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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8570
CIRCUS CIRCUS ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
Nevada 88-0121916
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
2880 Las Vegas Boulevard South, Las Vegas, Nevada 89109-1120
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(702) 734-0410
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $.01-2/3 New York Stock Exchange and
Par Value Pacific Exchange
Common Stock Purchase Rights New York Stock Exchange and
Pacific Exchange
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 voting stock of the
Registrant held by persons other than the Registrant's directors
and executive officers as of April 20, 1998 (based upon the last
reported sale price on the New York Stock Exchange on such date)
was $1,598,200,968.
The number of shares of Registrant's Common Stock,
$.01-2/3 par value, outstanding at April 20, 1998: 95,129,383.
DOCUMENTS INCORPORATED BY REFERENCE
PART II - Portions of the Registrant's Annual Report to
Stockholders for the year ended January 31, 1998 are incorporated
by reference into Items 7 through 8, inclusive.
PART III - Portions of the Registrant's definitive
proxy statement in connection with the annual meeting of
stockholders to be held on June 18, 1998, are incorporated by
reference into Items 10 through 13, inclusive.
PART I
ITEM 1. BUSINESS.
General
Circus Circus Enterprises, Inc. (the "Company"), which
was incorporated in 1974, currently owns and operates, through
wholly owned subsidiaries, nine hotel-casino properties in Nevada
with a total of 17,694 guest rooms. These properties include (i)
three hotel/casinos in Las Vegas (Circus Circus-Las Vegas, Luxor
and Excalibur), (ii) the Circus Circus Hotel and Casino in Reno,
(iii) the Colorado Belle Hotel and Casino and the Edgewater Hotel
and Casino which are located on the Colorado River in Laughlin,
(iv) Gold Strike Hotel and Gambling Hall and the Nevada Landing
Hotel & Casino in Jean, and (v) Railroad Pass Hotel and Casino in
Henderson. The Company also owns and operates a dockside casino
situated on a 24-acre site in Tunica County, Mississippi, which
includes a 1,066 room hotel tower placed in service during late
1997 and early 1998. It also operates two smaller casinos on the
Las Vegas Strip, Slots-A-Fun (which the Company also owns) and
the Silver City Casino (which the Company operates under a lease
which expires in October 1999). For additional information
concerning the properties owned and operated by the Company, see
Description of the Company s Operating Hotels and Casinos in
this Item 1.
The Company, through wholly owned subsidiaries, is a
50% participant in (i) a joint venture (the Las Vegas Joint
Venture ) which owns and operates Monte Carlo, a hotel-casino on
the Las Vegas Strip which opened in June 1996, (ii) a joint
venture (the "Elgin Joint Venture") which owns and operates the
Grand Victoria, a riverboat casino, and a related land-based
entertainment complex located in Elgin, Illinois, and (iii)
a joint venture (the "Reno Joint Venture") which owns and
operates Silver Legacy, a hotel-casino located in downtown Reno
that opened in July 1995 and is situated between (and connected
by enclosed climate-controlled skyways to) Circus Circus-Reno and
another hotel-casino owned and operated by an affiliate of the
other participant in the Reno Joint Venture. For additional
information concerning the properties with which the Company is
involved through the aforementioned joint ventures, see "Joint
Venture Participation" in this Item 1.
For information concerning the Company s current
expansion activities, including Mandalay Bay, a 3,700 room hotel-
casino resort being constructed by the Company on the Las Vegas
Strip and its participation in a joint venture which has been
selected to develop one of three casinos permitted to be
developed in Detroit, Michigan (the "Detroit Joint Venture"), see
Current Expansion Activities in this Item 1.
Unless the context otherwise indicates, all references
to the Company are to Circus Circus Enterprises, Inc. and its
subsidiaries.
Description of the Company's Operating Hotels and Casinos
Set forth below is certain information as of
January 31, 1998, concerning the properties (with the exception
of Silver City, which is leased) that are owned and operated by
the Company Such properties are more fully described following
the table.
Company Operated Properties
Hotel Square Gaming Parking
Location/Property Rooms Footage Slots (1) Tables (2) Spaces
Las Vegas, Nevada
Circus Circus 3,744 109,000 2,429 75 4,700
Luxor 4,425 120,000 2,119 106 3,200
Excalibur 4,000 110,000 2,471 80 4,000
Silver City - 18,200 448 19 350
Slots-A-Fun - 16,700 540 26 -
Reno, Nevada
Circus Circus 1,605 60,000 1,791 65 3,000
Laughlin, Nevada
Colorado Belle 1,226 64,000 1,254 40 1,700
Edgewater 1,450 44,000 1,286 42 2,300
Jean, Nevada
Gold Strike 813 37,000 1,080 22 2,100
Nevada Landing 303 36,000 1,050 21 1,400
Henderson, Nevada
Railroad Pass 120 21,000 406 9 600
Tunica County, Mississippi
Gold Strike 1,066 48,000 1,231 46 1,400
__________________
(1) Includes slot machines and other coin-operated devices.
(2) Generally includes blackjack ( 21 ), craps, pai gow poker,
Caribbean stud poker, wheel of fortune and roulette. Each
property also offers poker. With the exception of Silver
City, Slots-A-Fun and Gold Strike-Tunica, each property also
offers keno, and, with the exception of Silver City,
Slots-A-Fun, the two Gold Strike properties and Railroad
Pass, each property offers a race and/or sports book.
________________
Las Vegas, Nevada
Circus Circus-Las Vegas. Circus Circus-Las Vegas, the
Company's original property, is a circus-themed hotel and casino
complex situated on approximately 69 acres on the north end of
the Las Vegas Strip. From a "Big Top" above the casino, Circus
Circus-Las Vegas offers its guests a variety of circus acts
performed daily, free of charge. A mezzanine area overlooking
the casino has a circus midway with carnival-style games and an
arcade that offers a variety of amusements and electronic games.
Three specialty restaurants, a buffet with a seating capacity of
approximately 1,200, two coffee shops, three fast food snack
bars, several cocktail bars and a variety of gift shops and
specialty shops are also available to the guests at Circus
Circus-Las Vegas. Grand Slam Canyon, an "adventuredome" covering
approximately five acres, offers theme park entertainment that
includes a high-speed, double-loop, double-corkscrew roller
coaster, a coursing river flume ride on white-water rapids,
several rides and attractions designed for preschool age
children, themed carnival-style midway games, a state-of-the-art
arcade, a 65-foot waterfall, animated life-size dinosaurs, food
kiosks and souvenir shops, all in a climate-controlled setting
under a giant space-frame dome. Circus Circus-Las Vegas also
offers accommodations for approximately 384 recreational vehicles
at the property's Circusland RV Park.
Luxor. Luxor, which opened in October 1993, is an Egyptian-
themed hotel and casino complex which features a 30-story pyramid
and two 22-story hotel towers. The hotel towers, which added
1,950 rooms by the end of February 1997, were part of an
expansion program at Luxor which also added 20,000 square feet of
convention space, extensively remodeled the casino level of the
pyramid which included the addition of 20,000 square feet of
casino space, relocated the hotel s front desk, reworked the
front entrance, relocated and rethemed the buffet and connected
Luxor to Excalibur by a climate-controlled skyway with moving
walkways. The expansion program, which was substantially
completed during fiscal 1998, also included the reworking of the
attractions level, the addition of a new restaurant, a multi-
purpose showroom and a nightclub. Situated at the south end of
the Las Vegas Strip on a 64-acre site adjacent to Excalibur,
Luxor features a food and entertainment area on three different
levels beneath a soaring hotel atrium. The pyramid s hotel rooms
can be reached from the four corners of the building by state-of-
the-art "inclinators" which travel at a 39-degree angle. Above
the pyramid s casino, a series of special-format filmed
attractions are designed to seemingly transport visitors to
extraordinary places of times past, present and future. Luxor's
other public areas include a buffet with a seating capacity of
approximately 800, seven restaurants including two gourmet
restaurants, as well as a snack bar, a food court featuring
national fast food franchises, several cocktail lounges and a
variety of specialty shops.
Excalibur. Excalibur is a castle-themed hotel and
casino complex situated on the south end of the Las Vegas Strip
on a 53-acre site adjacent to Luxor. Excalibur, which is
connected to Luxor by a new climate-controlled skyway with moving
walkways, offers its guests more than 400,000 square feet of
public entertainment area, including the casino. Excalibur's
other public areas include a Renaissance faire, a medieval
village, an amphitheater with seating capacity of nearly 1,000
where nightly mock jousting tournaments and costume drama are
presented, two dynamic motion theaters, various artisans' booths
and medieval games of skill. In addition, Excalibur has a buffet
with a seating capacity of approximately 1,300, eight themed
restaurants, as well as several snack bars, cocktail lounges and
a variety of specialty shops.
Reno, Nevada
Circus Circus-Reno. Circus Circus-Reno is a circus-
themed hotel and casino complex situated in downtown Reno,
Nevada. From a "Big Top" above the casino, Circus Circus-Reno
offers its guests a variety of circus acts performed daily free
of charge. A mezzanine area has a circus midway with carnival-
style games and an arcade that offers a variety of amusements and
electronic games. The facilities at Circus Circus-Reno also
include two specialty restaurants, a buffet with a seating
capacity of approximately 450, a coffee shop, a deli/bakery, a
fast food snack bar, cocktail lounges, a gift shop and specialty
shops. For information concerning the Company's participation in
a joint venture which owns and operates Silver Legacy, a casino,
hotel and entertainment complex which is connected to Circus
Circus-Reno by an enclosed skywalk, see "Joint Venture
Participation -- Reno Joint Venture" in this Item 1.
Laughlin, Nevada
Colorado Belle. The Colorado Belle Hotel and Casino is
situated on a 22-acre site on the bank of the Colorado River
(with 1,080 feet of river frontage) in Laughlin, Nevada,
approximately 90 miles south of Las Vegas. The Colorado Belle,
which features a 600-foot replica of a Mississippi riverboat,
includes among its facilities a 350-seat buffet, a coffee shop,
three specialty restaurants, a microbrewery, fast food snack
bars, and cocktail lounges as well as a gift shop and other
specialty shops.
Edgewater. The Edgewater Hotel and Casino is situated
on a 16-acre site adjacent to the Colorado Belle in Laughlin,
Nevada with approximately 1,640 feet of frontage on the Colorado
River. The Edgewater's facilities include a specialty
restaurant, a coffee shop, a buffet with a seating capacity of
735, a snack bar and cocktail lounges.
Jean, Nevada
Gold Strike. Gold Strike Hotel & Gambling Hall is an
"old west" themed hotel-casino located on approximately 51 acres
of land on the east side of I-15, the primary thoroughfare
between Las Vegas and southern California. The property
includes, among other amenities, several restaurants, a gift
shop, an arcade, a swimming pool and spa and a banquet center
equipped to serve 260 people. The casino has a stage bar with
regularly scheduled live entertainment and a casino bar.
Nevada Landing. Nevada Landing Hotel & Casino is a
turn-of-the-century riverboat themed hotel-casino located on
approximately 55 acres of land across I-15 from Gold Strike. The
property includes a 72-seat Chinese restaurant, a full-service
coffee shop, a buffet, a snack bar, a gift shop, a swimming pool
and spa and a 300-guest banquet facility.
Henderson, Nevada
Railroad Pass. Railroad Pass Hotel & Casino is
situated on approximately 56 acres along US-93, the direct route
between Las Vegas and Phoenix, Arizona. The property includes,
among other amenities, two bars, two full-service restaurants, a
buffet, gift shop, swimming pool and a 194-guest banquet
facility. In contrast with the Company's other Nevada
properties, Railroad Pass caters to local residents, particularly
from Henderson, who often prefer the informal, friendly
atmosphere and easy access of Railroad Pass over the casinos on
the Las Vegas Strip.
Tunica County, Mississippi
Gold Strike-Tunica. Gold Strike Casino Resort
(formerly Circus Circus-Tunica) is a dockside casino situated on
a 24-acre site along the Mississippi River in Tunica County,
Mississippi, approximately three miles west of Mississippi State
Highway 61 (a major north/south highway connecting Memphis,
Tennessee with Tunica County) and approximately 20 miles south of
Memphis. In late 1996, the Company commenced construction of a
31-story hotel tower, with 1,066 rooms, which was completed and
placed in service during late 1997 and early 1998. During 1997,
the property s original Circus-themed casino and related
facilities were remodeled and rethemed into a more elegant
resort. The current facilities at Gold Strike-Tunica include an
800-seat showroom, a coffee shop, a specialty restaurant, a 500-
seat buffet, a snack bar and several cocktail lounges.
Gold Strike-Tunica is part of a three-casino
development covering approximately 72 acres. The other two
casinos are owned and operated by unaffiliated third parties.
The Company also owns an undivided one-half interest in an
additional 388 acres of land which may be used for future
development.
Marketing
Generally, the Company follows a marketing and
operating philosophy which emphasizes high-volume business by
providing moderately priced hotel rooms, food and beverage and
alternative entertainment in combination with the gaming
activity. The Company also maintains stringent cost controls
which are exemplified by a general policy of offering minimal
credit for gaming customers at all of the Company's properties
except Luxor. During fiscal 1998, Luxor began extending credit
to gaming customers in an effort to attract a different segment
of the gaming market.
The Company's current operations at each of its casinos
are conducted 24 hours a day, every day of the year. The Company
does not consider its business to be highly seasonal, although
its operating income is typically somewhat lower in the fourth
quarter. Management emphasizes courteous and prompt service to
its customers and aspires to a high standard of excellence in all
of its operations.
The Company believes it has been able to maintain high
occupancy rates at its hotels, in part, due to the modest prices
charged for its rooms and its policy of assisting customers who
cannot be accommodated at its properties. For the years ended
January 31, 1998, 1997, and 1996, the combined occupancy rate of
the Company s hotels (excluding complementaries but including
nonrefunded prepaid cancellations, and including each hotel
acquired by the Company during such three-year period only for
the portion of such period commencing with such acquisition) was
approximately 87.5%, 93.2% and 93.5%, respectively.
Circus Circus-Las Vegas and Circus Circus-Reno, which
together contributed 25% of the Company's revenues in the year
ended January 31, 1998 (and 24% and 27%, respectively, in the
years ended January 31, 1997 and 1996), have popular buffets,
attractive because of their variety, quality and low price. From
a "Big Top" above the casino, both properties offer a variety of
circus acts performed free of charge to the public from 11 a.m.
to midnight daily. A mezzanine area overlooking each casino has
a circus midway with carnival-style games and an arcade that
offers a variety of amusements and electronic games. Grand Slam
Canyon, an adventuredome, offers additional theme park
attractions at Circus Circus-Las Vegas.
Excalibur, which contributed 21% of the Company's
revenues in the year ended January 31, 1998 (and 23% in each of
the years ended January 31, 1997 and 1996), attracts customers in
the same manner as the Company's two circus-themed Nevada
properties by offering quality rooms, food and entertainment at
moderate prices. By way of entertainment, the medieval castle-
themed Excalibur offers a medieval village, an amphitheater where
mock tournaments and costume drama are presented, dynamic motion
theaters, various artisans' booths and medieval games of skill.
Luxor contributed 23% of the Company's revenues in the
year ended January 31, 1998 (and 17% and 20%, respectively, in
the years ended January 31, 1997 and 1996). This property offers
a level of entertainment and hotel accommodations which is
designed to attract the higher income segment of the middle-
income strata of gaming customers. Designed with an Egyptian
theme, Luxor s 30-story pyramid offers its guests a tri-level
entertainment area which includes special-format filmed
attractions designed to seemingly transport visitors to
extraordinary places of times past, present and future. An
expansion program completed at the Luxor in 1997 added 1,950 new
hotel rooms, a new spa, 20,000 square feet of convention space, a
new multi-purpose showroom and a nightclub.
The Colorado Belle and Edgewater together contributed
12% of the Company's revenues in the year ended January 31, 1998
(and 12% and 13%, respectively, in the years ended January 31,
1997 and 1996). These properties offer quality rooms, food and
entertainment at moderate prices. The Colorado Belle offers a
classic Mississippi riverboat theme, complete with a 60-foot
paddle wheel. The Edgewater's southwestern motif provides a
relaxing atmosphere to enjoy the property's casino and other
facilities. Connected by a scenic walkway, the two resorts form
an inviting shoreline along the Colorado River.
Gold Strike and Nevada Landing, which were acquired on
June 1, 1995, together contributed 6% of the Company s revenues
in the year ended January 31, 1998 (6% and 4%, respectively, in
the years ended January 31, 1997 and 1996). The two properties
are located on opposite sides of I-15, the primary thoroughfare
between Las Vegas and southern California, approximately 25 miles
south of Las Vegas and 12 miles north of the California/Nevada
border. The properties are conveniently located at the only
highway interchange within 12 miles in either direction and are
strategically positioned to attract visitors from the large
number of people traveling to and from Las Vegas.
Gold Strike-Tunica, the Company's first wholly owned
casino outside of Nevada, opened in Tunica County, Mississippi in
August 1994 and contributed 4% of the Company's revenues in the
year ended January 31, 1998 (and 4% and 5%, respectively, in the
years ended January 31, 1997 and 1996). The facility, a dockside
casino, is part of an integrated three casino development that
provides patrons with the opportunity to visit any of the three
casinos without driving, a unique experience in the Tunica
market. In the first quarter of 1998, the Company completed and
opened a 31-story hotel tower, with 1,066 rooms, at this
property, which previously had no hotel rooms. The original
Circus-themed casino and other facilities were also remodeled and
rethemed into a more elegant resort. This expansion program was
undertaken in late 1996 in response to increased competition
encountered in the Tunica market from three new competitors,
including a new facility which is nearer to Memphis, Tennessee
(Tunica s principal market) and larger than any previously
existing facility in Tunica.
The Company maintains an active media advertising
program through radio, television, billboards and printed
publications primarily in Nevada, California and Arizona for its
Nevada properties and in the Memphis area for its Gold Strike
property in Tunica. In addition, the Company allows patrons to
make room reservations via the internet. The Company also offers
complimentary hotel accommodations, meals and drinks to its
customers.
Operations
The primary source of revenues to the Company is its
casinos, although the hotels, restaurants, bars, shops, midway
games and other entertainment attractions and other services are
an important adjunct to the casinos.
The following table sets forth the contribution to net
revenues on a dollar and percentage basis of the Company's major
activities for each of the three most recent fiscal years.
Year Ended January 31,
1998 1997 1996
(Dollars in thousands)
Revenues:(1)
Casino(2) . . . . . $632,122 46.7% $655,902 49.2% $664,772 51.2%
Rooms(3). . . . . . 330,644 24.4% 294,241 22.0% 278,807 21.4%
Food and
beverage(3). . . . 215,584 15.9% 210,384 15.8% 201,385 15.5%
Other(3). . . . . . 142,407 10.5% 146,554 11.0% 158,534 12.2%
Earnings of unconsoli-
dated affiliates 98,977 7.3% 86,646 6.5% 45,485 3.5%
$1,419,734 104.8% $1,393,727 104.5% $1,348,983 103.8%
Less:
Complimentary
allowances(3) . . 65,247 4.8% 59,477 4.5% 49,387 3.8%
Net revenues. . . . . $1,354,487 100.0% $1,334,250 100.0% $1,299,596 100.0%
(1) Includes operations of Gold Strike, Nevada Landing and Railroad Pass
since June 1, 1995 and Hacienda from September 1, 1995 to December 1,
1996.
(2) Casino revenues are the net difference between the sums received as
winnings and the sums paid as losses.
(3) Rooms, Food and beverage and Other include the retail value of services
which are provided to casino customers and others on a complimentary
basis. Such amounts are then deducted as complimentary allowances to
arrive at net revenue.
In connection with its gaming activities, the Company
follows a policy of stringent controls and cross checks on the
recording of all receipts and disbursements. The audit and cash
controls developed and utilized by the Company include the
following: locked cash boxes, independent counters, checkers and
observers to perform the daily cash and coin counts, floor
observation of the gaming areas, closed-circuit television
observation of certain areas, computer tabulation of receipts and
disbursements for each of the Company's slot machines, tables and
other games, and the rapid analysis and resolution of
discrepancies or deviations from normal performance.
The Company's credit policies are stringent and credit
play historically has accounted for an insignificant portion of
its gaming activities. Because of the Company's policies, its
casino receivables have been significantly less than 1% of its
total assets and its annual casino bad debt expense has been less
than 1/2 of 1% of casino revenues. These historical ratios may
change in the future as the level of credit play at Luxor
increases.
Joint Venture Participation
The Company is a 50% participant in three joint
ventures. They include (i) the Las Vegas Joint Venture, which
owns and operates Monte Carlo, a hotel-casino resort on the
Las Vegas Strip; (ii) the Elgin Joint Venture, which owns and
operates Grand Victoria, a riverboat casino and land-based
entertainment complex in Elgin, Illinois; and (iii) the Reno
Joint Venture, which owns and operates Silver Legacy, a hotel-
casino in Reno, Nevada.
The following table sets forth certain information as
of January 31, 1998, concerning the properties of the joint
ventures in which the Company is a 50% participant, each of which
is more fully described following the table.
Joint Venture Properties
Hotel Square Gaming Parking
Location/Property Rooms Footage Slots (1) Tables (2) Spaces
Las Vegas, Nevada
Monte Carlo 3,002 90,000 2,161 95 4,000
Elgin, Illinois
Grand Victoria - 36,000 977 56 2,000
Reno, Nevada
Silver Legacy 1,711 85,000 2,277 83 1,800
(1) Includes slot machines and other coin-operated devices.
(2) Generally includes, blackjack ( 21 ), craps, pai gow
poker, Caribbean stud poker, wheel of fortune and
roulette. Monte Carlo also offers poker, keno and a
race and sports book.
Las Vegas Joint Venture (50% Participation)
The Company, through a wholly owned entity, is a 50%
participant with an affiliate of Mirage Resorts, Incorporated
( Mirage ) in the Las Vegas Joint Venture, a Nevada general
partnership, which owns and operates Monte Carlo, a hotel-casino
resort situated on approximately 46 acres with approximately 600
feet of frontage on the Las Vegas Strip. Monte Carlo is situated
between the site where Mirage is constructing Bellagio, a 3,000-
room luxury resort which is scheduled to open in the fall of 1998
and will be connected to Monte Carlo by a monorail, and New York-
New York, a 2,000-room hotel-casino resort which opened in
January 1997. Monte Carlo s casino reflects a palatial style
reminiscent of the Belle Epoque, the French Victorian
architecture of the late 19th century. Amenities at Monte Carlo
include three specialty restaurants, a buffet, a coffee shop, a
food court, a microbrewery featuring live entertainment and
approximately 15,000 square feet of meeting and banquet space. A
1,200-seat replica of a plush vaudeville theater, including a
balcony and proscenium arch, features an elaborately staged show
of illusions with the world-renowned magician, Lance Burton.
As of January 31, 1998, the assets of the Las Vegas
Joint Venture were subject to encumbrances securing the repayment
of indebtedness in the aggregate principal amount of $106.2
million.
Elgin Joint Venture (50% Participation)
The Company, through a wholly owned entity, is a 50%
participant with an affiliate of Hyatt Development Corporation in
the Elgin Joint Venture, an Illinois general partnership which
owns and operates the Grand Victoria. The Grand Victoria is a
Victorian themed riverboat casino and land-based entertainment
complex in Elgin, Illinois, a suburb approximately 40 miles
northwest of downtown Chicago. The Grand Victoria offers a Las
Vegas-style gaming experience. The two-story vessel is 420 feet
in length and 110 feet in width, and provides a maximum 80,000
square feet of gaming space, approximately 36,000 square feet of
which was being used at January 31, 1998. The vessel has a
capacity of 1,736 passengers and operates on a fixed cruising
schedule consisting of eight cruises each Sunday through Thursday
and nine cruises each Friday and Saturday. The dimensions of the
specially designed riverboat allow the Grand Victoria to maximize
the gaming positions permitted under existing Illinois gaming
regulations. This feature also allows the Grand Victoria to
significantly increase the number of on-board gaming positions
and to adapt the vessel to provide for dockside gaming in the
event of liberalized gaming regulations in the State of Illinois.
An adjacent dockside complex on approximately 12 acres of land
overlooking the Fox River contains an approximately 83,000-
square-foot pavilion with two movie theaters, an approximately
400-seat buffet, an 76-seat fine dining restaurant, a VIP lounge
and a gift shop, in addition to ticketing and registration
services for the riverboat. The Grand Victoria is strategically
located in Elgin among the residential suburbs of Chicago, with
nearby freeway access and direct train service from downtown
Chicago. The Grand Victoria is located approximately 20 miles
and 40 miles, respectively, from its nearest competitors in
Aurora, Illinois and Joliet, Illinois, and holds one of only ten
riverboat gaming licenses currently granted state-wide.
After the Elgin Joint Venture s recovery of its $112
million initial investment in the Grand Victoria (which occurred
in June 1996), it became obligated to contribute 20% of its net
operating income (as defined) to various local educational,
environmental and economic projects benefitting the City of Elgin
and Kane County, Illinois.
The pavilion and parking lot are located on land leased
by the Elgin Joint Venture from the City of Elgin for an initial
period of ten years, subject to certain renewal and purchase
options granted to the Elgin Joint Venture. Under the lease, the
Elgin Joint Venture's annual rent is equal to the greater of the
base rent ($110,000 per year) or 3% of its net operating income.
The Elgin Joint Venture may offset certain capital expenditures
against this rental obligation. Further, rent is deductible from
net operating income (as defined) for purposes of calculating the
20% contribution obligation described above. Until October 1999,
the Elgin Joint Venture is also obligated to make certain
payments to the City of Elgin to help defray law enforcement
costs.
Under its agreements with the City of Elgin, the Elgin
Joint Venture also was granted an option to purchase an
additional nine acres of land contiguous to the existing site.
For information concerning certain regulatory requirements
applicable to the ownership and operation of the Elgin Joint
Venture's gaming facilities, see "Regulation and Licensing--
Illinois" in this Item 1.
As of January 31, 1998, the assets of the Elgin Joint
Venture were not subject to any encumbrances securing the
repayment of indebtedness.
Reno Joint Venture (50% Participation)
The Company, through a wholly owned subsidiary, is a
50% participant with Eldorado Limited Liability Company
("Eldorado Limited") in the Reno Joint Venture, a general
partnership which owns and operates Silver Legacy, a hotel-casino
and entertainment complex situated on two city blocks in downtown
Reno, Nevada. The casino and entertainment complex is located
between Circus Circus-Reno and Eldorado Hotel & Casino (the
"Eldorado"), which is owned and operated by an affiliate of
Eldorado Limited. Silver Legacy's casino and entertainment
complex is connected at the mezzanine level with Circus Circus-
Reno and the Eldorado by enclosed climate-controlled skyways
above the streets between the respective properties. The
property's exterior is themed to evoke images of Reno during the
period from the 1880's through the 1930's. At the main
pedestrian entrances to the casino (located on all four sides of
the complex), patrons enter by passing store fronts reminiscent
of turn-of-the-century Reno.
Silver Legacy s attractions include a 120-foot tall
mining rig, situated over a replica of a silver mine, which
extends up from the center of the casino floor into a 180-foot
diameter dome structure. The property also offers five
restaurants and several bars to its patrons. The Silver Legacy s
other amenities include a 25,000-square foot special events
center, custom retail shops, a health spa and an outdoor pool and
sun deck.
As of January 31, 1998, the assets of the Reno Joint
Venture, including Silver Legacy, were subject to encumbrances
securing the repayment of indebtedness in the principal amount of
$220 million.
Current Expansion Activities
Consistent with past practice and the longstanding
policy of making substantial investments in its gaming business
at regular intervals, the Company continues to actively pursue
new projects, either by development or acquisition. New
investments may involve the expansion of existing facilities
(such as the recently completed hotel tower at the Gold Strike-
Tunica) or new properties such as Mandalay Bay. Projects may be
undertaken in Nevada, where all but one of the Company's wholly
owned operating properties are currently located, or in other
jurisdictions within the United States or abroad where gaming has
been legalized. The Company s new investments may be in
properties wholly owned and operated by the Company, or may be in
properties developed, owned and/or operated through joint
ventures involving the Company and one or more other parties,
such as the project proposed by the Detroit Joint Venture.
Mandalay Bay
In the Spring of 1997, the Company commenced
construction of Mandalay Bay (formerly referred to as Project
Paradise), a 43-story, hotel-casino resort which will have
approximately 3,700 rooms. The resort, which is expected to be
completed in the first quarter of 1999, will be situated on
approximately 60 acres just south of Luxor. Mandalay Bay's
attractions include an 11-acre tropical lagoon featuring a sand-
and-surf beach, a three-quarter-mile lazy river ride and a swim-
up shark tank. Inside, Mandalay Bay will offer internationally
renowned restaurants, as well as a House of Blues nightclub and
restaurant, including its signature Foundation Room sited on
Mandalay Bay's rooftop and 100 "music-themed" hotel rooms in
Mandalay Bay's towers. The resort will also feature convention
facilities and a 30,000-square-foot spa, plus multiple
entertainment attractions, including a 12,000-seat arena.
Within Mandalay Bay and as part of its 3,700 rooms, a
Four Seasons Hotel of approximately 400 rooms will provide Las
Vegas visitors with a luxury "five-star" hospitality experience.
This hotel, which will be owned by the Company and managed by
Four Seasons Regent Hotels and Resorts, represents the first step
pursuant to the Company's cooperative effort with Four Seasons to
identify strategic opportunities for development of hotel and
casino properties worldwide. The cost of Mandalay Bay, including
the Four Seasons Hotel but excluding the land, is currently
estimated at approximately $950 million.
Mandalay Bay is the latest phase of the Company s
development of over 230 acres of land it owns at the south end of
the Las Vegas Strip which runs from Tropicana Avenue south
approximately one mile to Russell Road (the Masterplan Site ).
Situated immediately to the south of Luxor at approximately the
mid-point of the Masterplan Site, Mandalay Bay will eventually be
connected by an internal road and transit system with Luxor and
Excalibur as well as any other resorts the Company may develop
within its Masterplan Site.
Detroit, Michigan
The Company has formed the Detroit Joint Venture with
the Detroit-based Atwater Casino Group, comprised of numerous
Detroit-area business, education, civic and community leaders.
Circus will own a 45% equity interest in the proposed project and
receive a management fee. On November 21, 1997, the joint
venture was selected to be one of three groups permitted to
negotiate a development agreement with the city. The
negotiations were completed in March 1998, and the development
agreement was approved by the city council on April 9, 1998. The
joint venture's ability to proceed with the proposed project is
contingent upon the receipt of all necessary gaming approvals and
satisfaction of other customary conditions. The joint venture is
planning a $600 million project, of which the Company expects to
contribute $120 million in equity, with the balance provided
through project-specific financing.
Mississippi Gulf Coast
The Company has announced that it plans to develop a
hotel-casino resort on the Mississippi Gulf Coast at the north
end of the Bay of St. Louis, near the DeLisle exit on Interstate
10, provided it receives all of the requisite approvals. It is
currently anticipated that the resort will include approximately
1,500 hotel rooms and involve an investment by the Company of
approximately $225 million. The Company has received all
necessary approvals to commence development. However, these
approvals have been challenged in state and federal court, and
the Company anticipates design and construction to begin only
after satisfactory resolution of all legal actions. As presently
contemplated, the Company will own 90% of the resort, with a
partner contributing the land in exchange for the remaining 10%
interest.
Atlantic City
The Company has entered into an agreement with Mirage
Resorts to participate in the development of a site located in
the Marina District of Atlantic City, New Jersey. As reported by
Mirage, the site consists of 181 acres, of which about 125 acres
are developable. The site is the subject of an agreement between
Mirage and Atlantic City which provides (as reported by Mirage)
that the city will convey the site to Mirage in exchange for
Mirage's agreeing to develop a hotel/casino thereon and to
undertake certain other obligations.
On January 8, 1998, the City of Atlantic City
transferred title to the land to a subsidiary of Mirage. Shortly
thereafter, Mirage purported to cancel its agreement with the
Company, and filed suit to have the agreement declared invalid.
The Company has filed its own suit against Mirage seeking, among
other things, to enforce the agreement. The Company and Mirage
are engaged in settlement discussions to resolve this dispute.
However, there can be no assurances as to when or whether a
settlement will be reached or whether the Company will prevail in
the litigation. In any event, various governmental permits
required for the development of the site have not yet been
received.
Additionally, as reported by Mirage, an existing
Atlantic City hotel/casino operator and others have filed various
lawsuits which seek to prevent Mirage's acquisition of the site
and construction of road improvements to the site. These
lawsuits have the potential to delay or prevent the Company's
acquisition of a portion of the site from Mirage and development
of a hotel/casino. Moreover, in order to proceed, the Company
must obtain the requisite gaming and other approvals (including
various governmental permits required for the development of the
site) and licenses in New Jersey and various other jurisdictions.
(The Company and a wholly owned subsidiary have initiated the
gaming application process in New Jersey.) Based upon the
contingencies and impediments to this project, there can be no
assurances as to whether or when the Company will proceed with
the development of a hotel/casino on the site or the magnitude of
the Company's investment in any such project.
Construction Risks
As with any major construction project, Mandalay Bay
involves (and any other major construction project the Company or
any joint venture in which the Company owns an interest may
undertake, including the Detroit Joint Venture's proposed project
will involve) many risks, including potential shortages of
materials and labor, work stoppages, labor disputes, weather
interference, unforeseen engineering, environmental or geological
problems and unanticipated cost increases, any of which could
give rise to delays or cost overruns. Construction, equipment or
staffing requirements or problems or difficulties in obtaining
any of the requisite licenses, permits, allocations or
authorizations from regulatory authorities could increase the
cost or delay the construction or opening of the facilities or
otherwise affect the planned design and features. It is possible
that the existing budget and construction plans for Mandalay Bay
(and/or any budget and construction plans developed for any other
project, including the Detroit Joint Venture's proposed project)
may be changed for competitive or other reasons. In addition,
the Detroit Joint Venture's proposed project will require it to
locate and purchase a satisfactory site. Accordingly, there can
be no assurance that Mandalay Bay will be completed within the
time period or budget currently contemplated or as to the
commencement or completion of other currently contemplated
projects, including the one contemplated by the Detroit Joint
Venture.
Competition
Recognizing that middle class vacationers enjoy gaming,
but also vacation with their families, the Company seeks to
appeal to this value-oriented market and satisfy the group's
diverse entertainment demands by offering exciting entertainment
opportunities at reasonable prices. The Company seeks to achieve
this objective by offering gaming combined with dramatic
entertainment concepts and reasonably priced rooms, reasonably
priced food and beverage and prompt, courteous service at its
entertainment "megastores", such as the Circus properties in Las
Vegas and Reno, Luxor and Excalibur in Las Vegas and the Colorado
Belle and Edgewater in Laughlin.
The Company's largest concentration of properties is in
Las Vegas where, as of January 31, 1998, the Company was the
largest hotel-casino operator in terms of total square footage of
casino space and number of hotel rooms. The Company s Las Vegas
casino and hotel operations, which are conducted from facilities
located along the Las Vegas Strip, currently compete with
approximately 27 major hotel-casinos and a number of smaller
casinos located on or near the Las Vegas Strip. Such operations
also compete with casinos located in downtown Las Vegas,
approximately 11 of which offer hotel, food and beverage and
entertainment facilities, and several major hotel-casinos located
elsewhere in the Las Vegas area. The Company's Las Vegas
properties also compete, to a lesser extent, with casino and
hotel facilities in other parts of Nevada, including Laughlin,
Reno and along I-15 (the principal means of access to Las Vegas
from southern California by car) near the California-Nevada state
line.
The casino and hotel capacity continues to increase in
the Las Vegas market. During 1997, the number of hotel rooms
increased by 11% while the number of visitors to Las Vegas
increased only 3%. This imbalance of supply and demand put
downward pressure on room and occupancy rates in Las Vegas.
Las Vegas hotel and casino capacity is expected to
continue to increase significantly. Mandalay Bay is just one of
four major properties, totalling approximately 12,500 rooms, that
will open within a year's span beginning in the fall of 1998.
The impact on the Company of the completion and opening of
additional hotel and casino capacity currently under construction
in Las Vegas, including Mandalay Bay, cannot be determined at
this time. While the Company's Las Vegas operations, on a
consolidated basis, had previously benefited from growth of hotel
and casino capacity in the Las Vegas market when the Company was
a significant contributor to the new capacity, its addition of
1,000 rooms at Circus Circus-Las Vegas and an additional 1,950 at
Luxor in 1997 contributed to a growth in hotel capacity in the
Las Vegas market that outpaced market growth in fiscal 1998. The
impact of new capacity currently under construction (including
Mandalay Bay) on the Company s operations will depend, to a
significant extent, on the ability of the new properties to draw
additional visitors to the Las Vegas market.
The development in Las Vegas in recent years has
shifted the focus of the Strip toward its south end, where the
Company s two newest Las Vegas properties, Luxor and Excalibur,
and the Las Vegas Joint Venture s property, Monte Carlo, are
situated and where the Company is currently developing Mandalay
Bay, a 3,700-room hotel-casino resort which is expected to open
in the Spring of 1999. While it is difficult to determine the
magnitude of the impact, a slight decline in operating income at
Circus Circus-Las Vegas in fiscal 1998 compared with fiscal 1997
suggests that operations at that property have been impacted in
part by the growth of hotel and casino capacity in Las Vegas and
in part by the shift in development toward the south end of the
Strip.
Circus Circus-Reno competes with approximately 13 major
casinos (the majority of which offer hotel rooms), including
Silver Legacy, a 1,711-room hotel-casino complex which is 50%
owned by a wholly owned subsidiary of the Company. Circus
Circus-Reno and Silver Legacy also compete with numerous other
smaller casinos in the greater Reno area and, to a lesser extent,
with casino and hotel facilities in Lake Tahoe and other parts of
Nevada. Silver Legacy, which is situated between Circus Circus-
Reno and the Eldorado, is connected to each of such properties at
the mezzanine level by enclosed climate-controlled skyways above
the streets between the respective properties, thus facilitating
the flow of customers within the three properties. Since the
opening of Silver Legacy, results at Circus Circus-Reno have been
affected as guests staying at Circus Circus-Reno have chosen to
visit Silver Legacy during their stay.
In Laughlin, the Colorado Belle and the Edgewater,
which together accounted for approximately 24% of the rooms in
Laughlin as of January 31, 1998, compete with eight other
Laughlin casinos. They also compete with the hotel-casinos in
Las Vegas and those situated on I-15 (the principal highway
between Las Vegas and Los Angeles) near the California-Nevada
state line, as well as a growing number of Native American
casinos in Laughlin's regional market. The Colorado Belle and
the Edgewater, which also compete with each other, maintained a
combined occupancy level in fiscal 1998 of approximately 84%.
Because the two properties are situated on adjoining sites, the
Company believes that each property benefits from walk-in
business attributable to the registered guests and casino
customers at the other property. The Company believes the
significant expansion of hotel and casino capacity in Las Vegas
in recent years and the growth of unregulated Native American
casinos in Laughlin s central Arizona and southern California
feeder markets have had a negative impact on Laughlin area
properties, including the Colorado Belle and the Edgewater, by
drawing visitors from the Laughlin market. This has, in turn,
resulted in increased competition among Laughlin properties for a
reduced number of visitors thus contributing to generally lower
revenues and profit margins at Laughlin properties, including the
Colorado Belle and the Edgewater.
The Company s Jean, Nevada properties, Gold Strike and
Nevada Landing, are located on I-15, the primary thoroughfare
between Las Vegas and southern California, approximately 25 miles
south of Las Vegas and 12 miles north of the California-Nevada
border, and are dependent for their customers almost entirely on
the large number of people traveling between Las Vegas and
southern California. As such, these properties compete with the
large concentration of hotel, casino and other entertainment
options available in Las Vegas as well as three hotel-casinos
clustered at the California-Nevada border which, according to
published reports, offer approximately 2,700 hotel rooms and over
133,000 square feet of casino space as well as restaurants and
entertainment facilities.
The Company believes that it receives the major portion
of its Las Vegas business from southern California and to a
lesser degree from the remainder of the southwestern United
States. The major portion of its Reno business is derived from
northern California and to a lesser degree from the northwestern
United States. Laughlin's business is derived principally from
Arizona and southern California.
Gold Strike-Tunica competes with eight other casinos in
Tunica County, including Grand Casinos hotel-casino which opened
in 1996 at Buck Lake, directly north of Tunica County, and which
is situated closer to Memphis than any of the other facilities
currently in operation in Tunica County. In response to the
increased competition in the Tunica market, the Company completed
an expansion program at Gold Strike-Tunica with the opening of a
new 31-story, 1,066 room hotel tower in late 1997 and early 1998.
The existing facilities, which previously included no hotel
rooms, were also completely rethemed into a more elegant resort
under the Gold Strike name. The completion of the hotel tower
gives Gold Strike-Tunica the largest room base in the Tunica
market.
There is no limit on the number of licenses that may be
granted within Mississippi or within any county in Mississippi.
The Company believes that Gold Strike-Tunica's principal market
is the area within 100 miles of Tunica County. This area
includes Memphis, Tennessee, Little Rock, Arkansas and northern
Mississippi. Tunica County is currently the closest legalized
gaming jurisdiction to Memphis. Because Gold Strike-Tunica is
heavily dependent upon the patronage of Memphis residents and
upon tourists and other out-of-state gaming customers coming to
Tunica from Memphis, the opening of gaming casinos at locations
closer to Memphis can have a material adverse effect on Gold
Strike-Tunica's operations. De Soto County, the northwestern
most county in Mississippi and the nearest to Memphis, by local
referendum in November 1996, voted (as it had in November 1992)
against authorizing gaming activities in the county, but could at
any time after October 2000 again vote on the question of
allowing gaming activities in the county. In addition, the
authorization of gaming activities in Arkansas or Tennessee
(which currently has a constitutional restriction on gaming
activities) could have a material adverse effect on the Company's
Tunica County operations.
Gaming has expanded dramatically in the United States
in recent years. This growth has been reflected in various forms
including riverboats, dockside gaming facilities, Native American
gaming ventures, land-based casinos, state-sponsored lotteries,
off-track wagering and card parlors. Since 1990, when there were
casinos in only three states (excluding casinos on Native
American lands), gaming has spread to a number of additional
states and still other states are currently considering, or may
in the future consider, the legalization of casino gaming in
specific geographic areas within their jurisdictions. Casino
gaming is currently conducted by numerous Native American tribes
throughout the United States and other Native American tribes are
either in the process of establishing or are considering the
establishment of gaming at additional locations, including sites
in California and Arizona. The competitive impact on Nevada
gaming establishments, in general, and the Company's operations,
in particular, from the continued growth of gaming in
jurisdictions outside of Nevada cannot be determined at this
time. The Company believes that the expansion of casino gaming
in areas close to Nevada, such as California and Arizona, could
have an adverse impact on the Company's operations and, depending
on the nature, location and extent of such operations, such
impact could be material.
Regulation and Licensing
Nevada
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. The
Company'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 various local licensing and regulatory authorities,
including the Clark County Liquor and Gaming Licensing Board, the
City of Reno and the City of Henderson (collectively, the "Local
Authorities"). The Nevada Commission, the Nevada Board and the
Local Authorities are collectively referred to 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. Changes in such laws, regulations and
procedures could have an adverse effect on the Company's gaming
operations.
The Company's direct and indirect subsidiaries that
conduct gaming operations or have an ownership interest in an
entity that conducts gaming operations are required to be
licensed by the Nevada Gaming Authorities. The Company is
registered by the Nevada Commission as a publicly traded
corporation (a "Registered Corporation") and has been found
suitable to own the stock of Circus Circus Casinos, Inc., Slots-
A-Fun, Inc., Edgewater Hotel Corporation, Colorado Belle Corp.,
New Castle Corp. and Ramparts, Inc., each of which is a corporate
gaming licensee under the terms of the Nevada Act ( individually,
a "Corporate Licensee" and collectively with the additional
corporate subsidiaries referenced hereinbelow, the "Corporate
Licensees") that has been licensed to conduct nonrestricted
gaming operations at its respective gaming establishment. The
Company has also been found suitable to own the stock of M.S.E.
Investments, Incorporated ("M.S.E."), Last Chance Investments,
Inc. ("LCI"), Goldstrike Investments, Inc. ("GII"), Diamond Gold,
Inc. ("DGI"), Oasis Development Company, Inc. ("Oasis") and
Galleon, Inc. ("Galleon"), each of which is a Corporate Licensee
that has been licensed as a general partner of one or more Nevada
general partnerships that have been licensed to conduct
nonrestricted or restricted gaming operations at their respective
gaming establishments. M.S.E., LCI and GII are each licensed as
general partners of Railroad Pass Investment Group, a Nevada
general partnership ("Railroad Pass"), Jean Development Company,
a Nevada general partnership ("Jean Development"), Jean
Development West, a Nevada general partnership ("Jean West"),
Gold Strike Fuel Company, a Nevada general partnership ("GSFC")
and Jean Fuel Company West, a Nevada general partnership ("Jean
Fuel") and Gold Strike L.V., a Nevada general partnership
("GSLV"); DGI is licensed as a general partner of GSLV and Jean
West; Oasis is licensed as a general partner of GSFC and Jean
Fuel; and Galleon is licensed as a 50% general partner of Circus
and Eldorado Joint Venture, a Nevada general partnership ("CEJV")
which operates the Silver Legacy and GSLV is licensed as a 50%
general partner of Victoria Partners, a Nevada general
partnership ("Victoria Partners") which operates Monte Carlo (all
such general partnerships individually, a "Partnership Licensee"
and collectively, the "Partnership Licensees"). Railroad Pass,
Jean Development, Jean West, CEJV and Victoria Partners have each
been licensed to conduct nonrestricted gaming operations at their
respective gaming establishments and Jean Fuel and GSFC have each
been licensed to conduct restricted gaming operations consisting
of 15 or fewer slot machines at their respective gaming
establishments.
The gaming licenses held by the Corporate Licensees and
the Partnership Licensees (each individually, a "Gaming
Subsidiary" and collectively, the "Gaming Subsidiaries") to
conduct nonrestricted gaming operations require the payment of
periodic fees and taxes and are not transferable. As a
Registered Corporation, the Company is 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 or
partner of, or receive any percentage of profits from the Gaming
Subsidiaries without first obtaining licenses and approvals from
the Nevada Gaming Authorities. The Company and the Gaming
Subsidiaries 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, the Company or the Gaming Subsidiaries 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 Gaming Subsidiaries
must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the
Company who are actively and directly involved in gaming
activities of the Gaming Subsidiaries 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 the costs of
the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of
suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an
officer, director or key employee unsuitable for licensing or
unsuitable to continue having a relationship with the Company or
a Gaming Subsidiary, the companies involved would have to sever
all relationships with such person. In addition, the Nevada
Commission may require the Company and the Gaming Subsidiaries to
terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company and the Gaming Subsidiaries 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 Gaming
Subsidiaries must be reported to or approved by the Nevada
Commission.
If it were determined that the Nevada Act was violated
by a Gaming Subsidiary, the gaming licenses it holds could be
limited, conditioned, suspended or revoked, subject to compliance
with certain statutory and regulatory procedures. In addition,
the Gaming Subsidiaries, the Company 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 Company's gaming properties and, under certain
circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the casino)
could be forfeited to the State of Nevada. Limitation,
conditioning or suspension of any gaming license or the
appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect the Company's gaming
operations.
Any beneficial holder of the Company's voting
securities, regardless of the number of shares owned, may be
required to file an application, be investigated, and have his
suitability as a beneficial holder of the Company's voting
securities determined 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
beneficial ownership of more than five percent 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 thirty days after the Chairman of the Nevada
Board mails the 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 Company, any change in the
Company's corporate charter, bylaws, management, policies or
operations of the Registered Corporation, or any of its gaming
affiliates, 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. 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 Company's voting securities beyond such period of time as
may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company is subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a
stockholder or to have any other relationship with the Company or
the Gaming Subsidiaries, the Company: (i) pays that person any
dividend or interest upon voting securities of the Company;
(ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts
to require such unsuitable person to relinquish his voting
securities including, if necessary, the immediate purchase of
said voting securities for cash at fair market value.
Additionally, the Clark County Liquor and Gaming Licensing Board
has the authority to approve all persons owning or controlling
the stock of any corporation controlling a gaming 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 such holder's acquisition
of such debt security would otherwise be inconsistent with the
declared policy 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.
The Company is required to maintain a current stock
ledger in Nevada which may be examined by the Nevada Gaming
Authorities at any time. If any securities are held in trust by
an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada
Gaming Authorities. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company is
also required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada
Act. However, to date, the Nevada Commission has not imposed such
a requirement on the Company.
The Company may not 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 May
22, 1997, the Nevada Commission granted the Company prior
approval to make public offerings for a period of two years,
subject to certain conditions (the "Shelf Approval"). The Shelf
Approval also applies to any affiliated company wholly owned by
the Company (an "Affiliate") which is a publicly traded
corporation or would thereby become a publicly traded corporation
pursuant to a public offering. The Shelf Approval also includes
approval for the Corporate Licensees to guarantee any security
issued by, or to hypothecate their assets to secure the payment
or performance of any obligations issued by, the Company or an
Affiliate in a public offering under the Shelf Registration.
However, the Shelf Approval may be rescinded for good cause
without prior notice upon the issuance of an interlocutory stop
order by the Chairman of the Nevada Board and must be renewed
annually. The Shelf Approval does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada
Board as to the accuracy or adequacy of the prospectus or the
investment merits of the securities offered. Any representation
to the contrary is unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and 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 Nevada gaming
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 gaming operators and their
affiliates; (ii) preserve the beneficial aspects of conducting
business in the corporate form; and (iii) promote a neutral
environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Nevada
Commission before the Company 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 Company'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 Gaming Subsidiaries' 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 gaming tables operated. A casino
entertainment tax is also paid by nonrestricted casino operations
where entertainment is furnished in connection with the serving
or selling of food or refreshments or the selling of merchandise.
Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, the "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 their
participation in such foreign gaming. The revolving fund is
subject to increase or decrease in 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 operation, fail to
conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations, engage in activities or enter into associations that
are harmful to the state of Nevada or its ability to collect
gaming taxes and fees, or employ, contract with or associate with
a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal
unsuitability.
The sale of alcoholic beverages at the gaming
establishments operated by the Gaming Subsidiaries is subject to
licensing, control and regulation by the applicable Local
Authorities. All licenses are revocable and are not
transferable. The Local Authorities involved have full power to
limit, condition, suspend or revoke any such license, and any
such disciplinary action could (and revocation would) have a
material adverse affect upon the operations of the licensed
gaming establishments.
Mississippi
The Company conducts its Mississippi gaming operations
through a Mississippi subsidiary, Circus Circus Mississippi, Inc.
("CCMI"). The ownership and operation of casino gaming
facilities in Mississippi are subject to extensive state and
local regulation. In order to open and operate Gold Strike-
Tunica (formerly Circus Circus), the Company was required to
register under the Mississippi Gaming Control Act (the
"Mississippi Act") and its Mississippi gaming operations are
subject to the licensing and regulatory control of the
Mississippi Gaming Commission (the "Mississippi Commission") and
various local and county regulatory agencies. Effective October
29, 1991, the Mississippi Commission adopted regulations in
furtherance of the Mississippi Act (the "regulations"). Changes
in the Mississippi Act, the regulations and/or interpretations of
the Mississippi Act and the regulations by the Mississippi
Commission could have a material adverse effect on gaming
operations conducted by the Company in Mississippi.
The Company is required to submit detailed financial,
operating and other reports to the Mississippi Commission.
Substantially all loans, leases, sales of securities and similar
financing transactions entered into by CCMI must be reported to
or approved by the Mississippi Commission. CCMI also is required
to periodically submit detailed financial and operating reports
to the Mississippi Commission and the Mississippi State Tax
Commission and to furnish any other information required thereby.
Each of the directors, officers and key employees of
the Company who are actively and directly engaged in the
administration or supervision of gaming in Mississippi, or who
have any other significant direct or indirect involvement with
the gaming activities of the Company in Mississippi, must be
found suitable therefor, and may be required to be licensed, by
the Mississippi Commission. The finding of suitability is
comparable to licensing, and both require submission of detailed
personal financial information followed by a thorough
investigation. In addition, any individual who is found to have
a material relationship to, or material involvement with, the
Company may be required to be investigated in order to be found
suitable or to be licensed as a business associate of the
Company. Key employees, controlling persons or others who
exercise significant influence upon the management or affairs of
the Company may also be deemed to have such a relationship or
involvement. There can be no assurance that a person who is
subject to a finding of suitability will be found suitable by the
Mississippi Commission. An application for licensing may be
denied for any cause deemed reasonable by the Mississippi
Commission. The findings of suitability of directors, officers
and key employees must be renewed every two years. Changes in
licensed positions must be reported to the Mississippi
Commission. In addition to its authority to deny an application
for a license, the Mississippi Commission has jurisdiction to
disapprove a change in corporate position. If the Mississippi
Commission were to find a director, officer or key employee
unsuitable for licensing or unsuitable to continue having a
relationship with the Company, the Company would have to suspend,
dismiss and sever all relationships with such person in order to
continue to have any involvement in gaming in Mississippi. The
Company would have similar obligations with regard to any person
who should refuse to file appropriate applications. Each gaming
employee at a Mississippi gaming facility must obtain from the
Mississippi Commission a work permit which may be revoked upon
the occurrence of certain specified events.
Mississippi statutes and regulations give the
Mississippi Commission the discretion to require a suitability
finding with respect to anyone who acquires any security of the
Company, regardless of the percentage of ownership. The current
policy of the Mississippi Commission is to require anyone
acquiring five percent or more of any voting securities of a
public or private company 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 which the Company may reimburse. The Mississippi
Commission has selected those persons it feels were required to
be investigated and found suitable and has made the findings of
suitability. However, other persons, for the reasons set forth
above, may be required to be found suitable.
Any owner of voting securities found unsuitable and who
holds, directly or indirectly, any beneficial ownership of equity
interests in the Company beyond such period of time as may be
prescribed by the Mississippi Commission may be guilty of a
misdemeanor. Any person who fails or refuses to apply for a
finding of suitability or a license within 30 days after being
ordered to do so by the Mississippi Commission may be found
unsuitable. The Company will 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, the Company:
(i) pays the unsuitable person any dividends or interest upon any
securities of the gaming subsidiary 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 Commission finds any owner of
voting securities unsuitable, such owner must immediately
surrender all securities to the Company, and the Company must
refund any money or other thing of value that may have been
invested in the Company or made use of by the Company.
The Company is required to maintain current equity
ownership ledgers in the State of Mississippi which may be
examined by the Mississippi Commission at any time. The Company
obtained a waiver of this ledger requirement from the Mississippi
Commission at its licensing hearing, however, the waiver may be
revoked, modified or suspended at any time by the Mississippi
Commission in its discretion. 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 Commission. A failure to make such disclosure may be
grounds for finding the record holder unsuitable. The Company
also is required to render maximum assistance in determining the
identity of such a beneficial owner.
The Mississippi Act requires that certificates
representing equity securities of the Company bear a legend to
the general effect that the securities are subject to the
Mississippi Act and regulations of the Mississippi Commission.
The Company obtained a waiver of this legend requirement from the
Mississippi Commission, however, this waiver may be revoked,
modified or suspended by the Mississippi Commission in its
discretion at any time. The Mississippi Commission, through the
power to regulate licenses, has the power to impose additional
restrictions on the Company and on the holders of the Company's
securities at any time.
The Company may not make a public offering of its
securities without the prior approval of the Mississippi
Commission if the securities or proceeds therefrom are intended
to be used to construct, acquire or finance gaming facilities in
Mississippi, or to retire or extend obligations incurred for such
purposes. On January 22, 1998, the Mississippi Commission
granted the Company prior approval to make public offerings for a
period of one year, subject to certain conditions (the "Shelf
Approval"). The Shelf Approval also applies to any affiliated
company wholly owned by the Company (an "Affiliate") which is a
publicly traded corporation or would thereby become a publicly
traded corporation pursuant to a public offering. The Shelf
Approval also included approval for CCMI to guarantee any
security issued by, or to hypothecate their assets to secure the
payment or performance of any obligations issued by the Company
or an affiliate in a public offering under the Shelf
Registration. However, the Shelf Approval may be rescinded for
good cause without prior notice upon the issuance of an
interlocutory stop order by the Executive Director of the
Mississippi Commission and must be renewed annually. The Shelf
Approval does not constitute a finding, recommendation or
approval by the Mississippi Commission as to the accuracy or
adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is
unlawful.
The regulations provide that a change in control of the
Company may not occur without the prior approval of the
Mississippi Commission. Mississippi law prohibits the Company
from making a public offering of its securities without the
approval of the Mississippi Commission if any part of the
proceeds of the offering is to be used to finance the
construction, acquisition or operation of gaming facilities in
Mississippi, or to retire or extend obligations incurred for one
or more of such purposes.
As long as the Company is licensed to conduct gaming in
Mississippi, the Company may not engage in gaming activities in
Mississippi while also conducting gaming operations outside of
Mississippi without approval of the Mississippi Commission. The
Company has been approved in the following jurisdictions; Nevada,
Indiana, Louisiana, Illinois, New Jersey, Michigan and Ontario,
Canada.
The Company received its Mississippi gaming license on
August 18, 1994 and its renewal on July 18, 1996. The gaming
license is not transferable and must be renewed every two years.
The Mississippi Commission in 1994 enacted an infrastructure
development regulation which requires that a Mississippi casino
invest 25% of its casino costs in infrastructure facilities.
Infrastructure facilities are defined in the regulation to
include a hotel with at least 250 rooms, theme park, golf course
and other similar facilities. With the opening of its resort
hotel and other amenities in Tunica, CCMI has met the
infrastructure requirements. Each issuing agency may at any time
dissolve, suspend, condition, limit or restrict a license or
approval to own equity interests in the Company for any cause
deemed reasonable by such agency.
Substantial fines for each violation of gaming laws or
regulations may be levied against the Company in Mississippi. A
violation under any gaming license held by the Company may be
deemed a violation of its Mississippi license. Suspension or
revocation of any of the Company's gaming licenses or of the
approval of the Company would have a material adverse effect upon
any business conducted by the Company in Mississippi.
License fees and taxes, computed in various ways
depending on the type of gaming involved, are payable to the
State of Mississippi and to the county and cities in which the
Company conducts operations in Mississippi. Depending upon the
particular fee or tax involved, these fees and taxes are payable
either weekly or annually and are based upon: (i) the gross
gaming revenues received by the casino operation; (ii) the number
of slot machines operated by the casino; and (iii) the number of
gaming tables operated by the casino. The legal age for gaming
in Mississippi is 21.
Illinois
The Company is subject to the jurisdiction of the
Illinois gaming authorities as a result of its acquisition of the
Grand Victoria riverboat casino and gaming complex based in
Elgin, Illinois.
In 1990, the Riverboat Gambling Act (the "Illinois
Act") was enacted by the State of Illinois. The Illinois Act
authorizes the five-member Illinois Gaming Board (the "Illinois
Board") to issue up to ten owners licenses on navigable streams
within or forming a boundary of the State of Illinois except for
Lake Michigan and any waterway in Cook County, which includes
Chicago. The Illinois Act strictly regulates the facilities,
persons, associations and practices related to gaming operations
pursuant to the police powers of the State of Illinois, including
comprehensive law enforcement supervision. The Illinois Act
grants the Illinois Board specific powers and duties, and all
other powers necessary and proper to fully and effectively
execute the Illinois Act for the purpose of administering,
regulating and enforcing the system of riverboat gaming. The
Illinois Board's jurisdiction extends to every person,
association, corporation, partnership and trust involved in
riverboat gaming operations in the State of Illinois.
The Illinois Act requires the owner of a riverboat
gaming operation to hold an owner's license issued by the
Illinois Board. Each owner's license permits the holder to own
up to two riverboats, however, gaming participants are limited to
1,200 for any owner's license. A licensed owner who holds
greater than 10% interest on one riverboat operation, may hold up
to 10% of a second riverboat gaming operation in Illinois.
The Illinois Act restricts the granting of certain of
the ten owners' licenses by location. Four are for operators
docking at sites on the Mississippi River, one is for an operator
docking at a site on the Illinois River south of Marshall County
and one is for an operator docking at a site on the Des Plaines
River in Will County. The remaining four owner's licenses are
not restricted as to location. In addition to the ten owner's
licenses which may be authorized under the Illinois Act, the
Illinois Board may issue special event licenses allowing persons
who are not otherwise licensed to conduct riverboat gaming to
conduct such gaming on a specified date or series of dates.
Riverboat gaming under such a license may take place on a
riverboat not normally used for riverboat gaming.
The gaming license issued to the Grand Victoria
riverboat casino in October 1994, was valid for an initial period
of three years and now must be renewed annually. Most recently,
its license was renewed in October 1997. An owner licensee is
eligible for renewal upon payment of the applicable fee and a
determination by the Illinois Board that the licensee continues
to meet all of the requirements of the Illinois Act and Illinois
Board rules. An ownership interest in an owner's license, or in
a business entity other than a publicly held business entity
which holds an owner's license, may not be (i) transferred or
(ii) pledged as collateral without the approval of the Illinois
Board. The Illinois Board also requires that employees of a
riverboat gaming operation and vendors of gaming supplies and
equipment be licensed.
The Illinois Act does not limit the maximum bet or per
patron loss. Owner-licensees, however, may set any maximum or
minimum limits on wagering under the Illinois Act. No person
under the age of 21 is permitted to wager.
An admission tax is imposed on the owner of a riverboat
operation at a rate of $2 per person admitted. Additionally, a
wagering tax is imposed on the adjusted gross receipts, as
defined in the Illinois Act, of a riverboat operation. As of
January 1, 1998, the wagering tax is as follows: 15% of adjusted
gross receipts up to and including $25,000,000; 20% of adjusted
gross receipts in excess of $25,000,000 but not exceeding
$50,000,000; 25% of adjusted gross receipts in excess of
$50,000,000 but not exceeding $75,000,000; 30% of adjusted gross
receipts in excess of $75,000,000 but not exceeding $100,000,000;
and 35% of adjusted gross receipts in excess of $100,000,000.
The owner-licensee is required to wire the wagering tax payment
to the Illinois Board daily.
Under the Illinois Act, there is a four-hour maximum
period during which gaming may be conducted during a gaming
excursion. Gaming is deemed to commence when the first passenger
boards a riverboat for an excursion and may continue while other
passengers are boarding for a period not to exceed 30 minutes. A
gaming excursion is deemed to have started upon the commencement
of gaming. Gaming may continue for a period not to exceed 30
minutes after the gangplank or its equivalent is lowered. During
this 30-minute period of egress, new passengers may not board a
riverboat. Special event extended cruises may be authorized by
the Illinois Board.
If a riverboat captain reasonably determines that
either it is unsafe to transport passengers on the waterway due
to inclement weather or the riverboat has been rendered
temporarily inoperable by unforeseeable mechanical or structural
difficulties or river icing, the riverboat shall either not leave
the dock or immediately return to it. If a riverboat captain
reasonably determines for reasons of safety that although
seaworthy, the riverboat should not leave the dock or should
return immediately thereto, due to either of the above
conditions, a gaming excursion may commence or continue while the
gangplank or its equivalent is raised and remains raised, in
which event the riverboat is not considered docked. If, due to
either of the above conditions, a gaming excursion must commence
or continue with the gangplank or its equivalent raised, and the
riverboat does not leave the dock, ingress is prohibited until
the completion of the excursion.
After consultation with the U.S. Army Corps of
Engineers, the Illinois Board may establish binding emergency
orders upon the concurrence of a majority of the Board regarding
the navigability of rivers in the event of extreme weather
conditions, acts of God or their extreme circumstances.
The Illinois Board is authorized to conduct
investigations into the conduct of gaming as it may deem
necessary and proper and into alleged violations of the Illinois
Act and the Illinois Board rules. Employees and agents of the
Illinois Gaming Board have access to and may inspect any
facilities relating to the riverboat gaming operations at all
times.
A holder of any license is subject to imposition of
fines, suspension or revocation of such license, or other action
for any act or failure to act by himself or his agents or
employees, that is injurious to the public health, safety,
morals, good order and general welfare of the people of the State
of Illinois, or that would discredit or tend to discredit the
Illinois gaming industry or the State of Illinois. Any riverboat
operations not conducted in compliance with the Illinois Act may
constitute an illegal gaming place and consequently may be
subject to criminal penalties, which penalties include possible
seizure, confiscation and destruction of illegal gaming devices
and seizure and sale of riverboats and dock facilities to pay any
unsatisfied judgment that may be recovered and any unsatisfied
fine that may be levied. The Illinois Act also provides for
civil penalties, equal to the amount of gross receipts derived
from wagering on the gaming, whether unauthorized or authorized,
conducted on the day of any violation. The Illinois Board may
revoke or suspend licenses, as the Illinois Board may see fit and
in compliance with applicable laws of the State of Illinois
regarding administrative procedures and may suspend an owner's
license, without notice or hearing, upon a determination that the
safety or health of patrons or employees is jeopardized by
continuing a riverboat's operation. The suspension may remain in
effect until the Illinois Board determines that the cause for
suspension has been abated and it may revoke the owner's license
upon a determination that the owner has not made satisfactory
progress toward abating the hazard.
The Illinois Board requires that a "Key Person" of an
owner licensee submit a Personal Disclosure Form and be
investigated and approved by the Illinois Board. For a publicly-
held Business Entity a "Key Person" is any person directly or
indirectly holding a legal or beneficial interest of 5% or more
of an applicant or licensee and/or officers, directors, trustees,
partners and managing agents of a gaming enterprise, and any
person identified by the Board as a person able to control or
exercise significant influence over the management or operating
policies of a licensee. Furthermore, each applicant for an
owner's license or owner licensee must disclose the identity of
every person, association, trust or corporation having a greater
than 1% direct or indirect pecuniary interest in an owner
licensee or in the riverboat gaming operation with respect to
which the license is sought. The Illinois Board may also require
an applicant or owner licensee to disclose any other principal or
investor and require the investigation and approval of such
individuals.
The Illinois Board (unless the investor qualifies as an
Institutional Investor) requires a Personal Disclosure Form from
any person or entity who or which, individually or in association
with others, acquires directly or indirectly, beneficial
ownership of more than 5% of any class of voting securities or
nonvoting securities convertible into voting securities of a
publicly traded corporation which holds an ownership interest in
the holder of an owner's license. If the Illinois Board denies
an application for such a transfer and if no hearing is
requested, the applicant for the transfer of ownership must
promptly divest those shares in the publicly traded parent
corporation. The holder of an owner's license would not be able
to distribute profits to a publicly traded parent corporation
until such shares have been divested. If a hearing is requested,
the shares need not be divested and profits may be distributed to
a publicly-held parent corporation pending the issuance of a
final order from the Illinois Gaming Board.
An Institutional Investor that individually or jointly
with others, cumulatively acquires, directly or indirectly, 5% or
more of any class of voting securities of a publicly-traded
licensee or a licensee's publicly-traded parent corporation
shall, within no less than ten days after acquiring such
securities, notify the Administrator of the Board of such
ownership and shall provide any additional information as may be
required. If an Institutional Investor (as specified above)
acquires 10% or more of any class of voting securities of a
publicly-traded licensee or a licensee's publicly-traded parent
corporation, it shall file an Institutional Investor Disclosure
Form within 45 days after acquiring such level of ownership
interest.
In addition to Institutional Investor Disclosure Forms,
certain other forms may be required to be submitted to the
Illinois Board. An owner-licensee must submit a Marketing Agent
Form to the Board for each Marketing Agent with whom it intends
to do business. A Marketing Agent is a person or entity, other
that a junketeer or an employee of a riverboat gaming operation,
who is compensated by the riverboat gaming operation in excess of
$100 per patron per trip for identifying and recruiting patrons.
Key Persons of owner-licensees must submit Trust Identification
Forms for trusts, excluding land trusts, for which they are a
grantor, trustee or beneficiary each time such a trust
relationship is established, amended or terminated.
The Illinois Board may waive any licensing requirement
or procedure provided by rule if it determines that such waiver
is in the best interests of the public and the gaming industry.
Also, the Illinois Board may, from time to time, amend or change
Board rules.
Uncertainty exists regarding the Illinois gambling
regulatory environment due to limited experience in interpreting
the Illinois Act.
From time to time, various proposals have been
introduced in the Illinois legislature that, if enacted, would
affect the taxation, regulation, operation or other aspects of
the gaming industry or the Company. Some of this legislation, if
enacted, could adversely affect the gaming industry or the
Company. No assurance can be given whether such or similar
legislation will be enacted.
Applicants for and holders of an owner's license are
required to obtain formal approval from the Illinois Board for
changes in the following areas: (i) Key Persons; (ii) type of
entity; (iii) equity and debt capitalization of the entity; (iv)
investors and/or debt holders; (v) source of funds; (vi)
applicant's economic development plan; (vii) riverboat capacity
or significant design change; (viii) gaming positions, (ix)
anticipated economic impact; or (x) agreements, oral or written,
relating to the acquisition or disposition of property (real or
personal) of a value greater than $1 million.
A holder of an owner's license is allowed to make
distributions to its stockholders only to the extent that such
distribution would not impair the financial viability of the
gaming operation. Factors to be considered by the licensee will
include but not be limited to the following: (i) cash flow,
casino cash and working capital requirements; (ii) debt service
requirements obligations and covenants associated with financial
instruments; (iii) requirements for repairs and maintenance and
capital improvements; and (iv) employment or economic development
requirements of the Act; and (v) a licensee's financial
projections.
Michigan
The Company will become subject to the jurisdiction of
the Michigan gaming authorities and as a result of its ownership
interest in Detroit Entertainment L.L.C., which has executed a
Development Agreement with the City of Detroit for the
construction and operation of a casino within the City of
Detroit, upon the filing of an application for a Michigan casino
license by Detroit Entertainment, L.L.C. with the Michigan Gaming
Control Board. The Development Agreement has been approved by the
Detroit City Council. Approval of the Development Agreement by
the Detroit City Council is the final condition precedent to
applying to the Michigan Gaming Control Board for a certificate
of suitability, which is the preliminary approval for the
granting of a casino license.
In 1996, the Michigan Gaming Control and Revenue Act
was adopted by public initiative. In 1997, a substantive
modification to the Michigan Act was enacted (herein, as
modified, the "Michigan Act"). The Michigan Act does not license
or regulate Native American casino gaming in Michigan.
The Michigan Act establishes a five-member Michigan
Gaming Control Board (the "Michigan Board") and authorizes the
Michigan Board to issue up to three casino licenses in any
Michigan city which has a population of at least 800,000 at the
time the casino license is issued and which is located within 100
miles of any other state or country in which gaming was permitted
on December 5, 1996, provided the local legislative body of the
city has enacted an ordinance approving casino gaming which is
consistent with the Michigan Act and rule promulgated pursuant to
the Michigan Act. At the present time, the City of Detroit is
the only Michigan city which meets the qualification
requirements.
The Michigan Act strictly regulates the facilities,
persons, associations and practices related to the to the casino
gaming operations and the buildings, facilities and rooms
functionally or physically connected to the casino gaming
operations, including any bar, restaurant, hotel, cocktail
lounge, retail establishment or arena and any other facility
located in the city which is under the control of the casino
licensee or an affiliated company (collectively, under the
Michigan Act, a "Casino Enterprise") pursuant to the police
powers of the State of Michigan, including comprehensive law
enforcement supervision.
The Michigan Act grants the Michigan Board specific
powers and duties, and all other powers necessary and proper to
fully and effectively execute the Michigan Act for the purpose of
administering, regulating and enforcing the system of casino
gaming in Michigan. The Michigan Board's jurisdiction extends to
every person, association, corporation, partnership, trust and
other business entity involved in casino gaming operations
governed by the Michigan Act in the State of Michigan.
The Michigan Act requires as a condition precedent to
the issuance of a casino license that the applicant for a casino
license enter into a development agreement (a "Development
Agreement") with the city in which the casino is located. The
limited liability company in which the Company has an ownership
interest, Detroit Entertainment, L.L.C., has entered into a
Development Agreement with the City of Detroit and, therefore,
this condition precedent has been met.
Under the Michigan Act, in order to operate a casino in
a qualified city the casino applicant must obtain a casino
license from the Michigan Board. A licensed owner who holds
greater than a 10% interest in one casino operation licensed
under the Michigan Act is prohibited from owning more than a 10%
ownership in any other casino license issued under the Michigan
Act.
The Michigan Act authorizes the Michigan Board to adopt
rules consistent with the Michigan Act and in compliance with
rule making procedures established by the laws of the State of
Michigan. The Michigan Board has adopted rules in accordance
with the Michigan Act. The Michigan Board rules are currently
going through the final stages of adoption as required by the
laws of the State of Michigan. For purposes of this discussion,
it is assumed that the Michigan Board rules, as approved by the
Michigan Board, will become final in the form currently existing
without substantive modification. No assurance can be given that
this will, in fact, occur.
The Michigan Act defines "control" of a casino license
applicant or a casino licensee as having a greater than 15%
direct or indirect pecuniary interest in the casino license
applicant or casino licensee. For purposes of the Michigan Act,
the Company has control of Detroit Entertainment, L.L.C. by
virtue of the Company's forty five percent ownership interest in
Detroit Entertainment, L.L.C.
The Michigan Act and Michigan Board rules require that
certain owners and "Key Persons" of a casino license applicant
and a casino licensee meet the qualification and approval
standards set forth in the Michigan Act and the Michigan Board
rules. These owners and Key Persons are required to timely file
qualification information in the form of a Personal Disclosure
Form or a Business Disclosure Form with the Michigan Board and be
approved by the Michigan Board.
Each person, other than a shareholder of a publicly
traded company, who directly or indirectly beneficially owns 1%
or more of the casino license applicant or casino licensee must
submit the qualification information to the Michigan Board. Each
shareholder who directly or indirectly beneficially owns more
than 5% of a publicly traded company which owns 1% or more of a
Michigan casino license applicant or casino licensee must submit
qualification information to the Michigan Board. Under the
Michigan Act and the Michigan Board rules, an "Institutional
Investor" which has invested in the equity or debt securities of
a publicly traded company which owns 1% or more of the casino
license applicant or casino licensee may, under certain
conditions discussed below, obtain a waiver from meeting the
qualification and approval standards established by the Michigan
Act and the Michigan Board rules.
Each Key Person of the casino license applicant or
casino licensee must submit qualification information to the
Michigan Board. The Michigan Board rules provide that a "Key
Person" includes any person who (1) is an officer, director,
trustee, partner or proprietor of the casino license applicant or
casino licensee, (2) holds a combined direct, indirect or
attributed debt or equity interest of more than 5% in a casino
license applicant or casino licensee, (3) holds a combined
direct, indirect or attributed interest of more than 5% in a
person who has a controlling interest in a casino license
applicant or a casino licensee, (4) is a managerial employee or
an affiliate or holding company with control of the casino
licensee applicant or casino licensee or an affiliate or holding
company with control of the casino license applicant or casino
licensee and who performs the function of principal executive
officer, principal operating officer, principal accounting
officer or equivalent thereof, or (5) is a managerial employee of
the casino license applicant or casino licensee or an affiliate
or holding company with control thereof who will perform or
performs the function of gaming operations manager or will
exercise or exercises management, supervisory or policy making
authority over the proposed or existing gaming operation or
Casino Enterprise in Michigan and who is not otherwise subject to
occupational licensing under the Michigan Act.
The Michigan Board is currently taking the position
that an Institutional Investor which individually or in
association with others, acquires, directly or indirectly,
beneficial ownership of more than 5% of a person that has applied
for or holds a casino license or the holding company or
intermediary of a casino license applicant or casino licensee
shall notify the Michigan Board of the acquisition within ten
business days after the Institutional Investor acquires the
interest or files form 13-D or 13-G with the Securities and
Exchange Commission, or both, and shall provide additional
information, and may be subject to a finding of suitability as
required by the Michigan Board. Under the Michigan Board rules,
the Company is a holding company of Detroit Entertainment,
L.L.C., which is a casino license applicant under the Michigan
Act and the Michigan Board rules.
The Michigan Board is currently taking the position
that any Institutional Investor which owns or acquires, directly
or indirectly, beneficial ownership of more than a 5% interest
but not more than a 10% interest in a person that has applied for
or holds a casino license or the holding company or intermediary
of a casino license applicant or casino licensee may obtain from
the Michigan Board a waiver of the eligibility and suitability
requirements of the Michigan Act and the Michigan Board rules if
the securities were purchased for investment purposes only and
not for the purpose of influencing or affecting the affairs of
the issuer, the casino licensee or its affiliates. In order to
obtain the waiver, the Institutional Investor must complete and
file with the Michigan Board a Michigan Institutional Investor
Waiver Application (less than 10% interest), which requires
certain Institutional Investor identification information and a
certification concerning investment intent.
An Institutional Investor which owns or acquires,
directly or indirectly, beneficial ownership of more than a 10%
interest but not more than 15% interest in a person that has
applied for or holds a casino license or the holding company or
intermediary of a casino license applicant or casino licensee may
also apply to the Michigan Board for a waiver of the eligibility
and suitability requirements of the Michigan Act and the Michigan
Board rules. The Michigan Board rules require that an
Institutional Investor within these ownership parameters which is
seeking a waiver disclose in the waiver application certain
specific information concerning the Institutional Investor which
will assist the Michigan Board in determining whether to grant
the waiver request. The Michigan Board has not yet finalized the
form of this waiver application and therefore, no assurance can
be given regarding the information which will be required to be
disclosed on the form.
An Institutional Investor which owns or acquires,
directly or indirectly, beneficial ownership of more than 15% of
a casino license applicant or casino licensee is required to file
qualification information with the Michigan Gaming Control Board
within 45 days after acquiring the interest and meet the
qualification and approval standards of the Michigan Act and the
Michigan Board.
An Institutional Investor which owns or acquires
beneficial of (1) 10% or more of debt securities of a casino
licensee's affiliate or affiliated company which are related in
any way to the financing of the casino licensee or (2) more than
50% of any issue of the outstanding debt of the casino licensee's
affiliate or affiliated company may be required to file
qualification information and meet the qualification and approval
standards of the Michigan Act and the Michigan Board. An
Institutional Investor which owns or acquires beneficial
ownership of more than 5% but under 10% of debt securities of a
casino licensee's affiliate or affiliated company which are
related in any way to the financing of the casino licensee may be
granted a waiver of the eligibility and suitability standards of
the Michigan Act and the Michigan Board rules if (1) the debt
securities do not represent more than 20% of the outstanding debt
of the casino licensee's affiliate or affiliated company or (2)
the debt securities represent not more than 50% of any issue of
the outstanding debt of the casino licensee's affiliate or
affiliated company and (3) the debt securities are those of a
publicly traded corporation and were purchased for investment
purposed only. For purposes of the Michigan Act the Company is
an affiliate of Detroit Entertainment, L.L.C.
The Michigan Board has the authority to require
additional owners who have a direct or indirect ownership
interest in a casino license applicant or a casino licensee to
meet the qualification and approval standards set forth in the
Michigan Act and the Michigan Board rules notwithstanding the
fact that they do not meet the ownership thresholds currently
described in the Michigan Act and the Michigan Board rules when
the Michigan Board determines that it is in the best interests of
the casino regulatory process to do so.
If a shareholder who is required to submit qualification
information to the Michigan Board is not approved by the Michigan
Board, then the shareholder must promptly divest all ownership
interest in the shares. If a person who seeks to acquire shares
is a person who is required to submit qualification information
to the Michigan Board and the person is not approved by the
Michigan Board, then the person may not acquire the shares and
must divest all interest in the shares. If a Key Person who is
required to submit qualification information to the Michigan
Board is not approved by the Michigan Board, then the Key Person
must promptly cease all involvement in the Michigan Casino
Enterprise.
In addition to and separate and apart from complying with
qualification and approval standards established by the Michigan
Act and the Michigan Board rules, Michigan law requires that any
person who holds a "Casino Interest" must file a registration
form with the Michigan Secretary of State not later than 5 days
after obtaining the interest. A person holding a Casino Interest
includes (1) a person who holds at least a 1% interest in a
casino licensee or a Casino Enterprise, (2) A person who is a
partner, officer or key or managerial employee of the casino
licensee or Casino Enterprise, (3) a person who is an officer of
the person who holds at least a 1% interest in the casino
licensee or Casino Enterprise and (4) the spouse or children of a
person described in (1) through (3) above. For purpose of this
registration requirement, a "Person" includes an individual,
limited liability company, proprietorship, firm, partnership,
joint venture, syndicate, business trust, labor organization,
company, corporation, association, committee, governmental entity
or other legal entity. A person who fails to register with the
Michigan Secretary of State in compliance with Michigan law will
be assessed a late filing fee of not more than $300. In addition,
the person is subject to being charged with a misdemeanor and a
fine of not more than $1,000.
Under the Michigan Act, an applicant for a casino license
is, if approved, first issued a certificate of suitability which
is valid while the holder is making satisfactory progress toward
meeting the conditions of the certificate of suitability. Upon
issuance of the certificate of suitability, the applicant may
commence construction of a casino. In the event that the Michigan
Board determines that the holder of the certificate of
suitability is not, in the judgment of the Michigan Board, making
satisfactory progress toward meeting the conditions of the
certificate of suitability, the Michigan Board will reconvene the
public investigative hearing for the purpose of considering the
applicant's compliance with the condition of its certificate of
suitability. The Michigan Board may thereafter take whatever
action it deems necessary to assure compliance with the
certificate of suitability or may cancel and withdraw the
certificate of suitability.
Under the Michigan Act, the Michigan Board will issue a
casino license to the applicant upon completion of construction
of the casino in accordance with the certificate of suitability
and upon satisfactory completion of a final operational
inspection performed by the Michigan Board.
A casino license is renewable annually. The casino license
is renewable upon payment of the application fees and a
determination by the Michigan Board that the casino licensee
continues to meet all of the requirements of the Michigan Act and
the Michigan Board rules.
Under the Michigan Act and the Michigan Board rules, the
transfer of a direct or indirect beneficial ownership interest of
more than 1% in a casino license applicant or a casino licensee
is regulated by and subject to the approval of the Michigan
Board. There are certain exceptions and higher ownership
thresholds in the case of ownership interests acquired in a
publicly traded corporation which has an ownership interest in a
casino license applicant or a casino licensee and ownership
interests acquired by an Institutional Investor when the
ownership interests meet the exceptions established by the
Michigan Act and/or the Michigan Board rules.
The Michigan Act and the Michigan Board rules also require
that certain employees of the casino license applicant and casino
licensee and certain employees of owners of the casino license
applicant and casino licensee be licensed by the Michigan Board.
In addition, the Michigan Act and the Michigan Board rules
require that vendors of gaming related goods and services and
vendors of certain nongaming goods and services used by the
Casino Enterprise be licensed by the Michigan Board.
The Michigan Act and the Michigan Board rules do not limit
the maximum bet or per person loss. Casino licensees, however,
may set any maximum or minimum limits on wagering under the
Michigan Act and Michigan Board rules. No person under the age of
twenty one is permitted to wager. The casino operation may be
operated twenty four hours a day, seven days a week.
Under the Michigan Act, casino licensees are subject to five
forms of gaming taxes and fees: (1) a nonrefundable application
fee of $50,000, (2) a $25,000 license fee which is payable
annually, (3) a wagering tax equal to 18% of adjusted gross
receipts, (4) a municipal services fee in an amount equal to the
greater of 1.25% of adjusted gross receipts or $4,000,000 and (5)
an annual payment of all regulatory and enforcement costs,
including compulsive gaming programs, casino related programs and
activities, casino related legal services provided by the
Michigan Attorney General and casino related expenses of the
Michigan State Police up to a combined total annual maximum of
$25,000,000 in the first year of casino operations for al