The decision of U.S.-based casino operator Wynn Resorts Ltd to reach a compensation settlement with Japanese gaming conglomerate Universal Entertainment Corp over cancellation of some Wynn Resorts shares held by the latter – and to do so without involvement of Universal Entertainment’s founder Kazuo Okada – benefited both sides because precious gaming licences were at risk on both sides. So said a filing to Jasdaq by the Japanese group.
The announcement added that Mr Okada, former chairman of Universal Entertainment, who was ousted from his business in June last year, amid allegations – denied – of financial impropriety; and Steve Wynn, the founder and former chairman of Wynn Resorts, who resigned in February after allegations of sexual misconduct spanning several decades, “both came under investigation for personal unsuitability by gaming authorities including the Gaming Control Board of Nevada,” in the United States.
The Universal filing added: “The investigation was causing a great impact on the business continuity in terms of maintaining licences for operating casino business, as well as observing the covenants agreed with financial institutions in a loan agreement.”
Universal Entertainment said it was making the statement – in relation to the background to a March agreement by Wynn Resorts to pay an aggregate of what the Japanese side said was US$2.63 billion for shares in Wynn Resorts that had been held by Aruze USA Inc, a casino equipment business founded by Mr Okada – because of the “extremely high level of interest” in the matter among Universal Entertainment’s shareholders. Mr Okada has said in an interview he was not consulted about the settlement, and was unhappy about it.
In June the Nevada Gaming Control Board confirmed to GGRAsia that it was investigating reports of three deals that allegedly improperly benefited Mr Okada personally rather than his businesses.
In late January, shortly before Mr Wynn’s resignation from the firm that bears his name, the Nevada Gaming Control Board said it had launched a formal investigation into allegations of sexual misconduct made against him.
Loan covenants
Universal Entertainment’s English-language filing giving what it said was the background to the Wynn Resorts shares settlement – one of three filings on Wednesday but dated Monday April 2 – said regarding the issue of a loan covenant: “When financing a large amount of money for casino operating business, financial institutions commonly incorporate into their finance agreement an acceleration clause stipulating that in the event the management or shareholder of the borrower is determined as unsuitable by the Nevada Gaming Control Board, their loan immediately becomes due and payable by the borrower regardless of the agreed due date.”
Universal Entertainment said that not only was Wynn Resorts subject to such loan covenant conditions, but also a wholly-owned Hong Kong subsidiary of the Japanese group, called Tiger Resort Asia Ltd.
Universal Entertainment stated that a loan agreement for JPY33 billion (US$307.3 million) dated February 13 this year, entered into by Tiger Resort Asia, had “a similar acceleration clause which stipulates that in the event that Mr Kazuo Okada, our former chairman, participates in any form in the management of our company or Tiger Resort Asia Ltd, then, the loan will be accelerated and immediately become due and payable by Tiger Resort Asia, causing our company a risk of exercising the security interest, which was established in the 51 percent of the company shares currently held by us.”
The same filing also gave some background on why Universal Entertainment had originally pursued a lawsuit against Wynn Resorts regarding the share cancellation and why the two sides had reached a settlement: essentially not to reach an agreement would have been mutually damaging, the document explained.
Shareholder agreement
Universal said Mr Okada, “then sole representative of Aruze USA, without obtaining an approval from, or reporting to, our company, its parent,” had concluded with Mr Wynn, a shareholder’s agreement with an incorporated clause which allowed Wynn Resorts “by a board resolution to redeem its shares held by a person suspected as unsuitable”.
The Japanese group added: “According to the U.S. [-based] attorney in charge and other lawyers, it was hard to fight over the validity of the mandatory redemption clause of the Wynn Resorts’ article of incorporation in light of the existence of the shareholder’s agreement and other factors.”
Universal said that even if it had got the shares reinstated, it could have caused other problems for both sides.
“If we became a large shareholder of Wynn Resorts… it could cause an adverse effect on its licence because of the Nevada regulations. If Wynn Resorts’ licence for operating casino business is revoked, it will endanger [risk] its solvency, making it meaningless even if we won in the U.S. lawsuit,” stated Universal Entertainment.
The Japanese side said that after the cash settlement “our company group and Wynn Resorts have agreed to mutually establish a cooperative system to the extent possible, as good friends and good supporters in the observance of basic management duty of enhancing corporate value while avoiding risks. Besides, Wynn Resorts has promised us to participate in terms of human resources in our ongoing IR [integrated resort] project in the Philippines.” That was a reference to Okada Manila in the Philippine capital.
“We are planning to preferentially allocate the revenue from the settlement to the repayment of borrowings and to the promotion of the Philippine project; however, we need some more time to reach a final decision,” added Universal Entertainment.
In a separate filing dated April 2, Universal Entertainment said that on March 30, the company had filed a lawsuit with a Nevada district court, against an entity called Aruze Gaming America Inc and Mr Okada, seeking damages, on the grounds that Universal Entertainment’s patent rights were violated.
“Recently, it became clear that Aruze Gaming America had illegally used patents on gaming machines belonging to the company to conduct the sales of gaming machines in the United States, and that Kazuo Okada, a former director of the company, had illegal involvement in those activities,” stated the Japanese group.
Mr Okada has denied wrongdoing.
In a third filing dated April 2, Universal Entertainment claimed that a website titled “Association for Support of Chairman Okada” had been giving out what the group called “false information” about Universal Entertainment’s dispute with its founder.
