REGULATION AND LICENSING
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 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." To the best knowledge of management, the Registrant
and its subsidiaries are presently in material compliance with
all applicable laws, regulations and supervisory procedures
described herein.
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible
accounting practices and procedures; (iii) the maintenance of
effective controls over the financial practices of licensees,
including the establishment of minimum procedures for internal
fiscal affairs and the safeguarding of assets and revenues,
providing reliable record keeping and requiring the filing of
periodic reports with the Nevada Gaming Authorities; (iv) the
prevention of cheating and fraudulent practices; and (v)
providing a source of state and local revenues through taxation
and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Registrant's
gaming operations.
The Registrant's direct and indirect subsidiaries that
conduct 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. MCH
is registered as an intermediary company and has been found
suitable to own the stock of 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 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 has
been licensed to conduct nonrestricted gaming operations at the
Golden Nugget-Laughlin. The Registrant is registered by the
Nevada Commission as a publicly traded corporation (a "Registered
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Corporation") and has been found suitable to own the stock of
MCH, GNLV and GNL, each of which, together with TI Corp. and
GNMC, is a corporate licensee (individually, a "Gaming
Subsidiary" and collectively, the "Gaming Subsidiaries") under
the Nevada Act. Victoria Partners, the joint venture which will
own and operate Monte Carlo, and certain subsidiaries of the
Registrant and Circus Circus Enterprises, Inc. which are involved
in the ownership of Victoria Partners, are required to be
licensed by the Nevada Gaming Authorities and have filed
applications for such licenses.
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
distributed 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
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followed by a thorough investigation. The applicant for licensing
or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to
the Nevada Gaming Authorities, and in addition to their authority
to deny an application for a finding of suitability or licensure,
the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the 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 and the
Golden Nugget-Laughlin 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.
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The Nevada Act requires any person who acquires more than 5%
of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires
that beneficial owners of more than 10% of a Registered
Corporation's voting securities apply to the Nevada Commission
for a finding of suitability within 30 days after the Chairman of
the Nevada Board mails a written notice requiring such filing.
Under certain circumstances, an "institutional investor," as
defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of 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 common
stock 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
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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.
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. In May
1995, the Nevada Commission granted the Registrant prior approval
to make public offerings for a period of one year, subject to
certain conditions (the "Shelf Approval"). However, the Shelf
Approval may be rescinded for good cause without prior notice
upon the issuance of an interlocutory stop order by the Chairman
of the Nevada Board. The Shelf Approval also applies to any
affiliated company wholly owned by the Registrant (an
"Affiliate") which is a publicly traded corporation or would
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thereby 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. The Registrant has filed an application for renewal of
the Shelf Approval, which it anticipates will be considered by
the Nevada Board and the Nevada Commission in May 1996.
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.
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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
conducted. Depending upon the particular fee or tax involved,
these fees and taxes are payable either monthly, quarterly or
annually and are based upon either: (i) a percentage of the gross
revenues received; (ii) the number of gaming devices operated; or
(iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food, refreshments or
merchandise. Nevada licensees that hold a manufacturer's or
distributor's license, such as GNMC, also pay certain fees to the
State of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada, is
required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada Board of 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 and the Golden Nugget-Laughlin, 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.
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