Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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 1-14573
------------------------
PARK PLACE ENTERTAINMENT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 88-0400631
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
3930 HOWARD HUGHES PARKWAY 89109
LAS VEGAS, NEVADA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 699-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK
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. / /
Based upon the March 15, 2000 New York Stock Exchange closing price of
$10.19 per share, the aggregate market value of the Registrant's outstanding
Common Stock held by non-affiliates of the Registrant was approximately
$2.8 billion. On that date, there were 305,907,609 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is incorporated by reference to the
Registrant's definitive Proxy Statement in connection with the May 12, 2000
Annual Meeting of Stockholders.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
GENERAL
The terms "Park Place," "we," "our," and "us," as used in this document
refer to Park Place Entertainment Corporation and its subsidiaries as a combined
entity except where it is clear that the terms mean only Park Place
Entertainment Corporation.
Park Place Entertainment Corporation was formed when Hilton Hotels
Corporation split its lodging and gaming operations into two separate companies
on December 31, 1998. Hilton accomplished the separation through a tax free
distribution of Hilton's gaming division to its shareholders. Subsequent to the
distribution we merged with the Mississippi gaming operations of Grand
Casinos, Inc. ("Grand"). In December 1999, we acquired all of the outstanding
stock of Caesars World, Inc. and interests in several other gaming entities
("Caesars") from Starwood Hotels & Resorts Worldwide, Inc. for approximately
$3 billion in cash. We consider our casino properties to be leading
establishments with respect to location, size, facilities, physical condition,
quality and variety of services offered in the areas in which they are located.
We are the largest gaming company, as measured by casino square footage, rooms
and revenues, with approximately 2 million square feet of gaming space and 1999
net revenues of $3.2 billion. We are the only gaming company with a significant
presence in Nevada, New Jersey and Mississippi, the three largest gaming markets
in the United States.
We own, operate or manage the casino properties as noted in the table below.
Our gaming operations are conducted under the Bally, Paris, Caesars, Flamingo,
Grand, Hilton and Conrad brand names.
APPROXIMATE APPROXIMATE YEAR
CASINO NUMBER OF ACQUIRED/
NAME AND LOCATION SQUARE FOOTAGE(1) ROOMS/SUITES OPENED
- ----------------- ----------------- ------------ ---------
DOMESTIC CASINOS
NEVADA
Paris Las Vegas(2)........................................ 85,000 2,916 1999
Bally's Las Vegas......................................... 83,000 2,814 1996
Caesars Palace............................................ 125,000 2,454 1999
Las Vegas Hilton.......................................... 100,000 2,944 1971
Flamingo Hilton Las Vegas................................. 81,000 3,626 1971
Reno Hilton............................................... 114,000 2,003 1992
Caesars Tahoe(3).......................................... 41,000 440 1999
Flamingo Hilton Laughlin.................................. 58,000 1,912 1990
Flamingo Hilton Reno(4)................................... 46,000 604 1981
NEW JERSEY
Bally's Park Place........................................ 155,000 1,246 1996
Caesars Atlantic City..................................... 120,000 1,148 1999
Atlantic City Hilton...................................... 60,000 804 1996
MISSISSIPPI
Grand Casino Biloxi....................................... 135,000 985 1998
Grand Casino Gulfport..................................... 110,000 1,001 1998
Grand Casino Tunica....................................... 140,000 1,356 1998
Bally's Saloon-Gambling Hall-Hotel........................ 40,000 235 1996
Sheraton Casino & Hotel................................... 33,000 134 1999
INDIANA
Caesars Indiana(5)........................................ 90,000 -- 1999
LOUISIANA
Bally's Casino Lakeshore Resort(6)........................ 30,000 -- 1996
DELAWARE
Dover Downs(7)............................................ 25,000 -- 1999
2
APPROXIMATE APPROXIMATE YEAR
CASINO NUMBER OF ACQUIRED/
NAME AND LOCATION SQUARE FOOTAGE(1) ROOMS/SUITES OPENED
- ----------------- ----------------- ------------ ---------
INTERNATIONAL CASINOS
AUSTRALIA
Conrad Jupiters, Gold Coast(8)............................ 70,000 609 1985
Conrad International Treasury Casino, Brisbane(8)......... 65,000 136 1995
URUGUAY
Conrad International Punta del Este Resort and
Casino(9)............................................... 38,000 300 1997
CANADA
Windsor Casino(10)........................................ 100,000 389 1999
Casino Nova Scotia--Sydney(11)............................ 16,000 -- 1999
Casino Nova Scotia--Halifax(11) (12)...................... 20,000 350 1999
SOUTH AFRICA
Caesars Gauteng(13)....................................... 65,000 80 1999
CAESARS AT SEA
S.S. Crystal Harmony(14).................................. 3,850 -- 1999
S.S. Crystal Symphony(14)................................. 5,000 -- 1999
- --------------------------
(1) Includes square footage attributable to race and sports books.
(2) This property opened on September 1, 1999.
(3) We lease the building that houses the hotel and casino and lease the
underlying land pursuant to a long-term ground and structure lease.
(4) In December 1999, we entered into a definitive agreement to sell Flamingo
Hilton Reno. The sale is expected to close by June 30, 2000.
(5) We manage Caesars Indiana and own an 82% interest in a joint venture that
owns this property.
(6) We have a 49.9% ownership interest in and manage this property.
(7) We provide management services to the casino at the Dover Downs racetrack
in Delaware.
(8) We have a 19.9% ownership interest in and manage these properties.
(9) We have a 46.4% ownership interest in and manage this property.
(10) We have a 50% interest in Windsor Casino Limited, which operates Casino
Windsor. The province of Ontario owns the complex.
(11) We have a 95% interest in Metropolitan Entertainment Group, which owns and
operates the two properties on behalf of the Nova Scotia Gaming
Corporation pursuant to an operating contract.
(12) This property currently operates a 20,000 square foot temporary casino,
while the 33,000 square foot permanent casino is under construction.
(13) We have a 25% interest in a joint venture that owns Caesars Gauteng and a
50% interest in a joint venture that manages Caesars Guateng.
(14) We operate the Caesars Palace at Sea casinos on two Crystal Cruises, Inc.
cruise ships, the Symphony and the Harmony, only while the ships are in
international waters.
We are continually evaluating attractive acquisition opportunities and may
at any time be negotiating to engage in a business combination transaction or
other acquisition. We plan to continuously evaluate our property portfolio and
intend to dispose of interests in properties that, in our opinion, are no longer
strategic to own. In doing so, we expect to maintain a balanced mix of sources
of revenue and a favorable return on stockholders' equity.
3
We seek to maintain the diversity of our gaming businesses while expanding
both domestically and internationally. Plans to improve and expand our core
business include:
- leveraging our strong brand names;
- capitalizing our market leadership positions;
- maximizing operating efficiencies;
- expanding and enhancing our existing properties; and
- strategically acquiring or developing properties as appropriate.
NEVADA CASINOS
We currently own and operate nine casino hotels in the state of Nevada,
including Paris Las Vegas, Bally's Las Vegas, Caesars Palace, Flamingo Hilton
Las Vegas, Las Vegas Hilton, Flamingo Hilton Laughlin, Caesars Tahoe, Reno
Hilton and Flamingo Hilton Reno.
PARIS LAS VEGAS
Paris Las Vegas opened in September 1999. Located on approximately 24 acres
adjacent to Bally's Las Vegas, Paris Las Vegas features 2,916 spacious guest
rooms, an 85,000 square foot casino, eight French-inspired restaurants, five
lounges, 130,000 square feet of meeting and convention space, 31,500 square feet
of retail space, a two-acre roof-top pool and a European health spa. This
Parisian-themed resort also features a 50-story half-scale Eiffel Tower, as well
as replicas of famous French landmarks including the Arc deTriomphe, the Hotel
de Ville, the Paris Opera House and The Louvre. In January 2000, the French
theatrical musical Notre Dame de Paris opened at Paris Las Vegas. Marketing
efforts are directed toward convention groups and the mid-to upper mid-market,
including the group tour and travel segment.
BALLY'S LAS VEGAS
Bally's Las Vegas is located on approximately 41 acres at the prominent
"Four Corners" section of the Las Vegas Strip. This property, which is connected
to Paris Las Vegas, features 2,814 guest rooms, a 83,000 square foot casino, 9
restaurants, 175,000 square feet of meeting and convention areas, an
Olympic-sized pool, tennis courts and a spa. Bally's Las Vegas also has a 1,040
seat showroom which attracts well known entertainers, as well as being home to
one of the traditional Las Vegas shows, Jubilee. Bally's Las Vegas caters to
convention groups and the mid-to upper mid-market, including the group tour and
travel segment. Bally's Las Vegas is also serviced by a public monorail
connected to the MGM Grand Hotel and Casino.
CAESARS PALACE
Caesars Palace is located on approximately 80 acres at the prominent "Four
Corners" section of the Las Vegas Strip. Admired for its lavish accommodations,
Caesars Palace features 2,454 guest rooms and suites, approximately 125,000
square feet of gaming space and 14 restaurants. Approximately 171,000 square
feet of meeting and convention space, a 1,000 seat showroom attracting the very
best entertainers, pools, a spa, and a wedding chapel are also featured. Caesars
Palace is also home to the Forum Shops, a shopping mall which features upscale
boutiques, well known stores and dining from some of the world's premier chefs.
The Forum Shops' developer is planning a $100 million expansion to the Forum
Shops, to be completed by 2003. The 200,000 square foot, tri-level expansion
will house an additional 25 to 30 retailers, as well as a replica of the
Pantheon. Caesars markets to the upscale individual leisure guests and
convention groups. During 2000, we plan to renovate certain restaurants, add a
night club, renovate the high end table games area and begin constructing
additional hotel suites at this property.
4
FLAMINGO HILTON LAS VEGAS
The Flamingo Las Vegas is located on approximately 27 acres at the center of
the Las Vegas Strip, also at the prominent "Four Corners". This property
features 3,626 guest rooms and suites, approximately 81,000 square feet of
casino space, 9 restaurants, approximately 66,000 square feet of meeting and
convention area, 750 showroom seats, multiple pools and lagoons, tennis courts,
a spa and health club, and a wedding chapel. The Flamingo Las Vegas has a solid
repeat customer base and focuses primarily on the mid-market customers,
particularly the group tour and travel market segment. We are planning to
convert a portion of the guest rooms into suites and add an additional
restaurant to this property during 2000.
LAS VEGAS HILTON
The Las Vegas Hilton is located on approximately 61 acres adjacent to the
Las Vegas Convention Center. With this prominent convention location, the Las
Vegas Hilton focuses its marketing toward convention groups, as well as upscale
individual leisure guests. This property features 2,944 guest rooms and suites,
approximately 85,000 square feet of casino space, 15 restaurants and 225,000
square feet of meeting and convention area. A 1,500 seat showroom featuring top
entertainers, a night club, and a spa and health club are also featured. The Las
Vegas Hilton has partnered with Paramount Parks to present Star Trek: The
Experience, a journey in interactive entertainment and has centered a themed
casino area around this attraction.
RENO HILTON
The Reno Hilton, which is located on 145 acres just 5 minutes from the Reno
Tahoe International Airport, features approximately 2,003 guest rooms and
suites, an 114,000 square foot casino, 7 restaurants, a comedy club and a lounge
and approximately 200,000 square feet of meeting and convention space. This
property is also complemented by outdoor and indoor recreational facilities
including an outdoor golf driving range on a lake, indoor and outdoor tennis
courts, two movie theaters and a 24 hour bowling center. The Reno Hilton focuses
primarily on the mid-market, in particular convention groups.
CAESARS TAHOE
Caesars Tahoe is located nine miles from the South Lake Tahoe Airport, in
Stateline, NV. This property features 440 guest rooms, an approximately 41,000
square foot casino, five restaurants, a nightclub, a 1,500 seat showroom, a
health spa, and approximately 25,000 square feet of meeting space. Caesars Tahoe
experiences a strong repeat customer business, drawing a significant portion of
its mid- to high-end resort destination travelers from the northern California
area. We lease the building that houses the hotel and casino, and lease the
underlying land pursuant to a long-term ground and structure lease.
FLAMINGO HILTON LAUGHLIN
Flamingo Hilton Laughlin, which is located on the banks of the Colorado
River, offers 1,912 guest rooms and suites, approximately 58,000 square feet of
gaming space, five restaurants, banquet facilities, a showroom and an outdoor
amphitheater. This property targets the budget and mid-market customer segments.
A 21,000 square foot ballroom will be added to this property to accommodate
demand in the market.
FLAMINGO HILTON RENO
Flamingo Hilton Reno is located in the heart of downtown Reno. This property
targets the mid-market, group travel and tour customers and offers 604 guest
rooms, a 46,000 square foot casino, five restaurants and a 732 seat showroom. We
have entered into a definitive agreement to sell the Flamingo Hilton Reno for
approximately $20 million. The transaction is expected to close by June 30,
2000. Prior to the close, we will continue to own and operate the facility.
Following completion of the transaction, the
5
property will retain the Flamingo name under a long-term licensing agreement.
The transaction is subject to regulatory approval and resulted in a non-cash
after-tax charge of approximately $17 million in the fourth quarter of 1999.
Each of our Nevada casino hotels is open 24 hours a day, seven days a week,
for gaming activities. Games operated in these casinos include "blackjack,"
craps, roulette, "big 6," baccarat, poker, keno and slot and other video
machines. Las Vegas Hilton's race and sports book is linked by satellite or
modem to our casinos at Flamingo Hilton Las Vegas, Bally's Las Vegas, Flamingo
Hilton Laughlin, Reno Hilton, Flamingo Hilton Reno, and will include Caesars Las
Vegas and Caesars Tahoe in the near future.
The Las Vegas Hilton, Caesars Palace, and, to a lesser extent, Paris Las
Vegas, Bally's Las Vegas, Flamingo Hilton Las Vegas, Reno Hilton, Caesars Tahoe,
Flamingo Hilton Laughlin, and Flamingo Hilton Reno invite VIP customers to their
casinos and may pay for or reimburse the cost of their air transportation and
provide them with complimentary rooms, food and beverage. In addition, the Las
Vegas Hilton and Caesars Palace have a special flight program through which they
provide free air transportation on their owned or chartered aircraft to selected
groups or persons. Generally, these persons either have established casino
credit limits or cash on deposit in the casino and have previously evidenced a
willingness to put substantial amounts at risk at the casino.
NEW JERSEY CASINOS
We own and operate three casino hotels in Atlantic City, New Jersey: Bally's
Park Place, which includes The Wild Wild West Casino, Caesars Atlantic City, and
Atlantic City Hilton.
BALLY'S PARK PLACE
Bally's Park Place is located on an eight-acre site with ocean frontage at
the intersection of Park Place and the Boardwalk. With its strategic location on
the Boardwalk, over 2,800 parking spaces and a bus terminal, Bally's Park Place
is strongly positioned to attract significant walk-in and drive-in business and
focuses on high-end players and the mid-market segment, including the mid- to
upper mid-market slot player segment. This property offers 1,246 guest rooms and
suites, an approximately 155,000 square foot casino, 60,000 square feet of
meeting and convention space, 12 restaurants and a spa. To maintain our presence
as among the premier properties, in 1999 we continued renovating 500 guest rooms
at this property, purchased new slot machines and slot technology and
reconfigured the casino floor.
The Wild Wild West Casino at Bally's Park Place is the first themed casino
in the Atlantic City market. During the year 2000 we plan to expand and connect
The Wild Wild West Casino to Caesars Atlantic City. The expansion will include
additional gaming space, a retail outlet and a restaurant and is expected to be
completed by fall 2000.
CAESARS ATLANTIC CITY
Caesars Atlantic City is located on approximately ten acres at the center of
the Boardwalk and features 1,148 guest rooms, approximately 120,000 square feet
of casino space, 13 restaurants, an 1,100 seat showroom and a health spa. A
significant percentage of this property's customers are locals from the
tri-state (New York, New Jersey and Pennsylvania) area, who arrive by both bus
and auto. Caesars Atlantic City also offers convention, meeting and banquet
facilities, a multi-function grand ballroom and a four-story atrium to attract
convention business as well as walk-in patrons from the boardwalk. Additional
meeting rooms are planned for Caesars Atlantic City during 2000 as part of the
Wild Wild West expansion.
In August 1996, Caesars Atlantic City acquired the Ocean One retail mall.
The Ocean One mall is constructed on a pier that extends 900 feet over the
Atlantic Ocean and is located directly in front of the Boardwalk entrance to
Caesars Atlantic City. Ocean One contains approximately 400,000 square feet of
restaurant and retail space on three floors.
6
ATLANTIC CITY HILTON
Atlantic City Hilton is located on approximately five acres at the
intersection of Boston and Pacific Avenues at the southern end of the Boardwalk
in proximity to one of the major highways leading into Atlantic City. This
location gives Atlantic City Hilton an advantage in attracting
destination-oriented customers arriving by automobile or bus. This property
features 804 guest rooms, approximately 60,000 square feet of casino space,
seven restaurants, a 1,500 seat theater, and a spa. Atlantic City Hilton
primarily focuses on personalized service for high-end and mid-market casino
customers. During 1999 we renovated the ballroom and purchased new slot machines
and slot technology at this property.
In January 1998, we acquired the historic Atlantic City Country Club which
features an 18-hole golf course, in Northfield, New Jersey, approximately a 10
minute drive from our Atlantic City properties. In 1999, renovations to the golf
course were substantially completed and the course will open in spring of 2000
for the exclusive use of our guests.
The Atlantic City casinos are open 24 hours a day, seven days a week for
gaming activities, and feature table games and slot machines similar to those
offered at our Nevada casino hotels. Atlantic City casinos do not contain sports
books; however, Bally's Park Place and Caesars Atlantic City feature simulcast
horse racing.
MISSISSIPPI CASINOS
We own and operate five dockside casino hotels in the State of Mississippi:
Grand Casino Biloxi, Grand Casino Gulfport, Grand Casino Tunica, Sheraton
Casino & Hotel and Bally's Saloon-Gambling Hall-Hotel.
GRAND CASINO BILOXI
Grand Casino Biloxi is the largest dockside casino on the Mississippi Gulf
Coast with approximately 302,000 square feet of interior space and is located on
one of a few sites on the Mississippi Gulf Coast that permits east-west
orientation, thus maximizing visibility from the highway. This location attracts
both mid-market and budget travelers arriving for day trips or overnight stays
via automobile and bus. It also draws the convention market with its 41,500
square feet of convention space. Grand Casino Biloxi features approximately
135,000 square feet of gaming space, seven restaurants, two 500-room hotels, a
spa, a Grand Casino Kids Quest childcare entertainment center, and a 1,600-seat
show theater. In December 1999, Grand Casino Biloxi expanded the Mississippi
Long Bar area of the casino by 52,000 square feet, adding 25,000 square feet of
gaming space and a new restaurant.
GRAND CASINO GULFPORT
Grand Casino Gulfport is a dockside casino on the Mississippi Gulf Coast
consisting of approximately 225,000 square feet of interior space that includes
approximately 110,000 square feet of gaming area. Other amenities at this
beachside resort include four restaurants, a Grand Casino Kids Quest, a tropical
pool with a lazy river, an arcade, a 500-seat theater, a spa, a 400-room hotel
and an additional 600-room hotel that opened in June 1999. The customer base at
this property is primarily comprised of the local markets, arriving by
automobile and bus.
In 1999, we opened the Grand Bear Golf Course on the Mississippi Gulf Coast,
strategically situated between the Grand Gulfport and Grand Biloxi properties.
This 18-hole Jack Nicklaus designed course is considered the premier golf course
in the region. In March 2000, the course was named as one of the top ten new
courses to play in the United States by Golf Magazine. This course is
exclusively available to our hotel and gaming guests.
7
GRAND CASINO TUNICA
Grand Casino Tunica is located in Tunica County, Mississippi, approximately
15 miles south of the Memphis, Tennessee metropolitan area. Grand Casino Tunica
is the largest dockside casino in Mississippi with one of the largest casino
floors in the United States. Grand Casino Tunica is a 400,000 square foot,
three-story, casino complex containing approximately 140,000 square feet of
gaming space. Three hotels comprise an aggregate of 1,356 rooms, 600 of which
were opened in March of 1999. To attract the mid-market, extended stay
customers, the Grand Casino Tunica is complemented by six restaurants, an
18-hole professionally designed championship golf course and driving range, a
spa, a recreational vehicle park and a sporting clay course. In July 1999, a
clubhouse and golf school commenced operations at the golf course. This property
also has a 2,600 seat event center, which opened in November 1999, featuring
headline entertainers and sporting events.
OTHER MISSISSIPPI
Sheraton Casino & Hotel and Bally's Saloon-Gambling Hall-Hotel are also
located in Tunica County, Mississippi. Sheraton Casino & Hotel consists of
33,000 square feet of gaming space, an attached hotel with approximately 134
rooms and three restaurants and bars. Bally's Saloon-Gambling Hall- Hotel,
primarily a 'locals' casino, features a 40,000 square foot dockside casino, a
235 room hotel, and an adjacent land-based facility with entertainment
facilities and three restaurants.
INDIANA CASINO
We manage and own an 82% interest in a joint venture that owns Caesars
Indiana's "Glory of Rome" Riverboat, which at 450 feet long, 100 feet wide and
four stories high, is the largest cruising riverboat casino in the U.S. with
approximately 90,000 square feet of gaming space. This riverboat, which features
five separate uniquely themed casinos, commenced operations in November of 1998
and is located in Harrison County, Indiana, across the Ohio River from the city
of Louisville, Kentucky. Caesars Indiana is currently constructing a 170,000
square foot pavilion that will house retail space, restaurants, and a 1,500 seat
sports and entertainment coliseum. Caesars Indiana is planning to begin
construction on a 500-room hotel in 2000 and also has plans to build an 18-hole
championship golf course.
The Glory of Rome riverboat casino has been licensed to conduct gaming
operations by the Indiana Gaming Commission pursuant to a license originally
granted to RDI/Caesars Riverboat Casino, L.L.C., which we acquired from
Starwood. We have submitted an application for transfer of the license to the
Indiana Gaming Commission and expect the Indiana Gaming Commission to hold the
required public hearing and to then consider our application for transfer. We
expect the meeting of the Commission to be held in spring 2000 and anticipate
receiving the necessary approvals for the transfer of the riverboat owner's
license and the continued operation of the Glory of Rome by Park Place. In the
event we do not receive the necessary approvals, we would be required to sell
our interest in the joint venture that owns the casino.
There exists an on-going archeological site review being conducted in
connection with further development on the site of the Glory of Rome riverboat,
which may postpone or adversely affect our plans to construct the hotel. We
anticipate this review will be concluded within six months and further
development decisions will be made at that time.
LOUISIANA CASINO
We own a 49.9% interest in the Belle of Orleans, L.L.C. ("Belle") which owns
Bally's Casino Lakeshore Resort, a 30,000 square foot riverboat casino facility
that operates out of South Shore Harbor on Lake Pontchartrian in Orleans Parish,
which is approximately eight miles from the French Quarter of New Orleans. Metro
Riverboat Associates, Inc. owns the other 50.1% of the Belle. We manage this
casino
8
under a management agreement with Belle. Results at this property have been
impacted by the opening of a large land based casino located in downtown New
Orleans in October 1999.
INTERNATIONAL CASINOS
AUSTRALIA
We have a 19.9% ownership interest in Jupiters Limited, which owns Conrad
Jupiters Gold Coast and Conrad International Treasury Casino Brisbane, both of
which are located in Queensland, Australia. We also manage both of these
properties. Conrad Jupiters is located on a beach in Broadbeach, Queensland and
is surrounded by lush tropical gardens. This property, which is open 24 hours a
day, features 609 rooms, approximately 70,000 square feet of gaming space, a
convention center and a 1,000 seat showroom. There is also a health center with
a pool, spa, tennis and squash courts and a gym. Conrad Treasury is located in
the central business district of Brisbane, Queensland's capital city. The casino
is approximately 65,000 square feet in total, located on three levels of a
Victoria-era Treasury building. The 136 room hotel is located in the historic
Lands Administration Building, featuring Edwardian Baroque architecture and
historic sandstone walls. The Conrad International Treasury Casino, Brisbane has
the exclusive right to conduct casino gaming in Brisbane until 2005. Both Conrad
Jupiters and Conrad Treasury attract a significant portion of their customers
from the local, as well as the interstate markets, while the individual premium
players travel from various parts of Asia.
URUGUAY
We have a 46.4% ownership interest in Baluma Holdings, SA which owns Conrad
Resort & Casino Punta del Este, located on the beach in Punta del Este, Uruguay.
We also manage this property which features 300 rooms and suites, both slot and
table games, convention and meeting space, restaurants and shops, tennis courts,
pools and a spa. The casino is open all year round and 24 hours a day during the
high season from December through February. A significant percentage of Conrad
Punta del Este's customers travel from Brazil and Argentina, therefore
fluctuations in these countries' economies can affect this property's business.
CANADA
We have a 50% ownership interest in Windsor Casino Limited, which operates
Casino Windsor, a hotel/casino complex owned by the Province of Ontario, Canada.
This property features a 100,000 square foot casino, 389 guest rooms, an 11,000
square foot ballroom and meeting rooms. Casino Windsor is located on the river
in Windsor, Ontario, directly across the river from Detroit, Michigan. Future
results at this property may be impacted by the newly opened casinos in Detroit.
Metropolitan Entertainment Group, of which we have a 95% ownership interest,
operates a casino at the Sheraton Halifax Hotel & Casino in Halifax, Nova
Scotia, and also operates the Sheraton Casino Sydney, which is a stand-alone
casino, in Sydney, Cape Breton, Nova Scotia. Metropolitan Entertainment Group
funded the construction of the Nova Scotia properties and is being repaid, with
interest, out of the operating revenues generated by the properties.
Sheraton Halifax Hotel & Casino currently operates a 20,000 square foot
temporary casino in the lobby of the 350 room hotel. The permanent casino,
which will be approximately 138,000 square feet in total, with 33,000 square
feet of casino space, is currently being constructed a few blocks away from the
hotel and is scheduled to open by summer 2000. The casino facility will also
include a restaurant, food court, lounge and banquet room. Upon closing of the
temporary casino, meeting rooms and a conference center are to be constructed at
the hotel, with the focus of marketing efforts toward the convention guests.
9
Sheraton Casino Sydney is attached to a local sports arena and features
approximately 15,000 square feet of gaming space, a restaurant and a lounge. The
customer base at this casino is comprised mostly of locals, with some junket
play from Toronto and Montreal.
SOUTH AFRICA
We have a 25% ownership interest in a joint venture that owns Caesars
Gauteng and a 50% ownership interest in a joint venture that manages Caesars
Guateng in Johannesburg, South Africa. This property commenced operations in
December of 1998 with a 65,000 square foot temporary casino, an 80 room hotel,
four restaurants and 14 meeting and banquet rooms. The permanent casino, which
will also be approximately 65,000 square feet, is scheduled to open in the fall
of 2000, along with an additional 200 room hotel, a theater and a retail
concourse.
OTHER
Park Place operates the Caesars Palace at Sea casinos on two cruise ships,
the Symphony and the Harmony, which are owned by Crystal Cruises, Inc.. The
casinos operate only when the ships are in international waters.
The gaming industry is highly competitive; therefore obsolescence arising
from age and condition of facilities is a factor. Accordingly, we expend, and
intend to continue to expend, substantial funds to maintain our facilities in
first-class condition in order to maintain our presence as among the premier
properties in the market. These continuous maintenance projects include items
such as room and casino refurbishments, continually upgrading to the latest slot
and video gaming machines, and upgrading our information systems.
CREDIT POLICY
We have extended credit on a discretionary basis to qualified patrons,
especially at the Las Vegas Hilton and Caesars Palace, and to a much lesser
extent at our other properties. We maintain strong controls over the extension
of credit and perform extensive credit checks to determine each individual
patron's creditworthiness. Collection of our customer's debts are aggressively
pursued, although the ultimate collectibility of customer receivables is
impacted by many factors including changes in economic conditions in the
patrons' home countries, changes in currency exchange rates and judicial action.
CASH CONTROLS
It is impractical for Park Place's casinos to record the total amount of
wagers placed, although Park Place regularly determines the amount of chips
issued for cash and credit. The amount of gaming activity varies significantly
from time to time primarily due to general economic conditions, popularity of
entertainment in the hotels, and occupancy rates in the hotels and in Park
Place's markets. The amount of revenue from gaming operations varies depending
upon the amount of gaming activity as well as variations in the odds for
different games and chance. Casino activities are conducted by experienced
personnel who are well-trained and supervised. As is the case of any business
that extensively involves the handling of cash, gaming operations at Park
Place's casino hotels are subject to risk of substantial loss as a result of
dishonesty. However, Park Place believes that it has reduced the risk to the
fullest extent practicable without impeding play and within reasonable cost
limitations through supervision of employees and other internal controls.
COMPETITION
To the extent that the casino hotel capacity is expanded by others in a city
where our casino hotels are located, competition will increase. Along with the
extensive growth in the Las Vegas market over the past year, new capacity
additions or new gaming operations in markets in which we operate could
adversely
10
impact our future operating results. Our competitors have announced other
projects in Las Vegas which, if completed, will add significant casino space and
hotel rooms to this market. Our business could also be adversely affected if
gaming operations are permitted or established in locations near markets in
which we operate. The business at our Nevada casinos could also be adversely
affected if similar gaming operations were to be permitted under the laws of
other states, particularly in California. The legalization of gaming operations
in any jurisdictions located near Atlantic City, New Jersey, could affect our
properties located there. Although we have not experienced a significant change
in business as a result of the recent increase in supply in the Mississippi Gulf
Coast, future expansion could have an adverse impact on our operations. Our
interest in Windsor Casino has not yet been significantly affected by the
addition of gaming across the river, in Detroit, Michigan.
Gaming related referenda have been voted upon or are being proposed in
several states which, if passed, could materially affect our business. Voters in
California approved Proposition Five, which was proposed by California Indian
tribes in a November 1998 election. This referendum sought to legalize games
which several tribes operated in contravention of California and Federal law,
which could lead to the expansion of gaming operations by California Indian
tribes and could have a material adverse effect on our Nevada operations. A
legal action was filed in California State court challenging the validity of
Proposition Five under the California constitutions. On December 2, 1998, the
California Supreme Court issued its decision on Proposition Five, concluding
that Proposition Five is invalid because it violates a state constitutional ban
on Nevada-style casino gambling. On September 10, 1999, nearly 60 Indian tribes
and California's Governor signed tribal-state agreements that would legalize
casino-style gambling in California. The agreements are contingent on a
constitutional amendment that would give tribes the right to offer a limited
number of slot machines and a range of house-banked card games. On
September 10, 1999, California lawmakers approved the constitutional amendment
along with a separate measure ratifying the tribal-state agreements. On
March 7, 2000, California voters approved this amendment. A number of the Indian
tribes have begun signing gaming compacts with the State of California. If the
compacts are subsequently approved by the Federal government, casino-style
gaming will be legal in California upon those tribal lands. At this time, we
cannot determine the impact this will have on our Nevada casinos.
In Mississippi, in three separate instances, referenda were proposed which,
if approved, would have amended the Mississippi Constitution to ban gaming in
Mississippi and would have required all currently legal gaming entities to cease
operations within two years of the ban. All three of the proposed referenda have
been ruled illegal by Mississippi state trial court judges because, among other
reasons, each of the proposed referenda failed to include required information
regarding the anticipated effect of such a ban on government revenues. The
proponents of the most recent referendum filed a notice of appeal of the trial
court ruling with the Mississippi Supreme Court, requesting expedited action on
the matter. The Mississippi Supreme Court has scheduled a hearing with respect
to the matter for March 2000. Any such referendum must be approved by the
Mississippi Secretary of State and signatures of approximately 98,000 registered
voters must be gathered and certified in order for such a proposal to be
included on a statewide ballot for consideration by the voters. The next
election for which the proponents could attempt to place such a proposal on the
ballot would be in November 2002. It is likely at some point that a revised
initiative will be filed which will adequately address the issues regarding the
effect on government revenues of a prohibition of gaming in Mississippi.
However, while it is too early in the process for us to make any predictions
with respect to whether such a referendum will appear on a ballot or the
likelihood of which a referendum being approved by the voters, it such a
referendum were passed and gaming were prohibited in Mississippi, it would have
a material adverse on us and our Mississippi gaming operations.
ENVIRONMENTAL MATTERS
Park Place, like others in our industry, is subject to various federal,
state, local and, in some cases, foreign laws, ordinances and regulations that
(i) govern activities or operations that may have adverse
11
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous or toxic wastes, or (ii) may
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous or toxic
substances or wastes (together, "Environmental Laws"). We endeavor to maintain
compliance with Environmental Laws, but, from time to time, current or
historical operations at our properties may have resulted or may result in
noncompliance or liability for cleanup pursuant to Environmental Laws. In that
regard, we may incur costs for cleaning up contamination relating to historical
uses of certain of its properties.
ARRANGEMENTS BETWEEN HILTON AND PARK PLACE
In connection with the spin-off of Park Place form Hilton Hotels
Corporation, Hilton and Park Place entered into several agreements governing
their relationship after the spin-off.
TRADEMARK ASSIGNMENT AND LICENSE AGREEMENT
Under the terms of the Assignment and License Agreement (the "Hilton
Trademark Agreement") entered into by and among Hilton, Park Place and Conrad
International Royalty Corporation ("Conrad"), Hilton agreed to license to Park
Place certain trademarks used in the Hilton gaming business, including the
trademarks "Flamingo's," "Bally's" and any other marks obtained by Hilton or its
subsidiaries as a result of the acquisition of Bally by Hilton. Hilton and
Conrad also granted to Park Place a nonexclusive right to use (1) the "Hilton"
mark solely in connection with the operation of the Hilton Casino Hotels in the
United States and in connection with the advertising and promotion of such
hotels worldwide; and (2) the "Conrad" mark solely in connection with the
operation of Conrad gaming properties and in connection with the advertising and
promotion of such properties worldwide.
Park Place's license with respect to the "Hilton" mark is for a term of five
years following December 31, 1998, except with respect to the Atlantic City
Hilton, Las Vegas Hilton and the Reno Hilton, in which case, the term is ten
years from December 31, 1998. Park Place's license with respect to the "Conrad"
mark is for the duration of the respective Conrad License Agreements for the
gaming properties (as defined in the Hilton Trademark Agreement).
During the initial two-year term of the license, Park Place pays no royalty
fees to Hilton. Beginning January 1, 2001, Park Place will pay a license fee of
3% of the "Net Room Revenues" of each hotel that is branded with the "Hilton"
mark; however, with respect to the Las Vegas Hilton, the Reno Hilton and the
Atlantic City Hilton, Park Place will pay a fixed fee of $5 million per year
after the initial two-year term of the license. Park Place pays no royalty fees
to Conrad for use of the "Conrad" mark.
During the initial two-year term, Park Place is required to use the "Hilton"
mark at each of its Hilton Casino Hotels; thereafter, Park Place may terminate
such use upon six months' written notice. However, with respect to the Atlantic
City Hilton, the Las Vegas Hilton and/or the Reno Hilton, Park Place may
terminate the use (1) after five years upon six months written notice or
(2) upon sale of the Atlantic City Hilton, Las Vegas Hilton and/or the Reno
Hilton, and as an additional condition of both (1) and (2) herein, upon the
payment of the present discounted value of the yearly fee due for the remainder
of the ten-year term.
Either party may terminate the Hilton Trademark Agreement prior to the
expiration of its term if any party materially breaches any term of the Hilton
Trademark Agreement and such breach is not cured within 10 days.
12
ASSUMPTION AGREEMENT RELATING TO CERTAIN INDEBTEDNESS
Hilton and Park Place entered into a debt assumption agreement, pursuant to
which Park Place assumed and agreed to pay 100% of the amount of each payment
required to be made by Hilton under the terms of the indentures governing
Hilton's $300 million aggregate principal amount of 7.375% Senior Notes due 2002
and $325 million aggregate principal amount of 7% Senior Notes due 2004. In the
event of an increase in the interest rate on these Notes pursuant to their terms
as a result of certain actions taken by Hilton, and certain other limited
circumstances, Hilton is required to reimburse Park Place for any such increase.
Hilton is obligated to make any payment Park Place fails to make and in such
event Park Place shall pay to Hilton the amount of such payment together with
interest, at the rate per annum borne by the applicable notes plus 2% per annum,
to the date of such reimbursement.
ARRANGEMENTS BETWEEN GRAND AND LAKES
On December 31, 1998, Grand Casinos, Inc. completed a tax free spin-off of
its non-Mississippi assets with a distribution to the holders of its common
stock shares of Lakes Gaming, Inc., a new publicly held company. Lakes conducts
the former Grand gaming business located outside the state of Mississippi. Upon
completion of the Grand spin-off to Lakes, Park Place merged with Grand.
Pursuant to the Grand spin-off, Grand and Lakes allocated between them
Grand's assets and liabilities related to the Mississippi business and the
non-Mississippi business. Grand and Lakes also entered into certain other
agreements governing their relationship following consummation of the Grand
spin-off.
INTELLECTUAL PROPERTY LICENSE AGREEMENT
In the Grand spin-off, Grand retained all of its right, title, and interest
in certain trademarks, including the trademarks "Grand Casinos," "Grand
Advantage Players Club," "Grand Casino Kid Quest," "Marketplace Buffet," "Rapid
Change," "Show & Tell Blackjack," and "There's More Than One Reason To Call Us
Grand." Pursuant to the terms of an Intellectual Property License Agreement
entered into between Grand and Lakes, Grand granted Lakes a royalty-free and
non-exclusive right and license to use the intellectual property solely in
connection with Lakes' management of certain facilities for the Mille Lacs Band
of Chippewa Indians (the "Minnesota Tribe") and the Coushatta Tribe of Louisiana
and the Tunica-Biloxi Tribe of Louisiana.
The Minnesota Tribe retains the right to certain of these trademarks
indefinitely. While the Minnesota Tribe's rights to certain trademarks are
perpetual, the rights of the Tunica-Biloxi Tribe of Louisiana and the Coushatta
Tribe of Louisiana will expire upon termination of the "Louisiana Management
Agreements," as defined in such agreement. Upon termination of its management
agreement with the Minnesota Tribe, Lakes may sublicense the Intellectual
Property to the Minnesota Tribe for use solely in connection with the operation
of the Minnesota Tribe's Facilities. For so long as the applicable License
remains in effect, Grand will not itself (nor will authorize any other person or
entity to) use the Intellectual Property in connection with the operation of any
hotel, restaurant, retail, gaming, or other facility of a similar type or nature
within a twenty mile radius of a facility owned by the Minnesota Tribe.
REGULATION AND LICENSING
Each of our casinos is subject to extensive regulation under laws, rules and
supervisory procedures primarily in the jurisdiction where located or docked.
Some jurisdictions, however, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and require
access to and periodic reports respecting the gaming activities. Violations of
laws in one jurisdiction could result in disciplinary action in other
jurisdictions.
13
Under provisions of gaming laws in which we have operations and under our
Amended and Restated Certificate of Incorporation, certain of our securities are
subject to restrictions on ownership which may be imposed by specified
governmental authorities. The restrictions may require a holder of our
securities to dispose of the securities or, if the holder refuses to dispose of
the securities, we may be obligated to repurchase the securities.
Each holder of a note, by accepting any note, will be deemed to have agreed
to be bound by the requirements imposed on holders of our debt securities by the
gaming authority of any jurisdiction in which we or any of our subsidiaries
conducts or proposes to conduct gaming activity. See "Description of
Notes--Mandatory Disposition Pursuant to Gaming Laws." In addition, the
indenture governing the notes provides that each holder and beneficial owner
thereof, by accepting or otherwise acquiring an interest in any of the notes,
will be deemed to have agreed that if the gaming authority of any jurisdiction
in which we or any of our subsidiaries conducts or proposes to conduct gaming
requires that a person who is a holder or beneficial owner must be licensed,
qualified or found suitable under applicable gaming laws, the holder or
beneficial owner will apply for a license, qualification or finding of
suitability within the required time period. If the person fails to apply or
become licensed or qualified or is found unsuitable, we will have the right, at
our option:
(1) to require the person to dispose of its notes or beneficial interest
therein within 30 days of receipt of notice of our election or an earlier
date as may be requested or prescribed by the Gaming Authority; or
(2) to redeem the notes at a redemption price equal to the lesser of:
(A) the person's cost; or
(B) 100% of the principal amount, plus accrued and unpaid interest to the
earlier of the redemption date and the date of the finding of
unsuitability, which may be less than 30 days following the notice of
redemption if so requested or prescribed by the Gaming Authority.
We will notify the trustee under the indenture in writing of any such redemption
as soon as practicable. We will not be responsible for any costs or expenses any
such holder or beneficial owner may incur in connection with its application for
a license, qualification or finding of suitability.
NEVADA GAMING LAWS
The ownership and operation of casino gaming facilities in the State of
Nevada, such as those at the Las Vegas Hilton, the Flamingo Hilton Las Vegas,
Bally's Las Vegas, Paris Las Vegas, the Flamingo Hilton Laughlin, the Reno
Hilton, the Flamingo Hilton Reno, Caesars Palace and Caesars Tahoe are subject
to the Nevada Gaming Control Act and the regulations promulgated thereunder and
various local regulations. Our Nevada gaming operations are subject to the
licensing and regulatory control of the Nevada Gaming Commission, the Nevada
State Gaming Control Board and, depending on the facility's location, the Clark
County Liquor and Gaming Licensing Board and the City of Reno, which we refer to
collectively as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment and maintenance of effective
controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding
14
of assets and revenues, providing reliable record keeping and requiring
the filing of periodic reports with the Nevada Gaming Authorities;
- the prevention of cheating and fraudulent practices; and
- 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 our gaming operations.
Each of our subsidiaries that currently operates a casino in Nevada is
required to be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not transferable. We are
required to be registered by the Nevada Gaming Commission as a publicly traded
corporation and as such, are required periodically to submit detailed financial
and operating reports to the Nevada Gaming Commission and furnish any other
information that the Nevada Gaming Commission may require. No person may become
a stockholder of, or receive any percentage of profits from, a licensed casino
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. We and our licensed subsidiaries have obtained from the Nevada
Gaming Authorities the various registrations, findings of suitability,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us or any of our
licensed subsidiaries in order to determine whether the individual is suitable
or should be licensed as a business associate of a gaming licensee. Our and the
licensed subsidiaries' officers, directors and key employees must file
applications with the Nevada Gaming Authorities and 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. An applicant for licensing or an applicant for a finding
of suitability must pay for 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 licensing, the Nevada Gaming Authorities have the 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 us or any licensed subsidiary, we and the licensed subsidiary
would have to sever all relationships with that person. In addition, the Nevada
Gaming Commission may require us or a licensed subsidiary to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
We and all licensed subsidiaries are required to submit detailed financial
and operating reports to the Nevada Gaming Commission. Substantially all of our
or a licensed subsidiaries' material loans, leases, sales of securities and
similar financing transactions must be reported to, or approved by, the Nevada
Gaming Commission.
If the Nevada Gaming Commission determined that we or a licensed subsidiary
violated the Nevada Gaming Control Act, it could limit, condition, suspend or
revoke our gaming licenses. In addition, we, the licensed subsidiary, and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Gaming Control Act at the discretion of the Nevada
Gaming Commission. Further, a supervisor could be appointed by the Nevada Gaming
Commission to operate a licensed subsidiary's gaming establishment and, under
specified circumstances, earnings generated during the supervisor's appointment,
except for the reasonable rental value of the premises, could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license of a licensed subsidiary and the appointment of a supervisor could, or
revocation of any gaming license would, have a material adverse effect on our
gaming operations.
15
Any beneficial holder of our common stock, or any of our other voting
securities, regardless of the number of shares owned, may be required to file an
application, be investigated, and have that person's suitability as a beneficial
holder of our voting securities determined if the Nevada Gaming Commission has
reason to believe that the ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
the investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Gaming Control Act requires any person who acquires a beneficial
ownership of more than 5% of our voting securities to report the acquisition to
the Nevada Gaming Commission. The Nevada Gaming Control Act requires that
beneficial owners of more than 10% of our voting securities apply to the Nevada
Gaming Commission for a finding of suitability within thirty days after the
Chairman of the Nevada Gaming Control Board mails the written notice requiring
such filing. An "institutional investor," as defined in the Nevada Act, which
acquires beneficial ownership of more than 10%, but not more than 15%, of our
voting securities may apply to the Nevada Gaming Commission for a waiver of a
finding of suitability if the institutional investor holds our voting securities
for investment purposes only. An institutional investor will be deemed to hold
our voting securities for investment purposes if it acquired and holds our
voting securities 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 our board of directors;
- any change in our corporate charter, bylaws, management, policies or
operations, or any of its gaming affiliates; or
- any other action which the Nevada Gaming Commission finds to be
inconsistent with holding our voting securities for investment purposes
only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by stockholders;
- 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
- other activities as that the Nevada Gaming Commission may determine to be
consistent with investment intent. If the beneficial holder of our voting
securities who must be found suitable is a corporation, partnership,
limited partnership, limited liability company 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 Gaming
Commission or by the Chairman of the Nevada Gaming Control 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
our voting securities beyond such period of time as may be prescribed by the
Nevada Gaming Commission may be guilty of a criminal offense. We will be subject
to disciplinary action if, after we receive notice that a person is unsuitable
to be a stockholder or to have any other relationship with us or a licensed
subsidiary, we:
- pay that person any dividend or interest upon any of our voting
securities;
- allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pay remuneration in any form to that person for services rendered or
otherwise; or
16
- fail to pursue all lawful efforts to require such unsuitable person to
relinquish the voting securities including, if necessary, the immediate
purchase of such 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 Gaming Commission may, in its discretion, require the holder of
any debt security of a registered publicly traded corporation, to file
applications, be investigated and be found suitable to own the debt security of
the registered corporation. If the Nevada Gaming Commission determines that a
person is unsuitable to own the security, then pursuant to the Nevada Gaming
Control Act, the registered publicly traded corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Gaming Commission, it:
- pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
- recognizes any voting right by such unsuitable person in connection with
such securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
We are required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make the disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner of any of our voting securities. The Nevada
Gaming Commission has the power to require our stock certificates to bear a
legend indicating that the securities are subject to the Nevada Gaming Control
Act. To date, the Nevada Gaming Commission has not imposed that requirement on
us.
We may not make a public offering of our securities without the prior
approval of the Nevada Gaming Commission if we intend to use the securities or
the proceeds therefrom to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for those purposes. On
December 17, 1998, the Nevada Gaming Commission granted us prior approval to
make public offerings for a period of two years, subject to specified
conditions, which we refer to as the "shelf approval." The shelf approval also
applies to any company we wholly own that is a publicly traded corporation or
would become a publicly traded corporation pursuant to a public offering. The
shelf approval also includes approval for the licensed subsidiaries to guarantee
any security issued by, and to hypothecate their assets to secure the payment or
performance of any obligations issued by, us or an affiliate in a public
offering under the shelf registration. The shelf approval also includes approval
to place restrictions upon the transfer of and enter into agreements not to
encumber the equity securities of the licensed subsidiaries. The shelf approval,
however, may be rescinded for good cause without prior notice upon the issuance
of an interlocutory stop order by the Chairman of the Nevada Gaming Control
Board. The shelf approval does not constitute a finding, recommendation or
approval of the Nevada Gaming Authorities as to the accuracy or adequacy of the
offering memorandum or the investment merits of the securities offered by the
offering memorandum. Any representation to the contrary is unlawful.
We must obtain prior approval of the Nevada Gaming Commission with respect
to a change in control through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby the person obtains control of us. Entities seeking to acquire
control of a registered publicly-traded corporation must satisfy the Nevada
Gaming Control Board and Nevada Gaming Commission in a variety of stringent
standards before assuming control of the registered
17
corporation. The Nevada Gaming 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 licenses, and registered publicly-traded corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Gaming 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:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals may be required from the Nevada Gaming Commission before we can
make exceptional repurchases of voting securities above their current market
price 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 our board of directors in response to a tender
offer made directly to its stockholders for the purpose of acquiring control of
us.
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 licensed 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:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada corporate licensees that hold
a license as an operator of a slot machine route, or a manufacturer's or
distributor's license, also pay fees and taxes to the State of Nevada. The
licensed subsidiaries currently pay monthly fees to the Nevada Gaming Commission
equal to a maximum of 6.25% of gross revenues.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Gaming Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Gaming Control Board of the licensee's
participation in such foreign gaming. The revolving fund is subject to increase
or decrease in the discretion of the Nevada Gaming Commission. Thereafter,
licensees are required to comply with the reporting requirements imposed by the
Nevada Gaming Control Act. A licensee is also subject to disciplinary action by
the Nevada Gaming Commission if it:
- knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engages in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
18
- employs, contracts with or associates 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 establishments operated by a licensed
subsidiary is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies 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 effect upon the operations of the licensed subsidiary.
NEW JERSEY GAMING LAWS
The ownership and operation of casino gaming facilities in Atlantic City are
subject to the New Jersey Casino Control Act, regulations of the New Jersey
Casino Control Commission and other applicable laws. No casino may operate
unless it obtains the required permits or licenses and approvals from the New
Jersey Commission. The New Jersey Commission is authorized under the New Jersey
Act to adopt regulations covering a broad spectrum of gaming and gaming related
activities and to prescribe the methods and forms of applications from all
classes of licensees. These laws and regulations concern primarily:
- the financial stability, integrity, responsibility, good character,
honesty and business ability of casino service suppliers and casino
operators, their directors, officers and employees, their security holders
and others financially interested in casino operations;
- the nature of casino hotel facilities; and
- the operating methods and financial and accounting practices used in
connection with the casino operations.
The State of New Jersey imposes taxes on gaming operations at the rate of 8%
of gross gaming revenues. In addition, the New Jersey Act provides for an
investment alternative tax of 2.5% of gross gaming revenues. This investment
alternative tax may be offset by investment tax credits equal to 1.25% of gross
gaming revenues, which are obtained by purchasing bonds issued by, or investing
in housing or other development projects approved by, the Casino Reinvestment
Development Authority.
The New Jersey Commission has broad discretion with regard to the issuance,
renewal and revocation or suspension of casino licenses. A casino license is not
transferable, is issued for a term of up to one year for the first two renewals
and thereafter for a term of up to four years, subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time. A
casino license must be renewed by filing an application which must be acted on
by the New Jersey Commission before the license in force expires. At any time,
upon a finding of disqualification or noncompliance, the New Jersey Commission
may revoke or suspend a license or impose fines or other penalties.
The New Jersey Act imposes certain restrictions on the ownership and
transfer of securities issued by a corporation that holds a casino license or is
deemed a holding company, intermediary company, subsidiary or entity qualifier
of a casino licensee. "Security" is defined by the New Jersey Act to include
instruments that evidence either a beneficial ownership in an entity, such as
common stock or preferred stock, or a creditor interest in an entity, such as a
bond, note or mortgage. The New Jersey Act requires that the corporate charter
of a publicly-traded affiliate of a casino licensee must require that a holder
of the company's securities who is disqualified by the New Jersey Commission
dispose of the securities. The corporate charter of a casino licensee or any
privately-held affiliate of the licensee must:
- establish the right of prior approval by the New Jersey Commission with
regard to a transfer of any security in the company; and
19
- create the absolute right of the company to repurchase at the market price
or purchase price, whichever is less, any security in the company if the
New Jersey Commission disapproves a transfer of the security under the New
Jersey Act.
The New Jersey Commission has approved our corporate charter. The corporate
charters of our subsidiaries that operate Bally's Park Place, the Atlantic City
Hilton, and Caesars Atlantic City and their privately-held affiliates likewise
conform to the New Jersey Act's requirements described above for privately-held
companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of the corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action, including divestiture of the securities held. If disqualified
persons fail to divest themselves of the securities, the New Jersey Commission
may revoke or suspend the license. However, if an affiliate of a casino licensee
is a publicly-traded company, and the New Jersey Commission makes a finding of
disqualification with respect to any owner or holder of any security thereof,
and the New Jersey Commission also finds that:
- the company has adopted the charter provisions;
- the company has made a good faith effort, including the prosecution of all
legal remedies, to comply with any order of the New Jersey Commission
requiring the divestiture of the security interest held by the
disqualified owner or holder; and
- the disqualified owner or holder does not have the ability to control the
corporate licensee or the affiliate, or to elect one or more members of
the board of directors of the affiliate, the New Jersey Commission will
not take action against the casino licensee or its affiliate with respect
to the continued ownership of the security interest by the disqualified
owner or holder.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly-traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if the holder
owns or beneficially holds 5% or more of any class of the equity securities of
the corporation, unless the security holder rebuts the presumption of control or
ability to elect by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly-traded holding or intermediary company of a casino licensee and:
- the holdings were purchased for investment purposes only;
- there is no cause to believe the institutional investor may be found
unqualified; and
- upon request by the New Jersey Commission, the institutional investor
files a certified statement to the effect that it has no intention of
influencing or affecting the affairs of the issuer, the casino licensee or
its other affiliates. The New Jersey Commission may grant a waiver of
qualification to an institutional investor holding 10% or more of the
securities upon a showing of good cause and if the conditions specified
above are met.
With respect to debt securities, the New Jersey Commission generally
requires a person holding 15% or more of a debt issue of a publicly-traded
affiliate of a casino licensee to qualify under the New Jersey Act. We cannot
assure you that the New Jersey Commission will continue to apply the 15%
threshold, and the New Jersey Commission could at any time establish a lower
threshold for qualification. The New Jersey Commission may make an exception to
the qualification requirement for institutional investors, in which case the
institutional holder is entitled to a waiver of qualification if the holder's
position in the aggregate is less than 20% of the total outstanding debt of the
affiliate and less than 50% of any outstanding publicly-traded issue of the
debt, and if the institutional investor meets the conditions specified in the
above paragraph. As with equity securities, the New Jersey Commission may grant
a waiver of qualification to
20
institutional investors holding larger positions upon a showing of good cause
and if the institutional investor meets all of the conditions specified in the
above paragraph.
Generally, the New Jersey Commission would require each institutional holder
seeking a waiver of qualification to execute a certificate stating that:
- the holder has reviewed the definition of institutional investor under the
New Jersey Act and believes that it meets the definition of institutional
investor;
- the holder purchased the securities for investment purposes only and holds
them in the ordinary course of business;
- the holder has no involvement in the business activities of, and no
intention of influencing or affecting the affairs of, the issuer, the
casino licensee or any affiliate; and
- if the holder subsequently determines to influence or affect the affairs
of the issuer, the casino licensee or any affiliate, it will provide not
less than 30 days' notice of its intent and will file with the New Jersey
Commission an application for qualification before taking the action.
Beginning on the date the New Jersey Commission serves notice on a corporate
licensee or an affiliate of the corporate licensee that a security holder of the
corporation has been disqualified, it will be unlawful for the security holder
to:
- receive any dividends or interest upon the securities;
- exercise, directly or through any trustee or nominee, any right conferred
by the securities; or
- receive any remuneration in any form from the corporate licensee for
services rendered or otherwise.
Persons who are required to qualify under the New Jersey Act because they
hold debt or equity securities, and are not already qualified, are required to
place the securities into an interim casino authorization trust pending
qualification. Unless and until the New Jersey Commission has reason to believe
that the investor may not qualify, the investor will retain the ability to
direct the trustee how to vote, or whether to dispose of, the securities. If at
any time the New Jersey Commission finds reasonable cause to believe that the
investor may be found unqualified, it can order the trust to become "operative,"
in which case the investor will lose voting power, if any, over the securities
but will retain the right to petition the New Jersey Commission to order the
trustee to dispose of the securities.
Once an interim casino authorization trust is created and funded, and
regardless of whether it becomes operative, the investor has no right to receive
a return on the investment until the investor becomes qualified. Should an
investor ultimately be found unqualified, the trustee would dispose of the trust
property, and the proceeds would be distributed to the unqualified applicant
only in an amount not exceeding the actual cost of the trust property. Any
excess proceeds would be paid to the State of New Jersey. If the securities were
sold by the trustee pending qualification, the investor would receive only
actual cost, with disposition of the remainder of the proceeds, if any, to await
the investor's qualification hearing.
If the New Jersey Commission determines that a licensee has violated the New
Jersey Act or its regulations, then under certain circumstances, the licensee
could be subject to fines or have its license suspended or revoked. In addition,
if a person who is required to qualify under the New Jersey Act fails to
qualify, including a security holder who fails to qualify and does not dispose
of securities as may be required by the New Jersey Act, with the exception
discussed above for publicly-traded affiliates, the licensee could have its
license suspended or revoked.
If a casino license is not renewed, is suspended for more than 120 days or
is revoked, the New Jersey Commission can appoint a conservator. The conservator
would be charged with the duty of conserving and
21
preserving the assets so acquired and continuing the operation of the casino
hotel of a suspended licensee or with operating and disposing of the casino
hotel of a former licensee. The suspended licensee or former licensee would be
entitled only to a fair return on its investment, to be determined under New
Jersey law, with any excess to go to the State of New Jersey, if so directed by
the New Jersey Commission. Suspension or revocation of any licenses or the
appointment of a conservator by the New Jersey Commission would have a material
adverse effect on the businesses of our Atlantic City casino hotels.
MISSISSIPPI GAMING LAWS
The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission and the Mississippi
State Tax Commission.
The Mississippi Gaming Control Act, which legalized dockside casino gaming
in Mississippi, was enacted on June 29, 1990. Although not identical, the
Mississippi Act is similar to the Nevada Gaming Control Act. The Mississippi
Gaming Commission has adopted regulations which are also similar in many
respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- establish and maintain responsible accounting practices and procedures;
- maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission;
- prevent cheating and fraudulent practices;
- provide a source of state and local revenues through taxation and
licensing fees; and
- ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. We believe that our compliance with the licensing
procedures and regulatory requirements of the Mississippi Gaming Commission will
not affect the marketability of our securities. Changes in Mississippi law or
regulations may limit or otherwise materially affect the types of gaming that
may be conducted and could have an adverse effect on us and our Mississippi
gaming operations.
The Mississippi Act provides for legalized dockside gaming at the discretion
of the 14 counties that either border the Gulf Coast or the Mississippi River,
but only if the voters in such counties have not voted to prohibit gaming in
that county. As of January 1, 2000, dockside gaming was permissible in nine of
the 14 eligible counties in the state and gaming operations had commenced in
Adams, Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. Under
Mississippi law, gaming vessels must be located on the Mississippi River or on
navigable waters in eligible counties along the Mississippi River, or in the
waters of the State of Mississippi lying south of the state in eligible counties
along the Mississippi Gulf Coast. The law permits unlimited stakes gaming on
permanently moored vessels on a 24-hour basis and does not restrict the
percentage of space which may be utilized for gaming. There are no limitations
on the number of gaming licenses which may be issued in Mississippi.
We and each of our Mississippi licensee affiliates are subject to the
licensing and regulatory control of the Mississippi Gaming Commission. We are
registered under the Mississippi Act as a publicly-traded holding company of our
Mississippi licensee affiliates and will be required periodically to submit
detailed financial and operating reports to the Mississippi Gaming Commission
and furnish any other information
22
which the Mississippi Gaming Commission may require. If we are unable to satisfy
the registration requirements of the Mississippi Act, we and our affiliates
cannot own or operate gaming facilities in Mississippi. Each of our Mississippi
licensee affiliates must maintain a gaming license from the Mississippi Gaming
Commission to operate a casino in Mississippi. The Mississippi Gaming Commission
issues the licenses.
Gaming licenses are not transferable, are issued for a three-year period
(and may be continued for two additional three year periods) and must be renewed
periodically thereafter. No person may become a stockholder of or receive any
percentage of profits from a licensed subsidiary of a holding company without
first obtaining licenses and approvals from the Mississippi Gaming Commission.
Certain of our officers and employees and the officers, directors and key
employees of our licensed Mississippi subsidiaries must be found suitable or be
licensed by the Mississippi Gaming Commission. We believe we have applied for
all necessary findings of suitability with respect to these persons, although
the Mississippi Gaming Commission, in its discretion, may require additional
persons to file applications for findings of suitability. In addition, any
person having a material relationship or involvement with us may be required to
be found suitable, in which case those persons must pay the costs and fees
associated with the investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi Gaming
Commission. In addition to its authority to deny an application for a finding of
suitability, the Mississippi Gaming Commission has jurisdiction to disapprove a
change in a licensed position. The Mississippi Gaming Commission has the power
to require us and our registered or licensed subsidiaries to suspend or dismiss
officers, directors and other key employees or sever relationships with other
persons who refuse to file appropriate applications or whom the authorities find
unsuitable to act in their capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension. The Mississippi Gaming Commission will refuse to issue
a work permit to a person convicted of a felony and it may refuse to issue a
work permit to a gaming employee if the employee has committed various
misdemeanors or knowingly violated the Mississippi Act or for any other
reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require a finding of suitability of any of our record or beneficial
stockholders. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly-traded corporation registered with the
Mississippi Gaming Commission to report the acquisition to the Mississippi
Gaming Commission, and that person may be required to be found suitable. Also,
any person who becomes a beneficial owner of more than 10% of the common stock
of such a company, as reported to the Commission, must apply for a finding of
suitability by the Mississippi Gaming Commission and must pay the costs and fees
that the Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered public company's common stock. However, the Mississippi Gaming
Commission has adopted a policy that may permit institutional investors to own
beneficially up to 10% of a registered public company's common stock without a
finding of suitability. If a stockholder 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.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of our securities beyond the
time that the Mississippi Gaming Commission prescribes, may be guilty of a
misdemeanor. We are subject to disciplinary action if, after receiving notice
that a person is unsuitable to be a stockholder or to have any other
relationship with us or our licensed subsidiaries, we:
- pay the unsuitable person any dividend or other distribution upon our
voting securities;
23
- recognize the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
- pay the unsuitable person any remuneration in any form for services
rendered or otherwise, except in limited and specific circumstances; or
- fail to pursue all lawful efforts to require the unsuitable person to
divest himself of the securities, including, if necessary, the immediate
purchase of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Gaming Commission upon
request the identities of the holders of any debt or other securities. In
addition, under the Mississippi Act the Mississippi Gaming Commission may, in
its discretion:
- require holders of debt securities of registered corporations to file
applications;
- investigate the holders; and
- require the holders to be found suitable to own the debt securities.
Although the Mississippi Gaming Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Gaming Commission retains the discretion to do so for
any reason, including but not limited to a default, or where the holder of the
debt instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt or equity securities required to apply
for a finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with the investigation.
Each of our Mississippi licensed subsidiaries must maintain in Mississippi a
current ledger with respect to the ownership of its equity securities and we
must maintain in Mississippi a current list of our stockholders which must
reflect the record ownership of each outstanding share of any equity security
issued by us. The ledger and stockholder lists must be available for inspection
by the Mississippi Gaming Commission at any time. If any of our securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Mississippi Gaming
Commission. A failure to make that disclosure may be grounds for finding the
record holder unsuitable. We must also render maximum assistance in determining
the identity of the beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a registered publicly-traded corporation bear a legend to the general effect
that the securities are subject to the Mississippi Act and the regulations of
the Mississippi Gaming Commission. The Mississippi Gaming Commission has granted
us an exemption from this legend requirement. The Mississippi Gaming Commission
has the power to impose additional restrictions on the holders of our securities
at any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Gaming Commission. A licensed gaming subsidiary may not make a
public offering of its securities, but may pledge or mortgage casino facilities
if it obtains the prior approval of the Mississippi Gaming Commission. We may
not make a public offering of our securities without the prior approval of the
Mississippi Gaming Commission if any part of
24
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 those purposes. The approval, if given, does not
constitute a recommendation or approval of the investment merits of the
securities subject to the offering. We received a waiver of the prior approval
requirement for our securities offerings, subject to certain conditions.
Under the regulations of the Mississippi Gaming Commission, none of our
gaming licensees may guarantee a security issued by us pursuant to a public
offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by us, without the prior approval
of the Mississippi Gaming Commission. Similarly, we may not pledge the stock or
other ownership interests of any of our gaming licensees, nor may the pledgee of
such ownership interests foreclose on such a pledge, without the prior approval
of the Mississippi Gaming Commission. Moreover, restrictions on the transfer of
an equity security issued by our Mississippi licensees and agreements not to
encumber such securities are ineffective without the prior approval of the
Mississippi Gaming Commission. We have received approvals from the Mississippi
Gaming Commission for such guarantees, pledges and restrictions, subject to
certain conditions.
We cannot change our control through merger, consolidation, acquisition of
assets, management or consulting agreements or any form of takeover without the
prior approval of the Mississippi Gaming Commission. The Mississippi Gaming
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 Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly-traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
We may be required to obtain approval from the Mississippi Gaming Commission
before we may make exceptional repurchases of voting securities in excess of the
current market price of our common stock (commonly called "greenmail") or before
we may consummate a corporate acquisition opposed by management. Mississippi's
gaming regulations will also require prior approval by the Mississippi Gaming
Commission if we adopt a plan of recapitalization proposed by our board of
directors opposing a tender offer made directly to the stockholders for the
purpose of acquiring control of us.
Neither we nor any subsidiary may engage in gaming activities in Mississippi
while also conducting gaming operations outside of Mississippi without approval
of the Mississippi Gaming Commission. The Mississippi Gaming Commission may
require determinations that there are means for the Mississippi Gaming
Commission to have access to information concerning our and our affiliates
out-of-state gaming operations. We received a waiver of foreign gaming approval
from the Mississippi Gaming Commission for our operations in other
jurisdictions, but may be required to obtain the approval or a waiver of such
approval from the Mississippi Gaming Commission before engaging in any
additional future gaming operations outside of Mississippi.
If the Mississippi Gaming Commission decides that a licensed gaming
subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
subsidiary. In addition, we, the licensed subsidiary and the persons involved
could be subject
25
to substantial fines for each separate violation. Because of a violation, the
Mississippi Gaming Commission could attempt to appoint a supervisor to operate
the casino facilities. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could, and revocation of any gaming
license would, materially adversely affect our Mississippi gaming operations.
A licensed gaming subsidiary must pay license fees and taxes, computed in
various ways depending on the type of gaming involved, to the State of
Mississippi and to the county or city in which the licensed gaming subsidiary
conducts operations. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are based
upon:
- a percentage of the gross gaming revenues received by the casino
operation;
- the number of slot machines operated by the casino; or
- the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon "gaming
receipts," generally defined as gross receipts less payouts to customers as
winnings, and equals:
- 4% of gaming receipts of $50,000 or less per month;
- 6% of gaming receipts over $50,000 and less than $134,000 per month; and
- 8% of gaming receipts over $134,000.
These license fees are allowed as a credit against our Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
Mississippi cities and counties in which our casino operations are located,
equals approximately 4% of the gaming receipts.
The Mississippi Gaming Commission has adopted a regulation requiring as a
condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
We believe we are in compliance with this requirement. Recently, the Mississippi
Gaming Commission adopted a regulation which increased the infrastructure
requirement to 100% from the existing 25%; however, the regulation grandfathers
existing licensees and applies only to new casino projects and casinos that are
not operating at the time of acquisition or purchase.
Both the local jurisdiction and the Alcoholic Beverage Control Division of
the Mississippi State Tax Commission license, control and regulate the sale of
alcoholic beverages by our subsidiaries. All of our Mississippi casinos are in
areas designated as special resort areas, which allows the casinos to serve
alcoholic beverages on a 24-hour basis. The Alcohol Beverage Control Division
has the full power to limit, condition, suspend or revoke any license for the
serving of alcoholic beverages or to place a licensee on probation with or
without conditions. Any disciplinary action could, and revocation would, have a
material adverse effect upon the casino's operations. Our and our Mississippi
casinos' key officers and managers must be investigated by the Alcohol Beverage
Control Division in connection with its liquor permits and changes in key
positions must be approved by the Alcohol Beverage Control Division.
LOUISIANA GAMING LAWS
The ownership and operation of a riverboat gaming vessel in the State of
Louisiana is subject to the Louisiana Riverboat Economic Development and Gaming
Control Act. The Louisiana Gaming Control Board regulates gaming activities. The
Louisiana Board is responsible for investigating the background of all
applicants seeking a riverboat gaming license, issuing the license and enforcing
the laws, rules and regulations relating to riverboat gaming activities.
The Louisiana Board must find suitable the applicant, its officers,
directors, key personnel, partners and persons holding a 5% or greater interest
in the holder of a gaming license. The Louisiana Board may,
26
in its discretion, also review the suitability of other security holders of, or
persons affiliated with, a licensee. This finding of suitability requires the
filing of an extensive application to the Louisiana Board disclosing personal,
financial, criminal, business and other information. Our Louisiana affiliate,
Bally's Louisiana, Inc., has filed the required forms with the Louisiana
regulatory authorities with respect to a finding of suitability.
On March 24, 1994, the Louisiana Board's predecessor issued a riverboat
gaming license to Belle of Orleans, L.L.C., a limited liability company in which
we have a 49.9% interest. Belle of Orleans, L.L.C. commenced riverboat gaming
operations in New Orleans on July 9, 1995. We are engaged in litigation with our
50.1% partner in the Belle of Orleans, L.L.C. See "Business and Properties of
Park Place--Legal Proceedings" and Note 17 to our audited financial statements
for a description of this litigation.
The Louisiana Act prohibits the transfer of a Louisiana gaming license. The
Louisiana Board must approve the sale, assignment, transfer, pledge or
disposition of securities which represent 5% or more of the total outstanding
shares issued by a holder of a license and the Louisiana Board must find the
transferee suitable. In addition, the Louisiana Board must approve certain
contracts and leases entered into by a licensee and enterprises which transact
business with the licensee must be licensed.
If a security holder of a licensee is found unsuitable, it will be unlawful
for the security holder to:
- receive any dividend or interest with regard to the securities;
- exercise, directly or indirectly, any rights conferred by the securities;
or
- receive any remuneration from the licensee for services rendered or
otherwise.
The Louisiana Board may impose similar approval requirements on holders of
securities of any intermediary or holding company of the licensee. The State of
Louisiana taxes gaming operations at the rate of 18.5% of net gaming proceeds.
On April 19, 1996, the Louisiana legislature approved legislation mandating
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming. On November 5,
1996, Louisiana voters determined whether each of the following types of gaming
would be prohibited or permitted in the following described Louisiana parishes:
- the operation of video draw poker devices in each parish;
- the conduct of riverboat gaming in each parish that is contiguous to a
statutorily designated river or waterway; or
- the conduct of land-based casino gaming operations in Orleans Parish.
In Orleans Parish, where our riverboat casino currently operates, a majority
of the voters elected to continue to permit the three types of gaming described
above. The current legislation does not provide for any moratorium on future
local elections on gaming. Further, the current legislation does not provide for
any moratorium that must expire before future local elections on gaming could be
mandated or allowed. In addition, a change of berth by a licensee would require
voter approval in the parish in which the new berth is located.
DELAWARE GAMING LAWS
Video lottery operations in the State of Delaware are regulated by the
Delaware State Lottery Office through the powers delegated to the Director of
the lottery pursuant to Title 29 of the Delaware code. Under Delaware's video
lottery program, video lottery machines are permitted at Delaware's licensed
horse racing tracks.
Any person seeking to contract with the Delaware State Lottery Office for
the provision of goods or services related to video lottery operations,
including management services such as those we provide with
27
respect to video lottery operation at the Dover Downs race track in Delaware,
must be licensed by the Delaware State Lottery Office as a "technology
provider." It is the ongoing duty of each technology provider licensee to notify
the Director of the lottery of any change in officers, partners, directors, key
employees, video lottery operations employees or owners, collectively the "key
individuals." An owner is a person who owns, directly or indirectly, ten percent
or more of an applicant or licensee. Key individuals are subject to a background
investigation, and the failure of a key individual to satisfy a background
investigation may constitute "cause" for the suspension or revocation of the
technology provider's license.
INDIANA GAMING LAWS
Our Indiana casino riverboat operations are subject to the Indiana Riverboat
Gambling Act and the licensing and regulatory control of the Indiana Gaming
Commission, as well as various local, county and state regulatory agencies.
The Indiana Riverboat Act authorizes the issuance of up to 11 riverboat
gaming licenses on waterways located in Indiana. The Indiana Riverboat Act
strictly regulates the facilities, persons, associations and practices related
to gaming operations pursuant to the police powers of the State of Indiana,
including comprehensive law enforcement provisions. The Indiana Riverboat Act
vests the Indiana Gaming Commission with the power and duties of administering,
regulating and enforcing the system of riverboat gaming in the State of Indiana.
The Indiana Gaming Commission's jurisdiction extends to every person,
association, corporation, partnership and trust involved in riverboat gaming
operations in the State of Indiana.
The Indiana Riverboat Act requires the owner of a riverboat gaming operation
to hold an owner's license issued by the Indiana Gaming Commission. Each license
granted entitles the licensee to own and operate one riverboat and gaming
equipment as part of the gaming operation. A licensee may own no more than a 10%
interest in any other owner's license.
The Indiana Riverboat Act restricts the granting of the 11 owner's licenses
by location, with five to be awarded for riverboats operating in specific cities
on Lake Michigan, five to be awarded for riverboats operating on the Ohio River,
and one to be awarded for a riverboat operating on Patoka Lake. The Indiana
Gaming Commission has not considered applicants for the eleventh license since
the Patoka Lake site has been determined by the U.S. Army Corps of Engineers to
be unsuitable for a casino vessel project.
Each owner's license runs for a period of five years. Thereafter, the
license is subject to renewal on an annual basis upon a determination by the
Indiana Gaming Commission that the licensee continues to be eligible for an
owner's license pursuant to the Indiana Riverboat Act and the rules and
regulations adopted thereunder. All riverboat licensees have a continuing duty
to maintain suitability for licensure and are required to notify the Indiana
Gaming Commission of any material change in the information submitted in its
application or any other matter which would render the licensee ineligible. An
owner's license does not create a property right but is a revocable privilege
contingent upon continuing suitability for licensure. A licensed owner undergoes
a complete investigation every three years.
The Indiana Gaming Commission may revoke, restrict or suspend an owner's
license at any time that the Indiana Gaming Commission determines the licensee
is in violation of the Indiana Riverboat Act or the rules and regulations of the
Indiana Gaming Commission or if the Indiana Gaming Commission determines
revocation of the license is in the best interest of the State of Indiana and
will protect and enhance the credibility and integrity of riverboat gambling
operations. If the Indiana Gaming Commission determines that a licensee is in
violation of the Indiana Riverboat Act or the rules and regulations promulgated
by the Indiana Gaming Commission, the Indiana Gaming Commission may initiate a
disciplinary proceeding to revoke, restrict or suspend the license or take such
other action, including imposition of civil penalties, that the Indiana Gaming
Commission deems necessary. If for any reason the license is terminated, the
assets of the riverboat gambling operation must be secured and cannot be
28
disposed of without the approval of the Indiana Gaming Commission and the
licensee remains under the jurisdiction of the Indiana Gaming Commission until
all matters related to the license have been resolved.
A licensed owner may apply for and may hold other licenses that are
necessary for the operation of a riverboat, including licenses to sell alcoholic
beverages, a license to prepare and serve food and any other necessary license.
Furthermore, the Indiana Riverboat Act requires that officers, directors and
employees of a gaming operation and suppliers of gaming equipment, devices, and
supplies and certain other suppliers be licensed.
Applicants for licensure must submit comprehensive application and personal
disclosure forms and undergo an exhaustive background investigation prior to the
issuance of a license. The applicant must also disclose the identity of every
shareholder or participant of the applicant and provide specific information
with respect to certain shareholders holding significant interests, 5% or
greater, in the applicant. The Indiana Gaming Commission has the authority to
request specific information on any shareholder.
The Glory of Rome riverboat casino has been licensed to conduct gaming
operations by the Indiana Gaming Commission pursuant to a license originally
granted to RDI/Caesars Riverboat Casino, L.L.C., which we acquired from
Starwood. An ownership interest in an owner's riverboat license may only be
transferred after receiving approval from the Indiana Gaming Commission and upon
compliance with the regulations issued under the Indiana Riverboat Act. We have
submitted an application for transfer of the riverboat owner's license to the
Indiana Gaming Commission and expect the Indiana Gaming Commission to hold the
required public hearing and to then consider our application for transfer. We
expect the meeting of the Commission to be held in Spring 2000 and anticipate
receiving the necessary approvals for the transfer of the riverboat owner's
license and the continued operation of the Glory of Rome by Park Place. In the
event we do not receive the necessary approvals, we would be required to sell
our interest in the joint venture that owns the casino.
A riverboat owner licensee or any other person may not lease, hypothecate,
borrow money against or loan money against an owner's riverboat gaming license.
The Indiana Riverboat Act does not limit the maximum bet or per patron loss.
Minimum and maximum wagers on games are set by the licensee. Wagering may not be
conducted with money or other negotiable currency. No person under the age of 21
is permitted to wager, and wagers may only be taken from a person present on a
licensed riverboat.
Riverboats operating in Indiana must (1) have a valid certificate of
inspection from the U.S. Coast Guard to carry at least 500 passengers; and
(2) be at least 150 feet long. In addition, any riverboat that operates on the
Ohio River must replicate, as nearly as possible, historic Indiana steamboat
passenger vessels of the nineteenth century.
Gaming sessions are generally required to be at least two hours and are
limited to a maximum duration of four hours. No gaming may be conducted while
the boat is docked, except:
- for 30-minute time periods at the beginning and end of each cruise while
the passengers are embarking and disembarking, in which case total gaming
time is limited to four hours, including the pre- and post-docking
periods; and
- when weather or water conditions prevent the boat from cruising.
The Indiana Gaming Commission may grant extended cruise hours in its
discretion. If the master of the riverboat reasonably determines and certifies
in writing that specific weather conditions or water conditions present a danger
to the riverboat and the riverboat's passengers and crew, the riverboat may
remain docked and gaming may take place until the master determines that the
conditions have sufficiently diminished for the riverboat to safely proceed or
the duration of the authorized excursion has expired.
29
After consultation with the U.S. Army Corps of Engineers, the Indiana Gaming
Commission may determine the available navigable waterways that are suitable for
the operation of riverboats under the Indiana Riverboat Act. If the U.S. Army
Corps of Engineers rescinds an approval for the operation of riverboats on a
waterway, a license issued under the Indiana Riverboat Act is void and the
holder may not conduct or continue gaming operations under the Indiana Riverboat
Act. The Indiana Gaming Commission requires employees working on a riverboat to
have a valid merchant marine document from the U.S. Coast Guard.
The Indiana Riverboat Act imposes a 20% wagering tax on adjusted gross
receipts from gaming. The tax imposed is to be paid by the licensed owner to the
Indiana Department of State Revenue before the close of the business day
following the day when the wagers are made. The Indiana Riverboat Act also
requires that licensees pay a $3.00 admission tax for each person admitted to a
gaming excursion. A riverboat license may be suspended for failure to pay such
tax. The Indiana Gaming Commission also has promulgated regulations requiring
riverboat owners to reimburse the Indiana Gaming Commission for the costs of
inspectors and agents required to be present during the conduct of gambling
operations. Further, the Indiana Gaming Commission may impose other fees and
assessments. Riverboats are assessed for property tax purposes as real property
and are taxed at rates determined by local taxing authorities. All Indiana state
excise taxes, use taxes and gross retail taxes apply to sales on a riverboat.
The Indiana Gaming Commission may subject a licensee to fines, suspension or
revocation of its license for any act that is in violation of the Indiana
Riverboat Act, the rules and regulations of the Indiana Gaming Commission, or
for an owner's license if the licensee has not begun regular riverboat
excursions prior to the end of the twelve month period following receipt of a
license from the Indiana Gaming Commission or if the Indiana Gaming Commission
determines that the revocation of the license is in the best interests of the
State of Indiana. A holder of a gaming license is required to post bond with the
Indiana Gaming Commission in an amount that a local community will expend for
infrastructure and other facilities associated with a riverboat operation.
The Indiana Riverboat Act places special emphasis upon minority and women's
business enterprise participation in the riverboat industry. Any person issued a
riverboat owner's license must establish goals of expending at least 10% of the
total dollar value of the licensee's contracts for goods and services with
minority bu