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Mirage Resorts Inc · 10-K405 · For 12/31/97 · 10-K

Filed On 3/31/98   ·   SEC Files 1-06697 (10-K), 1-06697   ·   Accession Number 42246-98-4

This Filing was Corrected by the SEC on 4/9/98.

  in   Show  and 
  As Of               Filer                 Filing     On/For/As Docs:Pgs

 3/31/98  Mirage Resorts Inc                10-K405®   12/31/97   17:340

Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         72    342K 
 2: EX-4.E      Instrument Defining the Rights of Security Holders    55    264K 
 3: EX-4.F      Instrument Defining the Rights of Security Holders    36    161K 
 4: EX-10.CCC   Material Contract                                      2     14K 
 5: EX-10.JJJ   Material Contract                                     95±   397K 
 6: EX-10.KKK   Material Contract                                     14     60K 
 7: EX-10.LLL   Material Contract                                     25     71K 
 8: EX-10.MMM   Material Contract                                      1     11K 
 9: EX-10.NNN   Material Contract                                     14     39K 
10: EX-10.OOO   Material Contract                                      4     15K 
11: EX-10.PPP   Material Contract                                      4     21K 
12: EX-10.QQQ   Material Contract                                      4     19K 
13: EX-10.RRR   Material Contract                                     10     49K 
14: EX-23       Consent of Experts or Counsel                          1      7K 
15: EX-27.A     Financial Data Schedule                                1     11K 
16: EX-27.B     Financial Data Schedule                                1     13K 
17: EX-27.C     Financial Data Schedule                                1     13K 


10-K   ·   Annual Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
2Item 1. Business
8Other
24Item 2. Properties
25Item 3. Legal Proceedings
27Item 4. Submission of Matters to a Vote of Security Holders
"Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
28Item 6. Selected Financial Data
29Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
36Market Risk
37Item 7a. Quantitative and Qualitative Disclosures About Market Risk
"Item 8. Financial Statements and Supplementary Data
"Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
38Item 10. Directors and Executive Officers of the Registrant
"Item 11. Executive Compensation
"Item 12. Security Ownership of Certain Beneficial Owners and Management
"Item 13. Certain Relationships and Related Transactions
"Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K --------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 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 NO. 1-6697 MIRAGE RESORTS, INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- NEVADA 88-0058016 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3400 LAS VEGAS BOULEVARD SOUTH LAS VEGAS, NEVADA 89109 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 791-7111 --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------------------------- ----------------------- COMMON STOCK ($.004 PAR VALUE PER SHARE) NEW YORK STOCK EXCHANGE PACIFIC EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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: X ----- The aggregate market value of the Registrant's Common Stock held by non-affiliates (all persons other than executive officers or directors) of the Registrant on March 27, 1998 (based on the closing sale price per share on the New York Stock Exchange Composite Tape on that date) was $3,943,420,236. The Registrant's Common Stock outstanding at March 27, 1998 was 179,489,247 shares. Portions of the Registrant's definitive Proxy Statement for its May 21, 1998 Annual Meeting of Stockholders (which has not been filed as of the date of this filing) are incorporated by reference into Part III. =================================================================
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PART I ITEM 1. BUSINESS GENERAL Mirage Resorts, Incorporated (the "Company" or the "Registrant") was incorporated in Nevada in 1949 as the successor to a partnership that began business in 1946. The Company, through wholly owned subsidiaries, owns and operates (i) The Mirage, a hotel-casino and destination resort on the Las Vegas Strip, (ii) Treasure Island at The Mirage ("Treasure Island"), a hotel-casino resort adjacent to The Mirage, (iii) the Golden Nugget, a hotel-casino in downtown Las Vegas, and (iv) the Golden Nugget-Laughlin, a hotel-casino in Laughlin, Nevada. The Company, through a wholly owned subsidiary, also owns a 50% interest in a joint venture that owns and operates the Monte Carlo Resort & Casino, which opened June 21, 1996 on the Las Vegas Strip. The Company, through wholly owned subsidiaries, is also currently constructing Bellagio, an elegant hotel-casino and destination resort on the Las Vegas Strip, and Beau Rivage, a luxurious hotel-casino and beachfront resort in Biloxi, Mississippi. Bellagio is believed to be the most expensive resort hotel ever built. When it opens, Beau Rivage will be the largest hotel-casino in the United States outside of Nevada. OPERATING PROPERTIES The Mirage opened in 1989 and is located on approximately 100 acres shared with Treasure Island near the center of the Las Vegas Strip. The Mirage is a luxurious, tropically themed destination resort. The exterior of the resort is landscaped with palm trees, abundant foliage and more than four acres of lagoons and other water features centered around a 54-foot simulated volcano and waterfall. Each evening, the volcano erupts at regular intervals, sending blasts of steam and water 40 feet into the air, with flames which spectacularly illuminate the front of the resort. Inside the front entrance is an atrium with a tropical garden and additional water features capped by a 100-foot- high glass dome. The atrium has an advanced environmental control system and creative lighting and other special effects designed to replicate the sights, sounds and fragrances of the South Seas. Located at the rear of the hotel, adjacent to the swimming pool area, is a dolphin habitat with eight Atlantic bottlenose dolphins, and The Secret Garden of Siegfried & Roy, a $14 million attraction that allows guests to view the beautiful exotic animals of Siegfried & Roy, the world-famous illusionists who perform at The Mirage.
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Treasure Island opened in 1993 adjacent to The Mirage. Treasure Island is a pirate-themed hotel-casino resort. The front of Treasure Island, facing the Las Vegas Strip, is an elaborate pirate village in which full-scale replicas of a pirate ship and a British frigate regularly engage in a pyrotechnic and special effects sea battle, culminating with the sinking of the frigate. The showroom at Treasure Island features Mystere, a unique choreographic mix of special effects, comedy and feats of human prowess produced and performed by the world-famous Cirque du Soleil. The Golden Nugget, together with its parking facilities, occupies approximately two and one-half square blocks and is located approximately five miles north of The Mirage and Treasure Island in the center of downtown Las Vegas. The Golden Nugget has received the Mobil Travel Guide's Four Star Award and the AAA Four Diamond Award for 14 and 21 consecutive years, respectively. It is the largest hotel- casino and the generally acknowledged leader in the downtown Las Vegas market and has benefited from the "Fremont Street Experience," a $70 million entertainment attraction developed by a coalition of several major downtown Las Vegas hotel-casinos (including the Golden Nugget) in conjunction with the City of Las Vegas. This attraction opened in December 1995 and converted Fremont Street into a four-block-long pedestrian mall, topped with a 90-foot by 1,400-foot special effects canopy. Within the canopy are 2.1 million computer-controlled, four-color lights and a 540,000-watt sound system. The Fremont Street Experience also includes retail facilities and a 1,432-space parking garage. The Golden Nugget-Laughlin is located approximately 90 miles south of Las Vegas in Laughlin, Nevada. The hotel- casino is located on approximately 13 acres with 600 feet of Colorado River frontage near the center of Laughlin's tourist district. The Golden Nugget-Laughlin features a 32,000-square foot casino offering 18 table games and approximately 1,175 slots, 300 hotel rooms (including four suites), three restaurants, three bars, an entertainment lounge, a deli, an ice cream parlor and two gift and retail shops. Other facilities at the Golden Nugget-Laughlin include a swimming pool, a parking garage with space for approximately 1,585 vehicles and approximately four and one- half acres of surface parking for recreational vehicles. The Company also owns and operates a 78-room motel in Bullhead City, Arizona, across the Colorado River from Laughlin. The Company, through a wholly owned subsidiary, is a 50% partner with Circus Circus Enterprises, Inc. ("Circus") in Victoria Partners, a joint venture that owns and operates Monte Carlo. The resort is situated on approximately 46 acres near the center of the Las Vegas Strip. Monte Carlo has a palatial style reminiscent of the Belle Epoque, the French Victorian architecture of the late 19th century. Monte Carlo has amenities such as a microbrewery featuring live entertainment, a health spa, a beauty salon, a 1,200- 2
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seat theater featuring the world-renowned magician Lance Burton, a large pool area and lighted tennis courts. Monte Carlo will be connected to Bellagio by a monorail. CURRENT CONSTRUCTION PROJECTS BELLAGIO The Company is currently constructing Bellagio on an approximately 120-acre site at the corner of the Las Vegas Strip and Flamingo Road. Bellagio is the Company's most ambitious destination resort to date. This elegant European- style resort will overlook a picturesque lake inspired by Lake Como in Northern Italy. Throughout each day the lake's 1,200 fountains will come alive in a choreographed performance of water, music and lights which will be highly visible along the Las Vegas Strip. The resort will also feature a wide variety of casual and gourmet restaurants in both indoor and outdoor settings (including a branch of Manhattan's world-famous Le Cirque), upscale retail boutiques, including those leased to Armani, Chanel, Fred Leighton, Gucci, Hermes, Prada and Tiffany & Co., and extensive meeting, convention and banquet space. Cirque du Soleil is producing an all-new and unique production to be performed in a specially designed showroom. Bellagio will be lushly landscaped with classical gardens (both indoors and outdoors) and European fountains and pools. The resort is currently expected to cost approximately $1.6 billion (including land, capitalized interest and preopening costs) and is scheduled to open in October 1998. Additionally, as of March 1, 1998, the Company had acquired a collection of fine art at a cost of approximately $162 million for display and resale at Bellagio and was renting additional fine art for display. The Bellagio art collection rivals in quality the collections of many of the world's leading art galleries and museums and is expected to be a major draw for the resort. BEAU RIVAGE The Company is constructing Beau Rivage, a luxurious beachfront resort in Biloxi, Mississippi, on a 23-acre site where Interstate 110 meets the Gulf Coast. The Gulf Coast is one of the largest gaming markets in the United States and Beau Rivage will be the largest hotel-casino in Mississippi, with 1,780 guest rooms and an approximately 80,000-square foot casino. Guests arriving at the resort will be greeted by lush gardens and stately oaks. Beau Rivage will feature 13 restaurants, upscale retail outlets, a full-service spa and salon, a state-of-the-art convention center, an elegant atrium lobby, a beautifully landscaped pool area and a 1,550-seat show- room that will be home to a new production by Cirque du Soleil. 3
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Beau Rivage is currently expected to be completed in the first quarter of 1999 at an estimated total cost (including land, capitalized interest and preopening costs) of approximately $600 million. The Company has also expended an additional $6 million to acquire several other parcels of land in the Biloxi area for future development, including approximately 508 acres for the potential development of a world-class 18-hole golf course. In addition, the Company is planning the construction of a deluxe marina at Beau Rivage for sportfishing, Gulf excursions and other water sports, as well as dockage for private yachts of up to 125 feet. As with any major construction project, the Bellagio and Beau Rivage projects involve many risks, including weather interference, shortages of materials and labor, work stoppages, labor disputes, unforeseen engineering, environmental or geological problems and unanticipated cost increases, any of which could give rise to delays or cost overruns. Con- struction, equipment or staffing problems or difficulties in obtaining any of the requisite licenses, permits, allocations or authorizations from regulatory authorities could increase the cost or delay the construction or opening of the facilities or otherwise affect their design and features. It is possible that the existing budget and construction plans for either project may be changed for competitive or other reasons. Accordingly, there can be no assurance that either project will be completed within the time periods or budgets which are currently contemplated. 4
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The following table sets forth certain data, as of March 1, 1998, regarding the Company's major resorts and certain estimates regarding the Company's two projects under construction. · Enlarge/Download Table Bellagio (a) Beau Rivage (b) The Mirage Treasure Island Golden Nugget Monte Carlo (c) ------------ --------------- --------------- --------------- ------------- --------------- Project cost................... $1.6 billion $600 million $862 million(d) $485 million(d) (e) $355 million(d) Opening date................... Oct. 1998 1st Qtr. 1999 Nov. 1989 Oct. 1993 Aug. 1946 June 1996 Total building square footage.. 4,289,000 2,222,000 3,117,000 2,377,000 1,465,000 2,520,000 Casino Square footage (including corridors).................. 151,000 80,000 107,200 83,800 38,000 90,000 Number of gaming tables...... 139 90 122 86 56 95 Number of slots.............. 2,637 2,025 2,220 1,952 1,327 2,156 Hotel Number of guest rooms (in- cluding suites and villas).. 3,005 1,780 3,044 2,891 1,907 3,002 Square footage of interior meeting space.............. 99,400 30,000 73,000 16,000 21,000 22,000 Restaurants Number of outlets............ 16 13 12 10 6 8 Number of seats.............. 2,878 1,564 2,300 1,744 1,006 2,200 Retail Square footage............... 76,700 25,500 35,000 16,000 4,350 11,300 Showroom Number of seats.............. 1,800 1,550 1,503 1,525 350 1,200 -------------------- (a) The estimated Bellagio project cost does not include the cost of fine art purchased for display and resale at Bellagio. (b) The estimated Beau Rivage project cost does not include the cost of land acquired for future development. (c) Monte Carlo is 50%-owned by the Company. (d) Includes capital improvements subsequent to opening, but is not adjusted for inflation or depreciation. (e) Not meaningful for comparative purposes. PENDING ACQUISITION OF BOARDWALK HOTEL-CASINO On December 22, 1997, the Company entered into agreements (the "Boardwalk Agreements") to acquire Boardwalk Casino, Inc. ("BCI") and certain related assets at a total cost (including assumed and acquired debt) of approximately $112 million. BCI owns and operates the Boardwalk, a hotel- casino situated on approximately eight acres on the Las Vegas Strip between Monte Carlo and Bellagio. The Boardwalk includes 653 hotel rooms and 33,000 square feet of casino space offering 661 slot machines, 20 table games and a full- service race and sports book. Other amenities at the Boardwalk include a coffee shop, a buffet, a snack bar, an entertainment lounge, two bars, a gift shop, two outdoor swimming pools and 1,125 garage and surface parking spaces. The hotel is currently operated under a Holiday Inn- Registered Trademark- franchise license agreement. Upon consum- 5
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mation of the transactions contemplated by the Boardwalk Agree- ments and combined with adjacent parcels of land previously acquired by the Company, the Company will own approximately 12 acres with 817 feet of frontage on the Las Vegas Strip at a total cost of approximately $140 million. Consummation of the BCI acquisition is subject to a number of conditions, including approval by the stockholders of BCI and the receipt of requisite approvals from gaming regulatory authorities. Pursuant to the Boardwalk Agreements, the Company holds proxies covering approximately 53% of BCI's outstanding shares and has agreed to vote such shares in favor of the acquisition. If such approvals are obtained, the acquisition is expected to close in the second quarter of 1998, whereupon BCI would become a wholly owned subsidiary of the Company. The Company's acquisition of BCI, together with adjacent land owned by the Company (including a portion of the Bellagio site not required for Bellagio) and land the Company has agreed to acquire in an exchange with Monte Carlo, would afford the Company a 42-acre site for potential future development on the Las Vegas Strip, between and contiguous to Bellagio and Monte Carlo. FUTURE EXPANSION ATLANTIC CITY The Company and the City of Atlantic City, New Jersey have entered into an agreement (as amended, the "Redevelopment Agreement") pursuant to which, on January 8, 1998, the City conveyed a total of approximately 180 acres (125 acres of which are developable) in the Marina area of the City (the "Marina Site") to the Company in exchange for the Company agreeing to develop a hotel-casino (tentatively named "Le Jardin") on the Marina Site and undertaking certain other obligations, including remediation of environmental contamination on the Marina Site. Under the terms of the Redevelopment Agreement, construction of the planned resort is subject to the satisfaction of certain conditions. One such condition is the construction of certain major road improvements designed to improve access to the Marina area. The Company has entered into an agreement (the "Road Development Agreement") with the New Jersey Department of Transportation (the "State") and the South Jersey Transportation Authority ("SJTA") with respect to the construction and joint funding of the road improvements. Pursuant to the Road Development Agreement, the Company agreed to fund $110 million of the estimated $330 million cost of the road improvement project, with the balance to be funded by the State ($95 million) and SJTA ($125 million). The Company's and SJTA's portion of the funding has been deposited in escrow accounts and is restricted for the road improvement project. Of the Company's $110 million funding obligation, $55 million will be satisfied by the Company 6
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purchasing special revenue bonds which are repayable, together with interest, solely from certain future tax revenues generated by the Company's planned hotel-casino on the Marina Site. The road improvement project is being undertaken pursuant to a fixed-price design/build contract. The contractor commenced the design phase of the project in October 1997 and expects to complete the project in 2001. Numerous governmental permits required for the Company's hotel-casino and the road improvement project have not yet been received. Additionally, an existing Atlantic City hotel-casino operator and others have filed various lawsuits which challenge the validity of the Redevelopment Agreement and seek to prevent construction of the road improvements, thereby delaying or preventing the Company from developing its hotel-casino on the Marina Site. The hotel-casino project is in the early design stage and a project budget has not yet been developed. As a result of the foregoing factors, there can be no assurance that the Company will construct a hotel-casino in Atlantic City or as to the timing or cost of construction. In 1996, the Company entered into agreements with Circus and Boyd Gaming Corporation ("Boyd") pursuant to which the Company agreed, subject to a number of conditions, to sell a portion of the Marina Site to Circus as a casino site and to form a joint venture with Boyd to develop a third hotel- casino on the Marina Site (in addition to the Company's wholly owned hotel-casino and the Circus hotel-casino). In January 1998, the Company notified Circus and Boyd that their respective agreements with the Company relating to the Marina Site had terminated. For information concerning pending litigation with Circus and Boyd arising from such terminations, see "Legal Proceedings" in Item 3 on page 24 of this Form 10-K. OTHER The Company regularly evaluates potential expansion and acquisition opportunities in both the domestic and international markets. Such opportunities may include the ownership, management and operation of gaming and other entertainment facilities in states other than Nevada or outside of the United States, either alone or with joint venture partners. Development and operation of any gaming facility in a new jurisdiction are subject to numerous contingencies, several of which are outside of the Company's control and may include the enactment of appropriate gaming legislation, the issuance of requisite permits, licenses and approvals, the availability of appropriate financing and the satisfaction of other conditions. There can be no assurance that the Company will elect or be able to consummate any such acquisition or expansion opportunity. 7
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MARKETING All of the Company's hotel-casinos operate 24 hours each day, every day of the year. Management does not consider the Company's business, taken as a whole, to be particularly seasonal. The level of gaming activity at its casinos is the single largest factor in determining the Company's revenues and operating income. The Company also receives significant revenues from lodging, food and beverage, entertainment and retail operations. The principal segments of the Nevada gaming market are tour and travel, leisure travel, high-level wagerers and conventions (including small meetings and corporate incentive programs). The Company believes that The Mirage's hotel occupancy and gaming revenues can be maximized through a balanced marketing approach aimed at the high end of each market segment. The marketing strategy for Bellagio and Beau Rivage will be similar to that for The Mirage. The Company's marketing strategy for Treasure Island and the Golden Nugget is aimed at attracting middle- to upper-middle- income wagerers, largely from the leisure travel and, to a lesser extent, the tour and travel segments. The Company believes that the success of its hotel-casinos is also affected by the level of walk-in customers and, accordingly, has designed its facilities to maximize their attraction to guests of other hotels. The Golden Nugget-Laughlin appeals primarily to patrons from the middle-income strata of the gaming populace. Many of the Golden Nugget-Laughlin's customers are retired individuals who are attracted by lodging, food and beverage and entertainment prices that are lower than those offered by the major Las Vegas hotel-casinos. The predominant portion of the Golden Nugget-Laughlin's casino revenues is derived from slot machine play. The Company, through wholly owned subsidiaries, owns approximately 850 acres of real property located approximately 10 miles north of The Mirage and Treasure Island and five miles north of the Golden Nugget. The Company owns and operates an exclusive world-class golf course and related facilities known as "Shadow Creek" on approximately 240 acres of such property. The Company is currently offering a luxury suite package at its Las Vegas hotel-casinos which includes golf privileges at Shadow Creek. In connection with its marketing activities, the Company also makes the course and related facilities available for use, by invitation only, by high-level-wagerer patrons. The Company has contemplated the development of a second golf course adjacent to Shadow Creek, but has indefinitely postponed plans for its construction. 8
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CREDIT Credit play represents a significant portion of the table games volume at The Mirage. The Company's other facilities do not emphasize credit play to the same extent as The Mirage, although credit is made available. The Company maintains strict controls over the issuance of credit and aggressively pursues collection of its customer receivables. These collection efforts parallel those procedures commonly followed by most large corporations, including the mailing of statements and delinquency notices, personal and other contacts, the use of outside collection agencies and civil litigation. Nevada gaming debts evidenced by credit instruments are enforceable under the laws of Nevada. All other states are required to enforce a judgment on a gaming debt entered in Nevada pursuant to the Full Faith and Credit Clause of the United States Constitution. Gaming debts are not legally enforceable in some foreign countries, but the United States assets of foreign debtors may be reached to satisfy judgments entered in the United States. A significant portion of the Company's accounts receivable is owed by high-level-wagerer customers from the Far East. The collectibility of customer receivables is affected by a number of factors, including changes in currency exchange rates and economic conditions in the customers' home countries. SUPERVISION OF GAMING ACTIVITIES In connection with the supervision of gaming activities at its casinos, the Company maintains stringent controls on the recording of all receipts and disbursements. These audit and cash controls include: locked cash boxes; personnel independent of casino operations to perform the daily cash and coin counts; floor observation of the gaming area; observation of gaming and certain other areas through the use of closed-circuit television; computer tabulation of receipts and disbursements for each of the slot machines and table games; and timely analysis of discrepancies or deviations from normal performance. COMPETITION The Mirage, Treasure Island and the Golden Nugget compete with a number of other hotel-casinos in Las Vegas. Currently, there are approximately 27 major hotel-casinos located on or near the Las Vegas Strip, 11 major hotel- casinos located in the downtown area and several major facilities located elsewhere in the Las Vegas area. As of March 1, 1998, there were approximately 102,100 hotel and motel rooms in Las Vegas, compared to approximately 97,300 at December 31, 1996. In addition to Bellagio, there are currently three major new hotel-casinos under construction in Las Vegas. All three are scheduled to open in 1999 and will add a total of approximately 9,700 rooms to the market. 9
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Another hotel-casino with plans for 2,600 guest rooms and a projected opening date in 2000 recently obtained significant financing. Other major hotel-casinos have been proposed, some of which are likely to be built. Expansion projects at an existing major Las Vegas Strip hotel-casino are also under construction and several other expansion projects have been proposed. Management is unable to determine the extent to which the increased competition will affect the Company's future operating results. Management believes that The Mirage primarily competes with other large hotel-casinos located on or near the Strip that offer amenities and marketing programs appealing to the upper-middle and higher-income strata of the gaming populace. The Mirage competes on the basis of the elegance and excitement offered by the facility, the desirability of its location, the quality of its hotel rooms and restaurants, its entertainment and special attractions, customer service, its balanced marketing strategy and special marketing and promotional programs. Management believes that Treasure Island primarily competes with the other large hotel-casinos located on or near the Strip that offer amenities and marketing programs that appeal to the middle- to upper-middle-income strata of the gaming populace. Treasure Island competes on the basis of the excitement offered by the facility, the desirability of its location (including its proximity to The Mirage), the quality of its hotel rooms, the variety, quality and attractive pricing of its food and beverage outlets, its unique entertainment offerings, customer service and its marketing and promotional programs. Management believes that the Golden Nugget primarily competes with the large hotel-casinos located on or near the Strip, particularly those offering amenities and marketing programs that appeal primarily to the middle- and upper- middle-income strata of the gaming populace. The Golden Nugget competes for gaming customers primarily on the basis of the elegance, intimacy and excitement offered by the facility, the quality and relative value of its hotel rooms and restaurants, customer service and its marketing and promotional programs. The Fremont Street Experience attraction was developed in order for the downtown Las Vegas hotel-casinos to compete more effectively with the hotel- casinos located on the Las Vegas Strip. Management believes that the competitive pressures of additional guest rooms on the Strip particularly impacted the downtown market in 1997 and will continue to do so during 1998. 10
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The Golden Nugget-Laughlin competes with eight nearby hotel-casinos in Laughlin, as well as with hotel-casinos in Las Vegas, Jean and Primm, Nevada and casinos on Indian reservations in Laughlin's regional market, particularly Southern California and Arizona. In recent years, the Laughlin market has been adversely affected by increased competition from the expansion of casino gaming in Las Vegas and on Indian reservations in Arizona and elsewhere in the regional market. The Company's facilities also compete for gaming customers with hotel-casino operations located in other areas of Nevada, Atlantic City and other parts of the world, and for vacationers with non-gaming tourist destinations such as Hawaii and Florida. The Company's hotel-casinos compete to a lesser extent with state-sponsored lotteries, off-track wagering, card parlors, riverboat and Indian gaming facilities and other forms of legalized gaming in the United States, as well as with gaming on cruise ships. In recent years, certain states have legalized, and several other states have considered legalizing, casino gaming. Management does not believe that such legalization of casino gaming in those jurisdictions would have a material adverse impact on the Company's operations. However, management believes that the legalization of large-scale land-based casino gaming in or near certain major metropolitan areas, particularly in California, could have a material adverse effect on the Las Vegas market. EMPLOYEES AND LABOR RELATIONS As of March 1, 1998, the Company and its subsidiaries had approximately 14,750 full-time and 2,335 part-time employees. The Company and unions representing approximately 7,000 of its Las Vegas employees recently approved, and the employees ratified, the terms of new collective bargaining contracts that will expire in May 2002. Management considers its employee relations to be excellent. REGULATION AND LICENSING NEVADA The ownership and operation of casino gaming facilities in Nevada are subject to (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the "Nevada Act") and (ii) various local ordinances and regulations. The Registrant's Nevada gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), the City of Las Vegas and the Clark County Liquor and Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the Nevada Board, the City of Las Vegas and the Clark County Board are collectively referred to as the "Nevada Gaming Authorities." 11
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The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) pro- viding a source of state and local revenues through taxation and licensing fees. Change in such laws, regulations and procedures could have an adverse effect on the Registrant's gaming operations. The Registrant's direct and indirect subsidiaries that con- duct gaming operations are required to be licensed by the Nevada Gaming Authorities. The gaming licenses require the periodic payment of fees and taxes and are not transferable. THE MIRAGE CASINO-HOTEL ("MCH") is registered as an intermediary company and has been found suitable to own the stock of Treasure Island Corp. ("TI Corp."). MCH has also been licensed to conduct nonrestricted gaming operations at The Mirage. TI Corp. has been licensed to conduct nonrestricted gaming operations at Treasure Island. GNLV, CORP. ("GNLV") has been registered as an intermediary company and has been found suitable to own the stock of Golden Nugget Manufacturing Corp. ("GNMC"), its inactive subsidiary which is licensed as a manufacturer and distributor of gaming devices. GNLV has also been licensed to conduct nonrestricted gaming operations at the Golden Nugget. GNL, CORP. ("GNL") has been licensed to conduct nonrestricted gaming operations at the Golden Nugget-Laughlin. Bellagio has been registered as an intermediary company and has been found suitable to own the stock of MRGS Corp. ("MRGS"), which has been licensed as a 50% general partner of Victoria Partners. The Registrant is registered by the Nevada Commission as a publicly traded corporation (a "Registered Corporation") and has been found suitable to own the stock of MCH, GNLV, Bellagio and GNL, each of which, together with TI Corp., MRGS and GNMC, is a corporate licensee (individ- ually, a "Gaming Subsidiary" and collectively, the "Gaming Subsidiaries") under the Nevada Act. Victoria Partners has been licensed to conduct nonrestricted gaming operations at Monte Carlo and certain subsidiaries of Circus have been registered or licensed for their ownership of Victoria Partners. The acquisition of BCI is subject to the prior approval of the Nevada Gaming Authorities. Upon receipt of such approval, BCI will become a Gaming Subsidiary. 12
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As a Registered Corporation, the Registrant is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. No person may become a stockholder of, or receive any percentage of profits from, the Gaming Subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Registrant and the Gaming 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. All gaming devices that are manufactured, sold or distri- buted for use or play in Nevada, or for distribution outside of Nevada, must be manufactured by licensed manufacturers and distributed or sold by licensed distributors. All gaming devices manufactured for use or play in Nevada must be approved by the Nevada Commission before distribution or exposure for play. The approval process for gaming devices includes rigorous testing by the Nevada Board, a field trial and a determination as to whether the gaming device meets strict technical standards that are set forth in the regulations of the Nevada Commission. Associated equipment must be administratively approved by the Chairman of the Nevada Board before it is distributed for use in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Registrant or the Gaming Subsidiaries in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the Gaming Subsidiaries must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Registrant who are actively and directly involved in gaming activities of the Gaming Subsidiaries may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities, and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. 13
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If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Registrant or the Gaming Subsidiaries, the companies involved would have to sever all relationships with such person. In addition, the Nevada Commission may require the Registrant or the Gaming Subsidiaries to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Registrant and the Gaming Subsidiaries are required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions entered into by the Gaming Subsidiaries must be reported to or approved by the Nevada Commission. If it were determined that the Nevada Act was violated by a Gaming Subsidiary, the licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Registrant, the Gaming Subsidiaries and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate The Mirage, Treasure Island, the Golden Nugget, the Golden Nugget-Laughlin and Monte Carlo and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the casino) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of the gaming license of a Gaming Subsidiary or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Registrant's gaming operations. Any beneficial holder of the Registrant's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated and have his suitability as a beneficial holder of the Registrant's voting securities determined if the Nevada Commission has reason to believe that such ownership would be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires more than 5% of a Registered Corporation's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Corporation's voting securities apply to the Nevada Commission for a finding of suitability within 30 days after the Chairman of 14
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the Nevada Board mails a written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of a Registered Corporation's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability requirement if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered Corporation, any change in the corporate charter, bylaws, management, policies or operations of the Registered Corporation or any of its gaming affiliates or any other action which the Nevada Commission finds to be inconsistent with holding the Registered Corporation's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. The City of Las Vegas and the Clark County Board have the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming licensee. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable who holds, directly or indirectly, any beneficial ownership of the voting securities beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Registrant is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Registrant or the Gaming Subsidiaries, the Registrant: (i) pays such person any dividend or interest upon voting securities of the Registrant; (ii) allows such person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pays remuneration in any form to such person for services rendered or otherwise; or (iv) fails to pursue all lawful efforts to require such person to relinquish his voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value. 15
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The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security if it has reason to believe that such ownership would be inconsistent with the declared policies of the State of Nevada. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction. The Registrant is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Registrant is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Registrant's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act. To date, the Nevada Commission has not imposed such a requirement on the Registrant. The Registrant may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada or to retire or extend obligations incurred for such purposes. On May 22, 1997, the Nevada Commission granted the Registrant prior approval to make public offerings for a period of two years, subject to certain conditions (the "Shelf Approval"). However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board and must be renewed biannually. The Shelf Approval also applies to any affiliated company wholly owned by the Registrant (an "Affiliate") which 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 Gaming Subsidiaries to guarantee any security issued by, or to hypothecate their assets to secure the payment or performance of any obligations issued by, the Registrant or an Affiliate in a public offering under the Shelf Approval. The Shelf Approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful. 16
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Changes in control of the Registrant through merger, consolidation, stock or asset acquisitions, management or consulting agreements or any act or conduct by a person whereby he obtains control may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission with respect to a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control to be investigated and licensed as part of the approval process relating to the transaction. The Nevada Legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defensive tactics affecting Nevada corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Registered Corporation can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Corporation's board of directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purpose of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to Clark County and the City of Las Vegas, in which the Gaming Subsidiaries' respective operations are con- ducted. Depending upon the particular fee or tax involved, these fees and taxes are payable monthly, quarterly or annually and are based upon: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the serving of food or refreshments or the selling of merchandise. Nevada licensees that hold a manu- facturer's or distributor's license, such as GNMC, also pay certain fees to the State of Nevada. 17
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Any person who is licensed, required to be licensed, registered, required to be registered or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of its participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees or employ a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages at The Mirage, Treasure Island, the Golden Nugget-Laughlin and Monte Carlo, and the sale of alcoholic beverages at the Golden Nugget, are subject to licensing, control and regulation by the Clark County Board and the City of Las Vegas, respectively. 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 on the operations of the Gaming Subsidiaries. MISSISSIPPI The ownership and operation of casino gaming facilities in Mississippi are subject to the Mississippi Gaming Control Act and the regulations promulgated thereunder (collectively, the "Mississippi Act"). The Registrant's Mississippi gaming operations will be subject to the licensing and regulatory control of the Mississippi Gaming Commission (the "Mississippi Commission"). The laws, regulations and supervisory procedures of the Mississippi Commission are based upon declarations of public policy which are concerned with, among other things: (i) keeping gaming free of criminal and corruptive elements and (ii) maintaining public confidence and trust in gaming by means of strict regulation of all persons, locations, practices, associations and activity related to the operation of licensed gaming establishments and the manufacture or distribution of gambling devices and equipment. Change in such laws, regulations and procedures could have an adverse effect on the Registrant's Mississippi gaming operations. 18
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Beau Rivage Resorts, Inc. ("Beau Rivage Resorts"), the Registrant's indirect subsidiary that will own and operate Beau Rivage, is required to be licensed by the Mississippi Commission. The gaming license requires the periodic payment of fees and taxes and is not transferable. GNLV is registered as an intermediary company and has been found suitable to own the stock of Beau Rivage Resorts. The Registrant is registered by the Mississippi Commission as a publicly traded corporation (a "Registered Corporation") and has been found suitable to own the stock of GNLV under the Mississippi Act. As a Registered Corporation, the Registrant is required periodically to submit detailed financial and operating reports to the Mississippi Commission and furnish any other information which the Mississippi Commission may require. No person may become a stockholder of, or receive any percentage of profits from, Beau Rivage Resorts without first obtaining approval from the Mississippi Commission. The Registrant, GNLV and Beau Rivage Resorts have obtained from the Mississippi Commission the various registrations, findings of suitability and licenses required in order to engage in gaming activities in Mississippi; however, Beau Rivage is under construction, and the final approvals to open the casino must be obtained from the Mississippi Commission as well as other state and local governmental entities. Although the Registrant expects to obtain such approvals in due course, failure to receive such approvals would have a material adverse effect on the Registrant's Mississippi gaming operations. All gaming devices that are manufactured, sold or distri- buted for use or play in Mississippi, or for distribution outside of Mississippi, must be manufactured by licensed manufacturers and distributed or sold by licensed distributors. All gaming devices manufactured for use or play in Mississippi must be approved by the Mississippi Commission before distribution or exposure for play. The approval process for gaming devices includes rigorous testing by the staff of the Mississippi Commission, a field trial and a determination as to whether the gaming device meets strict technical standards that are set forth in the regulations of the Mississippi Commission. Associated equipment must be administratively approved by the Executive Director of the Mississippi Commission before it is distributed for use in Mississippi. The Mississippi Commission may investigate any individual who has a material relationship to, or material involvement with, the Registrant, GNLV or Beau Rivage Resorts in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of Beau Rivage Resorts must file applications with the Mississippi Commission and may be required to be licensed or found suitable. Officers, directors and key employees of GNLV and the Registrant who are actively and directly involved in gaming activities of Beau Rivage Resorts may be required to be licensed or found suitable by the Mississippi Commission. The Mississippi Commission may deny an application 19
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for licensing for any cause which it deems reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in approval positions must be reported to the Mississippi Commission, and in addition to its authority to deny an application for a finding of suitability or licensure, the Mississippi Commission has jurisdiction to disapprove a change in a corporate position. If the Mississippi Commission were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Registrant, GNLV or Beau Rivage Resorts, the companies involved would have to sever all relationships with such person. In addition, the Mississippi Commission may require the Registrant, GNLV or Beau Rivage Resorts to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Mississippi. In addition to the Registrant, GNLV and Beau Rivage Resorts are required to submit detailed financial and operating reports to the Mississippi Commission. All material loans, sales of securities and similar financing transactions entered into by Beau Rivage Resorts must be reported to or approved by the Mississippi Commission. If it were determined that the Mississippi Act was violated by Beau Rivage Resorts, the license it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Registrant, GNLV, Beau Rivage Resorts and the persons involved could be subject to substantial fines for each separate violation of the Mississippi Act at the discretion of the Mississippi Commission. Limitation, conditioning or suspension of the gaming license of Beau Rivage Resorts could (and revocation of the gaming license would) materially adversely affect the Registrant's Mississippi gaming operations. Any beneficial holder of the Registrant's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated and have his suitability as a beneficial holder of the Registrant's voting securities determined if the Mississippi Commission has reason to believe that such ownership would be inconsistent with the declared policies of the State of Mississippi. The applicant must pay all costs of investigation incurred by the Mississippi Commission in conducting any such investigation. 20
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The Mississippi Act requires any person who acquires more than 5% of a Registered Corporation's voting securities to report the acquisition to the Mississippi Commission. The Mississippi Act requires that beneficial owners of more than 10% of a Registered Corporation's voting securities apply to the Mississippi Commission for a finding of suitability within 30 days after the Executive Director of the Mississippi Commission requests such filing. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Commission or the Executive Director of the Mississippi Commission 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 who holds, directly or indirectly, any beneficial ownership of the voting securities beyond such period of time as may be prescribed by the Mississippi Commission may be guilty of a criminal offense. The Mississippi Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security if it determines that such requirement is in the public interest. The Registrant is required to maintain a current stock ledger in Mississippi which may be examined by the Mississippi Commission at any time. If any securities are held in trust by an agent or nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Commission. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Registrant is also required to render maximum assistance in determining the identity of the beneficial owner. The Mississippi Commission has the power to require the Registrant's stock certificates to bear a legend indicating that the securities are subject to the Mississippi Act; however, the Mississippi Commission has in the past routinely waived such requirement. The Registrant may not make a public offering of its securities without the prior approval of the Mississippi Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Mississippi or to retire or extend obligations incurred for such purposes. On May 29, 1997, the Mississippi Commission granted the Registrant prior approval to make public offerings for a period of one year, subject to certain conditions (the "Mississippi Shelf Approval"). However, the Mississippi Shelf Approval may be rescinded for good cause without prior notice upon the issuance of a stop order by the Executive Director of the Mississippi Commission. The Mississippi Shelf Approval does not constitute a finding, recommendation or approval by the Mississippi Commission as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. 21
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Any representation to the contrary is unlawful. The Registrant intends to file an application for renewal of the Mississippi Shelf Approval, which it anticipates will be considered by the Mississippi Commission in May 1998. Changes in control of the Registrant through merger, consolidation, stock or asset acquisitions, management or consulting agreements or any act or conduct by a person whereby he obtains control may not occur without the prior approval of the Mississippi Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Mississippi Commission with respect to a variety of stringent standards prior to assuming control of such Registered Corporation. The Mississippi 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 corporate defensive tactics affecting Mississippi corporate gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Mississippi 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: (i) assure the financial stability of corporate gaming licensees and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Mississippi Commission before the Registered Corporation can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Mississippi Act also requires prior approval of a plan of recapitalization proposed by the Registered Corporation's board of directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purpose of acquiring control of the Registered Corporation. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Mississippi, and to the City of Biloxi, where Beau Rivage Resorts' operations will be conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable monthly, quarterly or annually and are based upon: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. 22
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Any person who is licensed, required to be licensed, registered, required to be registered or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Mississippi, is required to receive the approval of the Mississippi Commission with respect to foreign gaming activities undertaken after licensure. Licensees are also subject to disciplinary action by the Mississippi Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Mississippi gaming operations, engage in activities that are harmful to the State of Mississippi or its ability to collect gaming taxes and fees or employ a person in the foreign operation who has been denied a license or finding of suitability in Mississippi on the ground of personal unsuitability. The sale of alcoholic beverages at Beau Rivage will be sub- ject to licensing, control and regulation by the Mississippi State Tax Commission (the "Tax Commission"). All licenses are revocable and are not transferable. The Tax Commission has 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 on the operations of Beau Rivage Resorts. CERTAIN FORWARD-LOOKING STATEMENTS Certain information included in this Form 10-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information relating to plans for future expansion and other business development activities as well as other capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, leverage and debt service (including sensitivity to fluctuations in interest rates), domestic or international economic conditions, pending litigation, changes in federal or state tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). ITEM 2. PROPERTIES The Mirage and Treasure Island share an approximately 100- acre site owned by the Company. 23
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The Golden Nugget occupies approximately seven and one- half acres. The improvements and approximately 90% of the underlying land are owned by the Company. The remaining land is held under three separate ground leases that expire (giving effect to renewal options) on dates ranging from 2025 to 2046. The Golden Nugget-Laughlin, including approximately two acres underlying the motel in Bullhead City, Arizona, occupies an aggregate of approximately 15-1/2 acres. All of the property is owned by the Company. The Bellagio site comprises approximately 120 acres, all of which is owned by the Company except for one acre held under a ground lease that expires (giving effect to renewal options) in 2073. Monte Carlo occupies approximately 46 acres owned by Victoria Partners. At March 1, 1998, Monte Carlo was subject to aggregate encumbrances approximating $99.2 million. The Company owns approximately 850 contiguous acres of land in North Las Vegas, including 240 acres occupied by Shadow Creek. The Beau Rivage site comprises approximately 23 acres in Biloxi, Mississippi owned by the Company. The Company also owns several other parcels of land in the Biloxi area, including approximately 508 acres for the potential development of a world-class 18-hole golf course. The Company owns approximately 180 acres (125 acres of which are developable) in the Marina area of Atlantic City, New Jersey. The Company is designing a major new hotel- casino resort which it currently intends to construct on the Marina Site. The Company also owns or leases various other improved and unimproved property in Las Vegas, Atlantic City and other locations in the United States and certain foreign countries. The book value of such property at March 1, 1998 was approximately $121 million. ITEM 3. LEGAL PROCEEDINGS On February 2, 1998, Boyd filed a complaint against the Company in Superior Court for Atlantic County, New Jersey. The complaint alleges that the Company's January 1998 termination of the May 29, 1996 joint venture agreement between the Company and Boyd relating to the development, ownership and operation of a hotel-casino on the Marina Site was improper. The complaint alleges, among other counts, breach of contract, breach of fiduciary duty, breach of implied covenant of good faith and fair dealing, fraud and concealment, and seeks, among other relief, unspecified compensatory and punitive damages, specific performance and imposition of a constructive trust for the benefit of Boyd. 24
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