississippi Gaming
Commission are also similar in many respects to the Nevada gaming regulations.
Mississippi statutes and regulations give the Mississippi Gaming Commission the
discretion to require a suitability finding with respect to any person or entity
who acquired any security of Bally's Mississippi regardless of the percentage of
ownership. The current policy of the Mississippi Gaming Commission is to require
any person or entity acquiring 5% or more of any voting securities of a public
company with a licensed subsidiary or private company licensee to be found
suitable. If the owner of voting securities who is required to be found suitable
is a corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any owner of voting securities found unsuitable who holds, directly or
indirectly, any beneficial ownership of equity interests in Bally's Mississippi
beyond such period of time as may be prescribed by the Mississippi Gaming
Commission may be guilty of a misdemeanor. Any
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person who fails or refuses to apply for a finding of suitability or a license
within 30 days after being ordered to do so by the Mississippi Gaming Commission
may be found unsuitable. Bally's Mississippi would be subject to disciplinary
action if, after it receives notice that a person is unsuitable to be an owner
of or to have any other relationship with it, Bally's Mississippi: (i) pays the
unsuitable person any dividends or interest upon any of its securities or any
payments or distribution of any kind whatsoever, (ii) recognizes the exercise,
directly or indirectly, of any voting rights in its securities by the unsuitable
person, or (iii) pays the unsuitable person any remuneration in any form for
services rendered or otherwise, except in certain limited and specific
circumstances. In addition, if the Mississippi Gaming Commission finds any owner
of voting securities unsuitable, such owner must immediately surrender all
securities to Bally's Mississippi, as applicable, and Bally's Mississippi must
purchase the security so offered, for cash at fair market value within ten days.
Bally's Mississippi is required to maintain current ownership ledgers in the
State of Mississippi which may be examined by the Mississippi Gaming Commission
at any time. If any securities are held in trust by an agent or by a nominee,
the record holder may be required to disclose the identity of the beneficial
owner to the Mississippi Gaming Commission. A failure to make such disclosure
may be grounds for finding the record holder unsuitable. Bally's Mississippi is
also required to render maximum assistance in determining the identity of the
beneficial owner. Bally's Mississippi may be required to disclose to the
Mississippi Gaming Commission, upon request, the identities of the holders of
the securities. In addition, the Mississippi Gaming Commission under the
Mississippi Act may, in its discretion: (i) require holders of debt securities
of such registered corporations to file applications, (ii) investigate such
holders, and (iii) require such holders to be found suitable to own such debt
securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as debt securities to be
investigated and found suitable, the Mississippi Gaming Commission retains the
discretion to do so for any reason, including but not limited to a default,
or where the holder of the debt instrument exercises a material influence over
the gaming operations of the entity in question. Any holder of debt securities
required to apply for a finding of suitability must pay all investigative fees
and costs of the Mississippi Gaming Commission in connection with such an
investigation.
Mississippi law prohibits Bally's Mississippi from making a public offering or
private placement of its securities without the approval of or waiver of
approval by the Mississippi Gaming Commission if any part of the proceeds of the
offering is to be used to finance the construction, acquisition or operation of
gaming facilities in Mississippi, or to retire or extend obligations incurred
for one or more of such purposes.
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
conjunction with Bally's Mississippi's relocation of its dockside casino to
Robinsonville, the Mississippi Gaming Commission granted a new two-year license
in February 1995. In addition, findings of suitability for certain key
principals were renewed and deemed suitable by the Mississippi Gaming Commission
in December 1995. Findings of suitability are also valid for two years.
LOUISIANA AND MARITIME REGULATION. Louisiana has also adopted regulatory
requirements which are similar to Nevada's with respect to the discretion given
the regulators in granting licenses, financial qualification of licensees and
qualification of security holders, officers, directors and key employees. In
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. Louisiana law requires that,
following the granting of a gaming license, any person acquiring a 5% or more
economic interest in a licensee must obtain the approval of the Riverboat Gaming
Enforcement Division of the Louisiana State Police (the "Louisiana Division")
prior to such transaction. 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 require disposition of such
securities from those holders who are
15
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found disqualified. The Louisiana Division may conduct a suitability
investigation of security holders at any time. In addition, Louisiana law
provides that, barring adverse weather and water conditions, gaming is not
permitted while a riverboat is docked other than during a period no longer than
45 minutes between excursions. Additionally, each round-trip riverboat cruise
may not be less than three nor more than eight hours in duration. The failure of
a licensee to comply with the requirements set forth above may result in the
revocation of that licensee's gaming license. A Louisiana gaming license is
valid for five years, is not transferable and requires the periodic payment of
fees. The Louisiana Division granted Bally's New Orleans a riverboat gaming
license in March 1994.
Under the provisions of Title 46 of the U.S. Code, the design, construction and
operation of Bally's New Orleans' riverboat are subject to regulation and
approval of the U.S. Coast Guard. Prior to the commencement of operations, a
Certificate of Inspection and a Certificate of Documentation were obtained from
the U.S. Coast Guard. All shipboard employees of the Company employed on U.S.
Coast Guard regulated vessels, including those not involved with the actual
operation of the vessel, such as dealers, cocktail hostesses and security
personnel, may be subject to certain federal legislation relating to maritime
activity which, among other things, exempts those employees from state limits on
workers' compensation awards. The Company expects that it will have adequate
insurance to cover employee claims. Furthermore, Bally's New Orleans' riverboat
is a cruising riverboat on Lake Pontchartrain which, among other things,
requires a U.S. Coast Guard hull inspection at five-year intervals.
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.
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. In addition,
the Company licenses the use of the "Bally" name to several of its former
subsidiaries for uses other than in the operation of casinos.
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.
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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 GNOC, CORP. Mr. Goldberg was elected Chairman of the Board
of Directors of Bally's Grand, Inc. in August 1992 and its Chief Executive
Officer in September 1992. Mr. Goldberg has served as a director of BFIT since
1991, and he has been the Chairman of the Board of Directors and Chief Executive
Officer of BFIT since September 1995. 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 a director of First Union
Corporation (a financial services company) and Managing Partner of Arveron
Investments L.P. (an investment partnership). Mr. Goldberg is 54 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 GNOC, CORP. since February
1993. He has also been Vice President--Administration of Bally's Grand, Inc.
since August 1993. In addition, he has served as Treasurer of BFIT since April
1991, one of its directors since September 1992, and its Executive Vice
President since September 1995. Mr. Hillman was Senior Vice President of BFIT
from April 1991 to September 1995 and Chief Financial Officer of BFIT from April
1991 through May 1994. From October 1989 to April 1991, he was a partner with
the accounting firm of Ernst & Young LLP. Mr. Hillman is 40 years of age.
James S. Montana, Jr. was elected Senior Vice President and General Counsel of
the Company and Casino Holdings in July 1995. Mr. Montana also serves on the
Board of the Metropolitan Pier & Exposition Authority in Chicago. From January
1993 to June 1995, Mr. Montana was Chief Legal Counsel to Illinois Governor Jim
Edgar. From March 1992 to January 1993, he was a partner with the law firm of
Dickinson, Wright, Moon, Van Dusen & Freeman. Prior to March 1992, at various
times Mr. Montana was engaged in the private practice of law, was Chief Justice
of the Illinois Court of Claims, and was an Assistant United States Attorney in
Chicago, Illinois. Mr. Montana is 52 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. 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., 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 50 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. Mr. Dwyer has served as Senior Vice President
of BFIT since September 1995, Chief Financial Officer of BFIT since May 1994,
and was a Vice President of BFIT from May 1994 to September 1995. From October
1986 to June 1992, he was a partner with the accounting firm of Ernst & Young
LLP. Mr. Dwyer is 43 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 BFIT and was elected a
Senior Vice President of that company in September 1995. Mr. Morgan served as a
Vice President of BFIT from January 1992 to September 1995. From 1985 until
August 1991, Mr. Morgan was Director of Employee and Labor Relations of the
Hyatt Corporation. Mr. Morgan is 39 years of age.
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Bernard J. Murphy was elected Vice President, Corporate Affairs and Governmental
Relations of the Company in November 1991. He has been a Vice President of
Casino Holdings since June 1995. From March 1991 to November 1991, Mr. Murphy
was employed as an executive of Bally. For twenty years prior to 1991, he had
been with the Federal Bureau of Investigation. Mr. Murphy is 49 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 52 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 GNOC,
CORP. 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. Mr. Barr is also President and Chief Operating Officer of Bally's
Mississippi and Bally's New Orleans. 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 50 years of age.
Darrell A. Luery has been Chief Operating Officer of Bally's Grand, Inc. since
September 1992, its President since May 1994, and one of its directors since
October 1995. Mr. Luery was Senior Vice President of Bally's Grand, Inc. from
August 1989 through May 1994. Mr. Luery is 55 years of age.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Bally Common Stock, par value $.66 2/3 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:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995:
High..................................................... $8 7/8 $12 3/4 $12 7/8 $14
Low...................................................... 6 8 1/8 10 10 1/2
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
</TABLE>
The number of holders of record of the Common Stock at March 25, 1996 was
13,518.
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>
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Years ended December 31:
Revenues.................................... $1,023.9 $ 942.3 $ 628.2 $ 556.0 $ 544.5
Income (loss) from continuing operations.... 76.7 (1.9) 10.2 -- (33.4)
Income (loss) from continuing operations per
common and common equivalent share....... 1.34 (.10) .16 (.06) (1.07)
At December 31:
Cash and equivalents........................ $ 285.8 $ 178.4 $ 192.1 $ 26.0 $ 26.5
Total assets................................ 1,889.2 1,936.2 1,991.6 1,357.6 1,389.8
Total debt.................................. 1,289.6 1,266.2 1,186.3 731.2 795.4
Minority interests.......................... 36.1 37.4 42.4
Stockholders' equity........................ 250.6 293.6 364.1 410.2 364.7
<FN>
- ---------------
Notes:
(1) The selected financial data has been presented reflecting BFIT 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, 1995, the Company owned approximately 81% 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.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's continuing operations comprise one industry segment and all
significant revenues arise from its casino operations and, where applicable,
supporting hotel operations. As described in the Notes to consolidated financial
statements -- Basis of presentation, BFIT has been reflected as a discontinued
operation in the Company's consolidated financial statements because of the
Spin-off. The following discussion and analysis of financial condition and
results of operations is that of the Company's continuing operations.
RESULTS OF OPERATIONS
Revenues and operating income (loss) for the Company and each of its casino
properties were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated (a)(b):
Revenues (c)................................................. $1,023.9 $ 942.3 $ 628.2
Operating income............................................. 186.8 125.1 107.9
Bally's Park Place:
Revenues..................................................... $ 412.1 $ 377.0 $ 352.8
Operating income............................................. 113.4 88.3 85.8
The Grand:
Revenues..................................................... $ 277.6 $ 249.5 $ 239.8
Operating income............................................. 42.1 23.7 21.7
Bally's Las Vegas (b):
Revenues..................................................... $ 283.5 $ 271.9 $ 21.1
Operating income............................................. 42.3 40.3 1.0
Bally's Mississippi (a):
Revenues..................................................... $ 7.9 $ 39.1 $ 4.1
Operating loss (d)........................................... (4.5) (13.9) (1.7)
Bally's New Orleans (a):
Revenues..................................................... $ 34.5
Operating loss (e)........................................... (5.5)
<FN>
- ---------------
Notes:
(a) Bally's New Orleans commenced operation of its riverboat casino on July 7,
1995, and Bally's Mississippi reopened its dockside casino on December 18,
1995. Between December 1993 and February 1995, Bally's Mississippi operated
the dockside casino at a different site.
(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) Includes interest income of $13.7 million, $9.1 million and $5.9 million in
1995, 1994 and 1993, respectively.
(d) Includes amortization of pre-opening costs totalling $.7 million, $3.3
million and $3.1 million in 1995, 1994 and 1993, respectively. Operating
loss in 1995 also includes certain gaming-related costs (primarily slot
machine lease costs) incurred during the temporary cessation of Bally's
Mississippi's dockside casino operations from February 9, 1995 through
December 17, 1995. Operating loss in 1994 includes $13.1 million to
write-off certain assets which were abandoned upon the relocation of Bally's
Mississippi's dockside casino from Mhoon Landing to Robinsonville,
Mississippi (near Memphis, Tennessee). See Notes to consolidated financial
statements -- Abandonment loss for additional information.
(e) Includes amortization of pre-opening costs totalling $5.4 million in 1995.
</FN>
</TABLE>
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1995 VERSUS 1994
Revenues of the Company for 1995 were $1,023.9 million compared to $942.3
million for 1994, an increase of $81.6 million (9%). Operating income of the
Company for 1995 was $186.8 million compared to $125.1 million for 1994, an
increase of $61.7 million (49%). These increases principally reflect improved
operating results at both of the Company's Atlantic City casino hotel resorts
offset, in part, by the temporary cessation of casino operations at Bally's
Mississippi in 1995. In addition, Bally's New Orleans commenced operation of its
riverboat casino in July 1995.
ATLANTIC CITY. Revenues of Bally's Park Place for 1995 were $412.1 million
compared to $377.0 million for 1994, an increase of $35.1 million (9%). Revenues
during the first quarter of 1994 were negatively affected by severe weather in
the northeastern United States. Casino revenues for 1995 were $356.7 million
compared to $321.5 million in 1994, an increase of $35.2 million (11%). Slot
revenues increased $29.9 million(14%) due to a 19% increase in slot handle
(volume) offset, in part, by a decline in the win percentage from 8.8% in 1994
to 8.4% in 1995. On average, Bally's Park Place had 68 (3%) more slot machines
in 1995 than in 1994. Table game revenues, excluding poker, increased $4.2
million (4%) from 1994 due to an 8% increase in the drop (amount wagered)
offset, in part, by a decrease in the hold percentage from 17.1% in 1994 to
16.6% in 1995. Other casino revenues increased $1.1 million (16%) due primarily
to the operation of horse race simulcasting and keno (which was introduced in
June 1994) throughout all of 1995. Rooms revenue decreased $2.1 million (8%) due
to increased complimentaries in 1995 causing reduced occupancy of rooms by
paying customers. Other revenues increased $2.6 million (26%) principally due to
increased special event revenues and interest income. Operating income of
Bally's Park Place for 1995 was $113.4 million compared to $88.3 million for
1994, an increase of $25.1 million (28%) as the aforementioned 9% revenue
increase was offset, in part, by a 3% increase in operating expenses. Casino
expenses increased $11.0 million (9%) due to expanded promotional efforts,
increased gaming taxes associated with higher gaming revenues and an increase in
salaries, benefits and other costs associated with the operation of horse race
simulcasting and keno throughout all of 1995. Selling, general and
administrative expenses increased $3.1 million (8%) primarily due to increased
marketing, legal, insurance and advertising costs offset, in part, by a gain on
the settlement of a supplemental executive retirement plan in 1995. Other
operating expenses increased $2.4 million (4%) principally due to increased real
estate taxes and special event costs. These increases in operating expenses were
offset, in part, by a $3.5 million (11%) decrease in depreciation and
amortization expense primarily due to 1994 including accelerated depreciation
associated with a slot machine upgrade and certain assets becoming fully
depreciated in 1994.
Revenues of The Grand for 1995 were $277.6 million compared to $249.5 million
for 1994, an increase of $28.1 million (11%). As described previously, revenues
during the first quarter of 1994 were negatively affected by severe weather in
the northeastern United States. Casino revenues for 1995 were $256.8 million
compared to $228.4 million in 1994, an increase of $28.4 million (12%). Slot
revenues increased $24.0 million (18%) due to a 21% increase in slot handle
offset, in part, by a decline in the win percentage from 8.6% in 1994 to 8.4% in
1995. On average, The Grand had 428 (30%) more slot machines in 1995 than in
1994. Table game revenues, excluding poker, increased $.9 million (1%) due to a
3% increase in the drop offset, in part, by a decrease in the hold percentage
from 16.6% in 1994 to 16.3% in 1995. Poker, horse race simulcasting and keno,
all of which commenced in April 1995, contributed $3.5 million to casino
revenues. Operating income of The Grand for 1995 was $42.1 million compared to
$23.7 million for 1994, an increase of $18.4 million (78%) as the aforementioned
11% revenue increase was offset, in part, by a 4% increase in operating
expenses. Casino expenses increased $10.4 million (8%) due to increased
promotional expenses and gaming taxes associated with the aforementioned
increase in gaming activity. Selling, general and administrative expenses
increased $2.3 million (9%) primarily due to a non-recurring real estate tax
refund recognized in 1994. These increases in operating expenses were offset, in
part, by a $1.3 million (7%) decrease in depreciation and amortization expense
due to accelerated depreciation of certain slot machines replaced in 1994.
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Management believes that the expansion of several casino hotel facilities in
Atlantic City, which includes additional hotel rooms and slot machines, has
caused and will continue to cause intense promotional efforts to attract slot
players as both the Company's Atlantic City casino hotel resorts and their
competitors continue to seek to expand their share of slot revenues and maximize
the utilization of their slot machines. Further, as a result of the aggressive
competition for slot patrons, the Atlantic City slot win percentage has
declined. Management believes that the slot win percentage will continue to be
subject to competitive pressure and may decline further. However, management
also believes its Atlantic City casino hotel resorts are well-positioned to
compete for additional casino revenues by continuing to offer attractive
promotional gaming programs and other special events, and by enhancing the
appearance and comfort of their gaming space and hotel accommodations. In 1994,
Bally's Park Place expanded its casino floor from 68,100 to 71,400 square feet
and added another 8,700 square feet of gaming space to offer horse race
simulcasting and keno and to relocate and expand its poker operations. During
the first quarter of 1995, Bally's Park Place completed the aforementioned slot
machine upgrade, replacing the majority of its slot machines with
state-of-the-art machines with embedded bill acceptors, and reconfigured its
slot machine layout, adding additional slot stools and increasing aisle space.
In addition, Bally's Park Place intends to develop the aforementioned
western-themed casino complex. During the second quarter of 1994, The Grand
reconfigured its casino floor, widening the aisles, adding additional slot
stools and replacing the majority of its slot machines with state-of-the-art
machines with embedded bill acceptors. In April 1995, The Grand completed an
expansion which increased its casino floor and other gaming space by nearly 30%
to accommodate approximately 400 additional slot machines, poker, horse race
simulcasting and keno. In November 1995, The Grand opened The Grand Theater, an
18,000 square-foot arena with seating capacity of up to 2,000 used for headline
entertainment, sports events and production shows. In addition, The Grand
intends to develop the aforementioned 300-room hotel tower.
LAS VEGAS. Revenues of Bally's Las Vegas for 1995 were $283.5 million compared
to $271.9 million for 1994, an increase of $11.6 million (4%). Casino revenues
for 1995 were $137.5 million compared to $134.6 million for 1994, an increase of
$2.9 million (2%). Slot revenues increased $6.3 million (11%) due to a 13%
increase in slot handle offset, in part, by a decline in the win percentage from
6.2% in 1994 to 6.1% in 1995. Management believes the increase in slot handle
was primarily attributable to an increase in walk-in business resulting from the
operation of the automated walkway system and related improvements throughout
all of 1995 compared to six months in 1994, the addition of the monorail system
in June 1995 and increased marketing and promotional efforts. Table game
revenues decreased $3.2 million (5%) due to a decline in the hold percentage
from 16.0% in 1994 to 14.3% in 1995 offset, in part, by a 6% increase in the
drop. Rooms revenue increased $1.0 million (2%) due primarily to a higher
average room rate. Food and beverage revenues increased $3.9 million (10%) due
primarily to increased convention business. Other revenues increased $3.8
million (9%) due, in part, to Bally's Las Vegas operating two retail gift shops
in 1995 which were operated by a third party in 1994. Operating income of
Bally's Las Vegas for 1995 was $42.3 million compared to $40.3 million for 1994,
an increase of $2.0 million (5%) as the aforementioned 4% increase in revenues
was offset, in part, by a 4% increase in operating expenses. Depreciation and
amortization expense increased $3.3 million (16%) as a result of the
aforementioned capital improvement program. Casino expenses increased $3.3
million (4%) due principally to increased promotional and special event costs.
Other operating expenses increased $2.2 million (5%) due, in part, to the cost
of operating the aforementioned gift shops in 1995, costs associated with the
operation of the automated walkway system and related improvements throughout
all of 1995 compared to six months in 1994 and Bally's Grand, Inc.'s 50% share
of costs for the monorail system for seven months in 1995.
Three major casino hotels opened for business in Las Vegas during the latter
part of 1993 that contain approximately 370,000 total square feet of gaming
space, 10,400 total guest rooms and a theme park. In addition, there have been
22
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several public announcements concerning major casino hotel projects in Las
Vegas, certain of which have commenced construction. In particular, two casino
hotel resorts are expected to open on the Strip in 1996 with a total of
approximately 170,000 square feet of gaming space and 5,400 guest rooms.
Management believes that the additional casino and hotel room capacity resulting
from the opening of new casino hotels may have 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. To enhance its competitiveness in the Las Vegas market, Bally's Las
Vegas recently completed an extensive capital improvement program. During 1994,
Bally's Las Vegas completed improvements to its frontage area along the Strip,
including the addition of moving walkways that transport patrons to and from the
main entrance through gardens and water displays. In June 1995, Bally's Las
Vegas and the MGM Grand jointly opened a new monorail system, connecting the two
major "Four Corners" on the Strip through their respective properties.
Renovation of the 800 hotel rooms in Bally's Las Vegas' south tower was
completed in August 1995, complementing the 1993 renovation of the approximately
2,000 hotel rooms in the main tower. In addition, Bally's Grand, Inc. has
announced its intention to develop the Paris Casino-Resort.
MISSISSIPPI. On February 9, 1995, a subsidiary of Bally entered into a venture
agreement with a subsidiary of Lady Luck Gaming Corporation ("Lady Luck")
pursuant to which Bally's Mississippi relocated its dockside casino from Mhoon
Landing in Tunica, Mississippi to a site in Robinsonville, Mississippi, where
Lady Luck had constructed a 238-room hotel. In connection with the relocation,
casino operations were suspended at Mhoon Landing on February 9, 1995. Effective
April 1, 1995, Bally's Mississippi contributed its dockside casino and related
assets to the venture, and Lady Luck contributed the hotel and related assets.
Through subsidiaries, Bally is the majority owner, general manager and has
effective control of Bally's Mississippi; accordingly, Lady Luck's equity in the
venture is classified as "minority interests" in the Company's consolidated
balance sheet. Bally's Mississippi reopened its dockside casino on December 18,
1995 at the Robinsonville site. Revenues of Bally's Mississippi for 1995 were
$7.9 million, which included casino revenues of $5.9 million ($1.0 million at
Mhoon Landing for the period January 1, 1995 through February 9, 1995 and $4.9
million at Robinsonville for the period December 18, 1995 through December 31,
1995) and rooms revenue of $1.9 million at Robinsonville (for the period April
1, 1995 through December 31, 1995). Operating loss of Bally's Mississippi for
1995 was $4.5 million (including $1.9 million related to the Mhoon Landing
site). In addition to costs related to casino and hotel operations during 1995,
operating expenses of Bally's Mississippi include gaming-related costs
(primarily slot machine lease costs) and general and administrative costs
incurred during the temporary cessation of Bally's Mississippi's operations from
February 9, 1995 through December 17, 1995 and the amortization of $.7 million
of pre-opening costs. Revenues and operating loss of Bally's Mississippi at its
Mhoon Landing site for 1994 were $39.1 million and $13.9 million, respectively.
Operating loss for 1994 included a charge of $13.1 million to write-off certain
assets which were abandoned upon Bally's Mississippi's relocation of its
dockside casino to Robinsonville and the amortization of $3.3 million of pre-
opening costs.
Mississippi gaming law does not limit the number of gaming licenses that may be
granted. As a result, management believes there was a saturation of gaming
facilities in and around the Memphis, Tennessee market, which led to the closing
of six casinos in that market since April 1994 (including Bally's Mississippi,
which was moved and reopened). As of March 25, 1996, eight gaming facilities
were operating in this market, three of which are located immediately adjacent
to Bally's Mississippi. In addition, two casinos are expected to commence
operations in this market during 1996, one of which is located somewhat closer
to Memphis than Bally's Mississippi. These gaming facilities, as well as any
others which subsequently commence operations there, present significant
competition for Bally's Mississippi.
NEW ORLEANS. As described previously, Bally's New Orleans commenced operation of
its riverboat casino in New Orleans, Louisiana on July 7, 1995. Revenues of
Bally's New Orleans for 1995 were $34.5 million including casino revenues of
$33.0 million (slot revenues were
23
<PAGE> 25
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$25.6 million and table game revenues were $7.4 million). Operating loss of
Bally's New Orleans for 1995 was $5.5 million, including the amortization of
$5.4 million of pre-opening costs.
Louisiana law currently limits to fifteen the number of riverboat gaming
licenses that may be granted (all but one have been granted as of March 25,
1996), with a maximum of six riverboats in any one parish. Four riverboats are
presently operating in the New Orleans area (including Bally's New Orleans).
During 1995, Bally's New Orleans also competed with a land-based casino which
was operating at a temporary location and was expected to become the largest
land-based casino in the United States when it moved to its permanent location.
However, in November 1995, the competitor ceased operations at the temporary
location and suspended construction at the permanent site. It is presently not
known if, or when, construction of the permanent land-based facility will
resume.
GAMING DEVELOPMENT COSTS. Operating income for 1995 includes a charge of $6.3
million for costs incurred in the pursuit and development of new gaming projects
in various jurisdictions compared to $10.9 million in 1994. The Company
continues to explore opportunities in jurisdictions where gaming is presently
authorized or may become authorized and on Native American lands. However,
successful expansion and development opportunities are contingent upon, among
other things, the passage of legislation authorizing gaming (when not already
approved) and the Company obtaining the appropriate licenses. There can be no
assurance that such legislation will be enacted or that the Company will be
granted gaming licenses in any of these jurisdictions.
GAIN ON SALES OF MARKETABLE SECURITIES. During 1995 and 1994, the Company sold
certain marketable securities which resulted in pre-tax gains totalling $2.5
million and $11.8 million, respectively.
INTEREST EXPENSE. Interest expense, net of capitalized interest, was $132.4
million in 1995 compared to $130.8 million in 1994, an increase of $1.6 million
(1%) due principally to a higher average level of debt.
INCOME TAXES. Effective rates of the income tax benefit (provision) for 1995 and
1994 varied from the U.S. statutory tax rate of 35%. A reconciliation of the
income tax benefit (provision) with amounts determined by applying the U.S.
statutory tax rate to income from continuing operations before income taxes and
minority interests is included in the Notes to consolidated financial
statements -- Income taxes.
1994 VERSUS 1993
Revenues of the Company for 1994 were $942.3 million compared to $628.2 million
for 1993, an increase of $314.1 million (50%). Operating income of the Company
for 1994 was $125.1 million compared to $107.9 million for 1993, an increase of
$17.2 million (16%). These increases principally reflect the inclusion of twelve
months of operations of both Bally's Las Vegas and Bally's Mississippi in 1994
as compared to approximately one month in 1993 and improved operating results at
both of the Company's Atlantic City casino hotel resorts.
ATLANTIC CITY. Revenues of Bally's Park Place for 1994 were $377.0 million
compared to $352.8 million for 1993, an increase of $24.2 million (7%). Bally's
Park Place achieved this increase in revenues despite extremely adverse weather
in the first quarter of 1994 when revenues grew only $.3 million. Casino
revenues for 1994 were $321.5 million compared to $297.7 million in 1993, an
increase of $23.8 million (8%). Slot revenues increased $13.5 million (7%) due
to a 16% increase in slot handle 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%) due to a 3% increase in
the drop 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. 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
24
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compared to $85.8 million for 1993, an increase of $2.5 million (3%) as the
aforementioned 7% revenue increase was offset, in part, by an 8% increase in
operating expenses. Casino expenses increased $11.3 million (10%) due to an
increase in salaries, benefits and other costs associated with the introduction
and operation of horse race simulcasting and keno in 1994 and the operation of
poker throughout all of 1994 compared to only six months in 1993, and expanded
marketing and promotional efforts. Depreciation and amortization expense
increased $5.2 million (20%) primarily due to accelerated depreciation
associated with the aforementioned 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. 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 4%
revenue increase was offset, in part, by a 4% increase in operating expenses.
Casino expenses increased $10.2 million (8%) primarily due to increases in
payroll and payroll-related expenses, the provision for doubtful receivables and
the costs of providing additional complimentary services and other promotional
expenses in conjunction with the increase in gaming activity 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.
LAS VEGAS. Revenues of Bally's Las Vegas for 1994 were $271.9 million compared
to $21.1 million for December 1993. Bally's Las Vegas was consolidated effective
December 1, 1993. Casino revenues in 1994 were $134.6 million, which primarily
consisted of table game revenues of $68.9 million and slot revenues of $59.2
million. Table game hold and slot win percentages for 1994 were 16.0% and 6.2%,
respectively. Rooms revenue for 1994 was $58.6 million and food and beverage
revenues and other revenues (including entertainment) for 1994 were $37.6
million and $41.1 million, respectively. Casino revenues for December 1993 were
$12.2 million, which primarily consisted of table game revenues of $6.7 million
and slot revenues of $5.0 million. In December 1993, rooms revenue, food and
beverage revenues and other revenues were $2.9 million, $2.8 million and $3.1
million, respectively. Operating income of Bally's Las Vegas for 1994 and
December 1993 was $40.3 million and $1.0 million, respectively. Bally's Grand,
Inc. was reorganized pursuant to a Fifth Amended Plan of Reorganization in
August 1993. See Notes to consolidated financial statements -- Acquisition of
Bally's Grand, Inc.
MISSISSIPPI. Revenues of Bally's Mississippi at its Mhoon Landing site 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. Operating loss of
Bally's Mississippi for 1994 was $13.9 million principally resulting from the
aforementioned charge of $13.1 million to write-off certain assets which were
abandoned upon the relocation of Bally's Mississippi's dockside casino
operations and the amortization of $3.3 million of pre-opening costs. Operating
loss of Bally's
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Mississippi for December 1993 was $1.7 million principally resulting from the
amortization of $3.1 million of pre-opening costs.
GAMING DEVELOPMENT COSTS. 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.
GAIN ON SALES OF MARKETABLE SECURITIES. During 1994, the Company sold certain
marketable securities which resulted in a pre-tax gain totalling $11.8 million.
INTEREST EXPENSE. Interest expense, net of capitalized interest, was $130.8
million in 1994 compared to $92.9 million in 1993, an increase of $37.9 million
(41%) 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 for 1994 and 1993
varied from the U.S. statutory tax rate of 35%. 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
PARENT COMPANY
Bally is a holding company without significant operations of its own. Sources of
cash available to Bally are generally limited to existing cash balances ($150.1
million at December 31, 1995), management fees or cost allocations to
subsidiaries, receipts pursuant to tax sharing agreements, dividends from
subsidiaries, asset sales and issuance of additional securities.
Each of Bally's principal operating subsidiaries presently has 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 to Casino
Holdings may be declared as a dividend by Casino Holdings and be paid to Bally.
As of December 31, 1995, approximately $3 million was available for the payment
of dividends to Bally (through Casino Holdings) pursuant to this net income
test. In addition, under the terms of The Grand's 10 5/8% First Mortgage Notes
due 2003, dividends to Bally are limited by a net income test. As of December
31, 1995, no amount was available for the payment of dividends by The Grand.
Dividends to Bally from subsidiaries other than Bally's Park Place and possibly
The Grand are presently not expected during 1996.
Bally's corporate cash operating costs for the foreseeable future are expected
to be recovered substantially by cost allocations to, and management fees from,
its subsidiaries. Cash requirements for Bally in 1996 also include income tax
payments, which management expects to be recovered substantially from
subsidiaries pursuant to tax sharing agreements. In addition, Bally has debt
service requirements and preferred stock dividend payments of approximately $32
million in 1996. If necessary, Bally may advance or contribute funds to Casino
Holdings in 1996. Bally believes it will be able to satisfy its cash
requirements during 1996.
CASINO HOLDINGS
CASINO HOLDINGS. Casino Holdings is also a holding company without significant
operations of its own. Sources of cash available to Casino Holdings are
generally limited to existing cash balances ($2.2 million at December 31, 1995),
advances or contributions from Bally and dividends, management fees and loan
repayments from subsidiaries. Bally's Park Place 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 certain of their indebtedness. Dividends from
Bally's Park Place are limited to funds available
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under Bally's Park Place's aforementioned net income test, which is available to
be paid to Bally through Casino Holdings. Bally's Grand, Inc. is presently not
expected to pay dividends during 1996. To the extent Bally's New Orleans and
Bally's Mississippi generate unrestricted cash flows, each subsidiary is
expected to pay management fees to Casino Holdings and repay Casino Holdings for
project costs and working capital requirements funded by Casino Holdings.
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. To the extent Casino Holdings requires
additional funds for existing ventures or to develop new ventures, Casino
Holdings expects that it will be able to obtain financing for a significant
portion of such cash requirements from a combination of Bally and third party
sources (including banks, suppliers and capital markets) and, as a result,
Casino Holdings believes it will be able to satisfy its cash needs in 1996.
BALLY'S PARK PLACE. Bally's Park Place has no scheduled principal payments under
its public indebtedness until 2004, and its scheduled principal payments under
other indebtedness outstanding at December 31, 1995 are not significant.
Management plans to make capital expenditures of approximately $18 million
during 1996 for improvements, renovations and equipment to maintain Bally's Park
Place in first-class condition. As of December 31, 1995, Bally's Park Place had
an unused line of credit totalling $50 million, which Bally's Park Place amended
in February 1996 to increase the available credit to $65 million and extend the
expiration date to December 31, 1998. The Company believes that Bally's Park
Place will be able to satisfy its debt service and the aforementioned capital
expenditure requirements and pay dividends in 1996 out of existing cash balances
($31.5 million at December 31, 1995) and cash flow from operations. For 1995 and
1994, cash provided by operating activities at Bally's Park Place totalled $75.1
million and $68.4 million, respectively, and its operating margin (before
depreciation and amortization) was 34% and 32%, respectively.
Bally's Park Place has announced its intention to develop the aforementioned
western-themed casino complex. The complex is presently planned to cost between
$80 million and $100 million, with completion anticipated in mid-1997.
Construction of the complex is expected to commence in the second quarter of
1996 and capital expenditures for this expansion are anticipated to be
approximately $50 million during 1996. Bally's Park Place intends to finance the
expansion through available cash, cash generated by operations and, if
necessary, utilization of its line of credit.
BALLY'S LAS VEGAS. Bally's Grand, Inc. has no scheduled principal payments on
its long-term debt until 2003. Management plans to make capital expenditures
totalling approximately $20 million at Bally's Las Vegas during 1996: (i) to
replace certain slot machines so that substantially all of Bally's Las Vegas'
slot machines are state-of-the-art with embedded bill acceptors, (ii) to
redesign and expand the baccarat area, (iii) to upgrade certain penthouses and
suites, and (iv) for other improvements and equipment necessary to maintain the
property in first-class condition. The Company believes that Bally's Grand, Inc.
will be able to satisfy its debt service and the aforementioned capital
expenditure requirements in 1996 out of existing cash balances ($64.8 million at
December 31, 1995) and cash flow from operations. For 1995 and 1994, cash
provided by operating activities at Bally's Las Vegas totalled $34.0 million and
$28.0 million, respectively, and its operating margin (before depreciation and
amortization) was 24% and 23%, respectively. In addition, Bally's Grand, Inc.
received a commitment from a lender in March 1996 for a revolving credit
facility totalling $15 million.
In 1995, Bally's Grand, Inc. announced its intention to develop the Paris
Casino-Resort adjacent to Bally's Las Vegas. The cost of the project, exclusive
of the value of the land, is presently estimated to be between $375 million and
$425 million, with construction expected to commence in the third quarter of
1996. Bally's Grand, Inc. expects to obtain third-party financing for a
significant portion of the project cost.
BALLY'S MISSISSIPPI. Bally's Mississippi reopened its dockside casino in
Robinsonville, Mississippi in December 1995. A total of approximately $29
million was required to relocate the
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dockside casino from Mhoon Landing to Robinsonville and to develop the
Robinsonville site to include a restaurant, entertainment lounge, administrative
facilities and additional parking. The project cost was substantially funded by
Casino Holdings; however, Bally's Mississippi recently entered into a credit
agreement for a $10 million term loan (guaranteed by Bally), the proceeds of
which upon satisfaction of a condition are expected to be paid to Casino
Holdings. Management plans to make capital expenditures of approximately $2
million at Bally's Mississippi during 1996 for a steakhouse, additional slot
machines and other improvements necessary to maintain the property in
first-class condition. The Company believes Bally's Mississippi will be able to
satisfy its debt service and the aforementioned capital expenditure requirements
in 1996 out of existing cash balances ($8.0 million at December 31, 1995) and
cash flow from operations.
BALLY'S NEW ORLEANS. Bally's New Orleans commenced operation of a riverboat
casino on Lake Pontchartrain in July 1995. A total of approximately $60 million
was required to construct and equip the riverboat and to develop related
landside improvements. The project cost was partially funded by two five-year
term loans totalling approximately $30 million. Casino Holdings funded the
remaining project cost. Bally's New Orleans has debt service requirements
totalling approximately $8 million in 1996, which it expects to satisfy out of
existing cash balances ($4.8 million at December 31, 1995) and cash flow from
operations.
THE GRAND
The Grand has no scheduled principal payments under its public indebtedness
until 2003. Management expects to make capital expenditures of approximately $5
million during 1996 for slot machines and other improvements and equipment
necessary to maintain The Grand in first-class condition. As of December 31,
1995, The Grand had an unused line of credit totalling $20 million. The Grand is
presently negotiating to extend the expiration date of this credit line from
December 31, 1996 to June 30, 1998. The Company believes that The Grand will be
able to satisfy its debt service and the aforementioned capital expenditure
requirements in 1996 out of existing cash balances ($23.9 million at December
31, 1995) and cash flow from operations. For 1995 and 1994, cash provided by
operating activities at The Grand totalled $27.4 million and $20.6 million,
respectively, and its operating margin (before depreciation and amortization)
was 22% and 17%, respectively.
In March 1996, The Grand broke ground for construction of the aforementioned
300-room hotel tower. The expansion of The Grand is expected to cost
approximately $50 million, exclusive of the receipt of over $10 million of CRDA
investment obligation credits, with completion anticipated in the second quarter
of 1997. Capital expenditures during 1996 for this expansion are anticipated to
be approximately $11 million, net of CRDA investment obligation credits. The
Grand intends to finance the expansion through available cash, cash generated by
operations and, if necessary, utilization of its line of credit.
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ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND
SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
REFERENCE
-----------
<S> <C>
Report of independent auditors....... 31
Consolidated balance sheet........... 32
Consolidated statement of
operations......................... 34
Consolidated statement of
stockholders' equity............... 35
Consolidated statement of
cash flows......................... 36
Notes to consolidated financial
statements......................... 38
Supplementary data:
Quarterly consolidated financial
information (unaudited)......... 50
</TABLE>
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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, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 7, 1996
31
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<TABLE>
- ----------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31
---------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................. $ 285,801 $ 178,427
Marketable securities, at fair value.................................. 18,111 6,031
Receivables, less allowances of $13,094 and $12,196................... 27,497 23,450
Inventories........................................................... 8,358 8,113
Deferred income taxes................................................. 22,450 16,299
Other current assets.................................................. 11,495 16,373
----------- -----------
Total current assets.......................................... 373,712 248,693
Property and equipment, at cost:
Land.................................................................. 224,809 223,590
Buildings, vessels and improvements................................... 1,184,326 1,070,764
Furniture, fixtures and equipment..................................... 359,661 303,454
Construction in progress.............................................. 9,335 34,299
----------- -----------
1,778,131 1,632,107
Accumulated depreciation.............................................. 510,898 445,239
----------- -----------
Net property and equipment.................................... 1,267,233 1,186,868
Investment in and receivables from discontinued operations.............. 15,450 291,012
Intangible assets, less accumulated amortization of $28,867 and
$24,398............................................................... 122,728 123,367
Other assets............................................................ 110,094 86,221
----------- -----------
$ 1,889,217 $ 1,936,161
=========== ===========
See accompanying notes.
</TABLE>
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<TABLE>
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<CAPTION>
December 31
----------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 22,209 $ 28,745
Income taxes payable................................................. 3,583 27,707
Accrued liabilities.................................................. 116,548 113,990
Current maturities of long-term debt................................. 11,160 7,200
----------- -----------
Total current liabilities.................................... 153,500 177,642
Long-term debt, less current maturities................................ 1,278,441 1,258,990
Deferred income taxes.................................................. 157,913 152,851
Other liabilities...................................................... 12,626 15,656
Minority interests..................................................... 36,102 37,410
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
8% PRIDES Convertible; 15,525,000 shares authorized and issued;
liquidation preference of $172,716.............................. 15,525
Common stock, $.66 2/3 par value; 80,000,000 shares authorized;
47,625,927 and 47,138,498 shares issued........................... 31,751 31,426
Capital in excess of par value....................................... 177,551 295,110
Retained earnings (accumulated deficit).............................. 27,151 (31,581)
Common stock in treasury, 146,956 shares at cost..................... (2,037) (2,037)
----------- -----------
Total stockholders' equity................................... 250,635 293,612
----------- -----------
$ 1,889,217 $ 1,936,161
=========== ===========
</TABLE>
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<TABLE>
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BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Years ended December 31
----------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Casino....................................................................... $ 789,863 $ 722,903 $ 530,250
Rooms........................................................................ 87,487 88,841 33,380
Food and beverage............................................................ 73,637 67,730 34,163
Other........................................................................ 72,873 62,781 30,412
----------- ----------- -----------
1,023,860 942,255 628,205
Costs and expenses:
Casino....................................................................... 386,552 358,195 253,879
Rooms........................................................................ 31,207 33,280 14,301
Food and beverage............................................................ 65,498 65,534 32,483
Other operating expenses..................................................... 147,670 133,955 87,031
Selling, general and administrative.......................................... 119,218 122,921 80,148
Gaming development costs, including amortization of pre-opening costs of
$6,027, $3,330 and $3,052.................................................. 12,325 14,200 4,342
Depreciation and amortization................................................ 74,586 75,964 48,075
Abandonment loss............................................................. 13,100
----------- ----------- -----------
837,056 817,149 520,259
----------- ----------- -----------
Operating income............................................................... 186,804 125,106 107,946
Gain on sales of marketable securities......................................... 2,454 11,806
Interest expense............................................................... (132,361) (130,834) (92,876)
----------- ----------- -----------
Income from continuing operations before income taxes and minority interests... 56,897 6,078 15,070
Income tax benefit (provision)................................................. 18,650 (3,000) (5,335)
Minority interests............................................................. 1,106 (4,981) 484
----------- ----------- -----------
Income (loss) from continuing operations....................................... 76,653 (1,903) 10,219
Discontinued operations:
Loss from operations......................................................... (10,980) (46,091) (26,245)
Gain on sale................................................................. 6,215
----------- ----------- -----------
Income (loss) before extraordinary item and cumulative effect on prior years of
change in accounting for income taxes........................................ 65,673 (47,994) (9,811)
Extraordinary gain (loss) on extinguishment of debt............................ 458 (20,395) (8,490)
Cumulative effect on prior years of change in accounting for income taxes...... (28,197)
----------- ----------- -----------
Net income (loss).............................................................. 66,131 (68,389) (46,498)
Preferred stock dividend requirement........................................... (6,232) (2,778) (2,778)
----------- ----------- -----------
Net income (loss) applicable to common stock................................... $ 59,899 $ (71,167) $ (49,276)
=========== =========== ===========
Per common and common equivalent share:
Income (loss) from continuing operations..................................... $ 1.34 $ (.10) $ .16
Discontinued operations --
Loss from operations....................................................... (.20) (.98) (.56)
Gain on sale............................................................... .13
Extraordinary gain (loss) on extinguishment of debt.......................... .01 (.44) (.18)
Cumulative effect on prior years of change in accounting for income taxes.... (.61)
----------- ----------- -----------
Net income (loss)............................................................ $ 1.15 $ (1.52) $ (1.06)
=========== =========== ===========
See accompanying notes.
</TABLE>
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<TABLE>
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BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Retained
Capital earnings Common
in (accumu- Cumulative stock
Preferred Common excess of lated translation in
DOLLAR AMOUNTS stock stock par value deficit) adjustments treasury
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
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 Series D Preferred
Stock dividends, $4.00 per share........ 221 2,557 (2,778)
In satisfaction of other 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)
Change in unrealized gain/loss on available-
for-sale securities....................... 79
Series D 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)
Net income.................................. 66,131
Change in unrealized gain/loss on available-
for-sale securities....................... (1,167)
Issuance of 8% PRIDES Convertible Preferred
Stock..................................... 15,525 151,305
Series D Preferred Stock dividends, $4.00
per share................................. (2,778)
8% PRIDES Convertible Preferred Stock
dividends, $.2225 per share............... (3,454)
Issuance of common stock under stock
purchase and option plans................. 325 3,561
Spin-off of fitness centers segment......... (272,425)
--------- ------- --------- -------- -------- -------
Balance at December 31, 1995.................. $16,219 $31,751 $ 177,551 $ 27,151 $ -- $(2,037)
========= ======== ========= ======== ======== ========
<CAPTION>
Total
stock-
holders'
DOLLAR AMOUNTS equity
- ---------------------------------------------------------
(In thousands, except per share data)
<S> <C>
Balance at December 31, 1992.................. $410,227
Net loss.................................... (46,498)
Issuance of common stock:
In satisfaction of Series D Preferred
Stock dividends, $4.00 per share........ --
In satisfaction of other 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)
Change in unrealized gain/loss on available-
for-sale securities....................... 79
Series D 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
Net income.................................. 66,131
Change in unrealized gain/loss on available-
for-sale securities....................... (1,167)
Issuance of 8% PRIDES Convertible Preferred
Stock..................................... 166,830
Series D Preferred Stock dividends, $4.00
per share................................. (2,778)
8% PRIDES Convertible Preferred Stock
dividends, $.2225 per share............... (3,454)
Issuance of common stock under stock
purchase and option plans................. 3,886
Spin-off of fitness centers segment......... (272,425)
--------
Balance at December 31, 1995.................. $250,635
========
</TABLE>
<TABLE>
<CAPTION>
Preferred stock Common stock
----------------------- -----------------------
SHARE AMOUNTS Series D 8% PRIDES Issued Treasury
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1992.......................................... 694 46,096 110
Issuance of common stock:
In satisfaction of Series D Preferred Stock dividends............. 332
In satisfaction of other 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
Issuance of 8% PRIDES Convertible Preferred Stock................... 15,525
Issuance of common stock under stock purchase and option plans...... 488
--------- --------- --------- ---------
Balance at December 31, 1995.......................................... 694 15,525 47,626 147
========= ========= ========= =========
See accompanying notes.
</TABLE>
35
<PAGE> 37
<TABLE>
- ------------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Years ended December 31
-------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING:
Income (loss) from continuing operations...................... $ 76,653 $ (1,903) $ 10,219
Adjustments to reconcile to cash provided --
Depreciation and amortization (including pre-opening
costs)................................................... 80,613 79,294 51,127
Interest accretion on discount notes and other amortization
included in interest expense............................. 20,747 19,867 10,110
Abandonment loss........................................... 13,100
Deferred income taxes...................................... (63) (21,758) (27,061)
Gain on sales of marketable securities..................... (2,454) (11,806)
Provision for doubtful receivables......................... 4,718 6,829 2,201
Minority interests......................................... (1,106) 4,981 (484)
Change in operating assets and liabilities................. (54,007) (26,170) 5,358
Other, net................................................. (5,041) 373 (1,816)
---------- ---------- ---------
Cash provided by operating activities................. 120,060 62,807 49,654
INVESTING:
Purchases and construction of property and equipment.......... (135,346) (95,858) (70,895)
Increase (decrease) in construction-related liabilities....... (2,326) (1,015) 8,558
Acquisitions of Bally's Grand, Inc. common stock, net of cash
acquired upon consolidation................................ (18,004) (14,256) 30,688
Loans to nonconsolidated gaming ventures...................... (13,600)
Purchases of marketable securities............................ (45,442) (16,352)
Net proceeds from sales of marketable securities.............. 27,680 27,168
Other, net.................................................... (9,708) (2,476) (24,351)
---------- ---------- ---------
Cash used in investing activities..................... (196,746) (102,789) (56,000)
FINANCING:
Debt transactions --
Proceeds from long-term borrowings......................... 71,099 434,973 720,181
Repayments of long-term debt............................... (61,562) (389,451) (536,440)
Net repayments under revolving credit agreements........... (2,000) (1,000)
Debt issuance costs........................................ (854) (16,133) (26,659)
---------- ---------- ---------
Cash provided by debt transactions.................... 8,683 27,389 156,082
Equity transactions --
Proceeds from issuance of 8% PRIDES Convertible
Preferred Stock.......................................... 166,830
Proceeds from issuance of common stock under stock purchase
and option plans......................................... 3,253 755 590
Preferred stock dividends.................................. (2,778) (2,778)
Purchases of common stock for treasury..................... (239)
---------- ---------- ---------
Cash provided by financing activities................. 175,988 25,127 156,672
DISCONTINUED OPERATIONS:
Dividends received from discontinued operations............... 15,000
Other, net.................................................... 8,072 1,204 799
---------- ---------- ---------
Cash provided by discontinued operations.............. 8,072 1,204 15,799
---------- ---------- ---------
Increase (decrease) in cash and equivalents..................... 107,374 (13,651) 166,125
Cash and equivalents, beginning of year......................... 178,427 192,078 25,953
---------- ---------- ---------
Cash and equivalents, end of year............................... $ 285,801 $ 178,427 $ 192,078
========== ========== =========
See accompanying notes.
</TABLE>
36
<PAGE> 38
<TABLE>
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Years ended December 31
--------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(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............................... $ (6,245) $ (6,048) $ (3,252)
(Increase) decrease in inventories, other current
assets and other assets............................ (1,500) (9,931) 12,033
Increase (decrease) in accounts payable and accrued
liabilities........................................ 7,633 (8,309) (1,731)
Increase (decrease) in income taxes payable........... (53,149) (1,730) 13,791
Decrease in other liabilities......................... (746) (152) (15,483)
---------- ---------- ----------
$ (54,007) $ (26,170) $ 5,358
========== ========== ==========
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.................................... (19,234) (17,080) 43,280
Unsettled purchases................................... 1,230 2,824
Cash and equivalents acquired upon consolidation...... 72,402
---------- ---------- ----------
$ (18,004) $ (14,256) $ 30,688
========== ========== ==========
Cash payments for interest and income taxes for continuing
operations were as follows:
Interest paid......................................... $ 114,599 $ 115,551 $ 79,347
Interest capitalized.................................. (2,838) (2,067) (422)
Income taxes paid (net of refunds).................... 35,220 26,485 18,639
Investing and financing activities exclude the following
non-cash activities:
Contribution of net assets into consolidated venture
by minority interest............................... $ 13,079 $ $
Purchases of marketable securities on margin
(including unsettled purchases).................... 4,153 21,620
Sales of margined marketable securities (including
unsettled sales)................................... 11,095 16,764
Accrued preferred stock dividends..................... 3,454
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 certain
obligations........................................ 4,190
Discontinued operations --
Spin-off of fitness centers segment and capital
contributions (principally forgiveness of
indebtedness) to Bally Total Fitness Holding
Corporation...................................... 272,425 31,400 32,000
Reduction in income taxes receivable from Bally
Total Fitness Holding Corporation................ 5,163 1,084 16,427
Sale of certain fitness-related assets............. 27,621
</TABLE>
37
<PAGE> 39
- --------------------------------------------------------------------------------
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 to reflect Bally Total Fitness Holding Corporation ("BFIT"), formerly
Bally's Health & Tennis Corporation, as a discontinued operation because of
Bally's spin-off of its fitness centers segment (see "Discontinued operations").
As a result, the Company's continuing operations comprise one industry segment
and all significant revenues arise from two casino hotel resorts in Atlantic
City, New Jersey, a casino hotel resort in Las Vegas, Nevada, a dockside casino
and hotel in Robinsonville, Mississippi (near Memphis, Tennessee) and a
riverboat casino in New Orleans, Louisiana.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which require the
Company's management to make estimates and assumptions that affect the amounts
reported therein. Actual results could vary from such estimates. In addition,
certain reclassifications have been made to prior years' financial statements to
conform with the 1995 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 primarily of common stock of certain publicly
traded gaming companies. These securities are considered available-for-sale
securities and are carried at fair value with the change in unrealized gains or
losses reported net of tax, as a credit or charge to retained earnings. The cost
of securities sold is determined on the specific identification method. A
summary of available-for-sale securities at December 31, 1995 and 1994 and for
the years then ended follows.
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------
<S> <C> <C>
Cost........................ $19,821 $ 5,846
Gross unrealized gains...... 247 219
Gross unrealized losses..... 1,957 34
Gross realized gains........ 2,844 11,884
Gross realized losses....... 390 78
</TABLE>
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 amortization of leasehold improvements is provided on the straight-line
method over the lesser of the estimated economic lives of the improvements or
the lease term. Depreciation expense was $67,894, $68,938 and $44,112 for 1995,
1994 and 1993, 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, 1995
and 1994 were deferred finance costs of $31,491 and $36,528, respectively, net
of accumulated amortization of $10,959 and $6,105, respectively.
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 on the straight-line method over the first six months of operations.
Included in "Other assets" at December 31, 1995 and 1994 were pre-opening costs
of $3,362 and $1,740, respectively.
Intangible assets
Intangible assets consist principally of cost in excess of net assets of
acquired businesses (goodwill) and are being amortized on the straight-line
method over periods ranging up to forty years from the dates of acquisition.
The Company evaluates annually whether the remaining estimated useful life of
goodwill may
38
<PAGE> 40
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
warrant revision or the remaining balance of goodwill may not be recoverable,
generally considering expectations of future profitability and cash flows
(undiscounted and without interest charges) for each subsidiary having goodwill
of significance. If the sum of a subsidiary's expected future cash flows was
less than the carrying value of that subsidiary, an impairment loss would be
recognized equal to the amount by which the carrying value of that subsidiary
exceeded its fair value. The Company believes that no impairment of goodwill
exists at December 31, 1995.
Revenue recognition
Casino revenues consist of the net win from gaming activities, which is the
difference between gaming wins and losses. Revenues exclude the retail value of
complimentary food, beverages and hotel services furnished to customers, which
were $115,803, $99,558 and $71,261 for 1995, 1994 and 1993, 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:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------
<S> <C> <C> <C>
Rooms............. $17,573 $15,601 $ 10,010
Food and
beverage........ 58,119 53,356 40,541
Other............. 7,264 6,958 5,577
------- ------- --------
$82,956 $75,915 $ 56,128
======== ======== ========
</TABLE>
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 such costs are generally
accounted for as pre-opening costs.
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
$28,197.
ABANDONMENT LOSS
On February 9, 1995, the Company entered into a venture agreement with a
subsidiary of Lady Luck Gaming Corporation ("Lady Luck") pursuant to which the
Company relocated its dockside casino from Mhoon Landing to a site in
Robinsonville, Mississippi, where Lady Luck had constructed a 238-room hotel.
Effective April 1, 1995, the Company contributed its dockside casino and related
assets to the venture, and Lady Luck contributed the hotel and related assets.
Through subsidiaries, Bally owns a 58% equity interest in and serves as general
manager of the venture ("Bally's Mississippi").
In connection with the venture agreement, the Company terminated its land lease
at Mhoon Landing, thereby causing the land-based building and related leaseholds
to become property of the lessor. In addition, certain other assets were not
recoverable upon relocation. As a result, the Company recognized a charge of
$13,100 at December 31, 1994, which represented the write-off of the net book
value of assets abandoned.
EXTRAORDINARY ITEMS
In 1995, the Company purchased $20,040 principal amount of the Bally's Casino
Holdings, Inc. ("Casino Holdings") discount notes
for $13,448 in cash, which resulted in an extraordinary gain of $458, net of
income taxes of $247.
In 1994, 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. Also in 1994, the Company
purchased $7,400 principal amount of the Casino Holdings discount notes for
$4,456 in cash,
39
<PAGE> 41
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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 an extraordinary loss totalling
$8,490, net of income taxes of $5,092 and minority interests of $412.
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
(55,452,172 in 1995, 46,897,196 in 1994 and 46,558,856 in 1993). Common stock
equivalents (which primarily represent the dilutive effect of the assumed
conversion of certain convertible/ exchangeable securities and the assumed
exercise of certain outstanding stock options) increased the weighted average
number of shares outstanding by 8,297,557 in 1995. Assumed conversion of
convertible/exchangeable securities was not applicable and assumed exercise of
outstanding stock options was not significant 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, 1993 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 and 1,752,400 shares of
Bally Gaming International, Inc. ("Gaming") common stock. Bally's Grand, Inc.
has been consolidated since December 1, 1993 as a result of Bally's attainment
of a controlling interest at that time. 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 $17,080. In addition, a subsidiary of Bally
acquired 752,676 shares of 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."
During 1995, Bally's Grand, Inc. repurchased 676,900 shares of its common stock
in several transactions for $7,663. In addition, a subsidiary of Bally acquired
850,810 shares of Bally's Grand, Inc. common stock in several transactions for
$8,747.
Collectively, as a result of the transactions described above, Bally owned
approximately 81% of the Bally's Grand, Inc. common shares outstanding at
December 31, 1995. The acquisitions of Bally's Grand, Inc. common stock have
been recorded using the purchase method of accounting and the excess of the
purchase price over the estimated fair value of net assets acquired totalling
$29,053 is being amortized using the straight-line method over 20 years.
Certain employees of Bally and certain of its subsidiaries provide various
management, administrative and support services to Bally's Grand, Inc. During
1993, Bally was paid $1,427 for such services provided to Bally's Grand, Inc.
40
<PAGE> 42
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
prior to the Effective Date. 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 has been prepared to give effect to the 1993 acquisition of
the controlling interest in reorganized Bally's Grand, Inc. as if such
acquisition had occurred as of January 1, 1993. The 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 date 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 reorganization items of Bally's Grand, Inc., (ii) the effects of
transactions related to the reorganization of Bally's Grand, Inc. pursuant to
the Chapter 11 Plan, (iii) the effects of the adoption of "fresh-start
reporting" and (iv) the income tax effects of the pro forma adjustments. The pro
forma summary consolidated results of operations for 1993 is based upon
available information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<S> <C>
Revenues........................... $867,952
Operating income................... 143,048
Income from continuing operations.. 11,571
Net loss........................... (46,707)
Per common and common equivalent
share:
Income from continuing
operations.................. $ .19
Net loss...................... (1.06)
</TABLE>
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------
<S> <C> <C>
Payroll and
benefit-related........ $ 44,728 $ 40,213
Interest................. 21,094 29,179
Other.................... 50,726 44,598
-------- --------
$116,548 $113,990
========= =========
</TABLE>
LONG-TERM DEBT
The carrying amounts of the Company's long-term debt at December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Bally:
8% Convertible Senior
Subordinated Debentures due
2000....................... $ 13,586 $
10% Convertible Subordinated
Debentures due 2006........ 75,000 80,000
6% Convertible Subordinated
Debentures due 1998........ 1,804 15,715
Casino Holdings:
Senior Discount Notes due
1998, less unamortized
discount of $42,805 and
$63,319.................... 149,755 149,281
Bally's Park Place:
9 1/4% First Mortgage Notes
due 2004................... 425,000 425,000
The Grand:
10 5/8% First Mortgage Notes
due 2003, less unamortized
discount of $1,678 and
$1,824..................... 273,322 273,176
Bally's Las Vegas:
10 3/8% First Mortgage Notes
due 2003................... 315,000 315,000
Bally's Casino*Lakeshore
Resort:
Term loan.................. 21,681
Construction loan.......... 4,358
Other secured and unsecured
obligations.................. 14,453 3,660
---------- ----------
Total long-term debt........... 1,289,601 1,266,190
Current maturities of long-term
debt......................... (11,160) (7,200)
---------- ----------
Long-term debt, less current
maturities................... $1,278,441 $1,258,990
========== ==========
</TABLE>
In July 1995, Bally completed an exchange offer pursuant to which Bally
exchanged $13,586 of 8% Convertible Senior Subordinated Debentures due 2000 (the
"8% Debentures") for $13,586 of 6% Convertible Subordinated Debentures due 1998
(the "6% Debentures"). The exchange eliminated all cash sinking fund
requirements for the 6% Debentures and restrictive dividend covenants, enabling
Bally to proceed with the spin-off of its fitness centers segment. The 8%
Debentures are not subject to any sinking fund requirements or restrictive
dividend covenants and may be redeemed at any time, in whole or in part, without
premium. At any time prior to maturity or redemption, these debentures are
convertible into shares of Bally Common Stock,
41
<PAGE> 43
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
par value $.66 2/3 per share (the "Common Stock") at a current conversion price
of $12.46 per share (as adjusted for the spin-off of BFIT), subject to
adjustment for certain subsequent changes in the Company's capitalization.
The Bally 10% Convertible Subordinated Debentures due 2006 (the "10%
Debentures") require annual sinking fund payments of $5,000 through 2005. The
Company may redeem these debentures at any time, in whole or in part, with a
premium of 0.62% at December 31, 1995 and zero in December 1996 and thereafter.
At any time prior to maturity or redemption, these debentures are convertible
into Common Stock at a current conversion price of $29.42 per share (as adjusted
for the spin-off of BFIT), subject to adjustment for certain subsequent changes
in the Company's capitalization. The Company purchased $5,000 principal amount
of these debentures in 1995 to satisfy the annual sinking fund requirement,
which resulted in a pre-tax gain of $303 (included in "Other revenues").
The 8% Debentures and 10% Debentures rank pari passu and their payment is
subordinated to the prior payment, in full, of all senior indebtedness of Bally,
as defined (approximately $152,000 at December 31, 1995). 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 6% Debentures may be redeemed by the Company at any time, in whole or in
part, without premium. At any time prior to maturity or redemption, these
debentures are convertible into shares of Common Stock at a current conversion
price of $26.10 per share (as adjusted for the spin-off of BFIT), subject to
adjustment for certain subsequent changes in the Company's capitalization. The
6% Debentures are effectively subordinated to all indebtedness of Bally and all
liabilities of the Company's subsidiaries. During 1995, the Company purchased
$325 principal amount of these debentures to partially satisfy former sinking
fund requirements, which resulted in a pre-tax gain of $45 (included in "Other
revenues").
The Casino Holdings Senior Discount Notes due 1998 (the "Senior Discount Notes")
were issued at a discount to yield an interest rate of 10 1/2% and 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. The Senior Discount Notes are effectively subordinated to all
liabilities and guarantees of Casino Holdings' subsidiaries, which were
approximately $912,000 at December 31, 1995.
The Bally's Park Place 9 1/4% First Mortgage Notes due 2004 (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. 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 $467,000 at December 31,
1995. In February 1996, Bally's Park Place amended its revolving credit facility
to increase the available credit line from $50,000 to $65,000 and extend the
expiration date to December 31, 1998. The revolving credit facility provides for
interest on borrowings payable, at Bally's Park Place's option, at the agent
bank's prime rate or the LIBOR rate plus 2%, each of which increases as the
balance outstanding increases. The 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 unused at
December 31, 1995.
The Grand's 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 all property and equipment of The Grand, which had a net
book value of approximately $282,000 at December 31, 1995. The Grand has a
$20,000 revolving credit agreement 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. The Grand pays a fee of 1/2% on the unused commitment and the entire
credit line was unused at December 31, 1995.
The Bally's Las Vegas 10 3/8% First Mortgage Notes due 2003 (the "10 3/8%
Notes") are not
42
<PAGE> 44
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
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. 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 other personal property, which
together had a net book value of approximately $370,000 at December 31, 1995.
In July 1995, Bally's Casino * Lakeshore Resort ("Bally's New Orleans") replaced
its construction loan with a five-year term loan, which is secured by a first
priority preferred mortgage on the riverboat (which had a net book value of
approximately $36,000 at December 31, 1995) and is guaranteed by Bally. The term
loan requires monthly payments of $490, including interest at 9.58%.
Other secured and unsecured obligations are payable through 2018 and are
collateralized by receivables, land, buildings and equipment which have a net
book value of approximately $21,000 at December 31, 1995. In addition, Bally has
guaranteed $11,850 of this indebtedness outstanding at December 31, 1995 for
certain of its subsidiaries. Interest rates on these obligations averaged
approximately 10% at December 31, 1995. The weighted average interest rate on
short-term borrowings was 7.9% in 1994 and there were no short-term borrowings
in 1995 or 1993.
Dividend and other restrictions
Each of Bally's principal subsidiaries presently have debt covenants which limit
the payment of dividends to Bally. 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, 1995, 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 a separate net income test
(generally limited to 50% of Bally's Park Place's aggregate consolidated net
income, as defined, earned since April 1, 1994) may be declared as a dividend by
Casino Holdings and paid to Bally. At December 31, 1995, $3,090 was available to
be paid by Bally's Park Place to Bally (through Casino Holdings) under this
separate net income test. In addition, $2,220 was available as of December 31,
1995 for the payment of dividends by Bally's Las Vegas.
The indentures for Bally's debt do not contain cross-default provisions. The
indentures and credit agreements related to the indebtedness of certain of
Bally's subsidiaries require, among other things, that these subsidiaries
maintain certain financial ratios and restrict the amount of additional
indebtedness that can be incurred.
Other than as previously described, Bally has not guaranteed the payment of
principal or interest under the debt securities and credit agreements of its
subsidiaries outstanding at December 31, 1995. However, Bally remains guarantor
of approximately $10,600 of BFIT's long-term debt outstanding at December 31,
1995.
Annual maturities
Aggregate annual maturities of long-term debt for the five years after December
31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bally............... $ 5,440 $ 9,677 $ 6,804 $ 5,000 $18,586
Casino Holdings..... 192,560
Bally's New
Orleans............ 5,416 5,983 6,136 6,277 3,862
Other............... 304 535 53 55 57
------- ------- -------- ------- -------
$11,160 $16,195 $205,553 $11,332 $22,505
======= ======= ======== ======= =======
</TABLE>
Fair value
The fair value of the Company's long-term debt at December 31, 1995 and 1994 was
$1,288,376 and $1,033,222, 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
The income tax provision (benefit) applicable to income from continuing
operations before
43
<PAGE> 45
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
income taxes and minority interests consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal........ $(25,964) $ 20,426 $ 28,536
State.......... 7,377 4,332 3,860
-------- -------- --------
(18,587) 24,758 32,396
Deferred:
Federal........ (3,291) (22,010) (26,867)
State.......... 3,228 252 (194)
-------- -------- --------
(63) (21,758) (27,061)
-------- -------- --------
$(18,650) $ 3,000 $ 5,335
========= ========= =========
</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, 1995 and 1994, along with their
classification, are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
ASSETS LIABILITIES Assets Liabilities
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenses which are not
currently deductible for
tax purposes:
Bad debts............. $ 6,657 $ $ 7,442 $
Other................. 33,491 35,088
Depreciation and
capitalized costs....... 175,740 169,314
Basis difference of
investments............. 10,287 27,067
Federal and state
carryforwards........... 47,311 119,178
Other, net............... 29,116 31,440
-------- ----------- -------- -----------
87,459 $ 215,143 161,708 $ 227,821
========== ==========
Valuation allowance...... (7,779) (70,439)
-------- --------
$ 79,680 $ 91,269
========== ==========
Current.................. $ 22,605 $ 155 $ 16,760 $ 461
Long-term................ 57,075 214,988 74,509 227,360
-------- ----------- -------- -----------
$ 79,680 $ 215,143 $ 91,269 $ 227,821
========== ========== ========== ==========
</TABLE>
Upon consummation of the spin-off of BFIT (see "Discontinued operations"), a
portion of the Company's federal loss and Alternative Minimum Tax ("AMT") credit
carryforwards are allocated to BFIT pursuant to U.S. Treasury Regulations.
Because the distribution of BFIT common stock occurred on January 9, 1996,
estimates of 1996 taxable income were used in order to determine the amount of
carryforwards which will be allocated to BFIT under the U.S. Treasury
Regulations. As such, the amount of carryforwards ultimately allocated to BFIT
may be different.
Because of the complex issues involved in the Company's tax situation and the
Company's expectation of the ultimate resolution of such issues, the Company
provided a valuation allowance at December 31, 1994 for a substantial portion of
its federal and state tax loss carryforwards and a portion of its AMT credits.
This valuation allowance was reduced in the fourth quarter of 1995 due to, among
other factors, the closing of several Internal Revenue Service audit cycles and
the Company's assessment of its ability to realize its remaining deferred tax
assets. At that time, the Company wrote off approximately $20,000 of deferred
tax assets no longer available against the valuation allowance. The remainder of
the reduction is reflected in the income tax benefit for 1995.
Based upon the estimates described above, the Company had federal loss and AMT
credit carryforwards at December 31, 1995 of approximately $87,000 and $9,000,
respectively. The Company's federal loss carryforwards begin to expire in 2006
and fully expire in 2010, and the Company's AMT credits have no expirations.
In addition, the Company had recorded deferred tax assets for state tax loss
carryforwards at December 31, 1995 of approximately $5,000 which begin to
expire in 1996 and fully expire in 2010. Based upon present expectations of
the Company's future operating results, the Company has provided a valuation
allowance at December 31, 1995 for substantially all of the state tax loss
carryforwards and federal credits which are not presently expected to be
realized.
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 follows.
44
<PAGE> 46
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------
<S> <C> <C> <C>
Provision (benefit) at U.S.
statutory tax rate (35%).... $ 19,914 $ 2,127 $ 5,275
Add (deduct):
State income taxes, net of
related federal income tax
benefit................... 6,893 3,433 2,393
Nondeductible expenses --
Amortization and
depreciation............ 1,562 1,247 1,140
Other..................... 1,926 1,549
Changes in the valuation
allowance................. (42,532) (7,543) 8,100
Prior years' taxes.......... (6,354) 2,216 (13,448)
Effect of change in state
(1994) and U.S. (1993)
statutory tax rates on
deferred tax balances..... (452) 1,492
Other, net.................. (59) 423 383
-------- ------- -------
Income tax provision
(benefit)................... $(18,650) $ 3,000 $ 5,335
========= ======== ========
</TABLE>
MINORITY INTERESTS
At December 31, 1995 and 1994, minority interests represents the share of equity
that Bally does not own in Bally's Grand, Inc., Bally's Mississippi and Bally's
New Orleans. In addition, minority interests includes 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 and 376,351 shares of BFIT 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 "Series D Stock"), with an aggregate liquidation value of $34,725 as of
December 31, 1995, bears a dividend rate of 8%. The holders of Series D 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 Series D Stock are in
arrears in an amount equal to at least six quarterly dividends and except as
Delaware law may otherwise provide. The Series D Stock is redeemable, in whole
or in part, at the option of Bally at $50.80 per share as of December 31, 1995,
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 Series D
Stock is convertible into Common Stock at a current price of $22.52 per share
(as adjusted for the spin-off of BFIT), equivalent to a conversion rate of 2.22
shares of Common Stock for each share of Series D Stock (subject to adjustment
for certain subsequent changes in the Company's capitalization). The Series D
Stock is exchangeable at the option of Bally, in whole but not in part, on any
dividend payment date for an issue of 8% Convertible Subordinated Debentures due
February 1, 2007 that would be issued by Bally. In the event of liquidation, the
holders of the Series D 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.
During 1995, Bally issued 15,525,000 shares of 8% PRIDES Convertible Preferred
Stock, par value $1 per share (the "PRIDES"), which provided proceeds of
$166,830 after expenses. Generally, holders of shares of PRIDES have the right
with holders of Common Stock to vote in the election of Bally's Board of
Directors (the "Board") and upon each other matter coming before any meeting of
the holders of Common Stock, on the basis of 4/5 of a vote for each share of
PRIDES held. On October 3, 1999, each share
45
<PAGE> 47
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
of PRIDES mandatorily converts into 1.12 shares (as adjusted for the spin-off of
BFIT) of Common Stock (subject to adjustment for certain subsequent changes in
the Company's capitalization), and the right to receive an amount in cash equal
to any accrued and unpaid dividends thereon. At any time prior to October 3,
1999, unless previously redeemed, each share of PRIDES is presently convertible
(at the option of the holder) into .92 of a share of Common Stock, equivalent to
a current conversion price of $12.092 per share of Common Stock (as adjusted for
the spin-off of BFIT), subject to adjustment for certain subsequent changes in
the Company's capitalization. The shares of PRIDES are not redeemable by Bally
prior to October 3, 1998 and rank senior to the Common Stock but junior to the
Series D Stock as to the payment of dividends and distribution of assets upon
liquidation. The PRIDES have an aggregate liquidation value of $172,716 plus any
accrued and unpaid dividends thereon.
Common stock
At December 31, 1995, shares of Common Stock were reserved for future issuance
as follows:
<TABLE>
<S> <C>
Conversion of preferred stock...... 18,929,339
Stock option and purchase plans.... 7,262,187
Conversion of 10% Debentures, 8%
Debentures and 6% Debentures..... 3,708,774
Other.............................. 1,188
----------
29,901,488
==========
</TABLE>
STOCK PLANS, AWARDS AND RIGHTS
Incentive plans
The 1989 Incentive Plan of Bally (the "1989 Plan") for officers and key
employees provides for the grant of stock options, stock appreciation rights
("SARs") and restricted stock (collectively "Awards"). During 1995, the 1989
Plan was amended to increase the aggregate number of shares of Common Stock
which may be sold or delivered under the 1989 Plan to 8,000,000 shares and to
prohibit the future grant of SARs. At December 31, 1995, options to purchase
6,074,686 shares of Common Stock were outstanding and 769,366 shares of Common
Stock were available for future grant under the 1989 Plan. 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 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 SARs, 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. There have been no
SARs granted under this plan since 1990. Stock options and SARs granted under
the 1989 Plan may be exercisable for a term of not more than ten years after the
date of grant.
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, 1995.
46
<PAGE> 48
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The 1993 Non-Employee Directors' Stock Option Plan of Bally (the "1993 Plan")
provides for the grant of non-qualified stock options to purchase an aggregate
of 120,000 shares of Common Stock to directors of the Company who are not
officers or key employees of Bally or any of its subsidiaries. Under this plan,
stock options are granted with an option price equal to the fair market value of
the stock on the date of grant. Option grants generally become exercisable in
three equal annual installments commencing one year after the date of grant,
with such options expiring ten years after the date of grant. At December 31,
1995, options to purchase 70,000 shares of Common Stock were outstanding and
50,000 shares of Common Stock were available for future grant under the 1993
Plan. 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 for options to purchase 36,102 shares of Common Stock
that were outstanding at December 31, 1995, all of which are vested.
A summary of 1995 stock option activity under the three aforementioned plans
(with option prices adjusted for the spin-off of BFIT) is as follows:
<TABLE>
<CAPTION>
Price Number
per share of shares
---------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994... $ .55-21.30 5,652,441
Granted............................ 6.30-11.05 1,057,082
Exercised.......................... 3.88- 9.63 (316,907)
Cancelled or expired............... 2.68-12.80 (211,828)
----------
Outstanding at December 31, 1995... .55-21.30 6,180,788
==========
</TABLE>
At December 31, 1995, options on 3,422,544 shares were exercisable. Shares under
option at December 31, 1995 include awards to purchase 508,334 shares that can
be deemed SARs by the award recipients. Outstanding options at December 31, 1995
expire between 1996 and 2005.
Bally's Employee 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 1995 and 1994, employees participating in the Stock Purchase Plan
purchased 170,519 shares and 117,448 shares, respectively, of Common Stock. At
December 31, 1995, 262,033 shares of Common Stock were available for future
purchases under the Stock Purchase Plan. No expense has been recorded by the
Company in connection with this plan because it is noncompensatory.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its employee stock options and intends to continue to do so.
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. terminated before the restrictions lapsed (forfeitures occurred in 1995,
1994 and 1993). The restrictions applicable to these 300,000 shares lapsed as to
approximately one-third of the shares awarded on each of December 31, 1993, 1994
and 1995, and Bally's Grand, Inc. acquired 76,900 and 180,175 of these shares at
their fair market value during 1995 and 1994, respectively. The fair value of
restricted shares awarded was amortized to expense over the period the
restrictions lapsed. Pursuant to this stock plan, forfeited shares are available
to be
47
<PAGE> 49
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
awarded again. As of December 31, 1995, there were 42,925 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
1/100th of a share of Series B Junior Stock for $60. Unless earlier redeemed by
the Board of Directors, the rights become exercisable upon the close of business
on the day which is the earliest of (i) the tenth day following the date (the
"Stock Acquisition Date") of a public announcement that a person or group of
affiliated or associated persons, with certain exceptions, has acquired
beneficial ownership of 10% or more of the outstanding Common Stock (an
"Acquiring Person"), (ii) the tenth business day (or such later date as may be
determined by the Board of Directors prior to such time as any person or group
of affiliated or associated persons becomes an Acquiring Person) after the date
of the commencement or announcement of a person's or group's intention to
commence a tender or exchange offer (with certain exceptions) the consummation
of which would result in the ownership of 20% or more of the outstanding Common
Stock and (iii) the tenth day after the date on which any person becomes a
"Triggering 5% Stockholder". A "Triggering 5% Stockholder" is a person or group
of affiliated or associated persons holding 5% or more of the Common Stock and
who have been found to have violated any state gaming, casino or similar statute
or regulation in connection with the stockholder's interest in the Company, to
be unsuited or unqualified under any such statute or regulation to own 5% or
more of the Common Stock or to have acquired beneficial ownership of a
percentage ownership of the Common Stock in excess of the percentage ownership
deemed by a governmental authority to constitute control of the Company without
the requisite prior approvals from the applicable gaming authorities. An
Acquiring Person does not include (i) the Company, (ii) any subsidiary of the
Company, (iii) any employee benefit plan of the Company or of any subsidiary of
the Company or any person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan or (iv) any director of
the Company holding office as of the close of business on November 15, 1995 and
any immediate family member of, or person controlled by, any such director.
Unless the rights are earlier redeemed, if a person or group (with certain
exceptions) becomes an Acquiring Person or a Triggering 5% Stockholder, proper
provision will be made so that each holder of record of a right, other than the
Acquiring Person or Triggering 5% Stockholder (whose rights will thereupon
become null and void), will thereafter have the right to receive, upon payment
of the exercise price of the rights, that number of shares of Common Stock (or
other securities or property) having a market value at the time of the
transaction equal to two times the exercise price. In the event that, at any
time following the Stock Acquisition Date, 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 the Common Stock is
not changed or exchanged) or 50% or more of the Company's assets or earning
power is sold or transferred, each holder of a right (except rights which
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, common stock of the acquiring company having a
calculated value equal to two times 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 10 days following the Stock
Acquisition Date or the date on which any person or group first becomes a
Triggering 5% Stockholder.
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 $6,089,
$5,602 and $4,299 for 1995, 1994 and 1993, respectively.
Certain employees of the Company are covered by union-sponsored, collectively
bargained, multi-employer defined benefit pension plans. The
48
<PAGE> 50
- --------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
contributions and charges to expense for these plans were $4,256, $4,255 and
$1,314 in 1995, 1994 and 1993, respectively.
In addition, Bally's Park Place had a noncontributory supplemental executive
retirement plan for certain key executives which was terminated during 1995,
whereby Bally's Park Place generally settled its obligations with respect
thereto by making a payment to one of the defined contribution plans described
above. As a result of this settlement, Bally's Park Place recognized a gain of
$1,800 in 1995. The net periodic pension cost for this plan was $949 and $3,090
for 1994 and 1993, respectively.
DISCONTINUED OPERATIONS
On June 28, 1994, the Board approved a plan to spin-off its fitness centers
segment operated by BFIT (the "Spin-off"). As a result, the Company recorded an
after tax provision in June 1994 of $23,731 for BFIT's estimated operating
losses through disposal. Several unexpected delays in effecting the Spin-off
were encountered, resulting in the Company's recognition of a $10,980 after-tax
provision in the third quarter of 1995 for additional BFIT operating losses. On
November 6, 1995, the Board declared a spin-off distribution to holders of
Common Stock at the close of business on November 15, 1995, with one share of
BFIT common stock to be distributed for every four shares of Common Stock then
outstanding. The BFIT common stock was distributed on January 9, 1996; however,
the Spin-off was reflected in the Company's consolidated financial statements as
of the November 15, 1995 record date. In addition, cash payments were made to
holders of Common Stock in lieu of any fractional shares of BFIT common stock.
In connection with the Spin-off, BFIT issued to the Company a warrant (the
"Warrant") entitling the Company to acquire 2,942,805 shares of BFIT common
stock at an exercise price of $5.26 per share (equal to 110% of the average
trading price of BFIT's common stock for the first 20 trading days after the
stock was distributed). The Warrant is not exercisable until December 31, 1996
(unless certain change in control transactions occur) and is exercisable for a
period of nine years thereafter.
The Company's investment in and receivables from discontinued operations at
December 31, 1995 and 1994 consists of:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Investment in fitness centers
segment............................. $ -- $229,438
Income taxes receivable from fitness
centers segment..................... 15,200 52,990
Other................................. 250 8,584
-------- --------
$ 15,450 $291,012
======== ========
</TABLE>
Summarized results of operations of the fitness centers segment is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1995 Years ended
THROUGH December 31
NOVEMBER ---------------------
15, 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Revenues................... $585,351 $661,505 $694,752
Operating income (loss).... 10,265 (36,327) 3,391
Loss before extraordinary
item and cumulative
effect on prior years of
change in accounting for
income taxes............. (10,980) (46,091) (26,245)
Extraordinary loss on
extinguishment of debt... (5,999)
Cumulative effect on prior
years of change in
accounting for income
taxes.................... 20,711
Net loss................... (10,980) (46,091) (11,533)
</TABLE>
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.
49
<PAGE> 51
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SUPPLEMENTARY DATA
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
<CAPTION>
Quarters ended
-----------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ----------------- -----------------
1995 1994 1995 1994 1995 1994 1995 1994
------ ------ ------ ------ ------ ------ ------ ------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................... $228.3 $212.3 $245.0 $238.4 $287.1 $261.3 $263.5 $230.3
Operating income............................. 40.4 19.2 46.0 42.2 58.9 52.2 41.5 11.5
Income (loss) from continuing operations..... 4.2 (9.7) 9.3 6.2 17.0 11.8 46.2 (10.2)
Income (loss) from discontinued operations... 5.0 (51.1) (11.0)
Income (loss) before extraordinary item...... 4.2 (4.7) 9.3 (44.9) 6.0 11.8 46.2 (10.2)
Extraordinary gain (loss).................... .3 (20.7) .1 .3
Net income (loss)............................ 4.5 (25.4) 9.4 (44.9) 6.0 11.8 46.2 (9.9)
Per common share:
Income (loss) from continuing operations... $ .07 $ (.23) $ .17 $ .12 $ .32 $ .24 $ .67 $ (.23)
Income (loss) from discontinued
operations............................... .11 (1.09) (.21)
Extraordinary gain (loss).................. .01 (.44)
Net income (loss).......................... .08 (.56) .17 (.97) .11 .24 .67 (.23)
<FN>
- ---------------
NOTES:
1. Casino operations of Bally's New Orleans commenced in July 1995 and Bally's
Mississippi reopened its casino in December 1995. Between December 1993 and
February 1995, Bally's Mississippi operated at a different site.
2. Income from continuing operations for the quarters ended March 31, June 30,
September 30 and December 31, 1995 includes charges (net of taxes and
minority interests) of $.3 million ($.01 per share), $.9 million ($.02 per
share), $1.7 million ($.02 per share) 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.
3. Income (loss) from continuing operations for the quarters ended March 31,
June 30, September 30 and December 31, 1994 includes charges (net of taxes)
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 amortization of
pre-opening costs.
4. Income from continuing operations includes gains from sales of marketable
securities (net of taxes and minority interests) for the quarters ended June
30, September 30 and December 31, 1995 of $.6 million ($.01 per share), $.1
million and $.7 million ($.01 per share), respectively, and for the quarters
ended September 30 and December 31, 1994 of $1.1 million ($.02 per share) and
$3.6 million ($.08 per share), respectively.
5. Income from continuing operations for the quarter ended December 31, 1995
includes a credit of $41.0 million ($.65 per share) for certain adjustments
to prior years' income taxes.
6. 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 abandoned upon the relocation of the Company's dockside casino
closer to Memphis, Tennessee.
7. The quarterly consolidated financial information reflects Bally Total Fitness
Holding Corporation as a discontinued operation due to the spin-off
distribution by Bally of its fitness centers segment. Loss from discontinued
operations for the quarters ended September 30, 1995 and June 30, 1994
includes charges of $11.0 million ($.21 per share) and $23.7 million ($.51
per share), respectively, to provide for operating losses of the Company's
fitness centers segment through the spin-off date.
8. The extraordinary gain (loss) for the quarters ended March 31 and June 30,
1995 and March 31 and December 31, 1994 are due to early retirements of debt.
</FN>
</TABLE>
50
<PAGE> 52
- --------------------------------------------------------------------------------
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, 1995 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...... 31
Consolidated balance sheet at
December 31, 1995 and 1994........ 32
For each of the three years in the
period ended December 31, 1995:
Consolidated statement of
operations................... 34
Consolidated statement of
stockholders' equity......... 35
Consolidated statement of cash
flows........................ 36
Notes to consolidated financial
statements........................ 38
Supplementary data:
Quarterly consolidated
financial information
(unaudited).................. 50
</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, 1995 and 1994..... S-1
Condensed statement of operations
for each of the three years in
the period ended December 31,
1995........................... S-2
Condensed statement of cash flows
for each of the three years in
the period ended December 31,
1995........................... 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, 1995........... 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
<PAGE> 53
- --------------------------------------------------------------------------------
(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.(i) -4 Certificate of Designations, Preferences, Rights and Limitations on Preferred
Redeemable Increased Dividend Equity Securities, for 8% PRIDES Convertible
Preferred Stock, par value $1 per share, of Bally (filed as an exhibit to Bally's
Quarterly Report on Form 10-Q, file no. 1-7244, for the quarter ended September 30,
1995).
*3.(i) -5 Certificate of Correction to the Certificate of Designations, Preferences, Rights
and Limitations on Preferred Redeemable Increased Dividend Equity Securities, for
8% PRIDES Convertible Preferred Stock, par value $1 per share, of Bally (filed as
an exhibit to Bally's Quarterly Report on Form 10-Q, file no. 1-7244, for the
quarter ended September 30, 1995).
3.(ii) -1 By-laws of Bally, as amended through March 13, 1996.
*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 8-A dated December 11, 1986, relating to Preferred
Stock Purchase Rights (file no. 1-7244).
*4.(ii) -7 Amendment No. 1 on Form 8-A/A to Registration Statement on Form 8-A dated December
11, 1986, relating to Preferred Stock Purchase Rights, filed November 14, 1995
(file no. 1-7244).
*4.(ii) -8 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) -9 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) -10 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) -11 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) -12 Registration Statement on Form S-1 (registration no. 33-59660) filed May 11, 1993
by GNF, CORP. and GNOC, CORP. and Indenture dated as of March 10, 1993 between GNF,
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) -13 Registration Statement on Form S-1 (registration no. 33-74330) filed April 13, 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
<PAGE> 54
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
*4.(ii) -14 Registration Statement on Form S-1 (registration no. 33-78468), filed May 13, 1994
by Bally's Grand, Inc.
*4.(ii) -15 Registration Statement on Form S-3 (registration no. 33-61571), filed September 28,
1995 by Bally.
*4.(ii) -16 Form T-3/A regarding 8% Convertible Senior Subordinated Debentures due December 15,
2000 in exchange for 6% Convertible Subordinated Debentures due 1998 and Form of
Indenture between Bally and First Bank National Association, as Trustee, regarding
8% Convertible Senior Subordinated Debentures due December 15, 2000 (up to
$15,390,000) (file no. 022-22211), filed July 3, 1995 by Bally.
*4.(ii) -17 Schedule 13E-4/A, the Corrected Final Amendment regarding 8% Convertible Senior
Subordinated Debentures due December 15, 2000 in exchange for 6% Convertible
Subordinated Debentures due 1998 (file no. 005-10166), filed July 26, 1995 by
Bally.
*4.(ii) -18 Amended and Restated Credit and Guaranty Agreement dated as of February 27, 1996,
among Bally's Park Place, Inc. (a New Jersey corporation), Bally's Park Place, Inc.
(a Delaware corporation), Bally's Park Place Realty Co. and First Union National
Bank, as agent and lender, Midlantic Bank, National Association and LaSalle
National Bank as lenders (filed as an exhibit to Bally's Park Place, Inc.'s Annual
Report on Form 10-K, file no. 1-8540, for the fiscal year ended December 31, 1995).
10.(i) -1 Tax Allocation and Indemnity Agreement dated January 9, 1996, between Bally and
Bally Total Fitness Holding Corporation.
*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 (filed as an exhibit to Bally's Annual Report on Form 10-K, file no.
1-7244, for the fiscal year ended December 31, 1994).
10.(iii) -7 Amendments to 1989 Incentive Plan of Bally Entertainment Corporation, effective May
16, 1995.
*10.(iii) -8 Bally's 1993 Non-Employee Directors Stock Option Plan (filed as an exhibit to
Bally's Annual Report on Form 10-K, file no. 1-7244, for the fiscal year ended
December 31, 1994).
*10.(iii) -9 Bally Entertainment Corporation Management Retirement Savings Plan effective
October 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, 1994).
10.(iii) -10 First Amendment to Bally Entertainment Corporation Management Retirement Savings
Plan, effective July 1, 1995.
*10.(iii) -11 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) -12 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) -13 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).
</TABLE>
53
<PAGE> 55
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
*10.(iii) -14 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) -15 Third Amendment to Employment Agreement dated as of May 16, 1995, between Bally and
Arthur M. Goldberg.
*10.(iii) -16 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) -17 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) -18 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) -19 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) -20 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 (filed as an exhibit to Bally's Annual
Report on Form 10-K, file no. 1-7244, for the fiscal year ended December 31, 1994).
10.(iii) -21 Employment Agreement effective as of April 15, 1995, between Bally and Lee S.
Hillman.
*10.(iii) -22 Employment Agreement effective as of January 1, 1995, between Bally, Bally's Park
Place, Inc. and Robert G. Conover (filed as an exhibit to Bally's Park Place,
Inc.'s Annual Report on Form 10-K, file no. 1-8540, for the fiscal year ended
December 31, 1995).
10.(iii) -23 Employment Agreement effective as of July 1, 1995, between Bally and James S.
Montana, Jr.
10.(iii) -24 Employment Agreement effective as of January 1, 1996, between Bally and Bernard J.
Murphy.
*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, 1995, between Bally, Bally's Park
Place, Inc. and Wallace R. Barr (filed as an exhibit to Bally's Park Place, Inc.'s
Annual Report on Form 10-K, file no. 1-8540, for the fiscal year ended December 31,
1995).
*10.(iii) -27 Employment Agreement dated June 5, 1995, between Bally's Grand, Inc. and Darrell A.
Luery (filed as an exhibit to Bally's Grand, Inc.'s Annual Report on Form 10-K,
file no. 1-2500, for the fiscal year ended December 31, 1995).
11 Computation of Earnings Per Share.
21 Listing of subsidiaries of Bally.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
<FN>
- ---------------
* Incorporated herein by reference as indicated.
</FN>
</TABLE>
54
<PAGE> 56
- --------------------------------------------------------------------------------
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, 1996 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, 1996 /s/ ARTHUR M. GOLDBERG
Arthur M. Goldberg
Chairman of the Board, Chief Executive Officer and
President (Principal Executive Officer)
Dated: March 29, 1996 /s/ LEE S. HILLMAN
Lee S. Hillman
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
Dated: March 29, 1996 /s/ JOHN W. DWYER
John W. Dwyer
Vice President and Corporate Controller
(Principal Accounting Officer)
Dated: March 29, 1996 /s/ GEORGE N. ARONOFF
George N. Aronoff
Director
Dated: March 29, 1996 /s/ BARRIE K. BRUNET
Barrie K. Brunet
Director
Dated: March 29, 1996 /s/ EDWIN M. HALKYARD
Edwin M. Halkyard
Director
Dated: March 29, 1996 /s/ J. KENNETH LOOLOIAN
J. Kenneth Looloian
Director
Dated: March 29, 1996 /s/ ROCCO J. MARANO
Rocco J. Marano
Director
Dated: March 29, 1996 /s/ PATRICK L. O'MALLEY
Patrick L. O'Malley
Director
Dated: March 29, 1996 /s/ JAMES M. ROCHFORD
James M. Rochford
Director
</TABLE>
55
<PAGE> 57
<TABLE>
- ----------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET (PARENT COMPANY ONLY)
DECEMBER 31, 1995 AND 1994
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.......................................... $150,085 $ 24,056
Marketable securities, at fair value.......................... 16,330
Note receivable from a subsidiary............................. 15,046 6,722
Receivables --
Subsidiaries............................................... 14,655 1,763
Other...................................................... 2,089 88
Income taxes refundable....................................... 3,200 20,277
Deferred income taxes......................................... 16,172
Other current assets.......................................... 2,124 570
-------- --------
Total current assets.................................. 219,701 53,476
Investments in subsidiaries related to continuing operations.... 189,411 161,699
Investment in and receivables from discontinued operations...... 15,450 291,012
Other assets.................................................... 17,262 7,702
-------- --------
$441,824 $513,889
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to a subsidiary................................. $ 2,290 $ 2,771
Accounts payable --
Subsidiaries............................................... 162
Other...................................................... 360 237
Income taxes payable.......................................... 32,678
Accrued liabilities........................................... 12,006 16,674
Current maturities of long-term debt.......................... 5,000 6,920
-------- --------
Total current liabilities............................. 19,818 59,280
Long-term debt, less current maturities......................... 85,390 88,795
Long-term payables to subsidiaries.............................. 51,807 38,654
Deferred income taxes........................................... 33,643 32,915
Other liabilities............................................... 531 633
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
8% PRIDES Convertible; 15,525,000 shares authorized and
issued; liquidation preference of $172,716............... 15,525
Common stock, $.66 2/3 par value; 80,000,000 shares
authorized; 47,625,927 and 47,138,498 shares issued........ 31,751 31,426
Capital in excess of par value................................ 177,551 295,110
Retained earnings (accumulated deficit)....................... 27,151 (31,581)
Common stock in treasury, 146,956 shares at cost.............. (2,037) (2,037)
-------- --------
Total stockholders' equity............................ 250,635 293,612
-------- --------
$441,824 $513,889
======== ========
See accompanying notes.
</TABLE>
S-1
<PAGE> 58
<TABLE>
- -----------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
CONDENSED STATEMENT OF OPERATIONS (PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest --
Subsidiaries............................................... $ 148 $ 403 $ 65
Other...................................................... 4,469 1,635 1,845
Gain on sales of marketable securities........................ 1,993
Other......................................................... 2,653 1,673 5,919
------- -------- --------
9,263 3,711 7,829
Costs and expenses:
General and administrative.................................... 837 1,522 5,752
Interest --
Subsidiaries............................................... 681 242 298
Other...................................................... 9,120 9,436 9,328
------- -------- --------
10,638 11,200 15,378
------- -------- --------
Loss from continuing operations before income taxes and equity
in net income (loss) of subsidiaries related to continuing
operations.................................................... (1,375) (7,489) (7,549)
Income tax benefit.............................................. 49,722 8,488 22,996
Equity in net income (loss) of subsidiaries related to
continuing operations......................................... 28,306 (2,902) (3,428)
------- -------- --------
Income (loss) from continuing operations........................ 76,653 (1,903) 12,019
Equity in loss and gains from dispositions of subsidiaries
related to discontinued operations, net....................... (10,980) (46,091) (21,830)
------- -------- --------
Income (loss) before extraordinary items and cumulative effect
on prior years of change in accounting for income taxes....... 65,673 (47,994) (9,811)
Equity in extraordinary items of subsidiaries................... 458 (20,395) (8,490)
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)............................................... $66,131 $(68,389) $(46,498)
======= ======== ========
See accompanying notes.
</TABLE>
S-2
<PAGE> 59
<TABLE>
- ------------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING:
Income (loss) from continuing operations...................... $ 76,653 $ (1,903) $ 12,019
Adjustments to reconcile to cash provided (used) --
Deferred income taxes...................................... 3,654 (20,821) (44,292)
Equity in net (income) loss of subsidiaries related to
continuing operations.................................... (28,306) 2,902 3,428
Gain on repurchase of debt for sinking fund requirements... (348) (1,235) (596)
Cash dividends from subsidiaries........................... 12,845 24,200
Change in operating assets and liabilities................. (76,815) (13,871) 31,214
Other, net................................................. (3,513) 296 637
-------- -------- --------
Cash provided by (used in) operating activities.......... (28,675) (21,787) 26,610
INVESTING:
Purchases of property and equipment........................... (113)
Purchases of marketable securities............................ (25,463)
Net proceeds from sales of marketable securities.............. 8,131
Other, net.................................................... (3,369) 7 (200)
-------- -------- --------
Cash provided by (used in) investing activities.......... (20,814) 7 (200)
FINANCING:
Debt transactions --
Repayments of long-term debt............................... (5,131) (7,169) (2,496)
Subsidiary repayments of advances, net..................... 5,272 10,547 5,946
-------- -------- --------
Cash provided by debt transactions....................... 141 3,378 3,450
Equity transactions --
Proceeds from issuance of 8% PRIDES Convertible
Preferred Stock.......................................... 166,830
Proceeds from issuance of common stock under stock purchase
and option plans......................................... 3,253 755 590
Preferred stock dividends.................................. (2,778) (2,778)
Purchases of common stock for treasury..................... (239)
-------- -------- --------
Cash provided by financing activities.................... 167,446 1,116 4,040
DISCONTINUED OPERATIONS:
Dividends received from discontinued operations............... 15,000
Other, net.................................................... 8,072 1,204 (3,248)
-------- -------- --------
Cash provided by discontinued operations................. 8,072 1,204 11,752
-------- -------- --------
Increase (decrease) in cash and equivalents..................... 126,029 (19,460) 42,202
Cash and equivalents, beginning of year......................... 24,056 43,516 1,314
-------- -------- --------
Cash and equivalents, end of year............................... $150,085 $ 24,056 $ 43,516
======== ======== ========
See accompanying notes.
</TABLE>
S-3
<PAGE> 60
<TABLE>
- -------------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS (PARENT COMPANY ONLY)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(ALL DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash payments for interest and income taxes for continuing
operations were as follows --
Interest paid............................................ $ 9,725 $ 9,568 $ 2,422
Income taxes paid (net of refunds)....................... 28,314 17,597 3,351
Operating, investing and financing activities exclude the
following non-cash activities --
Accrued preferred stock dividends........................ $ 3,454 $ $
Non-cash dividends from subsidiaries..................... 8,000
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
Stock option and benefit plan transactions............... 500
Discontinued operations --
Spin-off of fitness centers segment and capital
contributions (principally forgiveness of
indebtedness) to Bally Total Fitness Holding
Corporation......................................... 272,425 23,731 32,000
Reduction in income taxes receivable from Bally Total
Fitness Holding Corporation......................... 5,163 1,084 16,427
Sale of certain fitness-related assets................ 8,525
See accompanying notes.
</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 should be read in conjunction with the consolidated financial
statements of Bally.
LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------
8% Convertible Senior Subordinated Debentures due 2000.......... $13,586 $
10% Convertible Subordinated Debentures due 2006................ 75,000 80,000
6% Convertible Subordinated Debentures due 1998................. 1,804 15,715
------- -------
Total long-term debt............................................ 90,390 95,715
Current maturities of long-term debt............................ (5,000) (6,920)
------- -------
Long-term debt, less current maturities......................... $85,390 $88,795
======= =======
</TABLE>
S-5
<PAGE> 62
<TABLE>
- ------------------------------------------------------------------------------------------------
BALLY ENTERTAINMENT CORPORATION
SCHEDULE II-- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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>
1995:
Allowance for doubtful
receivables................... $12,196 $ 4,718 $ 45 $ 3,865 $13,094
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
<FN>
- ---------------
NOTES:
(1) Additions charged to accounts other than costs and expenses generally result
from the acquisition of a business.
(2) Deductions include write-offs of uncollectible amounts, net of recoveries.
</FN>
</TABLE>
S-6
<PAGE> 1
Exhibit 3.(ii)
BY-LAWS
OF
BALLY ENTERTAINMENT CORPORATION
(AS AMENDED THROUGH MARCH 13, 1996)
1. STOCKHOLDERS.
1.1 PLACE OF STOCKHOLDERS' MEETINGS. All meetings of the stockholders
of the Corporation shall be held at such place or places, within or outside
the State of Delaware, as may be fixed by the Board of Directors from time to
time or as shall be specified in the respective notices thereof. (As amended
April 27, 1976)
1.2 ANNUAL MEETINGS OF STOCKHOLDERS. An annual meeting of
stockholders shall be held each year at such date and time as shall be fixed
from time to time by the Board of Directors and stated in the notice of
meeting. (As amended April 11, 1980)
1.3 PURPOSE OF ANNUAL MEETINGS. At each annual meeting, the
stockholders shall elect the members of the Board of Directors for the
succeeding year. At any such annual meeting any proper business may be
transacted.
1.4 SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders or of any class or series thereof entitled to vote may be called
by the Chairman or by the President or by the Board of Directors.
1.5 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as other-wise expressly
required or permitted by the laws of Delaware, not less than ten days nor more
than sixty days before the date of every stockholders' meeting the Secretary
shall give to each stockholder of record entitled to vote at such meeting
written notice stating the place, day and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
Such notice, if mailed, shall be deemed to be given when deposited in the
United States mail, with postage thereon prepaid, addressed to the stockholder
at the post office address for notices to such stockholder as it appears on
the records of the Corporation. (As amended April 11, 1990)
1.6 QUORUM OF STOCKHOLDERS. (a) Unless otherwise provided by the laws
of Delaware, at any meeting of the stock-holders, the presence in person or by
proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum.
(b) At any meeting of the stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice other than announcement at the
meeting. In the absence of a quorum, the
<PAGE> 2
2
officer presiding thereat shall have power to adjourn the meeting from time to
time until a quorum shall be present. Notice of any adjourned meeting other
than announcement at the meeting, shall not be required to be given, except as
provided in paragraph (d) below and except where expressly required by law.
(c) At any adjourned session at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called but only those stock-holders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
1.7 CHAIRMAN AND SECRETARY OF MEETING. The Chairman or the
President, or, in their absence any Vice President, shall preside at meetings
of the stockholders. The Secretary shall act as secretary of the meeting, or
in his absence an Assistant Secretary shall act, or if neither is present, then
the presiding officer may appoint a person to act as secretary of the meeting.
1.8 VOTING BY STOCKHOLDERS. Except as may be otherwise provided by
the Certificate of Incorporation or these By-laws, at every meeting of the
stockholders each stockholder shall, unless otherwise provided, be entitled to
one vote for each share of stock standing in his name on the books of the
Corporation on the record date for the meeting. All elections and questions
shall be decided by the vote of a majority in interest of the stockholders
present in person or represented by proxy and entitled to vote at the meeting,
except as otherwise permitted or required by the laws of Delaware, the
Certificate of Incorporation or these By-laws. (As amended March 13, 1996).
1.9 PROXIES. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by his attorney-in-fact. Every proxy
shall be in writing, subscribed by the stockholder or his duly authorized
attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged.
1.10 LIST OF STOCKHOLDERS. (a) At least ten days before every
meeting of stockholders, the Secretary shall prepare and make a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least ten
days prior to the meeting such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held.
<PAGE> 3
3
(c) The list shall also be produced and kept at the time and place
of the meeting during the whole time of the meeting, and it may be inspected by
any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at
any meeting of stockholders.
1.11 ADVANCE NOTICE OF STOCKHOLDER-PROPOSED BUSINESS AT ANNUAL
MEETINGS. At any annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the board, otherwise properly brought before the meeting by or at the direction
of the board, or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 40 days nor more than 65 days prior to the annual meeting; provided,
however, that in the event that less than 50 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder of record proposing such business, (iii)
the class and number of shares of the Corporation which are beneficially owned
by the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in the By-laws to the contrary, no business
shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section 1.11, provided, however, that nothing in
this Section 1.11 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with
said procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 1.11, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. (As amended
May 4, 1989)
1.12 STOCKHOLDER NOMINATIONS OF DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall
<PAGE> 4
4
be eligible for election as Directors. Nominations of persons for election to
the board of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 1.12. Such nominations,
other than those made by or at the direction of the Board of Directors, shall
be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 40 days nor more than 65 days prior to the meeting; provided,
however, that in the event that less than 50 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice to the Secretary shall set forth: (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the person, (iv) any other information relating to the person that is required
to be disclosed in solicitations of proxies for election of Directors pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended, and
(v) any other information relating to the person that is required pursuant to
the rules of the New York Stock Exchange or any other securities, commodities
or other exchange or market of which the Corporation is a member or pursuant to
any statute, or any rule or regulation of any governmental authority,
applicable to any gaming or other licenses held by the Corporation or any
subsidiary; and (b) as to the stockholder giving the notice (i) the name and
record address of the stockholder, and (ii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a Director of
the Corporation. No person shall be eligible for election as a Director of
the Corporation unless nominated in accordance with the procedures set forth
herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded. (As amended May
4, 1989)
2. DIRECTORS.
2.1 POWERS OF DIRECTORS. The property, business and affairs of the
Corporation shall be managed by its Board of Directors which may exercise all
the powers of the Corporation except such as are by the laws of Delaware or the
Certificate of Incorporation or these By-laws required to be exercised or done
by the stockholders.
<PAGE> 5
5
2.2 NUMBER, METHOD OF ELECTION, TERMS OF OFFICE OF DIRECTORS. The
number of Directors which shall constitute the whole Board of Directors shall
be such as from time to time shall be determined by resolution approved by more
than eighty percent (80%) of the then authorized number of Directors or by the
vote or count of the holders of eighty percent (80%) of all classes of stock of
the Corporation entitled to vote in the election of Directors, considered for
this purpose as one class, but the number shall not be less than three,
provided that the tenure of a Director shall not be affected by any decrease in
the number of Directors so made by the Board. The Directors shall be
classified with respect to the time for which they shall severally hold office
by dividing them into three classes, each consisting so far as possible of
one-third of the whole number of the Board of Directors, and all Directors of
the Corporation shall hold office until their successors are elected and
qualified, provided, however, that a Director may resign. If the number of
Directors is not evenly divisible into thirds, the Board shall determine which
class or classes shall have one extra Director. At the meeting held for the
election of the Board in 1977 the Directors of the first class shall be elected
for a term of one year; the Directors of the second class for a term of two
years; and the Directors of the third class for a term of three years; and at
each annual election the successors to the class of Directors whose terms shall
expire that year shall be elected to hold office for a term of three years so
that the term of office of one class of Directors shall expire in each year.
(As amended May 31, 1977)
2.3 VACANCIES ON BOARD OF DIRECTORS. If any vacancy occurs in the
Board of Directors caused by the death, resignation, retirement,
disqualification, or removal from office of any Director or otherwise, or any
new directorship is created by any increase in the authorized number of
Directors, a majority of the Directors then in office, though less than a
quorum, may elect a successor to fill the newly created directorship and each
Director so elected shall hold office until the next election of Directors of
the class for which such Director shall have been chosen, and until his
successor shall be elected and shall be qualified. (As amended May 31, 1977)
2.4 MEETINGS OF THE BOARD OF DIRECTORS. (a) PLACE OF MEETINGS. The
Board of Directors may hold their meetings, both regular and special, either
within or outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by
resolution of the Board of Directors.
(c) The first meeting of each newly elected Board of Directors (except
the initial Board of Directors) shall be held as soon as practical after the
annual meeting of the stockholders for the election of officers and the
transaction of such other business as may come before it.
(d) Special meetings of the Board of Directors shall be held whenever
called by direction of the Chairman or the President or at the request of
Directors constituting one-third of the number of Directors then in office,
but not less than two Directors.
<PAGE> 6
6
(e) The Secretary shall give notice to each Director of any meeting
of the Board of Directors by mailing the same at least two days before the
meeting or by telegraphing or delivering the same not later than the day before
the meeting. Such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting. Any and all business may
be transacted at any meeting of the Board of Directors. No notice of any
adjourned meeting need be given. No notice to or waiver by any Director shall
be required with respect to any meeting at which the Director is present.
2.5 QUORUM AND ACTION. One-third of the entire Board of Directors,
but in no event less than two Directors, shall constitute a quorum for the
transaction of business; but if there shall be less than a quorum at any
meeting of the Board, a majority of those present may adjourn the meeting from
time to time. Unless otherwise provided by the laws of Delaware, the
Certificate of Incorporation or these By-laws, the act of a majority of the
Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors.
2.6 PRESIDING OFFICER AND SECRETARY OF MEETING. The Chairman, or, in
his absence, the President, or, in their absence, a member of the Board of
Directors selected by the members present, shall preside at meetings of the
Board. The Secretary shall act as secretary of the meeting, but in his
absence the presiding officer may appoint a secretary of the meeting.
2.7 ACTION BY CONSENT WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the records of the Board or committee.
2.8 EXECUTIVE COMMITTEE. The Board of Directors may appoint from
among its members, and, from time to time, may fill vacancies in, an Executive
Committee to serve during the pleasure of the Board. During the intervals
between the meetings of the Board, the Executive Committee shall possess and
may exercise all of the powers of the Board in the management of the business
and affairs of the Corporation conferred by these By-laws or otherwise. The
Committee shall keep a record of all its proceedings and report the same to the
Board. A majority of the members of the Committee shall constitute a quorum.
The act of a majority of the members of the Committee present at any meeting at
which a quorum is present shall be the act of the Committee.
2.9 OTHER COMMITTEES. The Board of Directors may also appoint from
among its members such other committees of two or more Directors as it may from
time to time deem desirable and may delegate to such committees such powers of
the Board as it may consider appropriate.
2.10 COMPENSATION OF DIRECTORS. Directors shall receive such
reasocompensation for their service on the Board of Directors or any
committee thereof whether in the form of salary or
<PAGE> 7
7
a fixed fee for attendance at meetings, or both, with expenses, if any, as
the Board of Directors may from time to time determine. Nothing herein
contained shall be construed to preclude any Director from serving in any
other capacity and receiving compensation therefor.
2.11 [Deleted] (As amended December 9, 1989)
2.12 APPROVAL OR RATIFICATION OF CERTAIN EMPLOYMENT CONTRACTS. Any
employment contract executed by the Corporation after May 26, 1982, involving
base fixed annual compensation of $150,000 or more shall be approved or
ratified as a condition of its effectiveness by a committee of the Board of
Directors composed of Directors who are not employees of the Corporation. (As
amended May 26, 1982)
2.13 APPROVAL OR RATIFICATION OF CERTAIN CONTRACTS TO TRANSFER
PROPERTY. Any contract executed by the Corporation after September 1, 1985,
involving a transfer of property between the Corporation and any officer,
director, or former officer or director of the Corporation, shall be approved
or ratified as a condition of its effectiveness by a committee of the Board of
Directors composed of directors who are not employees of the Corporation and
who are not financially interested in such contract. (As amended January 14,
1986)
2.14 APPROVAL OR RATIFICATION OF CERTAIN CONTRACTS TO PURCHASE
SHARES OF STOCK. Any contract executed by the Corporation after September 1,
1985, involving the purchase of the Corporation's common stock by the
Corporation from any officer, director or former officer or director of the
Corporation, shall be approved or ratified as a condition of its effectiveness
by a committee of the Board of Directors composed of directors who are not
employees of the Corporation and who are not financially interested in such
contract. (As amended January 14, 1986)
3. OFFICERS.
3.1 OFFICERS, TITLES, ELECTIONS, TERMS. (a) The Corporation
shall have a President, a Treasurer and a Secretary, who shall be elected by
the Board of Directors at its annual meeting following the annual meeting of
the stockholders, to serve at the pleasure of the Board or otherwise as shall
be specified by the Board at the time of such election and until their
successors are elected and qualified.
(b) The Board of Directors may elect at any time, and from time to
time, a Chairman, one or more Vice Presidents, one or more Assistant
Treasurers, one or more Assistant Secretaries and may elect or appoint such
other officers or agents with such duties as it may deem necessary or
desirable. Such additional officers shall serve at the pleasure of the Board
or otherwise as shall be specified by the Board at the time of such election or
appointment.
(c) Any vacancy in any office may be filled for the unexpired portion
of the term by the Board of Directors.
<PAGE> 8
8
(d) Any officer or agent elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the entire Board of Directors.
(e) Any officer may resign his office at any time. Such resignation
shall be made in writing and shall take effect at the time specified therein
or, if no time be specified, at the time of its receipt by the Corporation.
The acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
3.2 POWERS AND DUTIES OF CHAIRMAN. The Chairman shall be the chief
executive officer, shall exercise and perform the duties incident to the
offices of Chairman and chief executive officer and shall have such other
specific powers and responsibilities as may be conferred upon him by the Board
of Directors and shall report directly to the board of Directors. He shall,
when present, preside at meetings of the stockholders, the Board of Directors
and the Executive Committee. (As amended May 12, 1992)
3.3 POWERS AND DUTIES OF PRESIDENT. (a) Except in such instances as
the Board may confer powers in particular transactions upon the Chairman or any
other officer, and subject to the control and direction of the Board of
Directors, the President shall be chief operating officer, shall supervise,
manage and direct the business of the Corporation and shall communicate to the
Board of Directors and any committee thereof reports, proposals and
recommendations for their respective consideration or action. In the event of
the absence of the Chairman, or his incapacity or inability to act, then the
President shall preside at all meetings of the stockholders, the Board of
Directors and the Executive Committee. (As amended May 12, 1992)
(b) The President shall act for or on behalf of the Corporation in
all matters in which action by the President as such is required by law, and he
may do and perform all other acts and things incident to the position of
President, including the signing of contracts and other documents in the name
of the Corporation, except as may be otherwise provided in these By-laws or
ordered by the Board of Directors.
3.4 POWERS AND DUTIES OF VICE PRESIDENTS. Each Vice President shall
have such powers and perform such duties as the Board of Directors or the
President may from time to time prescribe, and shall perform such other duties
as may be prescribed in these By-laws.
3.5 POWERS AND DUTIES OF TREASURER AND ASSISTANT TREASURERS. (a) The
Treasurer shall have the care and custody of all the funds and securities of
the Corporation except as may be otherwise ordered by the Board of Directors,
and shall cause such funds to be deposited to the credit of the Corporation in
such banks or depositories as may be designated by the Board of Directors, the
Chairman, the President, or the Treasurer, and shall cause such securities to
be placed in safekeeping in such manner as may be designated by the Board of
Directors, the Chairman, the President or the Treasurer.
<PAGE> 9
9
(b) The Treasurer, or an Assistant Treasurer or such other person or
persons as may be designated for such purpose by the Board of Directors, the
Chairman, the President, or the Treasurer, may endorse in the name and on
behalf of the Corporation all instruments for the payment of money, bills of
lading, warehouse receipts, insurance policies and other commercial documents
requiring such endorsement.
(c) The Treasurer, or an Assistant Treasurer or such other person or
persons as may be designated for such purpose by the Board of Directors, the
Chairman, the President, or the Treasurer, may sign all receipts and vouchers
for payments made to the Corporation; he shall render a statement of the cash
account of the Corporation to the Board of Directors as often as it shall
require the same; he shall enter regularly in books to be kept by him for that
purpose, full and accurate account of all moneys received and paid by him on
account of the Corporation, and of all securities received and delivered by the
Corporation.
(d) Each Assistant Treasurer shall perform such duties as may from
time to time be assigned to him by the Treasurer or by the Board of Directors.
In the event of the absence of the Treasurer or his incapacity or inability to
act, then any Assistant Treasurer may perform any of the duties and may
exercise any of the powers of the Treasurer.
3.6 POWERS AND DUTIES OF SECRETARY AND ASSISTANT SECRETARIES. (a)
The Secretary shall keep the minutes of all proceedings of the stockholders,
the Board of Directors, the Executive Committee and any other committees of the
Board in proper books provided for that purpose. The Secretary shall attend to
the giving and serving of all notices of the Corporation, in accordance with
the provisions of these By-laws and as required by the laws of Delaware. The
Secretary may, with the President, a Vice President or other authorized
officer, sign all contracts and other documents in the name of the Corporation.
He shall perform such other duties as may be prescribed in these By-laws or
assigned to him and all other acts incident to the position of Secretary.
(b) Each Assistant Secretary shall perform such duties as may from
time to time be assigned to him by the Secretary or by the Board of Directors.
In the event of the absence of the Secretary or his incapacity or inability to
act, then any Assistant Secretary may perform any of the duties and may
exercise any of the powers of the Secretary.
4. CAPITAL STOCK
4.1 STOCK CERTIFICATES. (a) Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of, the
Corporation by the Chairman or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him.
(b) If such certificate is countersigned by a transfer agent other
than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, the signatures of the officers of the Corporation
may be facsimiles,
<PAGE> 10
10
and, if permitted by Delaware law, any other signature on the certificate may
be a facsimile.
(c) In case any officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board of Directors. They shall be numbered and registered in the order in
which they are issued. No certificate shall be issued until fully paid.
4.2 RECORD OWNERSHIP. A record of the name and address of the holder
of each certificate, the number of shares represented thereby and the date of
issue thereof shall be made on the Corporation's books. The Corporation shall
be entitled to treat the holder of record of any share of stock as the holder
in fact thereof, and accordingly shall not be bound to recognize any equitable
or other claim to or interest in any share on the part of any other person,
whether or not it shall have express or other notice thereof, except as
required by the laws of Delaware.
4.3 TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be made
on the books of the Corporation only by direction of the person named in the
certificate or his attorney, lawfully constituted in writing, and only upon the
surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and transferee request the Corporation to do so.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. Certificates
representing shares of the stock of the Corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time
may authorize.
4.5 TRANSFER AGENT; REGISTRAR; RULES RESPECTING CERTIFICATES. The
Corporation shall maintain one or more transfer offices or agencies where stock
of the Corporation shall be transferable. The Corporation shall also maintain
one or more registry offices where such stock shall be registered. The Board
of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
4.6 FIXING RECORD DATE. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action other than
<PAGE> 11
11
stockholder action by written consent, the Board of Directors may fix a record
date, which shall not precede the date such record date is fixed and shall not
be more than sixty (60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any such other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
and the record date for any other purpose other than stockholder action by
written consent shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which date shall not be more than ten (10) days after the
date upon which the resolution fixing the record date is adopted by the Board
of Directors. Any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall, by written notice
to the Secretary, request the Board of Directors to fix a record date. The
Board of Directors shall promptly, but in all events within ten (10) days
after the date on which such a request is received, adopt a resolution fixing
the record date. If no record date has been fixed by the Board of Directors
within ten (10) days after the date on which such a request is received, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of stockholders
meetings are recorded, to the attention of the Secretary of the Corporation.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by applicable law, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts the resolution taking such prior
action. (As amended April 11, 1990)
4.7 PROCEDURES FOR CONSENTS. In the event of the delivery to the
Corporation of a written consent or consents purporting to authorize or take
corporate action and/or related revocations (each such written consent and any
revocation thereof is referred to in this Section 4.7 as a "Consent"), the
Secretary of the Corporation shall provide for the safekeeping of such
Consents and shall as soon as practicable thereafter conduct such reasonable
investigation as the Secretary deems necessary or
<PAGE> 12
12
appropriate for the purpose of ascertaining the validity of such Consents and
all matters incident thereto, including, without limitation, whether the
holders of shares having the requisite voting power to authorize or take the
action specified in the Consents have given consent; provided, however, that if
the corporate action to which the Consents relates is the removal or election
of one or more members of the Board of Directors, the Secretary of the
Corporation shall designate an independent qualified inspector with respect to
such Consents and such inspector shall discharge the functions of the
Secretary of the Corporation under this Section 4.7. If after such
investigation the Secretary or the inspector (as the case may be) shall
determine that any action purportedly taken by such Consents has been validly
taken, that fact shall be certified on the record of the Corporation kept for
the purpose of recording the proceedings of meetings of the stockholders and
the Consents shall be filed with such records. In conducting the investigation
required by this Section 4.7, the Secretary or the inspector may, at the
expense of the Corporation, retain to assist them special legal counsel and any
other necessary or appropriate professional advisors, and such other personnel
as they may deem necessary or appropriate. (As amended April 11, 1990)
5. SECURITIES HELD BY THE CORPORATION
5.1 VOTING. Unless the Board of Directors shall otherwise order, the
Chairman, the President, any Vice President or the Treasurer shall have full
power and authority, on behalf of the Corporation, to attend, act and vote at
any meeting of the stockholders of any corporation in which the Corporation may
hold stock and at such meeting to exercise any or all rights and powers
incident to the ownership of such stock, and to execute on behalf of the
Corporation a proxy or proxies empowering another or others to act as
aforesaid. The Board of Directors from time to time may confer like powers
upon any other person or persons.
5.2 GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD BY THE
CORPORATION. (a) Any of the following officers, to wit: the Chairman, the
President, any Vice President, the Treasurer or the Secretary of the
Corporation be, and they hereby are, authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidences of indebtedness, or other securities now or hereafter
standing in the name of or owned by the Corporation, and to make, execute and
deliver, under the seal of the Corporation, any and all written instruments of
assignment and transfer necessary or proper to effectuate the authority hereby
conferred.
(b) Whenever there shall be annexed to any instrument of assignment
and transfer executed pursuant to and in accordance with the foregoing
paragraph (a), a certificate of the Secretary or an Assistant Secretary of the
Corporation in office at the date of such certificate setting forth the
provisions hereof and stating that they are in full force and effect and
setting forth the names of persons who are then officers of the Corporation,
then all persons to whom such instrument and annexed certificate shall
thereafter come, shall be entitled, without further inquiry or investigation
and regardless of the date of such certificate, to
<PAGE> 13
13
assume and to act in reliance upon the assumption that the shares of stock or
other securities named in such instrument were theretofore duly and properly
transferred, endorsed, sold, assigned, set over and delivered by the
Corporation, and that with respect to such securities the authority of these
provisions of the By-laws and of such officers is still in full force and
effect.
6. DEPOSITORIES AND SIGNATORIES.
6.1 DEPOSITORIES. The Chairman, the President, and the Treasurer of
the Corporation are each authorized to designate depositories for the funds of
the Corporation deposited in its name, and the signatories with respect
thereto, and from time to time, to change such depositories and signatories,
with the same force and effect as if each such depository and the signatories
with respect thereto and changes therein had been specifically designated or
authorized by the Board of Directors; and each depository designated by the
Board or by the Chairman, the President, or the Treasurer of the Corporation,
shall be entitled to rely upon the certificate of the Secretary or any
Assistant Secretary of the Corporation setting forth the fact of such
designation and of the appointment of the officers of the Corporation or of
other persons who are to be signatories with respect to the withdrawal of funds
deposited with such depository, or from time to time the fact of any change in
any depository or in the signatories with respect thereto.
6.2 SIGNATORIES. Unless otherwise designated by the Board of
Directors or by the Chairman, the President, or the Treasurer, all notes,
drafts, checks, acceptances, orders for the payment of money and all other
negotiable instruments obligating the Corporation for the payment of money may
be signed by the Treasurer or Assistant Treasurer or they may be signed or
countersigned by the Chairman, the President or any Vice President in lieu of
the Treasurer.
7. FISCAL YEAR.
The fiscal year of the Corporation shall end on December 31 in each
year.
8. WAIVER OF OR DISPENSING WITH NOTICE.
(a) Whenever any notice of the time, place or purpose of any meeting
of the stockholders, Directors or a Committee is required to be given under the
laws of Delaware, the Certificate of Incorporation or these By-laws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the holding thereof, or actual attendance at the
meeting in person or, in the case of stockholders, by his attorney-in-fact,
shall be deemed equivalent to the giving of such notice to such persons.
(b) No notice need be given to any person with whom communication is
made unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued under any such law.
<PAGE> 14
14
9. AMENDMENT OF BY-LAWS.
These By-laws, or any of them, may from time to time be supplemented,
amended or repealed by: (a) the majority vote of the entire Board of
Directors, except that Subsection 2.12 hereof may not be repealed except by the
unanimous approval of the members of the Board of Directors voting upon such
question; or (b) the vote of a majority in interest of the stockholders
represented and entitled to vote at any meeting at which a quorum is present.
(As amended December 9, 1989)
<PAGE> 1
Exhibit 10(i)-1
TAX ALLOCATION AND INDEMNITY AGREEMENT
TAX ALLOCATION AND INDEMNITY AGREEMENT, dated as of January 9, 1996,
among Bally Entertainment Corporation, a Delaware corporation (the "Company").
Bally Total Fitness Holding Corporation formerly Bally's Health & Tennis
Corporation, ("BTFHC") and their respective direct and indirect subsidiaries.
WHEREAS, the Company, BTFHC and their subsidiaries have joined in
filing consolidated Federal Income Tax Returns and certain consolidated,
combined or unitary state Income Tax Returns;
WHEREAS, the Company and BTFHC have entered into a Tax Sharing
Agreement, dated as of April 6, 1983, which was amended on June 12, 1985 and
December 31, 1987, a Tax Amendment, dated May 15, 1991, which was amended as
of January 25, 1993 and February 18, 1993 (together, as amended the "BTFHC Tax
Agreement"), and a Capital Contribution Agreement, dated April 6, 1983, as
amended on May 15, 1991 (the "CC Agreement"); the Company and BTFHC's
wholly-owned subsidiary, Health & Tennis Corporation of America ("HTCA") have
entered into a Tax Sharing Agreement, dated as of April 6, 1983, which was
amended on October 31, 1984 and April 4, 1985 (together, as amended, the "HTCA
Tax Agreement"); and the Company and BTFHC's wholly-owned subsidiary,
Scandinavian Health Spa, Inc. ("Scandinavian") have entered into a Tax Sharing
Agreement, dated as of October 31, 1984 (the "Scandinavian Tax Agreement");
WHEREAS, pursuant to the BTFHC Tax Agreement, the CC Agreement, the
HTCA Tax Agreement and the Scandinavian Tax Agreement (collectively, the "Tax
Agreements"), the parties have allocated among themselves responsibility for
the payment of all federal, state, local and other Taxes (as defined below) of
BTFHC and its subsidiaries while -such corporations remain part of the Bally
Group (as defined below);
WHEREAS, the Company has decided to distribute all of its common stock
in BTFHC to the Company's stockholders in a transaction intended to quality for
tax-free treatment under Code Section 355 (the "Spin-off");
WHEREAS, pursuant to the Spin-off, BTFHC and its direct and indirect
subsidiaries will leave the Bally Group; and
WHEREAS, the parties hereto wish to provide for (i) the allocation of,
and indemnification against, certain liabilities for Taxes, (ii) the
preparation and filing of Tax Returns en a basis consistent with prior practice
and the payment of Taxes with respect thereto, (iii) the termination of the Tax
Agreements, and (iv) certain related matters;
NOW THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
<PAGE> 2
1. DEFINITIONS.
When used herein the following terms shall have the following meanings:
"Affiliate" -- with respect to any corporation (the "given
corporation"), each person, corporation, partnership or other entity that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the given corporation. For
purposes of this definition, "control" means the possession, directly or
indirectly, of 50% or more of the voting power or value of outstanding voting
interests.
"Affiliated Group" -- an affiliated group of corporations within the
meaning of Code Section 1504(a) for the Taxable Period or, for purposes of any
state income tax matters, any consolidated, combined or unitary group of
corporations within the meaning of the corresponding provisions of tax law for
the state in question.
"After-Tax Basis" -- any indemnity payment made hereunder shall give
effect to, and be reduced by the value of, any and all Federal, state or other
Tax Benefits attributable to the payment of the indemnified liability, which
value shall be determined on an assumed basis by multiplying the amount of any
applicable deduction, credit, offset or other tax item by the applicable
highest marginal rate of taxation in effect for the period for which the
adjustment is made (i.e., under current law, 35% for Federal Income Taxes,
plus applicable state Income Tax rates). For example, if an interest payment
of $100 is indemnified hereunder, the indemnification payment with respect
thereto shall be reduced by $35 (to reflect the indemnitee's Federal Income Tax
benefit) and an additional amount based on applicable state Income Tax rates
(to reflect the indemnitee's state Income Tax benefit (if any)).
"Bally Group" -- The Company and each corporation that joined with the
Company in filing a consolidated federal income tax return for any Pre-Closing
Taxable Period. For purposes of this Agreement, the Bally Group shall
terminate at the close of the Closing Date. To the extent applicable to any
state income tax matters, the "Bally Group" shall include all corporations
joining in the filing of a consolidated, combined or unitary income tax return
for the state in question.
"Bally Member" -- a corporation that was a member of the Bally Group at
the close of the Closing Date.
"BTFHC" -- as defined in the preamble to this Agreement.
"BTFHC Group" -- BTFHC and each corporation that joins with BTFHC in
filing a consolidated federal income tax return for any Post-Closing Taxable
Period. For purposes of this Agreement, the BTFHC Group shall exist from and
after the day after the Closing Date. To the extent applicable to any state
income tax matters, the "BTFHC Group" shall include all corporations joining in
the filing of a consolidated, unitary or combined income tax return for the
state in question.
2
<PAGE> 3
"BTFHC Member" -- a corporation that was a Bally Member and becomes a
member of the BTFHC Group on the day after the Closing Date.
"Closing Date" -- the date on which the Spin-off is effected by the
Company.
"Code" -- the Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the Taxable Year in question.
"Combined Jurisdiction" -- for any Taxable Period, any state, local or
foreign jurisdiction in which the Company or a Company Affiliate is included in
a consolidated, combined, unitary or similar return with the Company or any
Company Affiliate for state, local or foreign Income Tax purposes.
"Company " -- as defined in the preamble to this Agreement.
"Company Group" -- the Company and each corporation that joins with the
Company in filing a consolidated federal income tax return for any Post-Closing
Taxable Period. For purposes of this Agreement, the Company Group shall exist
from and after the day after the Closing Date and shall include any corporation
acquired by any member of the Company Group from any member of the BTFHC Group
on or prior to the Closing Date. To the extent applicable to any state income
tax matters, the "Company Group" shall include all corporations joining in the
filing of a consolidated, unitary or combined income tax return for the state
in question.
"Company Member" -- a corporation that was a Bally Member and, for
purposes of this Agreement, becomes a member of the Company Group on the day
after the Closing Date.
"Final Determination" -- (i) a decision, judgment, decree, or other
order by a court of competent jurisdiction, which has become final and
unappealable; (ii) a closing agreement or accepted offer in compromise under
Code Sections 7121 or 7122, or comparable agreements under the laws of other
jurisdictions; or (iii) any other final settlement with the IRS or other Taxing
Authority, or (iv) the expiration of an applicable statute of limitations.
"Income Tax(es)" -- with respect to any corporation or group of
corporations, any and all Taxes based upon or measured by net income
(regardless of whether denominated as an "income tax," a "franchise tax" or
otherwise), imposed by any Taxing Authority, together with any related
interest, penalties or other additions thereto.
"Information Return(s)" -- any and all returns, reports, estimates,
information statements, declarations or other filings (other than Tax Returns)
required to be filed or supplied to any Tax Authority by any corporation with
respect to the Tax Liabilities of any other person or entity.
"IRS" -- the U.S. Internal Revenue Service.
3
<PAGE> 4
"Other Tax(es)" -- with respect to any corporation or Affiliated Group,
any and all Taxes, other than Income Taxes, together with any related interest,
penalties or other additions thereto.
"Overdue Rate" -- a rate of interest per annum that fluctuates with the
Federal short-term rate established from time to time pursuant to Code Section
6621.
"Post-Closing Taxable Period" -- a Taxable Year that ends after the
Closing Date.
"Pre-Closing Taxable Period" -- a Taxable Year that ends on or before
the Closing Date.
"Representative" -- with respect to any person or entity, any of such
person's or entity's directors, officers, employees, agents, consultants,
accountants, attorneys and other advisors.
"Separate Jurisdiction" -- for any Taxable Period, any state, local or
foreign jurisdiction that is not a Combined Jurisdiction.
"Spin-off" -- as defined in the Preamble.
"Tax(es)" -- any net income, gross income, gross receipts, sales, use,
excise, franchise, transfer, payroll, premium, property or windfall profits
tax, alternative or add-on minimum tax, or other tax, fee or assessment,
together with any interest and any penalty, addition to tax or additional
amount imposed by any Taxing Authority, whether any such tax is imposed
directly or through withholding.
"Taxable Period" -- either a Pre-Closing Taxable Period or a
Post-Closing Taxable Period.
"Taxable Year" -- a taxable year (which may be shorter than a full
calendar or fiscal year), year of assessment or similar period with respect to
which any Tax may be imposed.
"Tax Benefit(s)" -- (i) in the case of an Income Tax for which a
consolidated Federal, or a consolidated, combined or unitary state or other,
Tax Return is filed, the amount by which the Tax liability of the Affiliated
Group or other relevant group of corporations is reduced (by deduction,
entitlement to refund, credit, offset or otherwise, whether available in the
current Taxable Year, as an adjustment to taxable income in any other Taxable
Year or as a carryforward or carryback, and including the effect on other
Income or Other Taxes of such reduction), plus any interest received with
respect to any related Tax refund, and (ii) in the case of any other Tax, the
amount by which the Tax liability of a corporation is reduced (by deduction,
entitlement to refund, credit, offset or otherwise, whether available in the
current taxable year, as an adjustment to taxable income in any other Taxable
Year or as a carryforward
4
<PAGE> 5
or carryback, and including the effect on other Income or Other Taxes of such
reduction), plus any interest received with respect to any related Tax refund.
"Taxing Authority" -- the IRS and any other domestic or foreign
governmental authority responsible for the administration of any Tax.
"Tax Practices" -- the most recently applied policies, procedures and
practices employed by the Bally Group in the preparation and filing of, and
positions taken on, any Tax Returns of the Company or any Company Affiliate for
any Pre-Closing Taxable Period.
"Tax Return(s)" -- all returns, reports, estimates, information
statements, declarations and other filings relating to, or required to be filed
by any taxpayer in connection with, its liability for, or its payment or
receipt of any refund of, any Tax.
"Tax Treatment"-- as defined in Section 3(c) hereto.
"Vertical Club" -- Vertical Fitness and Racquet Club, Ltd. , a New York
corporation, and, as the context may require, the health and fitness business
of such corporation.
2. OBLIGATIONS, RESPONSIBILITIES AND RIGHTS OF THE COMPANY AND BTFHC
(a) Preparation and Filing of Tax Returns.
(i) BY THE COMPANY. The Company shall prepare and timely
file (or cause to be prepared and timely filed):
(A) on behalf of the Bally Group and all Bally Members,
all Income Tax Returns for all Pre-Closing Taxable Periods;
(B) Except to the extent specifically provided in
Section 2(a)(ii)(B), on behalf of all Company Members (other than the Vertical
Club for Pre-Closing Taxable Periods) on a separate or group basis
(including any group of less than all Bally Members, but not including a group
comprised of solely of the Vertical Club and one or more BTFHC Members), all
Other Tax and Information Returns for all Pre-Closing Taxable Periods; and
(C) on behalf of the Company Group and all Company
Members, all Tax and Information Returns for all Post-Closing Taxable Periods
(including in any such Returns filed on a consolidated, combined or unitary
basis, to the extent required by law, that include the operations of BTFHC and
all BTFHC Members for any Pre-Closing Taxable Periods with respect to such
corporations).
(ii) BY BTFHC Except to the extent specifically provided
in Section 2(a)(i), BTFHC shall prepare and timely file (or cause to be
prepared and timely filed):
5
<PAGE> 6
(A) on behalf of the BTFHC Group, all BTFHC
Members, the Vertical Club (for Pre-Closing Taxable Periods only), and any
group of less than all BTFHC Members (including a group comprised solely of the
Vertical Club and one or more BTFHC Members), all Tax and Information Returns
for all Taxable Periods required to be filed after the Closing Date); and
(B) on behalf of any Bally Member, all Tax and
Information Returns relating to any real property transfer Taxes (including any
imposed by New York City or State of New York) relating to the transfer or
deemed transfer of any real property owned or leased by such Member during any
Pre-Closing Taxable Period (including, without limitation, any such Taxes
resulting from the Spin-off).
(b) Provision of Filing Information. BTFHC (or the Company, as
the case may be) shall cooperate and assist the Company (or BTFHC) in
the preparation and filing of all Tax Returns subject to Section 2(a) and
submit to the Company (or BTFHC) (x) all necessary filing information in a
manner consistent with past Tax Practices and (y) all other information
reasonably requested by the Company (or BTFHC) in connection with the
preparation of such Tax Returns promptly after such request. It is expressly
understood and agreed that the Company's (or BTFHC's) ability to discharge its
Tax Return preparation and filing responsibilities is contingent upon BTFHC (or
the Company) providing the Company (or BTFHC) with all cooperation, assistance
and information reasonably necessary or requested for the filing of such Income
Tax Returns and that BTFHC (or the Company) shall indemnify the Company (or
BTFHC), and the Company's (or BTFHC's) indemnification obligations of Section 3
shall not apply, if, and to the extent that, Taxes are increased as a result of
material inaccuracies in such information or of failures to provide such
information and assistance.
(c) Taxable Year. BTFHC and the Company agree that, to the extent
permitted by applicable law, (i) the Taxable Year of the BTFHC Members included
in the consolidated Federal Income Tax Return of the Bally Group for the Bally
Group Taxable Year that includes the Closing Date (and all corresponding
consolidated, combined or unitary state, local or other Income Tax Returns of
the Bally Group) shall end at the close of the Closing Date, and (ii) the BTFHC
Group and each BTFHC Member shall begin a new Taxable Year for purposes of such
Federal, state, local or other Income Taxes on the day after the Closing Date.
The parties further agree that, to the extent permitted by applicable law, all
Federal, state, local or other Income Tax Returns shall be filed consistently
with this position. The Company shall determine, after reasonable consultation
with BTFHC, whether for state, local or other Income Tax Returns, each BTFHC
Member's Taxable Year that includes the Closing Date terminates at the close of
the Closing Date for each Taxing Jurisdiction.
(d) Advance Review of Tax Returns. At least thirty (30) days
prior to the filing of any Federal Income Tax Return (including amendments
thereto) that includes a BTFHC Member, and at least fifteen (15) days prior to
the filing of any Tax Return other than any Federal Income Tax Return
(including amendments thereto) that includes a BTFHC Member, the Company shall
provide BTFHC with the portion of such Tax Return related to the BTFHC Member.
In the case of each Tax Return subject to the conformity requirements of
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Section 2(e) and filed pursuant to Section 2(a), BTFHC shall provide the
Company with copies of any such Tax Return at least thirty (30) days prior to
the filing thereof (including amendments thereto). BTFHC and its
Representatives (or the Company and its Representatives, as the case may be)
shall have the right to review all related work papers prior to the filing of
any such Tax Return. The Company (or BTFHC, as the case may be) shall consult
with BTFHC (or the Company) regarding its comments with respect to such Tax
Returns and shall in good faith (A) consult with BTFHC (or the Company) in an
effort to resolve any differences with respect to the preparation and accuracy
of such Tax Returns and their consistency with past Tax Practices and (B)
consider BTFHC's (or the Company's) recommendations for alternative positions
with respect to items reflected on such Tax Returns; provided, however, that
the Company (or BTFHC) shall not be required to consider any such
recommendation if the result thereof would adversely affect the Taxes of the
Company Group or any Company Member (or the BTFHC Group or any BTFHC Member)
for any Post-Closing Taxable Period and may condition the acceptance of any
such recommendation upon the receipt of appropriate indemnification from BTFHC
(the Company) for any increases in Taxes that may result from the adoption of
the relevant alternative position.
(e) Consistent Positions on Tax Returns. The Company (or
BTFHC , as the case may be) shall prepare all Tax Returns filed pursuant to
Section 2(a) for all Taxable Years ended on or before December 31, 1996 in a
manner consistent with past Tax Practices except as otherwise required by
changes in applicable law or material underlying facts.
(f) Allocation of Taxes. If required to effect the purposes
of this Agreement, Taxes shall be allocated between the Pre- and Post-Closing
Taxable Periods, in the Company's reasonable judgment, in the following
manner:
(i) To the extent not impractical, on the basis of the
actual operations and taxable income for each such period, determined by
closing the books of the entity at the close of the Closing Date; or
(ii) To the extent that an allocation based on a closing
of the books is impractical, the Company may use any reasonable method or
methods, including allocations based on (x) allocations of taxable income,
loss, gain, deduction and credits made for the entity for Federal Income Tax
purposes, (y) rounding to the next nearest month-end, and (z) the actual number
of days in the Pre- and Post-Closing Taxable Periods in proportion to the
number of days in the entire Taxable Year.
(g) Payment of Taxes. The Company shall pay (i) all Taxes
shown to be due and payable on all Tax Returns filed by the Company pursuant to
Section 2(a)(I) hereof (other than any Income Taxes of BTFHC Members for
Separate Jurisdictions for all Pre-Closing Taxable Periods), and (ii) subject
to Section 3(b) and 3(c), all additions to Taxes payable by the Company under
clause (i) of this Section 2(g) that result from a Final Determination. BTFHC
shall pay (w) all Taxes shown to be due and payable on all Tax Returns filed by
BTFHC pursuant to Section 2(a)(ii), (x) all Income Taxes of BTFHC Members for
Separate Jurisdictions for all Pre-Closing Taxable Periods, (y) all additions
to Taxes payable under clauses (w) or (x) of this Section 2(g) that result from
a Final Determination, and (z) to the extent specifically
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<PAGE> 8
provided in Section 3(c), all additional Taxes of Bally, the Bally Group, any
Bally Member, the Company, the Company Group or any Company.
(h) Amendments to Tax Returns. The Company (or BTFHC, as the
case may be) shall be entitled to amend Tax Returns filed by the Company (or
BTFHC) pursuant to Section 2(a); PROVIDED, HOWEVER, that BTFHC (or the Company,
solely with respect to Income Taxes of BTFHC Members for separate
Jurisdictions) shall not amend for any reason whatsoever any Tax Return of the
Company or any Company Member (or any such BTFHC Member) for any Pre-Closing
Taxable Period or any Post-Closing Taxable Period ended on or before December
31, 1996, except (A) pursuant to the settlement or other resolution of a
contest subject to Section 6 or (B) with the Company's (or BTFHC's) written
consent (which consent shall not be unreasonably withheld); PROVIDED, HOWEVER,
that such prohibition shall not extend to the correction of mathematical or
material factual errors or other adjustments necessary to conform such Tax
Returns to applicable law or past Tax Practices.
(i) Refunds of Taxes. The Company shall be entitled to any
refund of any and all Taxes for which the Company shall have the payment
obligation under the first sentence of Section 2(g). BTFHC shall be entitled
to any refund of any and all Taxes for which BTFHC shall have the payment
obligation under the second sentence of Section 2(g). Except as otherwise
provided in this Agreement, if the Company or any Company Member (or BTFHC or
any BTFHC Member, as the case may be) receives a Tax refund to which BTFHC or
any BTFHC Member (or the Company or any Company Member) is entitled pursuant to
this Agreement, the Company (or BTFHC) shall pay (in accordance with Section 4)
the amount of such refund (including any interest received thereon) to BTFHC
(or the Company) promptly after receipt thereof.
(j) Carrybacks. BTFHC shall notify the Company promptly of
the existence of any items of deduction, loss or credit arising in a
Post-Closing Taxable Year that are required to be carried back to a Taxable
Period of the Bally Group or any Bally Member (other than to a separate Tax
Return of a member of the BTFHC Group). BTFHC hereby expressly agrees (on its
behalf and on behalf of all BTFHC Members and successors thereto) that the
Company or any member of the Company Group may retain any cash refund or
reduction of a Tax liability or any other Tax Benefit obtained by the Company
or any member of the Company Group (other than a member of the BTFHC Group) as
a result of any carryback without compensation to BTFHC or any BTFHC Member.
BTFHC and the Company agree that BTFHC should elect to carry forward all such
items that affect the Company or any member of the Company Group to the extent
permitted under applicable law.
(k) NOL, ITC and AMT Credit Benefits. The Tax Returns of the
Bally Group for Taxable Years prior to and including the Taxable Year that
includes the Closing Date reflect that certain BTFHC Members have attributable
to them, under applicable Federal and state Income Tax law, certain net
operating loss carryforwards, investment tax credit carryforwards and
alternative minimum tax credit carryforwards (the "Carryforwards"). The parties
hereto agree that the BTFHC Group and the BTFHC Members shall be exclusively
entitled to use and benefit from the Carryforwards without compensation to the
Bally Group, any Bally Member, the Company Group or any Company member. BTFHC
hereby further
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<PAGE> 9
acknowledges and agrees (on its behalf and on behalf of all Bally Members) that
the exact amount of the Carryforwards is not presently known and may not be
definitively determined until a Final Determination has been reached for all
Pre-Closing Taxable Periods of the Bally Group and each Bally Member. BTFHC
further agrees that it shall have no recourse against the Bally Group, any
Bally Member, the Company Group or any Company Member regardless of (a) what
amount of such Carryforwards will ultimately be available to the BTFHC Group
and the BTFHC Members in Post-Closing Taxable Years and (b) whether the
Carryforwards shall be subject to any limitation imposed as a result of the
application of Code Sections 382 and 383, the Treasury regulations thereunder
or other applicable law. The Company hereby agrees to take any action or make
any election reasonably required to permit BTFHC and the BTFHC Members to
utilize the Carryforwards; PROVIDED, HOWEVER, that no such action or election
shall be required if it would adversely affect in any way the Income Tax
liabilities of the Company Group or any Company Member for any Taxable Year.
The parties also hereby agree that the provisions of this Section 2(k) shall
apply with respect to any similar carryforwards available under applicable
state, local or foreign Income Tax law.
3. INDEMNIFICATION.
(a) By the Company.
(i) TAXES. Subject to Sections 2(b), 3(b) and 3(c), the
Company shall indemnify and hold BTFHC and the BTFHC Members harmless (on an
After-Tax Basis) against any and all Taxes for which the Company has the
payment obligation under the first sentence of Section 2(g).
(ii) MEMBER LIABILITY. Subject to Sections 2(b), 3(b) and
3(c), the Company shall indemnify and hold BTFHC and the BTFHC Members
harmless (on an After-Tax Basis) against each and every liability for Taxes of
the Bally Group under Treas. Reg. Section 1.1502-6 or any similar law, rule or
regulation administered by any Taxing Authority, together with any related
interest, penalties and other additions.
(b) By BTFHC
(i) TAXES. BTFHC shall indemnify and hold the Company
Group and the Company Members harmless (on an After-Tax Basis) against the
Taxes for which BTFHC has the payment obligation under the second sentence of
Section 2(g).
(ii) Vertical Club Transfer. BTFHC shall indemnify and hold
the Company Group and the Company Members harmless (on an After-Tax Basis)
against any real estate transfer, recording or similar Taxes arising from the
acquisition of the Vertical Club by the Company.
(iii) Post-Closing Transactions. Notwithstanding any
contrary provision in this Agreement or in the Distribution Agreement,
BTFHC shall indemnify and hold the Company Group and the Company Members
harmless (on an After-Tax Basis) against any Taxes imposed on or against the
Bally Group or the Company Group (including any Bally
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<PAGE> 10
Member or Company Member) that are attributable to, or arise from, transactions
or events outside the ordinary course of business of BTFHC and the BTFHC
Members occurring after the Spin-off becomes effective and prior to the close
of the Closing Date.
(c) Assumed Tax Treatments. The parties expressly agree for all
purposes to treat the Spin-off as a tax-free distribution under Code Section
355 (the "Tax Treatment"). Each party hereto also expressly agrees not
to take (and to cause each of its Affiliates not to take) any action (except
where required by law to do so) inconsistent with the treatment of the Spin-off
and all related transactions in accordance with the Tax Treatments and to take
(and to cause each of its affiliates to take) any and all actions reasonably
available to such party (or affiliate) to support and defend such treatment.
Notwithstanding anything to the contrary in Sections 3(a) or 3(b), if, as a
result of the acquisition of a party hereto, the sale of one or more of a
party's subsidiaries, assets or businesses, the discontinuation of all or a
substantial part of a party's businesses or any other affirmative act (such
party being the "affected party" for purposes of this Section 3(c)), a Final
Determination results in the Tax Treatment being incorrect and as a result
thereof additional Taxes are incurred, or any Tax Benefit is eliminated with
respect to any member of the Bally Group in any Taxable Period, the affected
party shall pay, and indemnify the other party against all such additional
Taxes. If both the Company and BTFHC shall be "affected parties" in accordance
with the preceding sentence, the "affected party" undergoing the first
transaction causing such a Final Determination shall indemnify the other party.
Any such claim for indemnification shall otherwise be handled in the manner
specified under this Section 3, but shall not affect in any manner the
provisions of Sections 5 and 6 with respect to cooperation and control of
contests and audits.
(d) Certain Reimbursements. BTFHC (or the Company, as the case
may be) shall notify the Company (or BTFHC) of any Taxes paid by the BTFHC
Group or any BTFHC Member (or the Company Group or any Company Member) which
are subject to indemnification under this Section 3; PROVIDED, HOWEVER, that no
Tax liability of $10,000 or less shall in any event be indemnified hereunder.
To the extent not otherwise provided in this Section 3, any other notification
contemplated by this Section 3(d) shall include a detailed calculation
(including, if applicable, separate allocations of such Taxes between Pre- and
Post-Closing Taxable Periods and supporting work papers) and a brief
explanation of the basis for indemnification hereunder. Whenever a notification
described in this Section 3(d) is given, the notified party shall pay the
amount requested in such notice to the notifying party in accordance with
Section 4, but only to the extent that the notified party agrees with such
request. To the extent the notified party disagrees with such request, it
shall, within 20 days, so notify the notifying party, whereupon the parties
shall use their best efforts to resolve any such disagreement. To the extent
not otherwise provided for in this Section 3 or in Section 4, any payment made
after such 20-day period shall include interest at the Overdue Rate from the
date such payment would have been made under Section 4 based upon the original
notice given by the notifying party.
(e) Loss of Tax Benefits. Appropriate payments shall be made
between the parties to take account of subsequent losses of, or changes in,
any Tax Benefit that has been taken into account for purposes of determining
the After-Tax Basis of any indemnification payment.
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4. METHOD, TIMING AND CHARACTER OF PAYMENTS REQUIRED BY THIS
AGREEMENT
(a) Payment Procedures. The Company and BTFHC hereby agree to
the following monthly monitoring, notification and payment system with respect
to all amounts that shall become due and payable hereunder between the parties:
(i) The Company's Tax Department shall maintain a current accounting for all
amounts due and payable by the Company, BTFHC or their respective subsidiaries
pursuant to this Agreement, (ii) BTFHC shall notify the Company in writing of
any amounts that shall become due to it or its subsidiaries hereunder on or
before the 20th calendar day of each month, (iii) on or before the last
business day of each month, the Company shall prepare and distribute to BTFHC a
comprehensive monthly report of all amounts that have become due hereunder to
either party or their subsidiaries (including any amounts known by the Company
to be due to BTFHC or its subsidiaries even if not subject to a written
notification in accordance with clause (ii) above), (iv) the net amount due
between the Company and its subsidiaries on the one hand and BTFHC and its
subsidiaries on the other hand as of such month-end (including any amounts
remaining unpaid, plus interest thereof, from prior months) shall become
payable on the 10th calendar day of the following month (or, if such day is
not a business day, the next business day thereafter). The parties hereby
agree to consult with each other in good faith to resolve any differences with
respect to such monthly reports and payments. The Company's failure to prepare
or distribute any such monthly report shall not relieve or defer its
obligation to pay any amounts it may owe to BTFHC hereunder.
(b) Payment in Immediately Available Funds; Interest. All
payments made pursuant to this Agreement shall be made in immediately available
funds. Except as otherwise provided herein, any payment not made on the date
when payable under Section 4(a) or otherwise hereunder shall thereafter bear
interest at the Overdue Rate.
(c) Characterization of Payments. Any payment (other than
interest thereon) made hereunder by the Company to BTFHC or by BTFHC to the
Company shall be treated by all parties for all purposes as a non-taxable
intercompany settlement of liabilities existing immediately before the Spin-off
or, to the extent appropriate, as a non-taxable dividend distribution or
capital contribution.
5. COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
(a) Provision of Cooperation, Documents and Other Information.
Upon the reasonable request, the Company and BTFHC shall promptly provide (and
shall cause their respective Affiliates to provide) the requesting party with
such cooperation and assistance, documents, and other information, without
charge, as may be necessary or reasonably helpful in connection with (i) the
preparation and filing of any original or amended Tax Return, (ii) the conduct
of any audit or other examination or any judicial or administrative proceeding
involving to any extent Taxes or Tax Returns within the scope of this
Agreement, or (iii) the verification by a party of an amount payable hereunder
to, or receivable hereunder from, another party. Such cooperation and
assistance shall include, without limitation: (w) the provision on demand of
books, records, Tax Returns, documentation or other information relating to any
relevant Tax Return; (x) the execution of any document that may be necessary or
reasonably helpful in
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<PAGE> 12
connection with the filing of any Tax Return by the Bally Group, a Bally
Member, the Company Group, a Company Member, the BTFHC Group or a BTFHC Member,
or in connection with any audit, proceeding, suit or action of the type
generally referred to in the preceding sentence, including, without limitation,
the execution of powers of attorney and extensions of applicable statutes of
limitations, with respect to Tax Returns which the Company may be obligated to
file on behalf of BTFHC Members pursuant to Section 2(a); (y) the prompt and
timely filing of appropriate claims for refund; and (z) the use of reasonable
best efforts to obtain any documentation from a governmental authority or a
third party that may be necessary or helpful in connection with the foregoing.
Each party shall make its employees and facilities available on a mutually
convenient basis to facilitate such cooperation.
(b) Retention of Books and Records. The Company, each Company
Member, BTFHC and each BTFHC Member shall retain or cause to be retained all
Tax Returns, and all books, records, schedules, workpapers, and other documents
relating thereto, until the expiration of the later of (i) all applicable
statutes of limitations (including any waivers or extensions thereof), and (ii)
any retention period required by law or pursuant to any record retention
agreement. The parties hereto shall notify each other in writing of any
waivers, extensions or expirations of applicable statutes of limitations, and
shall provide at least thirty (30) days prior written notice of any intended
destruction of the documents referred to in the preceding sentence. A party
giving such a notification shall not dispose of any of the foregoing materials
without first obtaining the written approval (which may not be unreasonably
withheld) of the notified party.
(c) Status and Other Information Regarding Audits and
Litigation. The Company (or BTFHC, as the case may be) shall use reasonable
best efforts to keep BTFHC (or the Company) advised, as to the status of Tax
audits and litigation involving any issue relating to any Taxes, Tax Returns or
Tax Benefits subject to indemnification under this Agreement. To the extent
relating to any such issue, the Company (or BTFHC) shall promptly furnish BTFHC
(or the Company) copies of any inquiries or requests for information from any
Taxing Authority or any other administrative, judicial or other governmental
authority, as well as copies of any revenue agent's report or similar
report, notice of proposed adjustment or notice of deficiency.
(d) Confidentiality of Documents and Information. Except as
required by law or with the prior written consent of the other party, all Tax
Returns, documents, schedules, work papers and similar items and all
information contained therein, which Tax Returns and other materials are within
the scope of this Agreement, shall be kept confidential by the parties hereto
and their Representatives, shall not be disclosed to any other person or entity
and shall be used only for the purposes provided herein.
6. CONTESTS AND AUDITS.
(a) Notification of Audits or Disputes. Upon the receipt by the
Company or any Company Member (or BTFHC or any BTFHC Member, as the case may
be) of notice of any pending or threatened Tax audit or assessment which may
affect the liability for
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Taxes that are subject to indemnification hereunder, the Company (or BTFHC)
shall promptly notify the other in writing of the receipt of such notice.
(b) Control and Settlement. The Company shall have the right to
control, and to represent the interests of all affected taxpayers in, any Tax
audit or administrative, judicial or other proceeding relating, in whole or
in part, to any Pre-Closing Taxable Period or any other Taxable Period for
which the Company is responsible, in whole or in part, for Taxes under Sections
2(g) and (3), and to employ counsel of its choice at its expense; PROVIDED,
HOWEVER, that, with respect to such issues that may impact BTFHC or any BTFHC
Member for any Post-Closing Taxable Period or for which BTFHC or HTCA may be
responsible in part under Sections 2(g) and (3), the Company shall (i) afford
BTFHC full opportunity to observe at any such proceedings and to review any
submissions related to such issues, (ii) in good faith consult with BTFHC
regarding its comments with respect to such proceedings and submissions in an
effort to resolve any differences with respect to the Company's positions with
regard to such issues, (iii) in good faith consider BTFHC's recommendations for
alternative positions with respect to such issues, and (iv) advise BTFHC of the
reasons for rejecting any such alternative position. In the event of any
disagreement regarding the proceedings, the Company shall have the ultimate
control of the contest and any settlement or other resolution thereof. BTFHC
shall have the right to control, and to represent the interests of all affected
taxpayers in, any Tax audit or administrative, judicial or other proceeding
relating solely to any Post-Closing Taxable Period of the BTFHC Group or any
BTFHC Member, or relating to any other Taxable Period for which BTFHC is solely
responsible for Taxes under Sections 2(g) and (3), and to employ counsel of its
choice at its expense; PROVIDED, HOWEVER, that BTFHC shall (i) afford the
Company full opportunity to observe at any such proceedings and to review any
submissions related thereto and (ii) not agree to settle any such proceeding in
a manner that could reasonably have a material and adverse effect on (A) any
indemnification obligation of the Company hereunder, (B) any Tax liability of
the Bally Group or any Bally Member for any Pre-Closing Taxable Period or (C)
any Tax liability of the Company Group or any Company Member for any
Post-Closing Taxable Period, without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
(c) Delivery of Powers of Attorney. BTFHC (and, to the extent
necessary, its subsidiaries) shall execute and deliver to the Company, promptly
upon request, such powers of attorney authorizing the Company to extend
statutes of limitations, receive refunds and take such other actions that the
Company reasonably considers to be appropriate in exercising its control rights
pursuant to this Section 6.
7. MISCELLANEOUS.
(a) Effectiveness. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of any
applicable statute of limitations.
(b) Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the subject matter hereof.
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(c) Termination of Prior Agreements. Except as expressly provided
in Section 12 of the Transitional Services Agreement by and between the Company
and BTFHC, dated as of the date hereof (the "Transitional Services Agreement").
This Agreement amends and supersedes, as of the Closing Date, the obligation of
the Company and all members of the Company Group, on the one hand, and BTFHC
and all members of the BTFHC Group, on the other hand, to make any payment
pursuant to the Tax Agreements, any and all other sharing or allocation
agreements with respect to Taxes in effect on the Closing Date. The Tax
Agreements and any other sharing or allocation agreements shall otherwise
remain in full force and effect with respect to the Company and all members of
Company Group.
(d) Guarantees of Performance. The Company and BTFHC hereby
guarantee the complete and prompt performance by the members of their
respective Affiliated Groups of all of their obligations and undertakings
pursuant to this Agreement. If, subsequent to the Effective Time, either the
Company or BTFHC shall be acquired by another entity such that 50% or more of
its common stock is in common control, such acquirer shall, by making such
acquisition, simultaneously agree to jointly and severally guarantee the
complete and prompt performance by the acquired corporation and any Affiliate
of the acquired corporation of all of their obligations and undertakings
pursuant to this Agreement.
(e) Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable, the
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions hereof without including any of such
which may hereafter be declared invalid, void or unenforceable. In the event
that any such term, provision, covenant or restriction is hereafter held to be
invalid, void or unenforceable, the parties hereto agree to use their best
efforts to find and employ an alternate means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction.
(f) Indulgences, etc. Neither the failure nor any delay on the
part of any party hereto to exercise any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right preclude any other or farther exercise of the same or any other right,
nor shall any waiver of any right with respect to any occurrence be construed
as a waiver of such right with respect to any other occurrence.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Illinois without
regard to the conflict of law principles thereof, except with respect to
matters of law concerning the internal corporate affairs of any corporate
entity which is a party to or subject of this Agreement, and as to those
matters the law of the jurisdiction under which the respective entity derives
its powers shall govern.
(h) Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be made in the
manner provided in Section 23 of the Transitional Services Agreement and except
that such notice shall be directed to the Tax
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<PAGE> 15
Department (to the attention of the Tax Director or other designated
representative of the Tax Department) of each party, with a copy to the Chief
Financial Officer of each party.
(i) Modification or Amendment. This Agreement may be amended at
any tune by written agreement executed and delivered by duly authorized
officers of BTFHC and the Company.
(j) Successors and Assigns. Except by operation of law or in
connection with the sale of all or substantially all the assets of a party
hereto, a party's rights and obligations under this Agreement may not be
assigned without the prior written consent of the other party. All of the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns.
(k) No Third-Party Beneficiaries. This Agreement is solely for
the benefit of the parties to this Agreement and their respective Affiliates and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without this Agreement.
(l) Other. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all of such counterparts shall together constitute one and the same
instrument. The section numbers and captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
(m) Predecessors and Successors. To the extent necessary to give
effect to the purposes of this Agreement, any reference to any corporation,
Affiliated Group or member of an Affiliated Group shall also include any
predecessors or successors thereto, by operation of law or otherwise.
(n) Effect of Transitional Services Agreement. At any time when
the Company is providing tax planning and compliance services to BTFHC under the
Transitional Services Agreement, the rights and obligations of the Company and
BTFHC under the advance review, consultation, notice and cooperation provisions
of Sections 2(c), 2(d), 5(a), 5(c), 6(a), 6(b) and 7(h)(ii) shall be suspended.
Such rights and obligations shall be immediately reinstated upon the
termination of the Transitional Services Agreement or upon written notice from
BTFHC to such effect. In performing any such services, the Company shall act as
an agent and/or independent contractor of BTFHC and shall have no personal
liability with respect to any Taxes related thereto other than as expressly
provided herein or in the Transitional Services Agreement.
(o) Tax Elections. Nothing in this Agreement is intended to change or
otherwise affect any previous tax election made by or on behalf of the Bally
Group (including the election with respect to the calculation of earnings and
profits under Code o 1552 and the regulations thereunder). Bally, as common
parent of the Bally Group, shall continue to have sole discretion to make any
and all elections with respect to all members of the Bally Group for
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all Taxable Periods for which it is obligated to file Tax or Information
Returns under Section 2(a)(i).
(p) Injunctions. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or were
otherwise breached. The parties hereto shall be entitled to an injunction or
injunctions to prevent breaches hereto and to enforce specifically the terms
and provisions hereof in any court having jurisdiction; such remedy shall be in
addition to any other remedy available at law or in equity.
(q) Further Assurances. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be
reasonably required in order to effectuate the purposes of this Agreement and
to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each party shall, in connection with entering into this Agreement,
performing its obligations hereunder and taking any and all actions relating
hereto, comply with all applicable laws, regulations, orders and decrees,
obtain all required consents and approvals and make all required filings with
any governmental agency, other regulatory or administrative agency, commission
or similar authority and promptly provide the other party with all such
information as it may reasonably request in order to be able to comply with the
provisions of this sentence.
(r) Setoff Except as provided in Section 4(a), all payments to
be made by any party under this Agreement shall be made without setoff,
counterclaim or withholding, all of which are expressly waived.
(s) Costs and Expenses. Unless otherwise specifically provided
herein, each party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
above written.
BALLY ENTERTAINMENT CORPORATION AND
SUBSIDIARIES
By: /s/ James S. Montana, Jr.
--------------------------------------
Name: James Montana
------------------------------------
Title: Senior Vice President
-----------------------------------
Bally Entertainment Corporation
BALLY TOTAL FITNESS HOLDING
CORPORATION AND SUBSIDIARIES
By: /s/ Cary Gaan
--------------------------------------
Name: Cary Gaan
------------------------------------
Title: Senior Vice President
-----------------------------------
Bally Total Fitness Holding Corporation
BALLY TOTAL FITNESS CORPORATION
By: /s/ Cary Gaan
--------------------------------------
Name: Cary Gaan
------------------------------------
Title: Senior Vice President
-----------------------------------
Bally Total Fitness Corporation
SCANDINAVIAN HEALTH SPA, INC.
By: /s/ Cary Gaan
--------------------------------------
Name: Cary Gaan
------------------------------------
Title: Senior Vice President
-----------------------------------
Scandinavian Health Spa, Inc.
17
<PAGE> 1
Exhibit 10.(iii)-7
AMENDMENTS TO 1989 INCENTIVE PLAN OF BALLY ENTERTAINMENT CORPORATION (THE
"PLAN")
1. Section 3 of the Plan was amended to increase the number of shares
reserved for issuance under the Plan from 6,022,000 to 8,000,000.
2. Section 8.5 of the Plan was amended to read as follows:
8.5 No further grants. Notwithstanding anything in this Plan to the
contrary, no SAR, either in tandem with an Option or on a stand-alone
basis, may be granted after March 15, 1995.
3. Section 9.3 of the Plan to read as follows:
9.3 No further grants. Notwithstanding anything in this Plan to the
contrary, no SDR may be granted after March 15, 1995.
All amendments were approved by the stockholders of Bally Entertainment
Corporation on May 16, 1995.
<PAGE> 1
Exhibit 10.(iii)-10
FIRST AMENDMENT
TO THE
BALLY ENTERTAINMENT CORPORATION
MANAGEMENT RETIREMENT SAVINGS PLAN
----------------------------------
This First Amendment to the Bally Entertainment Corporation Management
Retirement Savings Plan (the "Plan") is made by Bally Entertainment Corporation
(the "Company") effective July 1, 1995. The Plan is amended as follows:
Effective as of the date written above, Section 4.3 shall be deleted in its
entirety and replaced by the following:
4.3 COMPANY MATCHING CONTRIBUTIONS. With respect to the first 15% 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 50%.
Base and/or Bonus Compensation deferrals made at a rate greater than 15%
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.
The portions of the Plan unaffected by this First Amendment shall remain in
full force and effect.
The undersigned has executed this First Amendment on the date first
written above.
BALLY ENTERTAINMENT CORPORATION
By: Carol S. DePaul
Its: Secretary
<PAGE> 1
Exhibit 10.(iii)-15
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
THIS THIRD AMENDMENT TO EMPLOYMENT AGREEMENT ("Third Amendment") is made and
entered into on May 16, 1995, and effective as of January 4, 1995, between
Bally Entertainment Corporation (formerly known as Bally Manufacturing
Corporation), a Delaware corporation, with its principal office located at 8700
West Bryn Mawr Avenue, Chicago, Illinois 60631 (together with its successors
and assigns permitted under the Employment Agreement, the "Company") and Arthur
M. Goldberg, who resides at 6 Kimball Circle, Westfield, New Jersey 07090 (the
"Executive").
W I T N E S S E T H
-------------------
WHEREAS, the Executive and the Company have entered into an Employment
Agreement dated November 1, 1990, as amended by a First Amendment to Employment
Agreement dated December 4, 1991 and a Second Amendment to Employment Agreement
dated September 29, 1993 (collectively referred to as the "Employment
Agreement"); and
WHEREAS, the Company has determined that it is in the best interest of the
Company and its shareholders to further amend the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive agree as follows:
1. Subsection (e) of Section 1 of the Employment Agreement, DEFINITIONS,
shall be eliminated in its entirety and replaced with the following:
<PAGE> 2
"(e) A "CHANGE IN CONTROL" shall mean any of the events specified in
the following clauses (i) and (ii) of this subsection (e):
(i) 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 effective date of
this Agreement), 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 occurred if:
(A) any "person" (as defined in subsections 13(d) and 14(d)
of the Exchange Act), other than a person with which the Executive is
affiliated or of which he is a part, 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 percent (20%) or more of the
combined voting power of the Company's then outstanding securities;
(B) during any period of two consecutive years (not
including any period prior to the effective date of this Agreement) there
shall cease to be a majority of the Board comprised of Continuing Directors; or
(C) the stockholders of the Company approve (1) a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that 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 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 (2) 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; or
(ii) at any time after there shall have occurred a "Triggering
Event" as defined in the Rights Agreement dated as of December 4, 1986 between
the Company and Manufacturer's Hanover Trust Company, Rights Agent."
2. All terms of the Employment Agreement not specifically amended herein
shall remain in full force and effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Third Amendment.
BALLY ENTERTAINMENT CORPORATION
Attest: /s/ Susan R. Rehorst By: /s/ Lee Hillman
--------------------- --------------------------------
Name: Lee Hillman
--------------------------
Title: Executive Vice President
-------------------------
Witness: /s/ Florence Pfriender /s/ Arthur M. Goldberg
----------------------- -----------------------------------
Arthur M. Goldberg
Agreed to and guaranteed by Bally's Park Place,
a Delaware corporation:
Attest: /s/ Dennis Venuti By: /s/ Wallace R. Barr
------------------- --------------------------------
Name: Wallace R. Barr
---------------------------
Title: President
--------------------------
Acknowledged and Approved by the Compensation and Stock Option Committee of the
Board of Directors on May 15, 1995.
/s/ Carol S. DePaul
-----------------------------------
Secretary, Compensation and Stock
Option Committee
-3-
<PAGE> 1
Exhibit 10.(iii)-21
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made and entered into the 13th day of March, 1996,
and effective as of April 15, 1995 (except with respect to Base Salary for
which the effective date is January 1, 1996), by and between Bally
Entertainment Corporation, a Delaware corporation, ("Bally" or "Employer") and
Lee S. Hillman ("Employee").
WHEREAS, Employer, Employee and Bally Total Fitness Holding Corporation, as
successor to Bally's Health & Tennis Corporation ("BTFHC"), desire to terminate
the Amended and Restated Employment Agreement dated May 29, 1991, as amended by
the Second Amendment to Employment dated December 8, 1993 (the "Old
Agreement"), and Employer and Employee desire to enter into this Employment
Agreement to set forth the rights and duties of the parties herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein contained, the parties agree as follows:
1. EMPLOYMENT
(a) Bally hereby employs Employee in the capacities of Executive Vice
President, Treasurer and Chief Financial Officer and such other capacity or
capacities of equal status and responsibility as the Chairman of the Board and
Chief Executive Officer of Bally, or his designated representative, shall
determine, and Employee hereby accepts such employment upon the terms and
conditions herein set forth.
(b) During the term of his employment, Employee will devote his best
efforts to his employment and perform such duties consistent with his
capacities as Executive Vice President, Treasurer and Chief Financial Officer
of Bally and such other capacity or capacities as the Chairman of the Board and
Chief Executive Officer of Bally shall determine, as are reasonably assigned to
him by Employer. While it is understood and agreed that Employee's job
capacities may change at Employer's discretion during the term of this
Employment Agreement, his level of responsibility shall not be substantially
reduced at any time. Except for the time and attention required in connection
with his duties for BTFHC and its subsidiaries, Employee will devote his entire
working time and attention to the business and related interests of, and will
be loyal to, Employer, and Employee agrees to render service on behalf of
Employer or on behalf of its subsidiaries or affiliates.
(c) Employee shall not, without prior written consent of Employer (except
in connection with his duties for BTFHC and its subsidiaries), directly or
indirectly, during the term of this Employment Agreement:
<PAGE> 2
(i) Other than in the performance of duties naturally inherent to
Employer's business and in furtherance thereof, render services of a business,
professional or commercial nature to any other person or firm, whether for
compensation or otherwise, but this shall not be construed as preventing the
Employee from investing his assets in such form or manner as will not require
any services on the part of the Employee in the operation of the affairs of the
companies in which such investments are made and which are not in violation of
subparagraph (ii) below or from engaging in charitable activities so long as
such activities do not interfere with the performance of Employee's duties
hereunder;
(ii) Engage in any activity competitive with or adverse to Employer's
business or welfare, whether alone, as a partner, or as an officer, director,
employee or shareholder of any other corporation, or otherwise, directly or
indirectly, except that the ownership of not more than one percent (1%) of the
stock of any publicly traded corporation shall not be deemed violative of this
subparagraph (ii);
(iii) Be engaged by any entity which conducts business with or acts as
consultant or advisor to Employer, whether alone, as a partner, or as an
officer, director, employee or shareholder, or otherwise, directly or
indirectly, except that ownership of not more than one percent (1%) of the
stock of any publicly traded corporation shall not be deemed violative of this
subparagraph (iii).
2. TERM
The term of the employment of Employer under this Agreement shall be
extended from April 15, 1995 through and including April 14, 1998.
Notwithstanding the foregoing and subject to the provisions for termination
otherwise included herein, such term shall automatically be extended for an
additional one (1) year period commencing on April 15, 1996 and each April 15
thereafter unless: (i) this Employment Agreement is terminated due to illness,
incapacity or death of Employee pursuant to Section 7 hereof, by Bally, for
cause or in the event of a change of control pursuant to Section 8 hereof or
voluntarily by Employee; or (ii) either Employer or Employee shall give written
notice to the other on or before March 1 of any year during the term hereof
that the term of Employee's employment shall be fixed for a three (3) year
period commencing on the April 15 immediately succeeding such written notice,
and there shall be no further automatic extensions.
3. COMPENSATION
(a) In consideration of the services to be rendered by the Employee
hereunder, the Employer agrees to pay to the Employee, and the Employee agrees
to accept, as compensation, the sum of
-2-
<PAGE> 3
Four Hundred Thousand Dollars ($400,000.00) (the "Base Salary") for each twelve
month period following January 1, 1996 of this Employment Agreement, which
shall be paid on the regularly recurring pay periods established by Employer.
The Base Salary shall be subject to periodic review by Employer, although any
determination to increase the Base Salary shall be within Employer's sole
discretion.
(b) It is further understood by both parties that, pursuant to the
policies of Employer, a discretionary bonus payment may be made in addition to
the Base Salary above provided.
4. VACATION AND OTHER BENEFITS
Employee shall be entitled to a reasonable vacation each year of his
employment with Employer as well as other employment benefits, including
hospitalization, life insurance, death and retirement plans, an automobile
allowance or the use of an automobile, and the like, afforded to senior
executives of Employer of comparable status and tenure and consistent with that
afforded under Employer's policies. Employer may, at its sole discretion,
change such policies.
In addition, Employer shall maintain in full force and effect so long as
Employee is employed hereunder, a policy of term insurance on the life of the
Employee in the amount of twice his Base Salary. Employee shall promptly
advise Employer of the designated beneficiary or beneficiaries of such
policies. The term life insurance benefits herein referenced shall be
supplemental to the group life insurance provided to Employee at the time this
Employment Agreement commenced or any subsequent improvement thereof.
5. EXPENSES
Employer shall pay all reasonable expenses incurred by Employee in the
performance of his responsibilities and duties for Employer as well as the
promotion of Employer's business. Employee shall submit to Employer periodic
statements of all expenses so incurred. Subject to such audits as Employer may
deem necessary, Employer shall reimburse Employee the full amount of any such
expenses advanced by Employee promptly in the ordinary course.
6. COVENANTS AND CONFIDENTIAL INFORMATION
(a) Employee agrees that for the applicable period specified below, he
will not, directly or indirectly, do any of the following:
(i) Be engaged as a partner, officer, director, employee,
shareholder or consultant by any entity which is engaged in the operation of
gaming ventures including, but not limited to,
-3-
<PAGE> 4
casinos, Indian gaming or riverboat gaming, within five (5) miles of any gaming
facility owned, managed or under development to be owned or managed by
Employer. Notwithstanding the foregoing, the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation shall not be
deemed a violation of this covenant;
(ii) Induce any person who is an employee, officer, or agent of Employer
to terminate said relationship.
(iii) Disclose, divulge, discuss, copy or otherwise use or suffer to be
used in any manner, in competition with, or contrary to the interests of
Employer, the customer lists, inventions, ideas, discoveries, manufacturing
methods, product research or engineering data or other trade secrets of
Employer, it being acknowledged by Employee that all such information regarding
the business of Employer compiled or obtained by, or furnished to, Employee
while he shall have been employed by or associated with Employer is
confidential information and the exclusive property of Employer.
(b) The provisions of subparagraphs 6(a)(i) - 6(a)(iii) shall be operative
during the Term hereof except as provided in the following sentence. In the
event of a "Change of Control" the provisions of subparagraphs 6(a)(i) and (ii)
shall be operative only so long as Employee remains an employee of Employer.
In the event Employee is terminated for "Cause" (as defined in paragraph 8
hereof), the provisions of subparagraphs 6(a)(i) and (ii) shall be operative
during the Term and for one (1) additional year. All other obligations created
by the terms of this paragraph 6 are of a continuing nature and shall remain in
full effect at all times during and beyond Employee's period of employment.
(c) Employee expressly agrees and understands that the remedy at law for
any breach by him of this paragraph 6 will be inadequate and that the damages
flowing from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that Employer shall be
entitled to immediate injunctive relief and if the court so permits, may obtain
a temporary order restraining any threatened or further breach. Nothing
contained in this paragraph 6 shall be deemed to limit Employer's remedies at
law or in equity for any breach by Employee of the provisions of this paragraph
6 which may be pursued or availed of by Employer. Any covenant on Employee's
part contained hereinabove, which may not be specifically enforceable, shall
nevertheless, if breached, give rise to a cause of action for monetary damages.
(d) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon Employer under
this paragraph 6, and hereby acknowledges and agrees that the same are
reasonable in time and
-4-
<PAGE> 5
territory, are designed to eliminate competition which otherwise would be
unfair to Employer, do not stifle the inherent skill and experience of
Employee, would not operate as a bar to Employee's sole means of support, are
fully required to protect the legitimate interests of Employer and do not
confer a benefit upon Employer disproportionate to the detriment to Employee.
(e) For the purposes of this paragraph 6, the term "Employer" shall be
deemed to include Bally Entertainment Corporation and any of its affiliates or
subsidiaries, together with their respective successors or assigns, involved in
the sale, operation or management of gaming facilities or equipment.
(f) The covenants contained in this paragraph 6 shall be construed to
extend to separate counties and adjacent counties, if applicable, of the states
of the United States in which Employer has a Facility, and to the extent that
any such covenant shall be illegal and/or unenforceable with respect to any one
of said counties, said covenants shall not be affected thereby with respect to
each other county, such covenants with respect to each county being construed
as severable and independent.
7. ILLNESS, INCAPACITY OR DEATH DURING EMPLOYMENT
a) If the Employee is unable to perform his services by reason of illness
or incapacity resulting in a failure to discharge his duties under this
Employment Agreement for six (6) or more consecutive months, then upon thirty
(30) days notice, Employer may terminate the employment of Employee under this
Employment Agreement and Employee, upon such termination, shall be paid his
Base Salary on a pro-rata basis to the date of termination through the thirty
(30) day notice period.
In the event of such termination, the Employee shall have the right to the
assignment of any and all insurance policies or health protection plans if said
policies and plans permit assignment out of the group to the individual
Employee.
(b) In the event that Employer elects to terminate this Employment
Agreement by reason of illness or incapacity, then Employee shall be entitled
to all long-term disability (LTD) benefits provided to senior officers of
Employer but in any event at no less than sixty percent (60%) of Base Salary as
of the date of termination, without reference to set-offs or caps existing in
any LTD plan.
(c) In the event of Employee's death, all obligations of Employer under
this Employment Agreement shall terminate other than the payment of that
portion of his Base Salary on a pro-rata basis accrued to the date of death,
plus reimbursement of all expenses reasonably incurred by Employee in
performing his responsibilities and duties for Employer prior to and including
such date.
-5-
<PAGE> 6
8. TERMINATION FOR CAUSE AND SEVERANCE COMPENSATION
(a) The employment of Employee under this Employment Agreement, and the
term hereof, may be terminated by Employer for cause at any time. For purposes
hereof, the term "cause" means:
(i) 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 properly be assigned him hereunder;
(ii) Employee's material breach of any provision of this
Employment Agreement; or
(iii) Employee's failure to qualify (or having so qualified being
thereafter disqualified) under any suitability or licensing requirement to
which Employee may be subject by reason of his position with Employer and its
parents, affiliates or subsidiaries, under the laws of Nevada or New Jersey.
(b) Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment Agreement
or otherwise.
In the event Employer exercises its right under this paragraph 8 to
terminate this Employment Agreement for cause, Employee shall have the right to
challenge this action by seeking arbitration. Said arbitration proceedings
shall commence with Employee filing a written demand therefor with the American
Arbitration Association ("AAA"), Chicago office, within twenty (20) days after
receipt of notice of termination. Except as provided herein in paragraph 12,
arbitration shall be governed by AAA Labor Arbitration Rules.
9. OPTIONAL TERMINATION UPON CHANGE OF CONTROL
(a) In the event that there is a change in control of Bally, Employee
may, at his option, terminate this Employment Agreement at any time thereafter
upon thirty (30) days written notice to Employer. If Employee exercises
this right to terminate, no later than his last day of employment, he shall be
paid in lump sum the amount of six (6) months Base Salary.
Furthermore, in the event that there is a change in control of
Bally and the successor in control, without cause, terminates this Employment
Agreement, Employee shall be paid in lump sum an amount equal to (1) his
Base Salary for thirty-six (36) months and (2) two (2) times the average of the
bonuses, if any, paid to Employee by Employer for the three (3) prior years.
If the successor in control changes Employee's title, substantially changes his
duties or functions from those which he previously performed hereunder, or,
except for the inherent travel
-6-
<PAGE> 7
requirements of his positions, requires Employee to perform his duties outside
of the metropolitan area of Chicago, Illinois or to relocate his present
address, the successor in control shall be deemed to have constructively
terminated Employee's services without cause.
A "Change in Control" shall mean a change in
control of Bally 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 effective date of this
Employment Agreement, the "Exchange Act"), whether or not Bally is then subject
to such reporting requirement; provided that, without limitation, such a Change
in Control shall be deemed to have occurred if:
(i) any "person" (as defined in subsections
13(d) and 14(d) of the Exchange Act), other than a person with which Arthur
Goldberg is affiliated or of which he is a part, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of Bally representing twenty percent (20%) or more of
the combined voting power of Bally's then outstanding securities;
(ii) during any period of two (2) consecutive
years or less (not including any period prior to the effective date of this
Employment Agreement) there shall cease to be a majority of the Board of
Directors of Bally comprised of Continuing Directors (as defined below); or
(iii) the stockholders of Bally approve (1) a
merger or consolidation of Bally with any other corporation, other than a
merger or consolidation that would result in the voting securities of Bally
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of Bally or such surviving entity outstanding immediately after such
merger or consolidation, or (2) a plan of complete liquidation of Bally or an
agreement for the sale or disposition by Bally of all or substantially all of
its assets.
The term "Continuing Directors" shall mean individuals who constitute
the Board of Directors of Bally as of the effective date of this Employment
Agreement and any new director(s) whose election by such Board or nomination
for election by Bally's stockholders was approved by a vote of at least
two-thirds of the directors then in office who either were directors as of the
effective date of this Employment Agreement or whose election or nomination for
election was previously so approved.
(b) If it shall be determined that any payment or
distribution to or for the benefit of Employee pursuant to this
-7-
<PAGE> 8
Section 9 ("Severance Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (the "Excise Tax"), then Employee
shall be entitled to receive from Employer an additional payment (the "Excise
Tax Gross-Up Payment") in an amount such that the net amount retained by
Employee, after the calculation and deduction of any Excise Tax on the
Severance Payments and any federal, state and local income taxes and Excise Tax
on the Gross-Up Payment provided for in this Section 9, shall be equal to the
Severance Payments. In determining this amount, the amount of the Excise Tax
Gross-Up Payment attributable to federal income taxes shall be reduced by the
maximum reduction in federal income taxes that could be obtained by the
deduction of the portion of the Excise Tax Gross-Up Payment attributable to
state and local income taxes. Finally, the Excise Tax Gross-Up Payment shall
be reduced by income or excise tax withholding payments made by Employer to any
federal, state or local taxing authority with respect to the Excise Tax
Gross-Up Payment that was not deducted from compensation payable to Employee.
10. SEVERABLE PROVISIONS
The provisions of this Employment Agreement are severable, and
if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any partially
unenforceable provision to the extent enforceable in any jurisdiction, shall
nevertheless be binding and enforceable.
11. BINDING AGREEMENT
The rights and obligations of Employer under this Employment
Agreement shall inure to the benefit of and shall be binding upon the
respective successors and assigns of Employer.
12. ATTORNEYS' FEES
In the event Employee is required to commence legal action to
enforce the provisions of this Employment Agreement and Employee prevails in
such action, Employer shall pay Employee's costs and expenses, including
reasonable attorneys' fees, incurred in such action.
13. NOTICES
Any notice to be given to Employer under the terms of this
Employment Agreement shall be addressed to Employer at the address of its
principal place of business, and any notice to be given to Employee shall be
addressed to him at his home address last shown on the records of the Employer,
or at such other address as either party may hereafter designate in writing to
the other. Any such notice shall have been duly given when enclosed in a
properly sealed envelope addressed as aforesaid, postage prepaid,
-8-
<PAGE> 9
registered or certified, return receipt requested, and deposited in a post
office or branch post office regularly maintained by the United States
Government.
14. WAIVER
Either party's failure to enforce any provision or provisions
of this Employment Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver by a party of any single remedy shall not constitute
a waiver of such party's right to assert all other legal remedies available to
him or it under the circumstances.
15. GOVERNING LAW
This Employment Agreement shall be governed by and construed and
interpreted according to the internal laws of the State of Illinois, without
reference to principles of conflict of laws.
16. CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for
convenience only and are not a part of this Employment Agreement and shall not
be used in construing it.
17. ENTIRE AGREEMENT
This Employment Agreement supersedes the Old Agreement among
Employer, Employee and BTFHC and constitutes the entire agreement between
Employer and Employee with respect to the subject matter hereof and may not be
modified or terminated orally. No modification, termination or attempted
waiver of this Employment Agreement shall be valid unless in writing and signed
by the party against whom the same is sought to be enforced.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BALLY ENTERTAINMENT CORPORATION
ATTEST: /s/ John W. Dwyer By: Harold Morgan
-------------------- ---------------------------------
Vice President "Bally"
/s/ Lee Hillman
---------------------------------
Lee S. Hillman "Employee"
Approved by the Compensation and Stock Option Committee on March 13, 1996.
/s/ Carol S. DePaul
---------------------------------
Secretary, Compensation and Stock
Option Committee
Agreed to with respect to the termination of the Old Agreement only.
BALLY TOTAL FITNESS HOLDING
CORPORATION
By: /s/ John W. Dwyer
---------------------------
Vice President "BTFHC"
-10-
<PAGE> 1
Exhibit 10.(iii)-23
EMPLOYMENT AGREEMENT
--------------------
THE EMPLOYMENT AGREEMENT made and entered into the 24th day of May,
1995, and effective as of July 1, 1995, by and between Bally Entertainment
Corporation, a Delaware corporation ("Bally" or "Employer"), and James S.
Montana, Jr. ("Employee").
WHEREAS, Employer and Employee desire to enter into this Employment Agreement
to set forth the rights and duties of the parties herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein contained, the parties agree as follows:
1. EMPLOYMENT
(a) Employer hereby employs Employee in the capacities of Senior Vice
President and General Counsel of Bally and/or such other capacity or capacities
of equal status and responsibility as the Chairman of the Board or Chief
Executive Officer of Bally, or their designated representative, shall
determine, and Employee hereby accepts such employment upon the terms and
conditions herein set forth. Employer may also designate Employee as principal
legal officer/General Counsel of such other subsidiaries as Employer shall
determine, without additional compensation. As used herein, "subsidiary" shall
include all entities in which Employer, directly or indirectly, holds an equity
interest.
(b) During the term of his employment, Employee will devote his best
efforts to his employment and perform such duties consistent with his
capacities as Senior Vice President and General Counsel of Bally, and such
other capacity or capacities as the Chairman of the Board or Chief Executive
Officer of Bally shall determine, as are reasonably assigned to him by
Employer. While it is understood and agreed that Employee's job capacities may
change at Employer's discretion during the term of this Employment Agreement,
his level of responsibility shall not be substantially reduced at any time
without his consent. Employee will devote his entire working time and
attention to the business and related interests of, and will be loyal to,
Employer, and Employee agrees to render service on behalf of Employer or on
behalf of its subsidiaries or affiliates; provided, however, this shall not be
construed as preventing Employee from investing his assets in such form or
manner as will not require any services on the part of Employee in the
operation of the affairs of the companies in which such investments are made
and which are not in violation of Section 6(a) or from engaging in charitable
activities so long as such activities do not interfere with the performance of
Employee's duties hereunder.
<PAGE> 2
2. TERM
The term of this Employment Agreement shall begin on the effective date
stated above (the "Commencement Date") and shall continue until the thirty
sixth month anniversary of such date (the "Expiration Date"), and the term
shall continue thereafter from year-to-year unless termination by either party
in his or its sole discretion upon sixty (60) days written notice given prior
to the expiration of a term.
3. COMPENSATION
(a) In consideration of the services to be rendered by Employee
hereunder, Employer agrees to pay to Employee, and Employee agrees to accept,
as compensation, the sum of Three Hundred Thousand Dollars ($300,000) (the
"Base Salary") for each twelve month period following the effective date of
this Employment Agreement, which shall be paid on the regularly recurring
pay periods established by Employer. Increases in the Base Salary shall be
subject to periodic review by Employer, although any determination to increase
the Base Salary shall be within Employer's sole discretion.
(b) It is further understood by both parties that, pursuant to the
policies of Employer, a discretionary bonus payment may be made in addition to
the Base Salary above provided. A minimum bonus of Fifty Thousand Dollars
($50,000) (the "Guaranteed Bonus") shall be payable to Employee in respect of
the twelve month period following the Commencement Date. The Guaranteed Bonus
shall be paid within 30 days of the first anniversary of the Commencement Date.
(c) It is further understood by both parties that they intend for
Employee to receive options to purchase an aggregate of 150,000 shares
(subject to equitable adjustment to account for any stock dividends, stock
splits, combination or reorganization) of Bally's common stock, 66 2/3c par
value. The grant of such options will be subject to the approval each year of
the Compensation and Stock Option Committee of the Board of Directors of Bally,
which the parties intend to make such grants in installments of 50,000 options
(subject to equitable adjustment to account for any stock dividends, stock
splits, combination or reorganization) during each fiscal year in which
Employee is employed by Employer, with the first such grant occurring at the
next scheduled meeting of such Compensation and Stock Option Committee. If
granted, such Options will be exercisable when, upon the terms and for such
duration as are provided in the Plan under which the Compensation and Stock
Option Committee shall grant such options.
(d) Unless this Agreement has been earlier terminated in accordance with
Section 7 or 8, if on or before the expiration of this Agreement (whether the
Expiration Date or the expiration of any subsequent one year term), Employer
shall not offer to extend the term of this Employment Agreement for at least
one additional year, Employee will be entitled to severance equal in amount to
his aggregate Base Salary and Guaranteed and other bonuses (collectively
"Bonuses"), if any, paid or payable in respect of the most recent twelve months
of
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<PAGE> 3
employment preceding termination ("MRTM"), to be paid out in equal biweekly
installments during the twelve months following termination.
(e) All amounts payable hereunder are subject to federal, state and local
taxes and all withholding required in respect thereof.
4. VACATION AND OTHER BENEFITS
Employee shall be entitled to similar vacation each year of his employment
with Employer as well as other employment benefits, including hospitalization,
life insurance, long-term disability, death and retirement plans, an automobile
allowance or the use of an automobile, and the like, as are afforded to senior
executives of Employer of comparable status and tenure and consistent with that
afforded under Employer's policies.
In addition, Employer shall maintain in full force and effect so long as
Employee is employed hereunder, a policy of term insurance on the life of
Employee in the amount of twice his initial Base Salary hereunder. Employee
shall promptly advise Employer of the designated beneficiary or beneficiaries
of such policies. The term life insurance benefits herein referenced shall be
supplemental to the group life insurance provided to Employee at the time this
Employment Agreement commenced or any subsequent improvement thereof.
5. EXPENSES
Consistent with and as limited by Employer's policies for senior
executives, Employer shall pay all reasonable expenses incurred by Employee in
the performance of his responsibilities and duties for Employer as well as the
promotion of Employer's business. Employee shall submit to Employer periodic
statements of all expenses so incurred. Subject to such audits as Employer may
deem necessary, Employer shall reimburse Employee the full amount of any such
expenses advanced by Employee promptly in the ordinary course.
6. COVENANTS AND CONFIDENTIAL INFORMATION
(a) Employee agrees that for the applicable period specified below, he
will not, directly or indirectly, do any of the following:
(i) Own, manage, control, or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise affiliated
or associated as a consultant, independent contractor or otherwise, with any
other corporation, partnership, proprietorship, firm, association or other
business entity (a "Competitive Entity"), or otherwise engage in any business
which is competitive with or adverse to Employer's business or welfare,
including, without limitation, any Competitive Entity or business engaged in
any manner in the operation of gaming ventures including, but not limited to,
casinos, Indian gaming or riverboat gaming, within twenty-five (25) miles of
any gaming facility ("Facility") in which Employer has an equity interest,
which Employer manages or which is under development and in which
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<PAGE> 4
Employer is to have an equity interest or which is to be managed by Employer;
provided, however, that (X) the ownership of not more than one percent (1%) of
the stock of any publicly traded corporation and (Y) partnership or other
employment by a private law firm at which a "chinese wall" between Employee and
any engagement violative of this Section 6(a)(i) has been established, shall
not be deemed a violation of this covenant;
(ii) Induce any person who is an employee, officer, or agent of
Employer to terminate said relationship.
(iii) Employ, assist in employing or otherwise associate in the
operation of gaming ventures with any present, former or future employee or
officer of Employer.
(b) The provisions of subparagraphs 6(a)(i) - 6(a)(iii) shall be
operative through the Expiration Date except as provided in the following
sentence. In the event of a "Change of Control" the provisions of
subparagraphs 6(a)(i)-(iii) shall be operative only so long as Employee remains
an employee of Employer. In the event Employee is terminated for "Cause" (as
defined in paragraph 8 hereof) or is paid severance pursuant to Sections 3(d)
or 8(c) hereof, the provisions of subparagraphs 6(a)(i)-(iii) shall be
operative during the period ending on the later of (i) the Expiration Date and
(ii) one (1) year after termination of Employee's employment. All other
obligations and agreements created by the terms of subparagraphs (c) through
(f) of this paragraph 6 are of a continuing nature and shall remain in full
effect at all times during and beyond Employee's period of employment.
(c) Employee understands and acknowledges that he will be furnished, use
or otherwise be privy to certain confidential and proprietary information
relating to Employer's business (referred to collectively as "Confidential and
Proprietary Information"). In general, Employee understands and acknowledges
that Confidential and Proprietary Information constitutes any and all
information concerning Employer which otherwise is not generally known to the
public domain, including customer-related information and other information
which Employee may encounter, compile or develop at any time during Employee's
employment with Employer.
Employee acknowledges Employer diligently maintains the secrecy and
confidentiality of its Confidential and Proprietary Information by, among other
things: (1) locking information in "Confidential Information" cabinets and
other areas; (2) the use of a "Confidential" stamp; and (3) restricting the
photocopying and circulation of confidential information. In this regard,
Employee understands and acknowledges that, with respect to Employer, each and
every component of the Confidential and Proprietary Information is sufficiently
secret to derive economic value from not being generally known to other
persons.
As a condition to and in consideration of Employee's employment by Employer,
Employee accordingly hereby agrees to treat any Confidential and Proprietary
Information and generally conduct Employee's relationship with Employer in
accordance with the following:
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<PAGE> 5
(i) During Employee's employment with Employer and thereafter, Employee
will hold in the strictest confidence and not use in any manner which is
detrimental to Employer or disclose to any individual or entity any
Confidential and Proprietary Information, except as may be required by
Employer in connection with Employee's employment.
(ii) Upon the request of Employer or at the time of the termination of
Employee's employment, Employee will deliver to Employer only, and shall
not retain for Employee's or anybody else's use, any and all notes,
data, memoranda, specifications, devices, formulae, documents, software,
programs and other material containing any of Employer's Confidential and
Proprietary Information, and all copies thereof.
(d) Employee expressly agrees and understands that the remedy at law for
any breach by him of this paragraph 6 will be inadequate and that the damages
flowing from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that Employer shall be
entitled to immediate injunctive relief and if the court so permits, may obtain
a temporary order restraining any threatened or further breach, without the
necessity of posting bond. Nothing contained in this paragraph 6 shall be
deemed to limit Employer's remedies at law or in equity for any breach by
Employee of the provisions of this paragraph 6 which may be pursued or availed
of by Employer. Any covenant on Employee's part contained hereinabove, which
may not be specifically enforceable, shall nevertheless, if breached, give rise
to a cause of action for monetary damages.
(e) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon Employer under
this paragraph 6, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to Employer, do not stifle the inherent skill and
experience of Employee, would not operate as a bar to Employee's sole means of
support, are fully required to protect the legitimate interests of Employer and
do not confer a benefit upon Employer disproportionate to the detriment to
Employee.
(f) For the purposes of this paragraph 6, the term "Employer" shall be
deemed to include Bally Entertainment Corporation and any of its affiliates or
subsidiaries, together with their respective successors or assigns. As used in
this Section 6 and elsewhere in this Agreement, "affiliate" shall have the
meaning ascribed to such term in Regulation S-X promulgated under the
Securities Exchange Act of 1934 (as in effect on the effective date of this
Employment Agreement, the "Exchange Act").
7. ILLNESS, INCAPACITY OR DEATH DURING EMPLOYMENT
(a) If Employee is unable to perform his services by reason of illness or
incapacity resulting in a failure to discharge his duties under this Employment
Agreement for
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<PAGE> 6
six (6) or more consecutive months, then upon thirty (30) days notice, Employer
may terminate the employment of Employee under this Employment Agreement and
Employee, upon such termination, shall be paid (i) his Base Salary and
Guaranteed Bonus, if any, on a pro-rata basis, to the date of termination plus
reimbursement of all expenses reasonably incurred by Employee and reimbursable
hereunder prior to and including such date and (ii) a monthly amount, for six
(6) consecutive months, equal to one-twelfth (1/12th) of the sum of his Base
Salary and Bonuses, if any, paid in or payable in respect of the MRTM LESS any
disability payments received by Employee during said six (6) months from any
disability or similar plan or policy of Employer or its insurers.
(b) In the event of Employee's death, all obligations of Employer under
this Employment Agreement under paragraph 3 hereof shall terminate other than
the payment of that portion of his Base Salary and Guaranteed Bonus, if any, on
a pro-rata basis accrued to the date of death, plus reimbursement of all
expenses reasonably incurred by Employee and reimbursable hereunder prior to
and including such date.
(c) The foregoing shall not limit or negate any rights or benefits of
Employee under the Employer's long term disability or accidental death plans.
8. TERMINATION FOR CAUSE AND SEVERANCE COMPENSATION
(a) The employment of Employee under this Employment Agreement, and the
term hereof, may be terminated by Employer with or without cause at any time,
subject to payment of the severance terms set forth in Section 8(c) and the
terms of Section 7 hereof. For purposes hereof, the term "cause" means:
(i) 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 properly be assigned him hereunder;
(ii) Employee's material breach of any provision of this Employment
Agreement;
(iii) Employee's failure to qualify (or having so qualified being
thereafter disqualified) under any suitability or licensing requirement to
which Employee may be subject by reason of his position with Employer and its
parents, affiliates or subsidiaries, under the laws and regulations of Nevada,
New Jersey or any governmental or quasi-governmental agency thereof or any
other federal, state or local scheme regulating gaming; or
(iv) Gross misconduct tending to bring Employer or any of its
affiliates or subsidiaries into public disrepute.
(b) Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment Agreement
or otherwise.
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<PAGE> 7
(c) In the event Employee is terminated by the Company other than for (i)
"cause" or (ii) a reason set forth in Section 7, then as Employee's sole
recourse in respect of such termination, he shall be paid an amount equal to
the greater of: (i) his Base Salary and Bonuses, if any, paid or payable for
the MRTM (the "Average Salary") or (ii) an amount equal to the Average Salary
for the MRTM multiplied by the number of years (or fraction of years) from the
date of termination through the Expiration Date, in each case payable in equal
bi-weekly installments over one year or the remaining term, as the case may be;
provided further, that such payment to Employee shall be due only when Employee
delivers to Employer a full and complete release of all claims hereunder, or at
law or equity, including under federal equal employment and age discrimination
laws, arising out of Employee's employment or the termination thereof; in the
event Employee fails to deliver such release within 45 days, he shall forfeit
the payments due under this Section 8(c).
(d) In the event the Company shall require as a condition of Employee's
continued employment that he relocate his principal office outside the Chicago
metropolitan area then, upon 90 days prior written notice given within 60 days
of Employer's notification to Employee of such condition (during which Employer
may withdraw such condition), Employee may terminate his employment by
delivering to Employer a full and complete release of all claims hereunder, or
at law or equity, including under federal equal employment and age
discrimination laws, arising out of Employee's employment or the termination
thereof, and upon receipt of such release, Employer shall pay to Employee, in
equal bi-weekly installments over one year following the date of Employee's
termination of employment, an amount equal to the Average Salary.
9. OPTIONAL TERMINATION UPON CHANGE OF CONTROL
(a) In the event that there is a Change in Control of Bally, Employee
may, at his option, terminate this Employment Agreement at any time thereafter
upon thirty (30) days written notice to Employer. If Employee exercises this
right to terminate, no later than his last day of employment, he shall be paid
in lump sum the amount of six (6) months Base Salary.
Furthermore, in the event that there is a change in control of
Bally and the successor in control, without cause (as defined in Section 8(a)),
terminates this Employment Agreement, Employee shall be paid in lump sum (x)
twenty-four (24) months Base Salary or an amount equal to his Base Salary
through the original thirty six (36) month term hereof, whichever is greater,
and (y) the greater of the average of the Bonuses, if any, paid to Employee by
Employer for the two (2) prior years or the Bonuses, if any, for the prior
year. If the successor in control changes Employee's title or substantially
changes his duties or functions from those which he previously performed
hereunder, or requires Employee to perform the majority of his duties at a
location outside the metropolitan area of Chicago, Illinois, the successor in
control shall be deemed to have constructively terminated Employee's services
without cause and Employee shall be entitled to the payment set forth in the
first sentence of this paragraph.
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<PAGE> 8
A "Change in Control" shall mean a change in control of Bally 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, whether or
not Bally is then subject to such reporting requirement, provided that, without
limitation, such a Change in Control shall be deemed to have occurred if:
(i) any "person" (as defined in subsections 13(d) and 14(d) of the
Exchange Act), other than a person with which Arthur Goldberg is affiliated or
of which he is a part, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of Bally
representing 25% or more of the combined voting power of Bally's then
outstanding securities;
(ii) during any period of two (2) consecutive years or less (not
including any period prior to the effective date of this Employment Agreement)
there shall cease to be a majority of the Board of Directors of Bally
comprised of Continuing Directors (as defined below); or
(iii) the stockholders of Bally approve (1) a merger or
consolidation of Bally with any other corporation, other than a merger or
consolidation that would result in the voting securities of Bally
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of Bally or such surviving entity outstanding immediately after such
merger or consolidation, or (2) a plan of complete liquidation of Bally or an
agreement for the sale or disposition by Bally of all or substantially all of
its assets.
(b) An event or occurrence (or series of events or occurrences) that
would not otherwise constitute a Change in Control under the foregoing shall be
deemed to constitute a Change in Control for purposes of this Employment
Agreement if the Board of Directors of Bally, 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. A
determination by directors under this paragraph shall be made solely for
purposes of this Employment Agreement 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 agreement or plan of Bally shall have
no affect for purposes of this Employment Agreement.
The term "Continuing Directors" shall mean individuals who
constitute the Board of Directors of Bally as of the effective date of this
Employment Agreement and any new director(s) whose election by such Board or
nomination for election by Bally's stockholders was approved by a vote of at
least two-thirds of the directors then in office who either were directors as
of the effective date of this Employment Agreement or whose election or
nomination for election was previously so approved.
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<PAGE> 9
(c) If it shall be determined that any payment or distribution to
or for the benefit of Employee pursuant to this Section 9 ("Severance
payments") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code (the "Excise Tax"), then Employee shall be entitled to
receive from Employer an additional payment (the "Excise Tax Gross-Up
payment") in an amount such that the net amount retained by Employee, after the
calculation and deduction of any Excise Tax on the Severance payments "and any
federal, state and local income taxes and Excise Tax on the Gross-Up payment
provided for in this Section 9, shall be equal to the Severance payments. In
determining this amount, the amount of the Excise Tax Gross-Up payment
attributable to federal income taxes shall be reduced by the maximum reduction
in federal income taxes that could be obtained by the deduction of the portion
of the Excise Tax Gross-Up payment attributable to state and local income
taxes. Finally, the Excise Tax Gross-Up payment shall be reduced by income or
excise tax withholding payments made by Employer to any federal, state or local
taxing authority with respect to the Excise Tax Gross-Up payment that was not
deducted from compensation payable to Employee.
10. SEVERABLE PROVISIONS
In the event any provision hereof, including those of Section 6, would,
under applicable law, be invalid or unenforceable, such provision shall, to the
extent permitted under applicable law, be construed by modifying it or limiting
it so as to be valid and enforceable to the maximum extent possible under
applicable law. The provisions of this Employment Agreement are severable, and
if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any partially
unenforceable provision to the extent enforceable in any jurisdiction shall
nevertheless be binding and enforceable.
11. BINDING AGREEMENT
The rights and obligations of Employer under this Employment Agreement
shall inure to the benefit of and shall be binding upon the respective
successors and assigns of Employer.
12. ARBITRATION; ATTORNEYS' FEES
(a) The sole remedy for the settlement of any dispute or controversy
arising out of or relating to this Employment Agreement (exclusive of Section
6, which is excluded from the terms of this Section 12(a)) shall be by
arbitration in Chicago, Illinois, in accordance with the rules then obtaining
of the American Arbitration Association. Only a person who is a lawyer may
serve as an arbitrator. Each side to the claim or controversy may select one
arbitrator and those arbitrators shall choose a third arbitrator; these
arbitrators so selected shall constitute the panel. The American Arbitration
Association rules for labor arbitrations shall control any discovery conducted
in connection with the arbitration. The expenses of arbitration (other than
attorneys' fees) shall be shared as determined by arbitration. Each side to
the claim or
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<PAGE> 10
controversy shall pay their own attorneys' fees, except as set forth in Section
12(b). Any result reached by the panel shall be binding on all parties to the
arbitration and no appeal may be taken. It is agreed that any party to any
award rendered in such arbitration proceeding may seek a judgment upon the
award and that judgment may be entered thereon by any court having
jurisdiction.
(b) In the event Employee is required to commence an arbitration or
permitted legal action to enforce the provisions of this Employment Agreement
and Employee prevails in substantial part in such action, Employer shall pay
Employee's costs and expenses, including reasonable attorneys' fees, incurred
in such action.
13. NOTICES
Any notice to be given to Employer under the terms of this Employment
Agreement shall be addressed to Employer at the address of its principal place
of business, and any notice to be given to Employee shall be addressed to him
at his home address last shown on the records of Employer, or at such other
address as either party may hereafter designate in writing to the other. Any
such notice shall have been duly given when enclosed in a properly sealed
envelope addressed as aforesaid, postage prepaid, registered or certified,
return receipt requested, and deposited in a post office or branch post office
regularly maintained by the United States Government.
14. WAIVER
Either party's failure to enforce any provision or provisions of this
Employment Agreement shall not in any way be construed as a waiver of any such
provision or provisions as to any future violations thereof, nor prevent that
party thereafter from enforcing each and every other provision of this
Employment Agreement. The rights granted the parties herein are cumulative and
the waiver by a party of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to him or it
under the circumstances.
15. GOVERNING LAW
This Employment Agreement shall be governed by and construed and
interpreted according to the internal laws of the State of Illinois without
reference to principles of conflict of laws.
16. CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for convenience only
and are not a part of this Employment Agreement and shall not be used in
construing it.
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<PAGE> 11
17. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire agreement between
Employer and Employee with respect to the subject matter hereof and may
not be modified or terminated orally. No modification, termination or
attempted waiver of this Employment Agreement shall be valid unless in writing
and signed by the party against whom the same is sought to be enforced.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BALLY ENTERTAINMENT CORPORATION
Date: May 24, 1995 By: /s/ Arthur M. Goldberg
-----------------------------
a duly authorized signatory
Date: October 9, 1995 By: /s/ James S. Montana, Jr.
-----------------------------
James S. Montana, Jr.
Approved by the Compensation and Stock Option Committee on October 9, 1995.
/s/ Edwin M. Halkyard
---------------------
Chairman, Compensation and Stock
Option Committee
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<PAGE> 1
Exhibit 10.(iii)-24
EMPLOYMENT AGREEMENT
--------------------
THE EMPLOYMENT AGREEMENT made and entered into the 20th day of December,
1995, and effective as of January 1, 1996, by and between Bally Entertainment
Corporation, a Delaware corporation ("Bally" or "Employer") and Bernard Murphy
("Employee").
WHEREAS, Bally and Employee desire to terminate that Employment Agreement
dated March 17, 1991 (the "Old Agreement") and enter into this Employment
Agreement to set forth the rights and duties of the parties herein.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein contained, the parties agree as follows:
1. EMPLOYMENT
(a) Employer hereby employs Employee in the capacities of Vice President,
Corporate Affairs and Governmental Relations of Bally, and/or such other
capacities of equal status and responsibility and with such other
responsibilities as the Chairman of the Board of Bally, or his designated
representative, shall determine, and Employee hereby accepts such employment
upon the terms and conditions herein set forth.
(b) During the term of his employment, Employee will devote his best
efforts to his employment and perform such duties consistent with his
capacities as Vice President, Corporate Affairs and Governmental Relations of
Bally and/or such other capacities and with such other responsibilities as the
Chairman of the Board of Bally, or his designated representative, shall
determine, as are reasonably assigned to him by Employer. Employee will devote
his entire working time and attention to the business and related interests of,
and will be loyal to, Employer, and Employee agrees to render service on behalf
of Employer or on behalf of its subsidiaries or affiliates.
(c) Employee shall not, without prior written consent of Employer,
directly or indirectly, during the term of this Employment Agreement:
(i) Other than in the performance of duties naturally inherent to
Employer's business and in furtherance thereof, render services of a business,
professional or commercial nature to any other person or firm, whether for
compensation or otherwise, but this shall not be construed as preventing the
Employee from investing his assets in such form or manner as will not require
any services on the part of the Employee in the operation of the affairs of the
companies in which such investments are made and which are not in violation of
subparagraph (ii) below or from engaging in charitable activities so long as
such
<PAGE> 2
activities do not interfere with the performance of Employee's duties
hereunder;
(ii) Engage in any activity competitive with or adverse to Employer's
business or welfare, whether alone, as a partner, or as an officer, director,
employee or shareholder of any other corporation, or otherwise, directly or
indirectly, except that the ownership of not more than one percent (1%) of the
stock of any publicly traded corporation shall not be deemed violative of this
subparagraph (ii);
(iii) Be engaged by any entity which conducts business with or acts
as consultant or advisor to Employer, whether alone, as a partner, or as an
officer, director, employee or shareholder, or otherwise, directly or
indirectly, except that ownership of not more than one percent (1%) of the
stock of any publicly traded corporation shall not be deemed violative of this
subparagraph (iii).
2. TERM
The term of this Employment Agreement shall begin on the effective date
stated above ("commencement date") and shall continue for three (3) years from
such date, and unless the term is extended by mutual agreement, the term shall
continue thereafter from month-to-month until termination by either party in
his or its sole discretion upon thirty (30) days written notice.
3. COMPENSATION
(a) In consideration of the services to be rendered by the Employee
hereunder, the Employer agrees to pay to the Employee, and the Employee agrees
to accept, as compensation, the sum of One Hundred Fifty Thousand Dollars
($150,000.00) (the "Base Salary") for each twelve month period following the
effective date of this Employment Agreement, which shall be paid on the
regularly recurring pay periods established by Employer. The Base Salary shall
be subject to periodic review by Employer, although any determination to
increase the Base Salary shall be within Employer's sole discretion.
(b) It is further understood by both parties that, pursuant to the
policies of Employer, a discretionary bonus payment may be made in addition to
the Base Salary above provided.
(c) In addition to Base Salary and any discretionary bonus paid
hereunder, Employer shall pay to Employee One Hundred Thousand Dollars
($100,000.00) within five (5) business days of the effective date of this
Employment Agreement and One Hundred Thousand Dollars ($100,000.00) on the
next five (5) six (6) month anniversaries of the execution of this Employment
Agreement, for a total of six (6) payments of One Hundred Thousand Dollars
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<PAGE> 3
($100,000.00) for additional payments totalling Six Hundred Thousand Dollars
($600,000.00) ("Additional Payments"). The Additional Payments shall be made
by Employer in consideration of past services rendered to Employer by Employee
and shall be made by Employer regardless of whether Employee is an Employee at
the time of such payments. In consideration of the Additional Payments,
Employee hereby waives any claims he may have against Employer arising out of
Employee's employment with Employer prior to the date hereof, the Old Agreement
or any other "agreement" referred to in the Old Agreement, including, but not
limited to, any claim to an "annuity", as that term is used in the Old
Agreement.
4. VACATION AND OTHER BENEFITS
Employee shall be entitled to a reasonable vacation each year of his
employment with Employer as well as other employment benefits, including
hospitalization, life insurance, death and retirement plans, an automobile
allowance or the use of an automobile, and the like, afforded to executives of
Employer of comparable status and tenure and consistent with that afforded
under Employer's policies. Notwithstanding the foregoing, Employer may, at its
sole discretion, change such policies.
5. EXPENSES
Employer shall pay all reasonable expenses incurred by Employee in the
performance of his responsibilities and duties for Employer as well as the
promotion of Employer's business. Employee shall submit to Employer periodic
statements of all expenses so incurred. Subject to such audits as Employer may
deem necessary, Employer shall reimburse Employee the full amount of any such
expenses advanced by Employee promptly in the ordinary course.
6. COVENANTS AND CONFIDENTIAL INFORMATION
(a) Employee agrees that for the applicable period specified below, he
will not, directly or indirectly, do any of the following:
(i) Own, manage, control, or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor or otherwise,
with any other corporation, partnership, proprietorship, firm, association or
other business entity, or otherwise engage in any business which is engaged in
the operation of gaming ventures including, but not limited to, casinos, Indian
gaming or riverboat gaming, within five (5) miles of any gaming facility owned,
managed or under development to be owned or managed by Employer (as of the date
Employee ceases to be employed hereunder) (a "Facility"). Notwithstanding the
foregoing, the ownership of not more than one percent (1%) of the stock of any
-3-
<PAGE> 4
publicly traded corporation shall not be deemed a violation of this covenant;
(ii) Induce any person who is an employee, officer, or agent of
Employer to terminate said relationship.
(iii) Employ, assist in employing or otherwise associate in business
with any present, former or future employee or officer of Employer.
(iv) Disclose, divulge, discuss, copy or otherwise use or suffer
to be used in any manner, in competition with, or contrary to the interests of
Employer, the customer lists, inventions, ideas, discoveries, manufacturing
methods, product research or engineering data or other trade secrets of
Employer, it being acknowledged by Employee that all such information regarding
the business of Employer compiled or obtained by, or furnished to, Employee
while he shall have been employed by or associated with Employer is
confidential information and the exclusive property of Employer.
(b) The provisions of subparagraphs 6(a)(i) - 6(a)(iii) shall be
operative during the Term hereof except as provided in the following
sentence. In the event (y) of a "Change of Control" the provisions of
subparagraphs 6(a)(i)-(iii) shall be operative only so long as Employee remains
an employee of Employer and (z) Employee is terminated for "Cause" (as defined
in paragraph 8 hereof), the provisions of subparagraphs 6(a)(i)-(iii) shall be
operative during the Term and for one additional year. All other obligations
created by the terms of this paragraph 6 are of a continuing nature and shall
remain in full effect at all times during and beyond Employee's period of
employment.
(c) Employee expressly agrees and understands that the remedy at law for
any breach by him of this paragraph 6 will be inadequate and that the damages
flowing from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that Employer shall be
entitled to immediate injunctive relief and if the court so permits, may obtain
a temporary order restraining any threatened or further breach. Nothing
contained in this paragraph 6 shall be deemed to limit Employer's remedies at
law or in equity for any breach by Employee of the provisions of this paragraph
6 which may be pursued or availed of by Employer. Any covenant on Employee's
part contained hereinabove, which may not be specifically enforceable, shall
nevertheless, if breached, give rise to a cause of action for monetary damages.
(d) Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon Employer under
this paragraph 6, and hereby acknowledges and agrees that the same are
reasonable in time and
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<PAGE> 5
territory, are designed to eliminate competition which otherwise would be
unfair to Employer, do not stifle the inherent skill and experience of
Employee, would not operate as a bar to Employee's sole means of support, are
fully required to protect the legitimate interests of Employer and do not
confer a benefit upon Employer disproportionate to the detriment to Employee.
(e) For the purposes of this paragraph 6, the term "Employer" shall be
deemed to include Bally Entertainment Corporation and its affiliates or
subsidiaries, together with their respective successors or assigns, involved in
the sale, operation or management of gaming facilities.
(f) The covenants contained in this paragraph 6 shall be construed to
extend to separate counties and adjacent counties, if applicable, of the states
of the United States in which Employer has a Facility, and to the extent that
any such covenant shall be illegal and/or unenforceable with respect to any one
of said counties, said covenants shall not be affected thereby with respect to
each other county, such covenants with respect to each county being construed
as severable and independent.
7. ILLNESS, INCAPACITY OR DEATH DURING EMPLOYMENT
a) If the Employee is unable to perform his services by reason of illness
or incapacity resulting in a failure to discharge his duties under this
Employment Agreement for six (6) or more consecutive months, then upon thirty
(30) days notice, Employer may terminate the employment of Employee under this
Employment Agreement and Employee, upon such termination, shall be paid his
Base Salary on a pro-rata basis to the date of termination through the thirty
(30) day notice period.
In the event of such termination, the Employee shall have the right to the
assignment of any and all insurance policies or health protection plans if said
policies and plans permit assignment out of the group to the individual
Employee.
(b) In the event of Employee's death, all obligations of Employer under
this Employment Agreement shall terminate other than (i) the payment of that
portion of his Base Salary on a pro-rata basis accrued to the date of death,
(ii) the payment due under subparagraph 3(c) hereof, and (iii) reimbursement of
all expenses reasonably incurred by Employee in performing his responsibilities
and duties for Employer prior to and including such date.
(c) In the event of Employee's death prior to the payment in full of all
of the Additional Payments described in subparagraph 3(c) hereof, such
Additional Payments that have not been paid shall be payable to Employee's
estate or as otherwise directed by Employee, on the dates such payments would
have been made to Employee pursuant to said subparagraph 3(c).
-5-
<PAGE> 6
8. TERMINATION FOR CAUSE AND SEVERANCE COMPENSATION
(a) The employment of Employee under this Employment Agreement, and the
term hereof, may be terminated by Employer for cause at any time. For purposes
hereof, the term "cause" includes but is not limited to:
(i) 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 properly be assigned him hereunder;
(ii) Employee's material breach of any provision of this
Employment Agreement; or
(iii) Employee's failure to qualify (or having so qualified being
thereafter disqualified) under any suitability or licensing requirement to
which Employee may be subject by reason of his position with Employer and its
parents, affiliates or subsidiaries, whether under the laws of Nevada, New
Jersey or otherwise.
(b) Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment Agreement
or otherwise.
9. OPTIONAL TERMINATION UPON CHANGE OF CONTROL
(a) In the event that there is a change in control of Bally and the
successor in control, without cause, terminates this Employment Agreement,
Employee shall be paid in lump sum twenty-four (24) months Base Salary or an
amount equal to his Base Salary for the balance of the thirty-six (36) month
term, whichever is greater, and the greater of the average of the bonuses, if
any, paid to Employee by Employer for the three (3) prior years and the bonus,
if any, for the prior year. If the successor in control changes Employee's
title or substantially changes his duties or functions from those which he
previously performed hereunder or requires Employee to perform the majority of
his duties at a location outside of the metropolitan area of Baltimore,
Maryland, the successor in control shall be deemed to have constructively
terminated Employee's services without cause.
A "Change in Control" shall mean a change in control of Bally 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 effective date of this Employment Agreement, the
"Exchange Act"), whether or not Bally is then subject to such reporting
requirement; provided that, without limitation, such a Change in Control shall
be deemed to have occurred if:
-6-
<PAGE> 7
(i) any "person" (as defined in subsections
13(d) and 14(d) of the Exchange Act), other than a person with which Arthur
Goldberg is affiliated or of which he is a part, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of Bally representing 25% or more of the combined
voting power of Bally's then outstanding securities;
(ii) during any period of two (2) consecutive
years or less (not including any period prior to the effective date of this
Employment Agreement) there shall cease to be a majority of the Board of
Directors of Bally comprised of Continuing Directors (as defined below); or
(iii) the stockholders of Bally approve (1) a
merger or consolidation of Bally with any other corporation, other than a
merger or consolidation that would result in the voting securities of Bally
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of Bally or such surviving entity outstanding immediately after such
merger or consolidation, or (2) a plan of complete liquidation of Bally or an
agreement for the sale or disposition by Bally of all or substantially all of
its assets.
The term "Continuing Directors" shall mean individuals who
constitute the Board of Directors of Bally as of the effective date of this
Employment Agreement and any new director(s) whose election by such Board or
nomination for election by Bally's stockholders was approved by a vote of at
least two-thirds of the directors then in office who either were directors as
of the effective date of this Employment Agreement or whose election or
nomination for election was previously so approved.
(b) If it shall be determined that any payment or
distribution to or for the benefit of Employee pursuant to this Section 9
("Severance Payments") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code (the "Excise Tax"), then Employee shall be
entitled to receive from Employer an additional payment (the "Excise Tax
Gross-Up Payment") in an amount such that the net amount retained by Employee,
after the calculation and deduction of any Excise Tax on the Severance Payments
and any federal, state and local income taxes and Excise Tax on the Gross-Up
Payment provided for in this Section 9, shall be equal to the Severance
Payments. In determining this amount, the amount of the Excise Tax Gross-Up
Payment attributable to federal income taxes shall be reduced by the maximum
reduction in federal income taxes that could be obtained by the deduction of
the portion of the Excise Tax Gross-Up Payment attributable to state and local
income taxes. Finally, the Excise Tax Gross-Up Payment shall be reduced by
income or excise tax withholding payments made
-7-
<PAGE> 8
by Employer to any federal, state or local taxing authority with respect to the
Excise Tax Gross-Up Payment that was not deducted from compensation payable to
Employee.
10. SEVERABLE PROVISIONS
The provisions of this Employment Agreement are severable, and
if any one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and any partially
unenforceable provision to the extent enforceable in any jurisdiction, shall
nevertheless be binding and enforceable.
11. BINDING AGREEMENT
The rights and obligations of Employer under this Employment
Agreement shall inure to the benefit of and shall be binding upon the
respective successors and assigns of Employer.
12. ATTORNEYS' FEES
In the event Employee is required to commence legal action to
enforce the provisions of this Employment Agreement and Employee prevails in
such action, Employer shall pay Employee's costs and expenses, including
reasonable attorneys' fees, incurred in such action.
13. NOTICES
Any notice to be given to Employer under the terms of this
Employment Agreement shall be addressed to Employer at the address of its
principal place of business, and any notice to be given to Employee shall be
addressed to him at his home address last shown on the records of the Employer,
or at such other address as either party may hereafter designate in writing to
the other. Any such notice shall have been duly given when enclosed in a
properly sealed envelope addressed as aforesaid, postage prepaid, registered or
certified, return receipt requested, and deposited in a post office or branch
post office regularly maintained by the United States Government.
14. WAIVER
Either party's failure to enforce any provision or provisions
of this Employment Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Employment Agreement. The rights granted the parties herein are
cumulative and the waiver by a party of any single remedy shall not constitute
a waiver of such party's right to assert all other legal remedies available to
him or it under the circumstances.
-8-
<PAGE> 9
15. GOVERNING LAW
This Employment Agreement shall be governed by and construed
and interpreted according to the internal laws of the State of New Jersey,
without reference to principles of conflict of laws.
16. CAPTIONS AND PARAGRAPH HEADINGS
Captions and paragraph headings used herein are for
convenience only and are not a part of this Employment Agreement and shall not
be used in construing it.
17. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire agreement
between Employer and Employee with respect to the subject matter hereof and may
not be modified or terminated orally. No modification, termination or
attempted waiver of this Employment Agreement shall be valid unless in writing
and signed by the party against whom the same is sought to be enforced.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
BALLY ENTERTAINMENT CORPORATION
ATTEST: /s/ Linda M. Calamusa By: /s/ Arthur M. Goldberg
-------------------------- --------------------------------
President "Bally"
/s/ Bernard Murphy
--------------------------------
Bernard Murphy "Employee"
Approved by the Compensation and Stock Option Committee on January 18, 1995.
/s/ Carol DePaul
--------------------------------
Secretary, Compensation and Stock
Option Committee
-9-
<PAGE> 1
<TABLE>
- -------------------------------------------------------------------------------------------------
Exhibit 11
BALLY ENTERTAINMENT CORPORATION
COMPUTATION OF EARNINGS PER SHARE(1)
(ALL DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
1995
---------------------------
Fully
Primary diluted
earnings earnings
per per
share share
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Income from continuing operations.................................. $ 76,653 $ 76,653
Loss from discontinued operations.................................. (10,980) (10,980)
Extraordinary gain on extinguishment of debt....................... 458 458
----------- -----------
Net income......................................................... 66,131 66,131
Preferred stock dividend requirement............................... (6,232) (6,232)
Add back dividends from the assumed conversion of
convertible/exchangeable preferred stock......................... 4,026 4,026
Add back interest, net of income taxes, from the assumed conversion
of convertible debentures........................................ 70 403
----------- -----------
Net income applicable to common and common equivalent shares....... $ 63,995 $ 64,328
=========== ===========
Average number of common shares outstanding........................ 47,154,615 47,154,615
Net common equivalent shares considered outstanding from:
Dilutive stock options........................................... 2,732,955 3,722,197
Convertible/exchangeable preferred stock......................... 5,495,377 5,754,576
Convertible debentures........................................... 69,225 583,869
----------- -----------
Average number of common and common equivalent shares
outstanding...................................................... 55,452,172 57,215,257
=========== ===========
Per common and common equivalent share:
Income from continuing operations................................ $ 1.34 $ 1.31
Loss from discontinued operations................................ (.20) (.19)
Extraordinary gain on extinguishment of debt..................... .01 --
----------- -----------
Net income....................................................... $ 1.15 $ 1.12
=========== ===========
<FN>
- ---------------
(1) Assumed conversion of convertible/exchangeable securities was not applicable
and assumed exercise of outstanding stock options was not significant in
1994 or 1993.
</FN>
</TABLE>
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OF
BALLY ENTERTAINMENT CORPORATION (a)
<TABLE>
<CAPTION>
Name of Corporation Place of Incorporation
- ------------------- ----------------------
<S> <C>
Bally's Maryland, Inc. Maryland
Bally's Casino, Inc. Delaware
Bally's Intermediate Sub, Inc. 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 Operator, Inc. (b) Delaware
Bally's Olympia Limited Partnership (b)(c) Delaware
Bally's Louisiana, Inc. (b) Louisiana
Belle of Orleans, L.L.C. (b) (d) Louisiana
Bally's Manager, Inc. (b) Maryland
Bally's CHLV, Inc. (b) Delaware
Bally's Grand, Inc. (b) (e) Delaware
Grand Resorts, Inc. (b) Nevada
GNOC, CORP. (b) New Jersey
GNF, CORP. (b) New Jersey
<FN>
(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) Partnership 57% owned by Bally's Tunica, Inc. and 1% owned by Bally's
Operator, Inc.
(d) Limited liability company 49.9% owned by Bally's Louisiana, Inc.
(e) Approximately 81% of outstanding stock owned by Bally's CHLV, Inc.
NOTE: With the exception of (c), (d) and (e), percentage of ownership is
100%.
</FN>
</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 7,
1996, 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, 1995.
/s/ Ernst & Young LLP
Chicago, Illinois
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS, THE CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND THE
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 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-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 285,801
<SECURITIES> 18,111
<RECEIVABLES> 40,591
<ALLOWANCES> 13,094
<INVENTORY> 8,358
<CURRENT-ASSETS> 373,712
<PP&E> 1,778,131
<DEPRECIATION> 510,898
<TOTAL-ASSETS> 1,889,217
<CURRENT-LIABILITIES> 153,500
<BONDS> 1,278,441
<COMMON> 31,751
0
16,219
<OTHER-SE> 202,665
<TOTAL-LIABILITY-AND-EQUITY> 1,889,217
<SALES> 0
<TOTAL-REVENUES> 1,023,860
<CGS> 0
<TOTAL-COSTS> 630,927<F1>
<OTHER-EXPENSES> 6,298<F2>
<LOSS-PROVISION> 4,718<F3>
<INTEREST-EXPENSE> 132,361
<INCOME-PRETAX> 56,897
<INCOME-TAX> (18,650)
<INCOME-CONTINUING> 76,653
<DISCONTINUED> (10,980)
<EXTRAORDINARY> 458
<CHANGES> 0
<NET-INCOME> 66,131
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 0
<FN>
<F1>THIS AMOUNT IS THE SUM OF CASINO, ROOMS, FOOD AND BEVERAGE, AND OTHER
OPERATING EXPENSES UNDER COSTS AND EXPENSES IN THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995.
<F2>THIS AMOUNT IS GAMING DEVELOPMENT COSTS, EXCLUDING THE AMORTIZATION OF
PRE-OPENING COSTS.
<F3>THIS AMOUNT IS LOCATED IN THE CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1995.
</FN>
</TABLE>
