<PAGE>
PROSPECTUS
PARK PLACE ENTERTAINMENT CORPORATION
OFFER TO EXCHANGE
ITS 7 7/8% SENIOR SUBORDINATED NOTES DUE 2005
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF ITS OUTSTANDING 7 7/8% SENIOR SUBORDINATED NOTES DUE 2005
--------------
THE EXCHANGE NOTES
- The terms of the notes we are issuing will be substantially identical to
the outstanding notes that we issued on December 21, 1998, except for the
elimination of certain transfer restrictions, registration rights and
liquidated damages provisions relating to the outstanding notes.
- Interest on the notes will accrue at the rate of 7 7/8% per year payable,
semi-annually on each June 15 and December 15, commencing June 15, 1999,
and the notes will mature on December 15, 2005.
- The notes will be our unsecured senior subordinated obligations and will
be subordinated to all of our senior debt. The notes will effectively rank
junior to all liabilities of our subsidiaries, including trade payables.
- We may redeem the notes at any time prior to their maturity at the
redemption prices described more fully in this prospectus.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5:00 p.m., New York City time, on March 18,
1999, unless extended.
- Our completion of the exchange offer is subject to customary conditions,
which we may waive.
- Upon our completion of the exchange offer, all outstanding notes that are
validly tendered and not withdrawn will be exchanged for an equal
principal amount of notes that are registered under the Securities Act of
1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange of registered notes for outstanding notes will not be a
taxable exchange for U.S. Federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 20 OF
THIS PROSPECTUS.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------
The date of this prospectus is February 11, 1999.
<PAGE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY
INFORMATION OR REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, NOR DOES THIS PROSPECTUS
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Forward-Looking Statements................................................................................. 3
Market Data................................................................................................ 3
Available Information...................................................................................... 3
Incorporation of Certain Documents by Reference............................................................ 4
Summary.................................................................................................... 5
Risk Factors............................................................................................... 20
The Transactions and the Refinancing....................................................................... 26
Use of Proceeds............................................................................................ 29
Capitalization............................................................................................. 30
Ratio of Earnings to Fixed Charges......................................................................... 30
Unaudited Pro Forma Condensed Financial Statements......................................................... 31
Selected Financial Data.................................................................................... 46
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 49
Business and Properties.................................................................................... 57
Regulation and Licensing................................................................................... 67
Management................................................................................................. 81
Principal Stockholders..................................................................................... 87
Arrangements Between Hilton and Park Place................................................................. 89
Arrangements Between Grand and Lakes....................................................................... 97
Certain Relationships and Related Transactions............................................................. 103
Description of the New Senior Credit Facility.............................................................. 104
The Exchange Offer......................................................................................... 106
Description of the Exchange Notes.......................................................................... 117
Material Federal Income Tax Consequences of the Exchange................................................... 131
Plan of Distribution....................................................................................... 132
Legal Matters.............................................................................................. 133
Experts.................................................................................................... 133
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
2
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us and our subsidiaries, including, among
other things, factors discussed under the heading "Risk Factors" in this
prospectus and in our filings with the Securities and Exchange Commission (the
"SEC" or the "Commission") and the following:
- the effect of economic, credit and capital market conditions in general
and on gaming companies in particular;
- our construction and development activities;
- our ability to successfully integrate our operations with Grand Casinos,
Inc.;
- the impact of competition, particularly from other gaming and hotel/gaming
operations;
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies; and
- changes in customer demand.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
MARKET DATA
Market data used throughout this prospectus including information relating
to our relative position in the casino and gaming industry is based on the good
faith estimates of management, which estimates are based upon their review of
internal surveys, independent industry publications and other publicly available
information. Although we believe that such sources are reliable, the accuracy
and completeness of such information is not guaranteed and has not been
independently verified.
AVAILABLE INFORMATION
This prospectus is part of a Registration Statement on Form S-4 we have
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This prospectus does not contain all of the information set
forth in the registration statement. For further information about us and the
notes, you should refer to the registration statement. This prospectus
summarizes material provisions of contracts and other documents to which we
refer you. Since this prospectus may not contain all of the information that you
may find important, you should review the full text of these documents. We have
filed these documents as exhibits to our registration statement.
We are subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and file annual,
quarterly and special reports, proxy statements and other information with the
Commission. You may read and copy any reports, proxy statements and other
information we file at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the following Regional Offices: 7 World Trade Center, 14th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Please call the Commission at 1-800-SEC-0300 for further information. In
addition, the Commission maintains a website (http:/www.sec.gov) that contains
such reports, proxy statements and other information filed by the Company. In
addition, you may inspect reports and other information we file at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
Commission will automatically update and supersede this information. We
incorporate by reference the following documents we filed with the Commission:
1. Amendment No. 1 to Registration Statement on Form 10 filed with the
Commission on December 18, 1998;
2. Quarterly Report on Form 10-Q for the quarter ended September 30, 1998;
3. Current Reports on Form 8-K filed with the Commission on November 25,
1998, December 16, 1998, January 8, 1999, January 20, 1999 and February
5, 1999;
4. Registration Statement on Form 8-A with respect to the Company's Rights
filed with the Commission on December 30, 1998;
5. The sections entitled "Risk Factors--Risks Relating to the
Transactions," "--Risks Relating to the Business of Lakes--Management
Contracts of Limited Duration," "--Management Contracts Subject to
Governmental Modification," "Material Federal Income Tax Consequences of
the Transactions," "Background and Reasons," "The Transactions," "The
Hilton Proposals (other than Proposal 4)" and Annexes A, B, C, D and E,
in the Company's Form S-4 Registration Statement (Registration No.
333-65645) filed with the Commission on October 23, 1998; and
6. All documents filed by us with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and before the termination of the exchange offer.
The following Grand Casinos, Inc. documents are incorporated by reference
herein:
1. The sections entitled "Business--Mississippi Casinos," "--Louisiana
Casino," "--Competition-- Mississippi and Louisiana,"
"--Regulation--Mississippi," "--Grand Casino Gulfport--Potential Early
Termination of Lease," "Severe Weather Conditions on the Gulf Coast; Risk
of Flooding at Grand Casino Tunica," "--Pending Litigation,"
"Properties--Mississippi Gulfcoast," and "Legal Proceedings" and the
audited Financial Statements of Grand and subsidiaries contained in Part
IV from Grand's Annual Report on Form 10-K for the year ended December
28, 1997, as amended; and
2. Quarterly Report on Form 10-Q for the quarter ended September 27, 1998
(as amended), not including the section entitled "Legal
Proceedings--Tulalip Tribes Litigation".
3. Current Reports on Form 8-K filed with the Commission on December 9,
1998.
You may request a free copy of any of the documents incorporated by
reference in this prospectus (other than exhibits, unless they are specifically
incorporated by reference in the documents) by writing or telephoning us at the
following address:
Investor Relations
Park Place Entertainment Corporation
3930 Howard Hughes Parkway
Las Vegas, Nevada 89109
(702) 699-5000
TO OBTAIN TIMELY DELIVERY OF ANY DOCUMENT INCORPORATED BY REFERENCE IN THEIR
PROSPECTUS, YOU MUST REQUEST THE INFORMATION NO LATER THAN FIVE BUSINESS DAYS
PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER. THE EXPIRATION DATE IS MARCH
18, 1999, UNLESS EXTENDED.
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the dates on the front of these documents.
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND
MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD
READ THIS ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND RELATED NOTES AND
THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE MAKING AN
INVESTMENT DECISION. THE TERMS THE "COMPANY," "PARK PLACE," "WE," "OUR," AND
"US," AS USED IN THIS PROSPECTUS REFER TO PARK PLACE ENTERTAINMENT CORPORATION,
AND ITS SUBSIDIARIES AS A COMBINED ENTITY, EXCEPT WHERE IT IS CLEAR THAT SUCH
TERMS MEAN ONLY PARK PLACE ENTERTAINMENT CORPORATION. THE TERM "OLD NOTES"
REFERS TO OUR OUTSTANDING 7 7/8% SENIOR SUBORDINATED NOTES DUE 2005 THAT WE
ISSUED ON DECEMBER 21, 1998 AND THAT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT. THE TERM "EXCHANGE NOTES" REFERS TO THE 7 7/8% SENIOR
SUBORDINATED NOTES DUE 2005 OFFERED PURSUANT TO THIS PROSPECTUS. THE TERM
"NOTES" REFERS TO THE OLD NOTES AND THE EXCHANGE NOTES, COLLECTIVELY.
YOU SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS." IN ADDITION, CERTAIN STATEMENTS INCLUDE FORWARD-LOOKING INFORMATION
WHICH INVOLVE RISKS AND UNCERTAINTIES. SEE "FORWARD-LOOKING STATEMENTS."
THE COMPANY
We are the largest gaming company, as measured by casino square footage and
revenues, with approximately 1.4 million square feet of gaming space in 1999 and
approximately $2.7 billion in revenues in 1997. We are also the only gaming
company with a significant presence in Nevada, New Jersey and Mississippi, the
three largest gaming markets in the United States. Our operations currently
include eleven U.S. land-based casinos and we have interests in three U.S.
riverboat casinos, two land-based casinos in Australia and one land-based casino
in Uruguay. In 1999, we will have interests in a total of 18 properties when our
2,900 room Paris Casino Resort-Las Vegas opens. This property is currently under
construction.
These properties are listed below.
<TABLE>
<CAPTION>
NUMBER OF YEAR APPROXIMATE CASINO
NAME AND LOCATION ROOMS/SUITES ACQUIRED SQUARE FOOTAGE(1)
- --------------------------------------------------------------------- --------------- ----------- -------------------
<S> <C> <C> <C>
DOMESTIC CASINOS
NEW JERSEY
Bally's Park Place Casino-Resort................................... 1,265 1996 155,000
The Atlantic City Hilton Casino Resort............................. 805 1996 60,000
NEVADA
Flamingo Hilton-Las Vegas.......................................... 3,642 1971 93,000
Las Vegas Hilton................................................... 3,174 1971 100,000
Bally's Las Vegas.................................................. 2,814 1996 68,000
Reno Hilton........................................................ 2,001 1992 114,000
Flamingo Hilton-Laughlin........................................... 2,000 1990 58,000
Flamingo Hilton-Reno............................................... 604 1981 46,000
MISSISSIPPI
Grand Casino Biloxi................................................ 1,000 1998 115,000
Grand Casino Tunica................................................ 756 1998 140,000
Grand Casino Gulfport.............................................. 400 1998 110,000
Bally's Saloon-Gambling Hall-Hotel................................. 238 1996 40,000
MISSOURI
Flamingo Casino-Kansas City(2)..................................... -- 1996 30,000
LOUISIANA
Bally's Casino-Lakeshore Resort(3)................................. -- 1996 30,000
INTERNATIONAL CASINOS
AUSTRALIA(4)
Conrad Jupiters, Gold Coast........................................ 609 1985 70,000
Conrad International Treasury Casino, Brisbane..................... 136 1995 65,000
URUGUAY
Conrad International Punta del Este
Resort and Casino(5)............................................. 300 1997 38,000
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
5
<PAGE>
- ------------------------------
(1) Includes square footage attributable to our race and sports books. See
"Business and Properties--Properties."
(2) Prior to and in connection with our spinoff from Hilton Hotels Corporation
on December 31, 1998, we applied for approval from the state gaming
authorities to own and operate this riverboat casino, but we did not receive
this approval prior to our spinoff from Hilton. Hilton has retained this
property and will cooperate with us to take appropriate action to put us in
the same position we would have been in if the transfer had occurred. On
January 13, 1999, Hilton entered into an agreement to sell this property to
a third party and upon such sale we will be entitled to the net proceeds of
the sale. See "Business and Properties--Missouri Casino."
(3) We have a 49.9% ownership interest in this property.
(4) We have a 19.9% ownership interest in each of these properties.
(5) We have a 43% ownership interest in this property.
In April 1997, we began construction of the 2,900 room Paris Casino-Resort
in Las Vegas, Nevada. This resort, which is located adjacent to the Bally's Las
Vegas on the Las Vegas Strip, will feature an 85,000 square foot casino, a
50-story replica of the Eiffel Tower, thirteen restaurants, 130,000 square feet
of convention space and a retail shopping complex with a French influence. The
cost of this resort is currently estimated at approximately $760 million. We
expect to complete this project in the fall of 1999.
THE TRANSACTIONS AND THE REFINANCING
On December 31, 1998, we completed the transactions described below under
"The Hilton Distribution," "The Grand Distribution" and "The Merger" (we refer
to these collectively as the "Transactions"). In connection with the
Transactions, we engaged in the refinancing transactions described below (we
refer to these collectively as the "Refinancing").
THE HILTON DISTRIBUTION
The Hilton distribution separated Hilton's gaming business from its lodging
business and consisted of (i) Hilton's transfer of all of the assets and
liabilities of its gaming business (with certain exceptions) to us and (ii) the
distribution of all of our outstanding shares of common stock to the holders of
Hilton common stock (we refer to these transactions as the "Hilton
Distribution"). Our common stock is listed on the New York Stock Exchange under
the trading symbol "PPE."
THE GRAND DISTRIBUTION
The Grand distribution separated Grand's Mississippi business (which
includes the Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino Tunica
properties) from its non-Mississippi business. Grand's non-Mississippi business
is comprised primarily of the management of two Indian-owned casinos, an
interest in the development of the Polo Plaza in Las Vegas, up to $33 million in
cash and certain other assets and liabilities. Specifically, the Grand
distribution consisted of (i) the transfer of all of the assets and liabilities
of the non-Mississippi business to Lakes and (ii) the distribution of all of the
outstanding shares of Lakes to the holders of Grand common stock (we refer to
these transactions as the "Grand Distribution").
THE MERGER
Following the Hilton Distribution and the Grand Distribution, we acquired
Grand's Mississippi business. The acquisition was accomplished by merging our
wholly owned subsidiary into Grand and issuing our common stock to the holders
of Grand common stock (we refer to this transaction as the "Merger").
THE REFINANCING TRANSACTIONS
In connection with the Transactions we entered into the following
arrangements, in addition to the issuance of the Old Notes:
6
<PAGE>
- we entered into a new senior revolving credit facility that will provide
us with up to $2.15 billion in financing. We used a portion of these funds
in the Refinancing;
- we provided Grand with the funds necessary to defease its 9% Senior Notes
due 2004;
- we consummated a tender offer to purchase all of Grand's 10 1/8% First
Mortgage Notes due 2003.
SOURCES AND USES OF FUNDS
The following table sets forth the estimated sources and uses of funds on a
pro forma basis assuming the Transactions and the Refinancing occurred on
September 30, 1998. For a more detailed discussion of the financing arrangements
associated with the Transactions, see "The Transactions and the Refinancing" and
"Description of the New Senior Credit Facility."
<TABLE>
<CAPTION>
AMOUNT
-------------------
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES OF FUNDS:
New Senior Credit Facility(1)............................................. $ 1,189
Old Notes................................................................. 400
------
Total Sources of Funds................................................ $ 1,589
------
------
USES OF FUNDS:
Repayment of Hilton Debt(2)............................................... $ 934
Loan to Grand for Defeasance(3)........................................... 135
Tender for 10 1/8% First Mortgage Notes due 2003 of Grand(4).............. 490
Estimated Fees and Expenses(5)............................................ 30
------
Total Uses of Funds................................................... $ 1,589
------
------
</TABLE>
- ------------------------
(1) We have availability under the new senior revolving credit facility of up to
$2.15 billion which includes up to $650 million under a 364-day revolver and
up to $1.50 billion under a five-year revolver. See "Description of the New
Senior Credit Facility."
(2) In connection with the Hilton Distribution, we were responsible for repaying
our pro rata share of Hilton's outstanding indebtedness under Hilton's
revolving credit agreement.
(3) In connection with the Merger, Grand defeased its $115 million in principal
amount of outstanding 9% Senior Notes due 2004 at 100% of their principal
amount plus a premium as provided in the indenture for the notes. We loaned
Grand the funds to consummate the defeasance.
(4) We completed a tender offer and consent solicitation with respect to $450
million in principal amount of Grand's outstanding 10 1/8% First Mortgage
Notes due 2003. As of the expiration date of the tender offer, we had
received irrevocable tenders of $444.5 million in principal amount of the
mortgage notes from the holders. We have defeased the remainder of the
mortgage notes not tendered in the tender offer.
(5) Includes commitment, placement, financial advisory and other fees.
7
<PAGE>
STRUCTURE OF THE TRANSACTIONS
The following chart shows the corporate structure of Hilton, Park Place,
Grand and Lakes before and after the Transactions were completed:
HILTON AND GRAND IMMEDIATELY BEFORE THE HILTON DISTRIBUTION AND THE GRAND
DISTRIBUTION
[CHART]
HILTON, PARK PLACE, GRAND AND LAKES AFTER THE HILTON DISTRIBUTION AND THE GRAND
DISTRIBUTION AND BEFORE THE MERGER
[CHART]
HILTON, PARK PLACE, GRAND AND LAKES AFTER THE MERGER
[CHART]
8
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer.................. We are offering to exchange $1,000 principal amount
of our Exchange Notes for each $1,000 principal
amount of Old Notes (the "Exchange Offer"). As of the
date of this prospectus, $400,000,000 in aggregate
principal amount of Old Notes are outstanding.
We have registered the Exchange Notes under the
Securities Act and they are substantially identical
to the Old Notes, except for the elimination of
certain transfer restrictions, registration rights
and liquidated damages provisions relating to the Old
Notes.
Accrued Interest on the Exchange
Notes and the Old Notes........... Interest on the Exchange Notes will accrue from the
last interest payment date on which interest was paid
on the Old Notes or, if no interest was paid on the
Old Notes, from the date of issuance of the Old Notes
(December 21, 1998). Holders whose Old Notes are
accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the Old
Notes.
No Minimum Condition................ We are not conditioning the Exchange Offer on the
tender of any minimum aggregate principal amount of
Old Notes.
Expiration Date..................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on March 18, 1999, unless we decide to
extend the Exchange Offer.
Withdrawal Rights................... You may withdraw your tender at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Conditions to the Exchange Offer.... The Exchange Offer is subject to customary
conditions, which we may waive. We currently
anticipate that each of the conditions will be
satisfied and that we will not need to waive any
conditions. We reserve the right to terminate or
amend the Exchange Offer at any time before the
Expiration Date if any such condition occurs. See
"The Exchange Offer-- Certain Conditions to the
Exchange Offer."
Procedures for Tendering Old
Notes............................. If you are a holder of Old Notes who wishes to accept
the Exchange Offer, you must:
- complete, sign and date the accompanying Letter of
Transmittal, or a facsimile thereof and mail or
otherwise deliver such documentation, together with
your Old Notes, to the Exchange Agent at the
address set forth under "The Exchange
Offer--Exchange Agent;" or
- arrange for The Depository Trust Company ("DTC") to
transmit certain required information, including an
agent's message forming part of a book-entry
transfer in which you agree to be bound by the
terms of the Letter of Transmittal, to the Exchange
Agent in connection with a book-entry transfer.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
By tendering your Old Notes in either manner, you
will be representing among other things, that:
- the Exchange Notes you receive pursuant to the
Exchange Offer are being acquired in the ordinary
course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution
of the Exchange Notes issued to you in the Exchange
Offer; and
- you are not an "affiliate" of ours.
Special Procedures for Beneficial
Owners............................ If you beneficially own Old Notes registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender your
Old Notes in the Exchange Offer, you should contact
such registered holder promptly and instruct it to
tender on your behalf. If you wish to tender on your
own behalf, you must, prior to completing and
executing the Letter of Transmittal and delivering
your Old Notes, either arrange to have your Old Notes
registered in your name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take
considerable time.
Guaranteed Delivery Procedures...... If you wish to tender your Old Notes and time will
not permit your required documents to reach the
Exchange Agent by the Expiration Date, or the
procedures for book-entry transfer cannot be
completed on time, you may tender your Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for
Tendering Old Notes."
Acceptance of Old Notes and Delivery
of Exchange Notes................. We will accept for exchange all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date. The
Exchange Notes issued in the Exchange Offer will be
delivered promptly following the Expiration Date. See
"The Exchange Offer-- Acceptance of Old Notes for
Exchange; Delivery of Exchange Notes."
Use of Proceeds..................... We will not receive any proceeds from the issuance of
Exchange Notes in the Exchange Offer. We will pay all
our expenses incident to the Exchange Offer.
Federal Income Tax Consequences..... The exchange of Exchange Notes for Old Notes in the
Exchange Offer will not be a taxable event for
federal income tax purposes. See "Material Federal
Income Tax Consequences of the Exchange."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Effect on Holders of Old Notes...... As a result of this Exchange Offer, we will have
fulfilled a covenant contained in the registration
rights agreement (the "Registration Rights
Agreement") dated as of December 21, 1998 among Park
Place Entertainment Corporation and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and each of the
other initial purchasers named therein (the "Initial
Purchasers") and, accordingly, there will be no
increase in the interest rate on the Old Notes. If
you do not tender your Old Notes in the Exchange
Offer:
- you will continue to hold the Old Notes and will be
entitled to all the rights and limitations applicable
to the Old Notes under the indenture governing the
Notes, except for any rights under the Registration
Rights Agreement that terminate as a result of the
completion of the Exchange Offer; and
- you will not have any further registration or
exchange rights and your Old Notes will continue to
be subject to certain restrictions on transfer.
Accordingly, the trading market for untendered Old
Notes could be adversely affected.
Exchange Agent...................... First Union National Bank is serving as Exchange
Agent in connection with the Exchange Offer.
</TABLE>
11
<PAGE>
SUMMARY OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer.................................. Park Place Entertainment Corporation.
Total Amount of Exchange Notes
Offered............................... Up to $400,000,000 in principal amount of 7 7/8% Senior
Subordinated Notes due 2005.
Maturity................................ December 15, 2005.
Interest................................ 7 7/8% per year.
Interest Payment Dates.................. June 15 and December 15, commencing June 15, 1999.
Optional Redemption..................... We may redeem the Exchange Notes at any time at the
redemption prices described in the "Description of the
Exchange Notes" section under the heading "Optional
Redemption," plus accrued interest to the redemption date.
Ranking................................. The Exchange Notes will be unsecured senior subordinated
obligations of Park Place and will rank junior to our
senior debt and will effectively rank junior to all of our
subsidiaries' debt, including trade payables. Because the
Exchange Notes are subordinated, in the event of
bankruptcy, liquidation or dissolution, holders of the
notes will not receive any payment until holders of senior
debt have been paid in full.
Assuming we consummated the Transactions and the
Refinancing on September 30, 1998, we would have had
approximately $1.8 billion of senior debt outstanding and
approximately $14 million of debt at our subsidiaries.
Certain Covenants....................... The Exchange Notes will be issued under an indenture with
First Union National Bank. The indenture, among other
things, limits our ability and the ability of our
subsidiaries to:
- enter into sale and lease-back transactions;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer our assets substantially as an entirety.
These covenants are subject to a number of important
qualifications and exceptions which are described under the
heading "Description of the Exchange Notes--Additional
Covenants of the Company" and "--Merger, Consolidation or
Sale of Assets" in this prospectus.
Limitation on Incurrence of New Debt.... The indenture does not limit the amount of debt that we may
issue nor does it provide holders of Exchange Notes any
protection should we be involved in a highly leveraged
transaction. Under our new senior credit facility, however,
we must meet financial tests that could limit our ability
to incur additional debt.
Use of Proceeds......................... We will not receive any cash proceeds from the Exchange
Offer.
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors you should carefully
consider before deciding to invest in the Exchange Notes, including factors
affecting forward-looking statements.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
In the following tables, we are providing certain summary financial
information to aid you in your analysis of the financial aspects of the
Transactions. These tables include (i) unaudited pro forma financial information
of Park Place after giving effect to the Transactions (we refer to Park Place
following the Transactions as "New Park Place" in the unaudited pro forma
financial information) (ii) selected historical financial information and
unaudited pro forma financial information of Park Place after giving effect to
the Hilton Distribution (but prior to the Merger) and (iii) selected historical
financial information of Grand and unaudited pro forma financial information of
Grand after giving effect to the Grand Distribution.
NEW PARK PLACE SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
In the table below, we attempt to illustrate the financial results of New
Park Place that might have occurred if the Transactions had been completed at
earlier periods. It is important to remember that this information is
hypothetical, and does not necessarily reflect the financial performance that
would have actually resulted if the Transactions had been completed on the dates
assumed. It is also important to remember that this information does not
necessarily reflect future financial performance following the completion of the
Transactions. Since the information in this table is a summary, you should read
the historical financial statements of Park Place and Grand and related notes in
this prospectus and the other financial information in the documents
incorporated herein by reference. Please see "Unaudited Pro Forma Condensed
Financial Statements" for a more detailed explanation of this analysis and the
dates upon which the Transactions were assumed to have occurred.
13
<PAGE>
<TABLE>
<CAPTION>
PARK PLACE GRAND NEW PARK PLACE
PRO FORMA(1) PRO FORMA(2) PRO FORMA(3)
------------- ------------- ---------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C>
TWELVE MONTHS ENDED OR AS OF SEPTEMBER 30, 1998
RESULTS OF OPERATIONS:
Total revenue..................................................... $ 2,285 $ 578 $ 2,863
Total operating income............................................ 224 74 298
Income from continuing operations................................. 63(4) 23 86(4)
Income from continuing operations per share--Basic................ $ .24 $ .55 $ .28
Income from continuing operations per share--Diluted.............. $ .24 $ .53 $ .28
OTHER OPERATING DATA:
EBITDA(5)......................................................... $ 548 $ 131 $ 679
BALANCE SHEET:
Cash, cash equivalents and temporary investments.................. $ 110 $ 79 $ 189
Total assets...................................................... 5,870 1,209 7,093
Total debt........................................................ 1,610 566 2,228
Total stockholders' equity........................................ 3,324 458 3,718
PRO FORMA CREDIT STATISTICS:(6)
EBITDA/Net Interest Expense(5)(7)................................. -- -- 5.3 x
Total Debt/EBITDA(5).............................................. -- -- 3.3 x
YEAR ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS:
Total revenue..................................................... $ 2,145 $ 529 $ 2,674
Total operating income............................................ 191 71 262
Income from continuing operations................................. 61 (4) 21 82 (4)
Income from continuing operations per share--Basic................ $ .23 $ .50 $ .27
Income from continuing operations per share--Diluted.............. $ .23 $ .49 $ .26
OTHER OPERATING DATA:
EBITDA(5)......................................................... $ 502 $ 117 $ 619
NINE MONTHS ENDED SEPTEMBER 30, 1998
RESULTS OF OPERATIONS:
Total revenue..................................................... $ 1,733 $ 447 $ 2,180
Total operating income............................................ 271 61 332
Income from continuing operations................................. 113 20 133
Income from continuing operations per share--Basic................ $ .43 $ .47 $ .44
Income from continuing operations per share--Diluted.............. $ .43 $ .46 $ .43
OTHER OPERATING DATA:
EBITDA(5)......................................................... $ 438 $ 106 $ 544
</TABLE>
- ------------------------------
(1) Assumes the Hilton Distribution had occurred on January 1, 1997 with respect
to the Results of Operations and Other Operating Data and as of September
30, 1998 with respect to the Balance Sheet.
(2) Assumes the Grand Distribution had occurred on January 1, 1997 with respect
to the Results of Operations and Other Operating Data and as of September
30, 1998 with respect to the Balance Sheet.
(3) Assumes the Merger had occurred on January 1, 1997 with respect to the
Results of Operations and Other Operating Data and as of September 30, 1998
with respect to the Balance Sheet.
(4) Includes after-tax non-recurring charges totaling $59 million related to the
recognition of an impairment loss on the Flamingo Casino-Kansas City and an
impairment loss and other costs associated with the closure of the Flamingo
Casino-New Orleans.
(5) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items, which can be computed by adding depreciation, amortization
and non-cash items to operating income. EBITDA is presented supplementally
because management believes it allows for a more complete analysis of
results of operations. Non-cash items, such as asset write-downs and
impairment losses are excluded from EBITDA as these items do not impact
operating results on a recurring basis. Pre-tax non-
14
<PAGE>
cash charges for Park Place and New Park Place totaled $96 million for the
twelve months ended September 30, 1998 and the year ended December 31, 1997
and relate to the recognition of an impairment loss on the Flamingo
Casino-Kansas City and an impairment loss and other costs associated with
the closure of the Flamingo Casino-New Orleans. EBITDA should not be
considered as an alternative to any measure of performance as promulgated
under generally accepted accounting principles (such as operating income or
income from continuing operations) nor should it be considered as an
indicator of the overall financial performance of the companies. The
calculations of EBITDA may be different from the calculations used by other
companies and therefore comparability may be limited. Pro forma
depreciation, amortization and non-cash items for Park Place, Grand, and New
Park Place totaled $311 million, $46 million and $365 million, respectively,
for the year ended December 31, 1997 and $167 million, $45 million and $212
million, respectively, for the nine months ended September 30, 1998.
(6) Pro forma after giving effect to the Transactions and the Refinancing
assuming such transactions had occurred on January 1, 1997 with respect to
the Results of Operations and Other Operating Data and as of September 30,
1998 with respect to the Balance Sheet.
(7) Net of capitalized interest and interest income.
15
<PAGE>
PARK PLACE SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
We derived the following historical information under the heading
"Historical" from the Park Place audited financial statements for 1995 through
1997 and unaudited financial statements for 1993, 1994 and the nine months ended
September 30, 1997 and 1998 before giving effect to the Merger. The information
is only a summary and you should read it in conjunction with Park Place's
historical financial statements (and related notes) beginning on page F-2 and in
the quarterly report and other information Park Place has filed with the
Commission. See "Available Information."
In the table below under the heading "Pro Forma", we also attempt to
illustrate the financial results that might have occurred if the Hilton
Distribution had been completed as of January 1, 1997 for purposes of the
Results of Operations and Other Operating Data and at September 30, 1998 for the
Balance Sheet. It is important to remember that this information is
hypothetical, and does not necessarily reflect the financial performance that
would have actually resulted if the Hilton Distribution had been completed on
the dates assumed. It is also important to remember that this information does
not necessarily reflect future financial performance following completion of the
Hilton Distribution. Since the information in this table is a summary, you
should read our historical financial statements and related notes in this
prospectus and in the documents incorporated herein by reference. Please see
"Unaudited Pro Forma Condensed Financial Statements" for a more detailed
explanation of this analysis.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OR AS OF SEPTEMBER
30, FISCAL YEARS ENDED OR AS OF DECEMBER 31,
-------------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ------------ ------------ --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL
RESULTS OF OPERATIONS:
Total revenue(1)............................... $ 1,733 $ 1,593 $ 2,145 $ 958 $ 934 $ 896 $ 874
Total operating income......................... 279 246 201 92 165 162 163
Income from continuing operations.............. 118 116 67(2) 36(3) 85 79 86
Income from continuing operations per
share--Basic................................. $ .45 $ .44 $ .25 $ .18 $ .44 $ .41 $ .45
Income from continuing operations per
share--Diluted............................... $ .45 $ .44 $ .25 $ .18 $ .44 $ .41 $ .44
OTHER OPERATING DATA:
EBITDA(4)...................................... $ 446 $ 400 $ 512 $ 216 $ 253 $ 240 $ 231
BALANCE SHEET:
Cash, cash equivalents and temporary
investments(1)............................... $ 110 -- $ 235 $ 232 $ 38 $ 26 $ 33
Total assets(1)................................ 5,870 -- 5,630 5,364 1,350 1,248 1,135
Total debt..................................... 1,610 -- 1,306 1,278 549 549 530
Division equity................................ 3,331 -- 3,381 3,157 592 510 424
PRO FORMA
RESULTS OF OPERATIONS:
Total revenue.................................. $ 1,733 $ 1,593 $ 2,145 -- -- -- --
Total operating income......................... 271 238 191 -- -- -- --
Income from continuing operations.............. 113 111 61(2) -- -- -- --
Income from continuing operations per
share--Basic................................. $ .43 $ .42 $ .23 -- -- -- --
Income from continuing operations per
share--Diluted............................... $ .43 $ .42 $ .23 -- -- -- --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OR AS OF SEPTEMBER
30, FISCAL YEARS ENDED OR AS OF DECEMBER 31,
-------------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ------------ ------------ --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common and equivalent
shares--Basic................................ 261 263 263 -- -- -- --
Weighted average common and equivalent
shares--Diluted.............................. 263 265 266 -- -- -- --
OTHER OPERATING DATA:
EBITDA(4)...................................... $ 438 $ 392 $ 502 -- -- -- --
BALANCE SHEET:
Cash, cash equivalents and temporary
investments.................................. $ 110 -- -- -- -- -- --
Total assets................................... 5,870 -- -- -- -- -- --
Total debt..................................... 1,610 -- -- -- -- -- --
Total stockholders' equity..................... 3,324 -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus in EITF 97-2 "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Management
Arrangements." EITF 97-2 addresses the circumstances in which a management
entity may include the revenues and expenses of a managed entity in its
financial statements.
Upon adoption of EITF 97-2, which is expected to be in the fourth quarter of
1998, Park Place will no longer include in its financial statements the
revenues, operating expenses and working capital of its managed properties.
The revenues presented assume application of EITF 97-2 to Park Place's
financial statements which have reduced historical revenues by $290 million,
$332 million, $427 million, $457 million, $350 million, $292 million and
$183 million for the nine month periods ended September 30, 1998 and 1997
and the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. Application of the standard reduces historical cash, cash
equivalents and temporary investments by $11 million, $29 million, $28
million, $26 million, $18 million and $9 million for the nine month period
ended September 30, 1998 and the years ended December 31, 1997, 1996, 1995,
1994 and 1993, respectively, and reduces historical total assets by $31
million, $59 million, $83 million, $48 million, $35 million and $22 million
for the nine month period ended September 30, 1998 and the years ended
December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Includes after-tax non-recurring charges totaling $59 million related to the
recognition of an impairment loss on the Flamingo Casino-Kansas City and an
impairment loss and other costs associated with the closure of the Flamingo
Casino-New Orleans.
(3) Includes after-tax non-recurring charges totaling $23 million, primarily
related to the write-off of pre-opening expenses for the Flamingo
Casino-Kansas City and losses associated with a planned relocation of the
Flamingo Casino-New Orleans.
(4) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items, which can be computed by adding depreciation, amortization
and non-cash items to operating income. EBITDA is presented supplementally
because management believes it allows for a more complete analysis of
results of operations. Non-cash items, such as asset write-downs and
impairment losses are excluded from EBITDA as these items do not impact
operating results on a recurring basis. Pre-tax non-cash charges for Park
Place historical and Park Place pro forma totaled $96 million for the year
ended December 31, 1997 and relate to the recognition of an impairment loss
on the Flamingo Casino-Kansas City and an impairment loss and other costs
associated with the closure of the Flamingo Casino-New Orleans. Pre-tax
non-cash charges for Park Place historical totaled $1 million for the year
ended December 31, 1996 and relate to the write-down of an asset to
estimated fair market value. This information should not be considered as an
alternative to any measure of performance as promulgated under generally
accepted accounting principles (such as operating income or income from
continuing operations) nor should it be considered as an indicator of the
overall financial performance of Park Place. The calculations of EBITDA may
be different from the calculations used by other companies and therefore
comparability may be limited. Historical depreciation, amortization and
non-cash items for Park Place for the nine months ended September 30, 1998
and 1997 and the years ended December 31 1997, 1996, 1995, 1994 and 1993
totaled $167 million, $154 million, $311 million, $124 million, $88 million,
$78 million and $68 million, respectively. Pro forma depreciation,
amortization and non-cash items for Park Place for the nine months ended
September 30, 1998 and 1997 and the year ended December 31, 1997 totaled
$167 million, $154 million and $311 million, respectively.
17
<PAGE>
GRAND SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
We derived the following historical information under the heading
"Historical" from the Grand audited financial statements for 1993 through 1997
and unaudited financial statements for the nine months ended September 28, 1997
and September 27, 1998. The information is only a summary and you should read it
in conjunction with Grand's historical financial statements (and related notes)
contained in the annual report and other information Grand has filed with the
Commission that is incorporated by reference in this prospectus. See "Available
Information."
In the table below under the heading "Pro Forma," we also attempt to
illustrate the financial results that might have occurred if the Grand
Distribution had been completed as of January 2, 1995 for purposes of the
Results of Operations and Other Operating Data and at September 27, 1998 for the
Balance Sheet. It is important to remember that this information is
hypothetical, and does not necessarily reflect the financial performance that
would have actually resulted if the Grand Distribution had been completed on
such date. It is also important to remember that this information does not
necessarily reflect future financial performance following completion of the
Grand Distribution. Since the information in this table is a summary, you should
read Grand's historical financial statements and related notes incorporated by
reference in this prospectus. Please see "Unaudited Pro Forma Condensed
Financial Statements" for a more detailed explanation of this analysis.
<TABLE>
<CAPTION>
NINE MONTHS ENDED OR AS OF FISCAL YEARS ENDED OR AS OF
------------------------------ ----------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28, DECEMBER 29, DECEMBER 31, JANUARY 1,
1998 1997 1997 1996 1995 1995
------------- --------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL
RESULTS OF OPERATIONS:
Total revenue............ $ 511 $ 460 $ 607 $ 490 $ 373 $ 286
Total operating
income(1).............. 117 116 141 96 118 53
Income (loss) from
continuing
operations............. 69 55 66 (101) 70 29
Income (loss) from
continuing operations
per share--Basic....... $ 1.64 $ 1.31 $ 1.58 $ (2.43) $ 2.05 $ .87
Income (loss) from
continuing operations
per share--Diluted..... $ 1.60 $ 1.28 $ 1.54 $ (2.43) $ 1.98 $ .84
OTHER OPERATING DATA:
EBITDA(2)................ $ 163 $ 151 $ 187 $ 139 $ 140 $ 69
BALANCE SHEET:
Cash, cash equivalents
and temporary
investments............ $ 112 -- $ 239 $ 147 $ 335 $ 30
Total assets............. 1,341 -- 1,334 1,123 1,128 484
Total debt............... 567 -- 667 531 471 137
Total stockholders'
equity................. 574 -- 503 440 526 277
PRO FORMA
RESULTS OF OPERATIONS:
Total revenue............ $ 447 $ 398 $ 529 $ 413 $ 304 --
Total operating income... 61 58 71 36 60 --
<CAPTION>
JANUARY 2,
1994
-------------
<S> <C>
HISTORICAL
RESULTS OF OPERATIONS:
Total revenue............ $ 117
Total operating
income(1).............. 30
Income (loss) from
continuing
operations............. 19
Income (loss) from
continuing operations
per share--Basic....... $ .71
Income (loss) from
continuing operations
per share--Diluted..... $ .69
OTHER OPERATING DATA:
EBITDA(2)................ $ 38
BALANCE SHEET:
Cash, cash equivalents
and temporary
investments............ $ 158
Total assets............. 427
Total debt............... 124
Total stockholders'
equity................. 248
PRO FORMA
RESULTS OF OPERATIONS:
Total revenue............ --
Total operating income... --
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED OR AS OF FISCAL YEARS ENDED OR AS OF
------------------------------ ----------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28, DECEMBER 29, DECEMBER 31, JANUARY 1,
1998 1997 1997 1996 1995 1995
------------- --------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations............. 20 18 21 8 29 --
Income from continuing
operations per
share--Basic........... $ .47 $ .44 $ .50 $ .19 $ .84 --
Income from continuing
operations per
share--Diluted......... $ .46 $ .43 $ .49 $ .19 $ .81 --
Weighted average common
and equivalent shares--
Basic.................. 42 42 42 42 34 --
Weighted average common
and equivalent shares--
Diluted................ 43 43 43 43 35 --
OTHER OPERATING DATA:
EBITDA(2)................ $ 106 $ 92 $ 117 $ 78 $ 80 --
BALANCE SHEET:
Cash, cash equivalents
and temporary
investments............ $ 79 -- -- -- -- --
Total assets............. 1,209 -- -- -- -- --
Total debt............... 566 -- -- -- -- --
Total stockholders'
equity................. 458 -- -- -- -- --
<CAPTION>
JANUARY 2,
1994
-------------
<S> <C>
Income from continuing
operations............. --
Income from continuing
operations per
share--Basic........... --
Income from continuing
operations per
share--Diluted......... --
Weighted average common
and equivalent shares--
Basic.................. --
Weighted average common
and equivalent shares--
Diluted................ --
OTHER OPERATING DATA:
EBITDA(2)................ --
BALANCE SHEET:
Cash, cash equivalents
and temporary
investments............ --
Total assets............. --
Total debt............... --
Total stockholders'
equity................. --
</TABLE>
- ------------------------------
(1) Total operating income for the nine months ended September 27, 1998 and
September 28, 1997 and the fiscal years ended 1997, 1996, 1995, 1994 and
1993 exclude amortization of debt issuance costs of $3 million, $2 million,
$3 million, $3 million, $2 million, $1 million and $1 million, respectively,
which has been reclassified to interest expense to conform to the financial
presentation of Park Place.
(2) EBITDA is earnings before interest, taxes, depreciation and amortization,
which can be computed by adding depreciation and amortization to operating
income. EBITDA is presented supplementally because management believes it
allows for a more complete analysis of results of operations. This
information should not be considered as an alternative to any measure of
performance as promulgated under generally accepted accounting principles
(such as operating income or income from continuing operations) nor should
it be considered as an indicator of the overall financial performance of
Grand. The calculations of EBITDA may be different from the calculations
used by other companies and therefore comparability may be limited.
Historical depreciation and amortization for Grand for the nine months ended
September 27, 1998 and September 28, 1997 and the fiscal years ended 1997,
1996, 1995, 1994 and 1993 totaled $46 million, $35 million, $46 million, $43
million, $22 million, $16 million and $8 million, respectively. Pro forma
depreciation and amortization for Grand for the nine months ended September
27, 1998 and September 28, 1997 and the fiscal years ended 1997, 1996 and
1995 totaled $45 million, $34 million, $46 million, $42 million and $20
million, respectively.
19
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO TENDER OLD NOTES IN
THE EXCHANGE OFFER.
OLD NOTES OUTSTANDING AFTER THE EXCHANGE OFFER WILL NOT HAVE REGISTRATION RIGHTS
AND WE EXPECT THE MARKET FOR THE OLD NOTES TO BE ILLIQUID
If you do not exchange your Old Notes for Exchange Notes pursuant to the
Exchange Offer, your Old Notes will continue to be subject to the restrictions
on transfer of the Old Notes. In general, you may not offer or sell Old Notes
unless they are registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. We do
not currently intend to register the Old Notes under the Securities Act. Based
on interpretations by the staff of the Commission, we believe that Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by their holders (unless such holder is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, so long as the Exchange Notes are acquired in the ordinary
course of the holders' business and such holders will not, and have no
arrangement with any person to, participate in the distribution of such Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes will be adversely affected.
OUR NEW SENIOR CREDIT FACILITY CONTAINS RESTRICTIVE DEBT COVENANTS
Our new senior revolving credit facility (the "New Senior Credit Facility")
imposes a number of operating and financial restrictions, including financial
covenants that will require us to meet a number of financial ratios and tests.
These covenants require that we meet an interest coverage test and a leverage
ratio test. See "Description of the New Senior Credit Facility." Our ability to
borrow funds to meet our financing plans will depend on us meeting these tests.
WE DO NOT HAVE AN OPERATING HISTORY AS A SEPARATE STAND-ALONE COMPANY
While Hilton's gaming business has a substantial operating history, we do
not have an operating history as a separate stand-alone company. Prior to the
Hilton Distribution, we had access to the cash flow and assets of Hilton's
lodging business, and prior to the Grand Distribution, Grand had access to the
cash flow and assets of its non-Mississippi business. Subsequent to the Hilton
Distribution, we will be a smaller, more focused company than Hilton prior to
the Hilton Distribution. Consequently, our results of operations will be more
susceptible to competitive and market factors specific to our core business.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES WILL BE
JUNIOR TO ALL OF OUR EXISTING AND POSSIBLY ALL OF OUR FUTURE BORROWINGS
The Exchange Notes will rank behind all of our existing and future senior
debt, including debt from our New Senior Credit Facility. Assuming we had
completed the Transactions and the Refinancing on September 30, 1998, we would
have had outstanding approximately $1.8 billion of senior debt and approximately
$1.0 billion would have been available for borrowing as additional senior debt
under our New Senior Credit Facility, subject to satisfying covenants contained
in our New Senior Credit Facility. The indenture governing the Exchange Notes
does not limit our ability to incur substantial additional senior debt,
including under the New Senior Credit Facility. In the event of bankruptcy,
liquidation or dissolution,
20
<PAGE>
our assets would be available to pay obligations on the Exchange Notes only
after all payments have been made on our senior debt. We cannot assure you that
sufficient assets would remain to make any payments on the Exchange Notes. In
addition, following the occurrence of certain events of default in respect of
our senior debt, we may be prohibited, under the terms of the Exchange Notes,
from making any payments on the Exchange Notes. The term "senior debt," as it
applies to the Exchange Notes, is defined in the "Description of the Exchange
Notes--Certain Definitions."
THE EXCHANGE NOTES WILL BE JUNIOR TO OUR SUBSIDIARIES' EXISTING AND FUTURE DEBT
We are a holding company. Our subsidiaries conduct substantially all of our
consolidated operations and own substantially all of our consolidated assets.
Consequently, our cash flow and our ability to meet our debt service obligations
depends upon the cash flow of our subsidiaries and the payment of funds by our
subsidiaries to us. Our subsidiaries are not obligated to make funds available
to us for payment on the Exchange Notes or otherwise. In addition, our
subsidiaries' ability to make any payments will depend on their earnings, the
terms of their indebtedness, business and tax considerations and legal
restrictions. These payments may not be adequate to pay interest and principal
on the Exchange Notes when due. In addition, their ability to make payments to
us depends on applicable law and debt instruments to which they or we are a
party, which may include requirements to maintain minimum levels of working
capital and other assets.
The Exchange Notes will effectively rank junior to all existing and future
liabilities of our subsidiaries, including trade payables. In the event of a
bankruptcy, liquidation or dissolution of a subsidiary and following payment of
its liabilities, the subsidiary may not have sufficient assets remaining to make
any payments to us as a shareholder or otherwise so that we can meet our
obligations at the holding company. Assuming we had completed the Transactions
and the Refinancing on September 30, 1998, our subsidiaries would have had
approximately $14 million of debt. The indenture governing the Exchange Notes
will not limit the ability of our subsidiaries to incur substantial additional
debt.
WE MAY REQUIRE YOU TO DISPOSE OF YOUR EXCHANGE NOTES OR REDEEM YOUR EXCHANGE
NOTES IF ANY GAMING AUTHORITY FINDS YOU UNSUITABLE TO HOLD THEM
Under certain circumstances, we have the right, at our option, to cause a
holder to dispose of Exchange Notes or to redeem Exchange Notes in order to
comply with gaming laws to which we are subject. See "Regulation and Licensing"
and "Description of the Exchange Notes--Mandatory Disposition Pursuant to Gaming
Laws."
GRAND IS A DEFENDANT IN SEVERAL LAWSUITS RELATED TO THE BANKRUPTCY OF
STRATOSPHERE CORPORATION
Grand and certain of its current and former directors and officers are
defendants in several lawsuits related to Grand's investment in Stratosphere
Corporation ("Stratosphere"). Stratosphere owns and operates the Stratosphere
Tower, Casino & Hotel, a casino/hotel and entertainment complex in Las Vegas
which filed for reorganization under Chapter 11 of the Bankruptcy Code on
January 27, 1997. On November 7, 1997, Stratosphere filed a second amended
proposed plan of reorganization with the Bankruptcy Court which has been
confirmed by the Bankruptcy Court and which became effective on October 14, 1998
(the "Second Amended Plan"). Under the Second Amended Plan, the secured portion
of Stratosphere's outstanding first mortgage notes was converted into 100% of
the equity of the reorganized Stratosphere and all of the common stock of
Stratosphere outstanding prior to the effective date of the Second Amended Plan
was canceled. Grand beneficially owned approximately 42% of the issued and
outstanding common stock of Stratosphere prior to its cancellation as a result
of the Second Amended Plan becoming effective.
Under the terms of the distribution agreement entered into between Grand and
Lakes on December 31, 1998 (the "Grand Distribution Agreement"), any future
liabilities arising out of the various
21
<PAGE>
Stratosphere-related lawsuits will be assumed by Lakes. In addition, other
contingent liabilities related to or arising out of the non-Mississippi business
(such as tribal loan guarantees, real property lease guarantees for Lakes
subsidiaries, and director and officer indemnity obligations) will also be
assumed by Lakes. Although potential costs associated with these various
commitments and contingencies will not increase solely as a result of the Grand
Distribution, given the numerous uncertainties associated with litigation and
the contingent nature of Lakes' various financial commitments, Lakes is unable
to quantify, within any reasonable range, its total exposure if all or any of
the pending litigation were to be resolved adversely to Lakes' interests, nor is
Lakes able to assess the likelihood that it will be required to perform some or
all of its contingent financial obligations.
Under Minnesota corporate law, Lakes is required, subject to certain
limitations and exclusions, to indemnify its current and former officers and
directors. Although Lakes has agreed to assume all of the liabilities related to
Stratosphere and the Stratosphere lawsuits, it has agreed under the Agreement
and Plan of Merger dated June 30, 1998 by and among Hilton, Park Place, Gaming
Acquisition Corporation, Grand and Lakes (the "Merger Agreement"), to indemnify
Grand for such liabilities and certain other pending litigation. Accordingly,
Lakes will bear the cost of defending itself, its current and former directors
and officers, and Grand and its current and former officers and directors for
any settlement or judgment of such matters. Although these lawsuits are in their
early stages and Lakes plans to defend itself vigorously, there can be no
assurance that the costs of defense and any settlement or judgment will not have
a material adverse effect on Lakes or, if Lakes does not satisfy its
indemnification obligations to Grand, on Grand.
For additional information concerning legal proceedings related to
Stratosphere, see the information incorporated by reference in this Prospectus.
See "Incorporation of Certain Documents by Reference."
LAKES MAY NOT BE ABLE TO SATISFY ITS INDEMNIFICATION OBLIGATIONS UNDER THE
MERGER AGREEMENT
Under the Grand Distribution Agreement, Lakes and Grand agreed to indemnify
each other for liabilities retained by them in the Grand Distribution.
Additionally, under the Merger Agreement, Lakes agreed to indemnify Grand for
(i) Grand's ongoing indemnification obligations to current and former directors
and officers of Grand and (ii) contingent liabilities related to Stratosphere.
The availability of such indemnities will be dependent upon the financial
strength and creditworthiness of Grand and Lakes', respectively. No assurance
can be given that such entities will be in a position to fund such indemnities
should they be obligated to do so in the future.
As security to support Lakes' indemnification obligations to Grand under
each of the Grand Distribution Agreement and the Merger Agreement, and as a
condition to the completion of the Merger, Lakes agreed to irrevocably deposit,
in trust for the benefit of Grand, as a wholly owned subsidiary of Park Place,
an aggregate of $30 million, consisting of four annual installments of $7.5
million, during the four year period subsequent to the effective date of the
Merger. Lakes' ability to satisfy this funding obligation is materially
dependent upon the continued success of its operations, any National Indian
Gaming Commission review of the Lakes' Indian Management contracts, including
the assignment of such contracts to Lakes, and the general risks inherent in its
business. In the event of Lakes' failure to fund such trust, or otherwise
satisfy its indemnification obligations to Grand, Grand would be required to
satisfy any such liabilities, which could, either individually or in the
aggregate, have a material adverse effect on our business and results of
operations.
GAMING REFERENDA HAVE BEEN VOTED ON OR ARE BEING PROPOSED IN SEVERAL STATES
In California, Proposition Five, which was proposed by Indian tribes, was
approved by the voters in the November 3, 1998 election. If it survives legal
challenges, this referendum would legalize games which were operated by several
tribes in contravention of California and Federal law and could lead to the
expansion of gaming operations by California Indian tribes, which could have a
material adverse effect on our Nevada operations. A legal action has been filed
in California State court challenging the validity of
22
<PAGE>
Proposition Five under the California constitution. On December 2, 1998, the
California Supreme Court issued an order staying implementation of Proposition
Five.
In Mississippi, two referenda have been proposed which would repeal
legalized gaming in Mississippi and impose a two-year period for all gaming
operations to terminate. In order for a referendum to be included on the
November 1999 ballot, it needed to be approved by the Mississippi Secretary of
State and the signatures of approximately 98,000 registered voters were required
to be gathered and certified by October 7, 1998. Both referenda were
successfully challenged in Mississippi state court on the grounds that they did
not meet legal requirements, and neither of the proposed referenda was
resubmitted in time to meet the October 7, 1998 deadline. Proponents could
attempt to place such a referendum on the November 2000 ballot. If any such
referendum proposal is ultimately adopted, it could have a material adverse
effect on us.
OUR RIGHT TO USE THE "HILTON" AND "CONRAD" NAMES IS LIMITED
Hilton has granted us a non-exclusive license to use the "Hilton" name in
certain limited respects for a specified period of time after the Hilton
Distribution and the "Conrad" name for the duration of the license agreement
applicable to each Conrad property. We will not have the right to use the
"Hilton" and "Conrad" names after the expiration of such periods. Furthermore,
to the extent that we fail to perform our obligations under the license
agreement relating to the use of the "Hilton" and "Conrad" names, Hilton could
prevent us from using such names. We may have to make additional expenditures to
position our new name in markets and cannot predict with certainty the extent to
which the substitution of a new name may adversely affect our ability to retain
and attract patrons. See "Arrangements Between Hilton and Park Place--Trademark
Assignment and License Agreement."
WE MAY BE SOMEWHAT RELIANT ON HILTON FOLLOWING THE HILTON DISTRIBUTION
We entered into certain arrangements with Hilton in connection with the
Transactions pursuant to which Hilton may be providing us with certain
consulting and advisory services and other assistance. This may have the effect
of causing us to be somewhat reliant on our relationship with Hilton. Each of
these arrangements has a maximum term of eighteen months, and we must develop
the capacity to perform these corporate services ourselves or obtain them from
third parties. Should Hilton encounter financial or other difficulties that
could prevent it from providing such services or assistance to us, our results
of operations could be materially and adversely affected. See "Arrangements
Between Hilton and Park Place."
THE GAMING INDUSTRY IS HIGHLY REGULATED
The ownership, management and operation of gaming facilities are subject to
extensive federal, state, provincial, tribal and/or local laws, regulations, and
ordinances, which are administered by the relevant regulatory agency or agencies
in each jurisdiction. These laws, regulations and ordinances vary from
jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability and character of the owners and managers of gaming
operations as well as persons financially interested or involved in gaming
operations. See "Regulation and Licensing" and "Business and
Properties--Missouri Casino."
Following completion of the Transactions, Lakes will request that the
National Indian Gaming Commission (the "NIGC") either approve the assignment of
Grand's Louisiana-based Indian management contracts to Lakes or acknowledge that
their approval is not required. NIGC has the right to review each contract and
has the authority to reduce the term of a management contract or the management
fee or otherwise require modification of the contract, all of which could have a
material adverse effect on Lakes. Currently, the management contracts (i) have
not been reviewed or approved by NIGC and (ii) NIGC could call them for review
at any time, in which case NIGC may not approve the contracts at all or may
require modification prior to granting approval. In the event that such NIGC
approval is not received or if
23
<PAGE>
the management contracts are reviewed and modified by the NIGC, there is a
possibility that such contracts could be deemed to be invalid.
THE GAMING INDUSTRY IS HIGHLY COMPETITIVE
To the extent that casino hotel capacity is expanded by others in a city
where our casino hotels are located, competition will increase. The completion
of a number of room expansion projects and the opening of new casino hotels led
to a 6% increase in hotel capacity in Las Vegas in 1997 compared to 1996,
thereby increasing competition in all segments of the Las Vegas market. Some of
our competitors have also announced, or are developing, new casino projects in
Las Vegas and Atlantic City which, if completed, will add significant casino
space and hotel rooms to these markets. Such new capacity additions to the Las
Vegas and Atlantic City markets could adversely impact our future operating
results. The business of our Nevada casino hotels might also be adversely
affected if gaming operations of the type conducted in Nevada were to be
permitted under the laws of other states, particularly California. Similarly,
legalization of gaming operations in any jurisdiction located near Atlantic
City, New Jersey, or the establishment of new large scale gaming operations on
nearby Indian tribal lands, could adversely affect our Atlantic City casino
hotels. The expansion of riverboat gaming or casino gaming on Indian tribal
lands could also impact our gaming operations. Gaming related referenda have
been voted upon or are being proposed in several states which could materially
affect us.
THERE ARE RISKS ASSOCIATED WITH OUR CONSTRUCTION PROJECTS
We are currently involved in a major construction project called the
Paris-Casino Resort and several smaller construction projects. We may also
become involved in other construction projects through our subsidiaries, joint
ventures or future joint ventures. There are many risks involved in any major
construction project, including:
- potential shortages of material and labor, work stoppages or labor
disputes;
- problems with construction, equipment or staffing requirements;
- weather interference;
- unforeseen engineering, environmental or geological problems;
- difficulty in obtaining any of the necessary licenses, permits,
allocations or authorizations from regulatory authorities; and
- unanticipated cost increases.
Any of these risks could increase the cost or delay the construction or
opening of the facilities or otherwise affect their planned design and features.
The Paris-Casino Resort is scheduled to open in the fall of 1999, although there
can be no assurance. The total cost of construction for this hotel-casino is
expected to be approximately $760 million. As of December 31, 1998, we had spent
$500 million on its construction and anticipate that we will spend an additional
$260 million in 1999. It is possible that the existing budget and construction
plans for the Paris-Casino Resort (and/or any budget and construction plans
developed for any other project) may be changed for competitive or other reasons
or may increase due to any of the factors set forth above.
WE DO NOT KNOW WHAT EFFECT THE NATIONAL GAMBLING IMPACT STUDY COMMISSION MAY
HAVE ON THE GAMING INDUSTRY
A National Gambling Impact Study Commission has been established by the
United States Congress to conduct a comprehensive study of the social and
economic impact of gaming in the United States. The National Commission is
required to issue a report containing its findings and conclusions, together
with recommendations for legislation and administrative actions, within two
years after its first meeting, which occurred on June 20, 1997. Any
recommendations which may be made by the National Commission could
24
<PAGE>
result in the enactment of new laws and/or the adoption of new regulations which
could adversely impact the gaming industry in general. We are unable at this
time to determine what recommendations, if any, the National Commission will
make, or the ultimate disposition of any recommendations the National Commission
may make.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE
NOTES
We are offering the Exchange Notes to the holders of the Old Notes. The Old
Notes were offered and sold in December 1998 to a small number of institutional
investors and are eligible for trading in the Private Offerings, Resale and
Trading through Automatic Linkages (PORTAL) Market.
We do not intend to apply for a listing of the Exchange Notes on a
securities exchange or on any automated dealer quotation system. There is
currently no established market for the Exchange Notes and we cannot assure you
as to the liquidity of markets that may develop for the Exchange Notes, your
ability to sell the Exchange Notes or the price at which you would be able to
sell the Exchange Notes. If such markets were to exist, the Exchange Notes could
trade at prices that may be lower than their principal amount or purchase price
depending on many factors, including prevailing interest rates and the markets
for similar securities. The Initial Purchasers have advised us that they
currently intend to make a market with respect to the Exchange Notes. However,
the Initial Purchasers are not obligated to do so, and any market making with
respect to the Exchange Notes may be discontinued at any time without notice. In
addition, such market making activity may be limited during the pendency of the
Exchange Offer or the effectiveness of a shelf registration statement in lieu
thereof.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by changes in the market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally.
As a result, you cannot be sure that an active trading market will develop
for the Exchange Notes.
25
<PAGE>
THE TRANSACTIONS AND THE REFINANCING
OVERVIEW
The principal components of the Transactions include the Hilton
Distribution, the Grand Distribution and the Merger. In connection with the
Transactions, we consummated the Refinancing. For a description of certain
arrangements between Hilton and Park Place and between Grand and Lakes in
connection with the Transactions, see "Arrangements Between Hilton and Park
Place" and "Arrangements between Grand and Lakes."
THE HILTON DISTRIBUTION
The Hilton Distribution separated Hilton's lodging business (the "Hilton
Lodging Business") from its gaming business (the "Hilton Gaming Business"). On
December 31, 1998 (the "Hilton Distribution Date"), Hilton transfered all of the
assets and liabilities of the Hilton Gaming Business to us (with certain
exceptions). See "Arrangements Between Hilton and Park Place--Hilton
Distribution Agreement." Each holder of Hilton Common Stock on the record date
for the Hilton Distribution received one share of common stock of Park Place
(and the associated stockholders' rights) ("Park Place Common Stock") for each
share of common stock of Hilton ("Hilton Common Stock") held, and continued to
hold its shares of Hilton Common Stock. As a result of the Hilton Distribution,
we now operate the Hilton Gaming Business and Hilton and its subsidiaries
operate the Hilton Lodging Business.
Effective as of the Hilton Distribution Date, all outstanding options under
Hilton's stock option plans, other than options held by Arthur M. Goldberg, Park
Place's Chief Executive Officer, were adjusted to represent options to purchase
an equivalent number of shares of Hilton Common Stock and shares of Park Place
Common Stock and the exercise prices of such options were adjusted to preserve
the intrinsic value of such options on the date of the Hilton Distribution. All
outstanding options held by Mr. Goldberg under such plans were adjusted to
represent options to purchase shares of Park Place Common Stock. Pursuant to
such adjustment, the number of shares subject to and the exercise price of Mr.
Goldberg's options were adjusted to preserve the intrinsic value of such options
on the date of the Hilton Distribution, and the adjustment was based on the
relative values of the Hilton Common Stock and the Park Place Common Stock on
the date of the Hilton Distribution, all as determined by Hilton. See
"Arrangements Between Hilton and Park Place--Hilton Distribution Agreement" and
"--Hilton Employee Benefits Allocation Agreement."
THE GRAND DISTRIBUTION
The Grand Distribution separated Grand's Mississippi business (which
includes the Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino Tunica
properties) (the "Mississippi Business") from its non-Mississippi business
(comprised primarily of the management of two Indian-owned casinos, an interest
in the development of the Polo Plaza in Las Vegas, up to $33 million in cash and
certain other assets and liabilities) (the "Non-Mississippi Business"). As a
result of the Grand Distribution, Lakes and its subsidiaries operate the
Non-Mississippi Business and, as a result of the Merger, Park Place and its
subsidiaries operate the Mississippi Business.
On December 31, 1998 (the "Grand Distribution Date"), Grand transfered all
of the assets and liabilities of the Non-Mississippi Business to Lakes. Each
holder of Grand common stock ("Grand Common Stock") on the record date for the
Grand Distribution received one share of common stock of Lakes ("Lakes Common
Stock") for every four shares of common stock of Grand held (and cash in lieu of
fractional shares of Lakes Common Stock) and, as a result of the Merger, holders
of Grand Common Stock received one share of Park Place Common Stock for each
share of Grand Common Stock held on December 31, 1998. In addition, effective as
of the Grand Distribution Date, all outstanding options under Grand's stock
option plans were adjusted to represent options to purchase shares of Lakes
Common Stock and Grand Common Stock, and as a result of the Merger, the
resulting options to purchase Grand
26
<PAGE>
Common Stock became options to purchase shares of Park Place Common Stock. See
"Arrangements Between Grand and Lakes--Grand Employee Benefits Allocation
Agreement."
THE MERGER
Following the Hilton Distribution and immediately after the Grand
Distribution, Gaming Acquisition Corporation, a wholly owned subsidiary of Park
Place, merged with and into Grand, with Grand as the surviving corporation. As a
result of the Merger, Grand is a wholly owned subsidiary of Park Place. In the
Merger, Grand shareholders received one share of Park Place Common Stock in
exchange for each share of Grand Common Stock held on December 31, 1998.
THE REFINANCING
Following the consummation of the Hilton Distribution, we entered into the
New Senior Credit Facility. See "Description of the New Senior Credit Facility."
A portion of available borrowings under the New Senior Credit Facility, together
with proceeds from the offering of the Old Notes, were used to repay our
allocated portion of Hilton's outstanding obligations under Hilton's bank
revolving credit facility. In addition, the New Senior Credit Facility was used
to provide funds for the consummation of our tender offer for Grand's $450
million aggregate principal amount of 10 1/8% First Mortgage Notes due 2003 (the
"10 1/8% Notes") and the covenant defeasance of its $115 million aggregate
principal amount of 9% Senior Notes due 2004 (the "9% Notes"). We will use
available borrowings under the New Senior Credit Facility to satisfy our ongoing
financing requirements.
In connection with the Transactions, Grand completed a covenant defeasance
of its 9% Notes by depositing with the trustee for the 9% Notes the funds
necessary to defease the 9% Notes to the first date that such 9% Notes are
redeemable by Grand. Immediately following the Hilton Distribution, we loaned
Grand the funds necessary for such defeasance.
On November 9, 1998, we commenced an offer (the "Grand Tender Offer") to
purchase all of the 10 1/8% Notes at a premium to their stated principal amount.
In connection with the offer to purchase, we solicited consents from holders of
the 10 1/8% Notes to certain amendments to the indenture governing the 10 1/8%
Notes. Consummation of the Grand Tender Offer was subject to the tender of, and
receipt of consents from, the holders of no less than a majority of the
outstanding aggregate principal amount of the 10 1/8% Notes, which condition was
satisfied, and certain other conditions, including the consummation of the
Hilton Distribution. As of the expiration date of the Grand Tender Offer,
irrevocable tenders with respect to $444.5 million aggregate outstanding
principal amount of the 10 1/8% Notes were received. We have defeased the
remainder of the 10 1/8% Notes not tendered in the Grand Tender Offer.
The offering of the Old Notes was part of the Refinancing transactions.
We also assumed payment obligations under certain indebtedness of Hilton in
connection with the Hilton Distribution. See "Arrangements Between Hilton and
Park Place--Assumption Agreement Relating to Certain Indebtedness,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financing" and "Unaudited Pro Forma Condensed Financial Statements."
27
<PAGE>
SOURCES AND USES OF FUNDS
The following table sets forth the estimated sources and uses of funds on a
pro forma basis assuming the Transactions and the Refinancing occurred on
September 30, 1998. For a more detailed discussion of the financing arrangements
associated with the Transactions, see "--The Refinancing" and "Description of
the New Senior Credit Facility."
<TABLE>
<CAPTION>
AMOUNT
-------------------
(DOLLARS IN
MILLIONS)
<S> <C>
SOURCES OF FUNDS:
New Senior Credit Facility(1)............................................ $ 1,189
Old Notes................................................................ 400
------
Total Sources of Funds............................................... $ 1,589
------
------
USES OF FUNDS:
Repayment of Hilton Debt(2).............................................. $ 934
Loan to Grand for Defeasance(3).......................................... 135
Tender for 10 1/8% First Mortgage Notes due 2003 of Grand(4)............. 490
Estimated Fees and Expenses(5)........................................... 30
------
Total Use of Funds................................................... $ 1,589
------
------
</TABLE>
- ------------------------
(1) We have availability under the New Senior Revolving Credit Facility of up to
$2.15 billion which includes up to $650 million under a 364-day revolver and
up to $1.50 billion under a five-year revolver. See "Description of the New
Senior Credit Facility."
(2) In connection with the Hilton Distribution, we were responsible for repaying
our pro rata share of Hilton's outstanding indebtedness under Hilton's
revolving credit agreement.
(3) In connection with the Merger, Grand defeased its $115 million in principal
amount of outstanding 9% Senior Notes due 2004 at 100% of their principal
amount plus a premium as provided in the indenture for the notes. We loaned
Grand the funds to consummate the defeasance.
(4) We completed a tender offer and consent solicitation with respect to $450
million in principal amount of Grand's outstanding 10 1/8% Notes. As of the
expiration date of the tender offer we had received irrevocable tenders of
$444.5 million in principal amount of the 10 1/8% Notes from the holders. We
have defeased the remainder of the 10 1/8% Notes not tendered in the tender
offer.
(5) Includes commitment, placement, financial advisory and other fees.
28
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange of the Exchange Notes for
the Old Notes pursuant to the Exchange Offer.
We used the aggregate net proceeds from the offering of the Old Notes
(approximately $392.5 million after deducting fees and expenses associated with
the offering), together with borrowings under the New Senior Credit Facility, to
consummate the Transactions and the Refinancing and pay fees and expenses
incurred by us in connection with the Transactions and the Refinancing. See "The
Transactions and the Refinancing."
29
<PAGE>
CAPITALIZATION
The following table sets forth Park Place's debt and equity capitalization
as of September 30, 1998 after giving pro forma effect to the Transactions and
as adjusted to give effect to the Refinancing and the application of the net
proceeds from the offering of the Old Notes. You should read this information in
conjunction with "The Transactions and the Refinancing," "Use of Proceeds," the
"Unaudited Pro Forma Condensed Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and accompanying notes thereto
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998
PRO FORMA, AS ADJUSTED
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
CURRENT PORTION OF LONG-TERM DEBT:
Total current portion of long-term debt................................................ $ 46
LONG-TERM DEBT:
New Senior Credit Facility(1).......................................................... $ 1,189
Mortgage/Other Debt.................................................................... 14
7.375% Senior Notes due 2002(2)........................................................ 300
7% Senior Notes due 2002(2)............................................................ 325
7 7/8% Senior Subordinated Notes due 2005.............................................. 400
Less current portion of long-term debt............................................... (46)
-------
Total long-term debt, net of current portion......................................... 2,182
STOCKHOLDERS' EQUITY:
Total stockholders' equity............................................................. 3,718
-------
Total capitalization................................................................. $ 5,946
-------
-------
</TABLE>
- ------------------------
(1) See "Description of the New Senior Credit Facility."
(2) In connection with the Hilton Distribution, Park Place assumed the payment
obligations with respect to certain of Hilton's outstanding public notes.
See "Arrangements Between Hilton and Park Place-- Assumption Agreement
Related to Certain Indebtedness" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- Financial
Condition--Financing."
RATIO OF EARNINGS TO FIXED CHARGES
Our ratios of earnings to fixed charges are as follows for the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, FISCAL YEAR
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................... 3.4x 3.8x 2.4x 2.1x 4.0x 3.8x 4.1x
</TABLE>
We have computed the ratio of earnings to fixed charges by dividing income
before income taxes and minority interests plus fixed charges (excluding
capitalized interest) by fixed charges.
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
NEW PARK PLACE
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma statements of income and balance sheet of Park Place
illustrate the estimated effects of the Hilton Distribution. The unaudited pro
forma balance sheet of Park Place as of September 30, 1998 presents the
financial position of Park Place as if the Hilton Distribution had been
completed as of such date. The unaudited pro forma income statements of Park
Place for the nine month periods ended September 30, 1998 and 1997 and the year
ended December 31, 1997 present the results of operations of Park Place as if
the Hilton Distribution had been completed as of January 1, 1997. The unaudited
pro forma financial data of Park Place and notes thereto should be read in
conjunction with the audited Park Place consolidated financial statements and
notes thereto which are included elsewhere in this prospectus.
The unaudited pro forma statements of income and balance sheet of New Park
Place are based upon the pro forma financial statements of Park Place and the
pro forma financial statements of Grand, which are included elsewhere in this
prospectus, and should be read in conjunction with those pro forma financial
statements and related notes.
The unaudited pro forma statements of income of New Park Place for the nine
month periods ended September 30, 1998 and 1997 and the year ended December 31,
1997 give effect to (i) the acquisition of Grand applying the purchase method of
accounting; and (ii) certain adjustments that are directly attributable to the
Merger as if such transactions were consummated as of January 1, 1997.
The unaudited pro forma balance sheet of New Park Place presents the
combined financial position of Park Place and Grand as of September 30, 1998.
The unaudited pro forma balance sheet reflects (i) the acquisition of Grand
applying the purchase method of accounting; and (ii) certain adjustments that
are directly attributable to the Merger. Such data further assume that the
transactions described above were consummated as of September 30, 1998.
The pro forma financial data of Park Place and New Park Place do not purport
to represent what the financial position or results of operations of Park Place
and New Park Place would have been if the Hilton Distribution, Grand
Distribution and Merger had in fact been consummated on such date or at the
beginning of the period indicated or to project the financial position or
results of operations for any future date or period. The pro forma adjustments
are based upon available information and upon certain assumptions that Park
Place and Grand management believe are reasonable in the circumstances. In the
opinion of management, all adjustments necessary to present fairly the unaudited
pro forma financial information have been made.
For the purposes of preparing the financial statements of New Park Place,
management of Park Place will undertake a study to establish the fair value of
the acquired assets and liabilities of Grand. The allocation of the purchase
price to the assets and liabilities acquired reflected in this pro forma
financial data is preliminary. Accordingly, the actual financial position and
results of operations may differ from these pro forma amounts.
31
<PAGE>
NEW PARK PLACE
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO PRO FORMA
HISTORICAL PRO FORMA PRO FORMA FORMA NEW PARK
PARK PLACE ADJUSTMENTS PARK PLACE GRAND(2) PLACE(1)
---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue
Casino........................... $1,832 $ (382)(3) $1,450 $463 $1,913
Rooms............................ 325 (13)(3) 312 26 338
Food and beverage................ 267 (51)(3) 216 28 244
Other products and services...... 148 19(3) 167 12 179
---------- ----------- ---------- -------- ----------
2,572 (427) 2,145 529 2,674
---------- ----------- ---------- -------- ----------
Expenses
Casino........................... 1,000 (230)(3) 770 161 931
Rooms............................ 115 (5)(3) 110 8 118
Food and beverage................ 231 (40)(3) 191 33 224
Other expenses................... 1,010 (152)(3) 858 238 1,096
Corporate expense................ 15 10(4) 25 18 43
---------- ----------- ---------- -------- ----------
2,371 (417) 1,954 458 2,412
---------- ----------- ---------- -------- ----------
Operating income................... 201 (10) 191 71 262
Interest and dividend income..... 25 -- 25 7 32
Interest expense................. (82) -- (82) (46) (128)
Interest expense, net, from
equity investments............. (10) -- (10) -- (10)
---------- ----------- ---------- -------- ----------
Income from continuing operations
before income tax and minority
interest......................... 134 (10) 124 32 156
Provision for income taxes....... (63) 4(5) (59) (11) (70)
Minority interest, net........... (4) -- (4) -- (4)
---------- ----------- ---------- -------- ----------
Income from continuing
operations....................... $ 67 $ (6) $ 61 $ 21 $ 82
---------- ----------- ---------- -------- ----------
---------- ----------- ---------- -------- ----------
Income from continuing operations
per share:
Basic............................ $ .23 $ .27
---------- ----------
---------- ----------
Diluted.......................... $ .23 $ .26
---------- ----------
---------- ----------
Weighted average common and
equivalent shares(6):
Basic............................ 263 307
---------- ----------
---------- ----------
Diluted.......................... 266 310
---------- ----------
---------- ----------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
32
<PAGE>
NEW PARK PLACE
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA PARK PRO FORMA NEW PARK
PARK PLACE ADJUSTMENTS PLACE GRAND(2) PLACE(1)
---------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Revenue
Casino................................ $1,468 $ (270)(3) $1,198 $385 $1,583
Rooms................................. 239 (11)(3) 228 27 255
Food and beverage..................... 203 (34)(3) 169 25 194
Other products and services........... 113 25(3) 138 10 148
---------- ----------- --------- --------- ------
2,023 (290) 1,733 447 2,180
---------- ----------- --------- --------- ------
Expenses
Casino................................ 785 (152)(3) 633 127 760
Rooms................................. 86 (4)(3) 82 12 94
Food and beverage..................... 182 (27)(3) 155 28 183
Other expenses........................ 685 (107)(3) 578 199 777
Corporate expense..................... 6 8(4) 14 20 34
---------- ----------- --------- --------- ------
1,744 (282) 1,462 386 1,848
---------- ----------- --------- --------- ------
Operating income........................ 279 (8) 271 61 332
Interest and dividend income.......... 17 -- 17 2 19
Interest expense...................... (66) -- (66) (33) (99)
Interest expense, net, from equity
investments......................... (9) -- (9) -- (9)
---------- ----------- --------- --------- ------
Income from continuing operations before
income tax and minority interest...... 221 (8) 213 30 243
Provision for income taxes............ (101) 3(5) (98) (10) (108)
Minority interest, net................ (2) -- (2) -- (2)
---------- ----------- --------- --------- ------
Income from continuing operations....... $ 118 $ (5) $ 113 $ 20 $ 133
---------- ----------- --------- --------- ------
---------- ----------- --------- --------- ------
Income from continuing operations per
share:
Basic................................. $ .43 $ .44
--------- ------
--------- ------
Diluted............................... $ .43 $ .43
--------- ------
--------- ------
Weighted average common and equivalent
shares(6):
Basic................................. 261 304
--------- ------
--------- ------
Diluted............................... 263 308
--------- ------
--------- ------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
33
<PAGE>
NEW PARK PLACE
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA PARK PRO FORMA NEW PARK
PARK PLACE ADJUSTMENTS PLACE GRAND(2) PLACE(1)
---------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Revenue
Casino........................... $1,369 $ (299)(3) $1,070 $348 $1,418
Rooms............................ 243 (8)(3) 235 20 255
Food and beverage................ 195 (38)(3) 157 22 179
Other products and services...... 118 13(3) 131 8 139
---------- ----------- --------- --------- ------
1,925 (332) 1,593 398 1,991
---------- ----------- --------- --------- ------
Expenses
Casino........................... 743 (180)(3) 563 121 684
Rooms............................ 86 (4)(3) 82 7 89
Food and beverage................ 168 (29)(3) 139 25 164
Other expenses................... 668 (119)(3) 549 175 724
Corporate expense................ 14 8(4) 22 12 34
---------- ----------- --------- --------- ------
1,679 (324) 1,355 340 1,695
---------- ----------- --------- --------- ------
Operating income................... 246 (8) 238 58 296
Interest and dividend income..... 22 -- 22 6 28
Interest expense................. (59) -- (59) (36) (95)
Interest expense, net, from
equity investments............. (6) -- (6) -- (6)
---------- ----------- --------- --------- ------
Income from continuing operations
before income tax and minority
interest......................... 203 (8) 195 28 223
Provision for income taxes....... (84) 3(5) (81) (10) (91)
Minority interest, net........... (3) -- (3) -- (3)
---------- ----------- --------- --------- ------
Income from continuing
operations....................... $ 116 $ (5) $ 111 $ 18 $ 129
---------- ----------- --------- --------- ------
---------- ----------- --------- --------- ------
Income from continuing operations
per share:
Basic............................ $ .42 $ .42
--------- ------
--------- ------
Diluted.......................... $ .42 $ .42
--------- ------
--------- ------
Weighted average common and
equivalent shares(6):
Basic............................ 263 307
--------- ------
--------- ------
Diluted.......................... 265 310
--------- ------
--------- ------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
34
<PAGE>
NEW PARK PLACE
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA PARK PRO FORMA MERGER PRO FORMA
PARK PLACE ADJUSTMENTS PLACE GRAND(2) ADJUSTMENTS NEW PARK PLACE
---------- ------------- --------- --------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents...................... $ 119 $ (9)(3) $ 110 $ 79 -$- $ 189
Temporary investments..................... 2 (2)(3) -- -- -- --
Accounts receivable, net.................. 130 (17)(3) 113 12 -- 125
Other current assets...................... 104 (3)(3) 101 23 35(9) 159
---------- ------------- --------- --------- ----- ------
Total current assets...................... 355 (31) 324 114 35 473
Investments................................. 187 -- 187 -- -- 187
Property and equipment, net................. 3,990 -- 3,990 1,063 -- 5,053
Goodwill.................................... 1,309 -- 1,309 -- -- 1,309
Other assets................................ 60 -- 60 32 (21)(10) 71
---------- ------------- --------- --------- ----- ------
Total investments, property and other
assets.................................. 5,546 -- 5,546 1,095 (21) 6,620
---------- ------------- --------- --------- ----- ------
Total assets................................ $5,901 $ (31) $5,870 $1,209 $ 14 $7,093
---------- ------------- --------- --------- ----- ------
---------- ------------- --------- --------- ----- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses....... $ 321 $ (19)(3)(7) $ 302 $ 89 $ 26(11) $ 417
Current maturities of long-term debt........ 46 -- 46 -- -- 46
Income taxes payable........................ 2 (5)(7) (3) -- -- (3)
---------- ------------- --------- --------- ----- ------
Total current liabilities................. 369 (24) 345 89 26 460
Long-term debt.............................. 1,564 -- 1,564 566 52(12) 2,182
Deferred income taxes....................... 587 -- 587 96 -- 683
Insurance reserves and other................ 50 -- 50 -- -- 50
---------- ------------- --------- --------- ----- ------
Total liabilities......................... 2,570 (24) 2,546 751 78 3,375
Division equity............................. 3,331 (3,331)(8) -- -- -- --
Stockholders' equity........................ -- 3,324 (8) 3,324 458 (64)(13) 3,718
---------- ------------- --------- --------- ----- ------
Total liabilities and stockholders'
equity.................................... $5,901 $ (31) $5,870 $1,209 $ 14 $7,093
---------- ------------- --------- --------- ----- ------
---------- ------------- --------- --------- ----- ------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
35
<PAGE>
NEW PARK PLACE
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
The following table sets forth the determination and allocation of the
purchase price of Grand's Mississippi Business. The number of shares of Park
Place to be issued to Grand shareholders will be determined by an exchange ratio
based upon a valuation factor for Grand's Mississippi Business and Park Place.
For purposes of the pro forma financial statements, the exchange ratio is .9699.
The value of the Park Place shares issued to Grand shareholders was based on the
trading value of those shares immediately prior to the Merger. For purposes of
the pro forma financial statements, the value of Park Place shares issued to
Grand shareholders was based on an estimated allocation percentage of the
trading value of Hilton's common stock as of October 31, 1998.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Net equity purchase price............... $ 394
Assumption of Mississippi Business
debt.................................. 566
Transaction costs and expenses.......... 11
------
Pro forma purchase price................ $ 971
------
------
</TABLE>
The preliminary allocation of the pro forma purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment.................. $1,063
Other, net.............................. (92)
------
$ 971
------
------
</TABLE>
(1) Pro forma results of New Park Place do not reflect any cost savings or
operating efficiencies which may be achievable to the combined company. Park
Place expects to realize annual pretax cost savings of approximately $8
million, primarily due to the elimination of duplicative corporate office
and operational support functions and greater purchasing economies of scale.
However, there can be no assurance as to the amount and timing of these
savings, which could be adversely impacted by difficulties in integrating
the two companies or the inability to realize anticipated purchasing
economies.
In addition, pro forma results do not reflect the anticipated refinancing of
the Grand debt. Park Place expects to achieve annual pretax interest expense
savings of approximately $14 million by refinancing the Grand debt with a
combination of fixed and floating rate debt at an average rate of
approximately 6.7%. There can be no assurance, however, that Park Place will
be able to obtain such financing.
(2) There are no significant adjustments required to the historical financial
data of Pro Forma Grand to conform to the accounting policies of Park Place.
Certain reclassifications have been made to the historical balances of Grand
to conform the financial presentation of the two entities. Specifically,
casino allowances have been reclassified as reductions of the appropriate
revenue categories, selling, general and administrative expenses have been
reclassified to other expenses and corporate expense, and amortization of
debt issuance costs has been reclassified to interest expense.
(3) On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus in EITF 97-2 "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Management
Arrangements." EITF 97-2 addresses the circumstances in which a management
entity may include the revenues and expenses of a managed entity in its
financial statements.
36
<PAGE>
NEW PARK PLACE
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Upon the adoption of EITF 97-2, which is expected to be in the fourth quarter
of 1998, Park Place will no longer include in its financial statements the
revenues, operating expenses and working capital of its managed properties.
This pro forma adjustment reflects the application of EITF 97-2 to Park
Place's historical financial statements. Application of EITF 97-2 has no
impact on pro forma operating income, net income, earnings per share or
stockholders' equity.
(4) Represents additional corporate expense expected to be incurred by Park
Place to operate as a separate public company. These costs include, among
other things, an accounting, tax and financial reporting group, a treasury
and investor relations department, a general counsel, an expanded human
resources group and a separate Board of Directors.
(5) To record the tax effect of the pro forma adjustment for additional
corporate expenses.
(6) Weighted average common and equivalent shares assume the conversion of the
PRIDES as of the date of original issuance.
(7) Includes the portion of the estimated costs of the Hilton Distribution to be
paid by Park Place totaling $12 million (before tax benefit of $5 million).
(8) Reflects the issuance of approximately 260 million shares of Park Place
Common Stock at the time of the Hilton Distribution and the after tax impact
of the estimated costs of the Hilton Distribution to be paid by Park Place.
(9) To record the deferred tax effect of the pro forma balance sheet
adjustments, primarily related to property and equipment, debt and estimated
severance costs.
(10) Reflects deferred financing costs and other deferred costs of Grand not
valued in purchase accounting.
(11) Reflects the accrual of severance costs relating to certain Grand employees
and direct merger costs of Park Place and Grand. Severance costs include
change of control benefits for certain Grand executives and termination
benefits related to the elimination of duplicative corporate office and
operational support functions.
(12) To adjust the Grand debt to estimated fair market value.
(13) The net increase in stockholders' equity results from (i) the issuance of
an estimated $394 million in Park Place equity consideration in connection
with the Merger and (ii) the elimination of Grand's historical net assets.
37
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited pro forma statements of income and balance sheet of Grand
illustrate the estimated effects of the Grand Distribution. The unaudited pro
forma balance sheet of Grand as of September 27, 1998 presents the financial
position of Grand as if the Grand Distribution had been completed as of such
date. The unaudited pro forma income statements of Grand for the nine month
periods ended September 27, 1998 and September 28, 1997 and the years ended
December 28, 1997, December 29, 1996 and December 31, 1995 present the results
of operations of Grand as if the Grand Distribution had been completed as of
January 2, 1995.
The unaudited pro forma financial data of Grand and notes thereto should be
read in conjunction with the Grand consolidated financial statements contained
in the Grand Casinos, Inc. Annual Report on Form 10-K for the fiscal year ended
December 28, 1997 and the Grand Casinos, Inc. Quarterly Report on Form 10-Q for
the fiscal quarter ended September 27, 1998, each of which are incorporated
herein by reference.
The pro forma financial data of Grand does not purport to represent what the
financial position or results of operations of Grand would have been if the
Grand Distribution had in fact been consummated on such date or at the beginning
of the period indicated or to project the financial position or results of
operations for any future date or period. The pro forma adjustments are based
upon available information and upon certain assumptions that Grand's management
believes are reasonable in the circumstances.
38
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 28, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GRAND SPIN-OFF GRAND
CASINOS, INC.(1) ADJUSTMENTS(2) CASINOS, INC.
---------------- -------------- -------------
<S> <C> <C> <C>
Revenue
Casino................................ $ 463 $ -- $463
Rooms................................. 26 -- 26
Food and beverage..................... 28 -- 28
Other products and services........... 90 (78) 12
------ ----- -----
607 (78) 529
------ ----- -----
Expenses
Casino................................ 161 -- 161
Rooms................................. 8 -- 8
Food and beverage..................... 33 -- 33
Other expenses........................ 238 -- 238
Corporate expense..................... 26 (8) 18
------ ----- -----
466 (8) 458
------ ----- -----
Operating income........................ 141 (70) 71
Interest and dividend income.......... 12 (5) 7
Interest expense...................... (46) -- (46)
------ ----- -----
Income from continuing operations before
income tax............................ 107 (75) 32
Provision for income taxes............ (41) 30 (11)
------ ----- -----
Income from continuing operations....... $ 66 $ (45) $ 21
------ ----- -----
------ ----- -----
Income from continuing operations per
share:
Basic................................. $ 1.58 $.50
------ -----
------ -----
Diluted............................... $ 1.54 $.49
------ -----
------ -----
Weighted average common and equivalent
shares:
Basic................................. 42 42
------ -----
------ -----
Diluted............................... 43 43
------ -----
------ -----
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
39
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 29, 1996
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GRAND SPIN-OFF GRAND
CASINOS, INC.(1) ADJUSTMENTS(2) CASINOS, INC.
---------------- -------------- -------------
<S> <C> <C> <C>
Revenue
Casino................................ $ 362 $ -- $362
Rooms................................. 20 -- 20
Food and beverage..................... 22 -- 22
Other products and services........... 86 (77) 9
------ ----- -----
490 (77) 413
------ ----- -----
Expenses
Casino................................ 126 -- 126
Rooms................................. 6 -- 6
Food and beverage..................... 26 -- 26
Other expenses........................ 195 (1) 194
Corporate expense..................... 41 (16) 25
------ ----- -----
394 (17) 377
------ ----- -----
Operating income........................ 96 (60) 36
Interest and dividend income.......... 17 (6) 11
Interest expense...................... (35) -- (35)
Stratosphere write-down............... (161) 161 --
------ ----- -----
Income (loss) from continuing operations
before income tax..................... (83) 95 12
Provision for income taxes............ (18) 14 (4)
------ ----- -----
Income (loss) from continuing
operations............................ $ (101) $ 109 $ 8
------ ----- -----
------ ----- -----
Income (loss) from continuing operations
per share:
Basic................................. $(2.43) $.19
------ -----
------ -----
Diluted............................... $(2.43) $.19
------ -----
------ -----
Weighted average common and equivalent
shares:
Basic................................. 42 42
------ -----
------ -----
Diluted............................... 42 43
------ -----
------ -----
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
40
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GRAND SPIN-OFF GRAND
CASINOS, INC.(1) ADJUSTMENTS(2) CASINOS, INC.
---------------- -------------- -------------
<S> <C> <C> <C>
Revenue
Casino................................ $ 271 $ -- $271
Rooms................................. 8 -- 8
Food and beverage..................... 19 -- 19
Other products and services........... 75 (69) 6
----- ----- -----
373 (69) 304
----- ----- -----
Expenses
Casino................................ 82 -- 82
Rooms................................. 4 -- 4
Food and beverage..................... 20 -- 20
Other expenses........................ 123 (3) 120
Corporate expense..................... 26 (8) 18
----- ----- -----
255 (11) 244
----- ----- -----
Operating income........................ 118 (58) 60
Interest and dividend income.......... 20 (18) 2
Interest expense...................... (28) 10 (18)
----- ----- -----
Income from continuing operations before
income tax and minority interest...... 110 (66) 44
Provision for income taxes............ (43) 28 (15)
Minority interest, net................ 3 (3) --
----- ----- -----
Income from continuing operations....... $ 70 $ (41) $ 29
----- ----- -----
----- ----- -----
Income from continuing operations per
share:
Basic................................. $2.05 $.84
----- -----
----- -----
Diluted............................... $1.98 $.81
----- -----
----- -----
Weighted average common and equivalent
shares:
Basic................................. 34 34
----- -----
----- -----
Diluted............................... 35 35
----- -----
----- -----
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
41
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GRAND SPIN-OFF GRAND
CASINOS, INC.(1) ADJUSTMENTS(2) CASINOS, INC.
---------------- -------------- -------------
<S> <C> <C> <C>
Revenue
Casino................................ $385 $ -- $385
Rooms................................. 27 -- 27
Food and beverage..................... 25 -- 25
Other products and services........... 74 (64) 10
------ ----- -----
511 (64) 447
------ ----- -----
Expenses
Casino................................ 127 -- 127
Rooms................................. 12 -- 12
Food and beverage..................... 28 -- 28
Other expenses........................ 199 -- 199
Corporate expense..................... 28 (8) 20
------ ----- -----
394 (8) 386
------ ----- -----
Operating income........................ 117 (56) 61
Interest and dividend income.......... 6 (4) 2
Interest expense...................... (33) -- (33)
------ ----- -----
Income from continuing operations before
income tax............................ 90 (60) 30
Provision for income taxes............ (21) 11 (10)
------ ----- -----
Income from continuing operations....... $ 69 $ (49) $ 20
------ ----- -----
------ ----- -----
Income from continuing operations per
share:
Basic................................. $1.64 $.47
------ -----
------ -----
Diluted............................... $1.60 $.46
------ -----
------ -----
Weighted average common and equivalent
shares:
Basic................................. 42 42
------ -----
------ -----
Diluted............................... 43 43
------ -----
------ -----
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
42
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GRAND SPIN-OFF GRAND
CASINOS, INC.(1) ADJUSTMENTS(2) CASINOS, INC.
---------------- -------------- -------------
<S> <C> <C> <C>
Revenue
Casino................................ $348 $ -- $348
Rooms................................. 20 -- 20
Food and beverage..................... 22 -- 22
Other products and services........... 70 (62) 8
------ ----- -----
460 (62) 398
------ ----- -----
Expenses
Casino................................ 121 -- 121
Rooms................................. 7 -- 7
Food and beverage..................... 25 -- 25
Other expenses........................ 175 -- 175
Corporate expense..................... 16 (4) 12
------ ----- -----
344 (4) 340
------ ----- -----
Operating income........................ 116 (58) 58
Interest and dividend income.......... 9 (3) 6
Interest expense...................... (36) -- (36)
------ ----- -----
Income from continuing operations before
income tax............................ 89 (61) 28
Provision for income taxes............ (34) 24 (10)
------ ----- -----
Income from continuing operations....... $ 55 $ (37) $ 18
------ ----- -----
------ ----- -----
Income from continuing operations per
share:
Basic................................. $1.31 $.44
------ -----
------ -----
Diluted............................... $1.28 $.43
------ -----
------ -----
Weighted average common and equivalent
shares:
Basic................................. 42 42
------ -----
------ -----
Diluted............................... 43 43
------ -----
------ -----
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
43
<PAGE>
GRAND CASINOS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 27, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GRAND SPIN-OFF GRAND
CASINOS, INC. ADJUSTMENTS(3) CASINOS, INC.
------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents.................. $ 112 $ (33) $ 79
Accounts receivable, net.............. 21 (9) 12
Other current assets.................. 36 (13) 23
------ -------------- ------
Total current assets.................... 169 (55) 114
Property and equipment, net............. 1,065 (2) 1,063
Other assets............................ 107 (75) 32
------ -------------- ------
Total property and other assets....... 1,172 (77) 1,095
------ -------------- ------
Total assets............................ $1,341 $ (132) $1,209
------ -------------- ------
------ -------------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses... $ 103 $ (14) $ 89
Long-term debt.......................... 567 (1) 566
Deferred income taxes................... 97 (1) 96
------ -------------- ------
Total liabilities..................... 767 (16) 751
Stockholders' equity.................... 574 (116) 458
------ -------------- ------
Total liabilities and stockholders'
equity................................ $1,341 $ (132) $1,209
------ -------------- ------
------ -------------- ------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
44
<PAGE>
GRAND CASINOS, INC.
NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
(1) There are no significant adjustments required to the historical financial
data of Grand to conform to the accounting policies of Park Place. Certain
reclassifications have been made to the historical balances of Grand to
conform the financial presentation of the two entities. Specifically, casino
allowances have been reclassified as reductions of the appropriate revenue
categories, selling, general and administrative expenses have been
reclassified to other costs and expenses and corporate expense, and
amortization of debt issuance costs has been reclassified to interest
expense.
(2) Represents the results of Lakes, which was distributed to Grand shareholders
upon consummation of the Transactions.
(3) Represents the removal of the assets and liabilities of Lakes as a result of
the Grand Distribution.
45
<PAGE>
SELECTED FINANCIAL DATA
In the following tables we are providing certain selected financial
information to aid you in your analysis of the financial aspects of the
Transactions. These tables include (i) selected historical financial information
of Park Place after giving effect to the Hilton Distribution (but prior to the
Merger), and (ii) selected historical financial information of Grand after
giving effect to the Grand Distribution.
PARK PLACE SELECTED HISTORICAL FINANCIAL INFORMATION
We derived the following historical information from the Park Place audited
financial statements for 1995 through 1997 and unaudited financial statements
for 1993, 1994 and the nine months ended September 30, 1997 and 1998 before
giving effect to the Merger. The information is only a summary and you should
read it in conjunction with Park Place's historical financial statements (and
related notes) beginning on page F-2 and in the quarterly report and other
information Park Place has filed with the Commission. See "Available
Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OR AS OF SEPTEMBER
30, FISCAL YEARS ENDED OR AS OF DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenue(1)........................ $ 1,733 $ 1,593 $ 2,145 $ 958 $ 934 $ 896 $ 874
Total operating income.................. 279 246 201 92 165 162 163
Income from continuing operations....... 118 116 67(2) 36(3) 85 79 86
Income from continuing operations per
share--Basic.......................... $ .45 $ .44 $ .25 $ .18 $ .44 $ .41 $ .45
Income from continuing operations per
share--Diluted........................ $ .45 $ .44 $ .25 $ .18 $ .44 $ .41 $ .44
OTHER OPERATING DATA:
EBITDA(4)............................... $ 446 $ 400 $ 512 $ 216 $ 253 $ 240 $ 231
BALANCE SHEET:
Cash, cash equivalents and temporary
investments(1)........................ $ 110 -- $ 235 $ 232 $ 38 $ 26 $ 33
Total assets(1)......................... 5,870 -- 5,630 5,364 1,350 1,248 1,135
Total debt.............................. 1,610 -- 1,306 1,278 549 549 530
Division equity......................... 3,331 -- 3,381 3,157 592 510 424
</TABLE>
- ------------------------------
(1) On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus in EITF 97-2 "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Management
Arrangements." EITF 97-2 addresses the circumstances in which a management
entity may include the revenues and expenses of a managed entity in its
financial statements.
Upon adoption of EITF 97-2, which is expected to be in the fourth quarter of
1998, Park Place will no longer include in its financial statements the
revenues, operating expenses and working capital of its managed properties.
The revenues presented assume application of EITF 97-2 to Park Place's
financial statements which have reduced historical revenues by $290 million,
$332 million, $427 million, $457 million, $350 million, $292 million and
$183 million for the nine month periods ended September 30, 1998 and 1997
and the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively. Application of the standard reduces historical cash, cash
equivalents and temporary investments by $11 million, $29 million, $28
million, $26 million, $18 million and $9 million for the nine month period
ended September 30, 1998 and the years ended December 31, 1997, 1996, 1995,
1994 and 1993, respectively, and reduces historical total assets by $31
million, $59 million, $83 million, $48 million, $35 million and $22 million
for the nine month period ended September 30, 1998 and the years ended
December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Includes after-tax non-recurring charges totaling $59 million related to the
recognition of an impairment loss on the Flamingo Casino-Kansas City and an
impairment loss and other costs associated with the closure of the Flamingo
Casino-New Orleans.
46
<PAGE>
(3) Includes after-tax non-recurring charges totaling $23 million, primarily
related to the write-off of pre-opening expenses for the Flamingo
Casino-Kansas City and losses associated with a planned relocation of the
Flamingo Casino-New Orleans.
(4) EBITDA is earnings before interest, taxes, depreciation, amortization and
non-cash items, which can be computed by adding depreciation, amortization
and non-cash items to operating income. EBITDA is presented supplementally
because management believes it allows for a more complete analysis of
results of operations. Non-cash items, such as asset write-downs and
impairment losses are excluded from EBITDA as these items do not impact
operating results on a recurring basis. Pre-tax non-cash charges for Park
Place historical totaled $96 million for the year ended December 31, 1997
and relate to the recognition of an impairment loss on the Flamingo
Casino-Kansas City and an impairment loss and other costs associated with
the closure of the Flamingo Casino-New Orleans. Pre-tax non-cash charges for
Park Place historical totaled $1 million for the year ended December 31,
1996 and relate to the write-down of an asset to estimated fair market
value. This information should not be considered as an alternative to any
measure of performance as promulgated under generally accepted accounting
principles (such as operating income or income from continuing operations)
nor should it be considered as an indicator of the overall financial
performance of Park Place. The calculations of EBITDA may be different from
the calculations used by other companies and therefore comparability may be
limited. Historical depreciation, amortization and non-cash items for Park
Place for the nine months ended September 30, 1998 and 1997 and the years
ended December 31 1997, 1996, 1995, 1994 and 1993 totaled $167 million, $154
million, $311 million, $124 million, $88 million, $78 million and $68
million, respectively.
47
<PAGE>
GRAND SELECTED HISTORICAL FINANCIAL INFORMATION
We derived the following historical information from the Grand audited
financial statements for 1993 through 1997 and unaudited financial statements
for the nine months ended September 28, 1997 and September 27, 1998. The
information is only a summary and you should read it in conjunction with Grand's
historical financial statements (and related notes) contained in the annual
reports and other information Grand has filed with the Commission that is
incorporated by reference in this prospectus. See "Available Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED OR AS OF FISCAL YEARS ENDED OR AS OF
---------------------------------- ----------------------------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28, DECEMBER 29, DECEMBER 31, JANUARY 1,
1998 1997 1997 1996 1995 1995
--------------- ----------------- --------------- --------------- --------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenue.......... $ 511 $ 460 $ 607 $ 490 $ 373 $ 286
Total operating
income(1)............ 117 116 141 96 118 53
Income (loss) from
continuing
operations........... 69 55 66 (101) 70 29
Income (loss) from
continuing operations
per share--Basic..... 1.64 1.31 1.58 (2.43) 2.05 .87
Income (loss) from
continuing operations
per share--Diluted... 1.60 1.28 1.54 (2.43) 1.98 .84
OTHER OPERATING DATA:
EBITDA(2).............. $ 163 $ 151 $ 187 $ 139 $ 140 $ 69
BALANCE SHEET:
Cash, cash equivalents
and temporary
investments.......... $ 112 -- $ 239 $ 147 $ 335 $ 30
Total assets........... 1,341 -- 1,334 1,123 1,128 484
Total debt............. 567 -- 667 531 471 137
Total stockholders'
equity............... 574 -- 503 440 526 277
<CAPTION>
JANUARY 2,
1994
-------------
<S> <C>
RESULTS OF OPERATIONS:
Total revenue.......... $ 117
Total operating
income(1)............ 30
Income (loss) from
continuing
operations........... 19
Income (loss) from
continuing operations
per share--Basic..... .71
Income (loss) from
continuing operations
per share--Diluted... .69
OTHER OPERATING DATA:
EBITDA(2).............. $ 38
BALANCE SHEET:
Cash, cash equivalents
and temporary
investments.......... $ 158
Total assets........... 427
Total debt............. 124
Total stockholders'
equity............... 248
</TABLE>
- ------------------------------
(1) Total operating income for the nine months ended September 27, 1998 and
September 28, 1997 and the fiscal years ended 1997, 1996, 1995, 1994 and
1993 exclude amortization of debt issuance costs of $3 million, $2 million,
$3 million, $3 million, $2 million, $1 million and $1 million, respectively,
which has been reclassified to interest expense to conform to the financial
presentation of Park Place.
(2) EBITDA is earnings before interest, taxes, depreciation and amortization,
which can be computed by adding depreciation and amortization to operating
income. EBITDA is presented supplementally because management believes it
allows for a more complete analysis of results of operations. This
information should not be considered as an alternative to any measure of
performance as promulgated under generally accepted accounting principles
(such as operating income or income from continuing operations) nor should
it be considered as an indicator of the overall financial performance of
Grand. The calculations of EBITDA may be different from the calculations
used by other companies and therefore comparability may be limited.
Historical depreciation and amortization for Grand for the nine months ended
September 27, 1998 and September 28, 1997 and the fiscal years ended 1997,
1996, 1995, 1994 and 1993 totaled $46 million, $35 million, $46 million, $43
million, $22 million, $16 million and $8 million, respectively.
48
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STRATEGY
Park Place expects to expand its gaming business through acquisitions of
quality assets in established markets and selective new development. The Merger
with Grand's Mississippi Business exemplifies Park Place's continued execution
of this strategy which began with the December 1996 merger (the "Bally Merger")
with Bally Entertainment Corporation ("Bally"). Park Place's new development
efforts are currently concentrated on the construction of the 2,900-room Paris
Casino-Resort on the Las Vegas Strip which is expected to open in the fall of
1999. Park Place intends to seek additional expansion and new development
opportunities, both domestically and internationally, where superior returns can
be demonstrated. Park Place believes that in addition to its cash flow from
operations, it will have access to financial resources sufficient to finance its
future growth. The following discussion does not give effect to the Merger and
should be read in conjunction with the financial statements of Park Place for
the nine months ended September 30, 1998 and the years ended December 31, 1997,
1996 and 1995 included in this prospectus.
FINANCIAL CONDITION
LIQUIDITY
Net cash provided by operating activities was $376 million, $141 million and
$167 million in 1997, 1996, and 1995, respectively. The decline in operating
cash flow from 1995 to 1996 reflects the decrease in earnings at the Las Vegas
Hilton due to lower than normal drop and a significant reduction in the win
percentage on its premium play baccarat business. The increase in operating cash
flow from 1996 to 1997 reflects the Bally Merger and a return to more normalized
results at the Las Vegas Hilton. Net cash provided by operating activities for
the nine months ended September 30, 1998 increased $56 million to $257 million
from the prior year due primarily to improved results at the Las Vegas Hilton,
the addition of 300 hotel rooms at the Conrad International Punta del Este
Resort and Casino in late 1997 and the opening of "The Wild Wild West" casino in
Atlantic City.
ACQUISITIONS AND CAPITAL SPENDING
Cash used in investing activities was $579 million, $63 million and $161
million in 1997, 1996 and 1995, respectively, and $524 million and $401 million
for the nine months ended September 30, 1998 and 1997, respectively. Investing
activities cash flows include expenditures for normal capital replacements, new
construction, and improvement projects at existing facilities that are evaluated
on an ROI basis. Investing activities also include acquisitions and investments
in and loans to affiliates.
Capital expenditures in 1995 include costs to complete a $125 million
expansion and enhancement project at the Flamingo Hilton-Las Vegas, including
the addition of a new 600-room tower. 1995 expenditures also include costs
associated with construction of the $103 million Flamingo Casino-Kansas City, a
30,000 square foot casino on a continuously docked barge in Kansas City, which
opened in October 1996.
Capital expenditures in 1996 include the completion of construction of the
Flamingo Casino-Kansas City and the start of construction on "Star Trek: The
Experience at the Las Vegas Hilton", an adult-oriented attraction which was
developed in collaboration with Paramount Parks, Inc. Park Place's share of the
"Star Trek" project costs and the construction costs of an adjacent 22,000
square foot themed casino totaled approximately $70 million. The casino, called
SpaceQuest, opened in November 1997, and the "Star Trek" attraction opened in
January 1998.
Acquisitions and new investments in 1996 relate to Park Place's additional
equity investment in and partial project financing of the $200 million Conrad
International Punta del Este Resort and Casino in
49
<PAGE>
Punta del Este, Uruguay. This property, which is 43% owned by Park Place,
includes a 38,000 square foot casino and a 300-room luxury hotel. The casino
opened in January 1997, while the hotel opened in stages in the latter half of
1997.
Capital expenditures in 1997 include the addition of normal replacement
capital expenditures at the Bally properties acquired in the December 1996 Bally
Merger and costs to complete Bally projects already underway at the time of such
merger. These projects include the $110 million, 75,000 square foot Wild Wild
West Casino adjacent to Bally's Park Place in Atlantic City, New Jersey which
opened on July 1, 1997, and the $50 million 300-room hotel tower addition at The
Atlantic City Hilton.
Acquisitions and new investments in 1997 include the completion of Park
Place's financing commitment to the Punta del Este project and the acquisition
of an additional 11% interest in Bally's Grand, Inc., a majority owned
subsidiary of Park Place which owns Bally's Las Vegas. This $55 million
investment increased Park Place's indirect ownership of Bally's Grand, Inc. to
95% in 1997.
Capital expenditures for the nine month period ended September 30, 1998
include costs relating to the construction (which began in April 1997) of the
$760 million, 2,900-room Paris Casino-Resort. This property, which is located
adjacent to the Bally's Las Vegas on the Strip, will feature an 85,000 square
foot casino, a 50-story replica of the Eiffel Tower, thirteen restaurants,
130,000 square feet of convention space and a retail shopping complex with a
French influence. This project is expected to be completed in the fall of 1999
with the majority of expenditures occurring in the 1998 and 1999 periods.
In addition to an estimated $550 million in 1998 expenditures related to
acquisitions and new construction, Park Place anticipates spending approximately
$170 million in 1998 on normal capital replacements, ADA/safety compliance
projects, structural and technology upgrades and $50 million on improvement
projects that are evaluated on a ROI basis.
FINANCING
Concurrently with the Hilton Distribution, Park Place assumed primary
liability for $625 million of Hilton's fixed rate debt. The payment terms of
this debt assumption mirror the terms of Hilton's existing $300 million 7 3/8%
Notes due 2002 and its $325 million 7% Notes due 2004. Hilton and Park Place
entered into supplemental indentures with the Trustee providing for the
assumption by Park Place of the payment obligations under the existing
indentures. See "Arrangements Between Hilton and Park Place--Assumption
Agreement Relating to Certain Indebtedness." In addition, Park Place was
allocated a pro rata portion of Hilton's outstanding obligations under its $1.75
billion bank revolving credit facility at the time of the Hilton Distribution.
The New Senior Credit Facility will, among other things, facilitate the
refinancing transactions associated with the Transactions and allow Park Place
to pursue its acquisition and development strategy.
Park Place's pro rata portion of Hilton's public and corporate bank debt
balances at the time of the Hilton Distribution was approximately 50%. As such,
the pro rata portion of Hilton's historical outstanding public debt and
corporate bank debt balances and related interest expense has been allocated to
Park Place for all periods presented.
RESULTS OF OPERATIONS
OVERVIEW
Results of operations include the consolidated results of Park Place's owned
properties and affiliates operated under long-term management agreements.
Operating results are reduced by the portion of earnings of non-controlled
affiliates applicable to other ownership interests. On December 18, 1996, Hilton
consummated its acquisition of Bally through a merger with and into Hilton.
Aggregate consideration totaled $3.1 billion consisting of $1.9 billion of
Hilton Common Stock and the assumption of Bally subsidiary debt which totaled
$1.2 billion. Prior to the Bally Merger, the Hilton Gaming Business operated
50
<PAGE>
under the Hilton, Flamingo and Conrad brand names with five wholly owned Nevada
casino hotels; one partially owned and managed riverboat operation in New
Orleans, Louisiana (which ceased operations on October 1, 1997); one wholly
owned riverboat gaming operation in Kansas City, Missouri (which opened in
October 1996); two partially owned and managed casino hotels in Australia; and a
partially owned and managed casino hotel in Punta del Este, Uruguay (which
opened its casino in January 1997 and its hotel in the latter half of 1997). As
a result of the Bally Merger, the Hilton Gaming Business includes two wholly
owned casino hotels in Atlantic City, New Jersey; a wholly owned casino hotel in
Las Vegas, Nevada (84% owned at the time of the Bally Merger); a wholly owned
and managed riverboat casino in Robinsonville, Mississippi (50% owned at the
time of the Bally Merger) and a 49.9% owned and managed riverboat casino in New
Orleans. The operating results of the Bally properties from December 18, 1996
through December 31, 1996 were not significant to Park Place's 1996 results.
Park Place's Nevada operations offer a diversified product and service mix
which appeal to a broad spectrum of customers. The Flamingo Hilton-Las Vegas
caters to the broad Las Vegas middle market, while Bally's Las Vegas caters to
convention groups and the mid- to upper mid-market. The Las Vegas Hilton
primarily caters to premium players and the convention market; however, the
property has implemented strategies to broaden its customer base. The Flamingo
Hilton-Reno focuses on middle market activity, while the Reno Hilton targets
both convention and middle market activity. The Flamingo Hilton-Laughlin targets
the budget market segment.
In Atlantic City, Bally's Park Place focuses on high-end players and the
mid-market segment, including the mid- to upper mid-market slot player segment.
The Atlantic City Hilton primarily focuses on high-end and mid-market casino
customers.
The following discussion presents an analysis of results of operations of
Park Place for fiscal years ended December 31, 1997, 1996 and 1995 and for the
nine months ended September 30, 1998 and 1997. EBITDA (earnings before interest,
taxes, depreciation, amortization and non-cash items) is presented supplementary
in the tables below and in the discussion of operating results because
management believes it allows for a more complete analysis of results of
operations. Non-cash items, such as asset write-downs and impairment losses, are
excluded from EBITDA as these items do not impact operating results on a
recurring basis. This information should not be considered as an alternative to
any measure of performance as promulgated under generally accepted accounting
principles (such as operating income or income from continuing operations), nor
should it be considered as an indicator of the overall financial performance of
Park Place. Park Place's calculation of EBITDA may be different from the
calculation used by other companies and therefore comparability may be limited.
FISCAL 1997 COMPARED WITH FISCAL 1996
A summary of Park Place's consolidated revenue and earnings for fiscal 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996 % CHANGE
--------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenue........................................................ $ 2,572 $ 1,415 82%
Operating income............................................... 201 92 118%
Income before extraordinary item............................... 67 36 86%
Other Operating Data
EBITDA......................................................... $ 512 $ 216 137%
</TABLE>
OPERATIONS. Total revenue increased 82 percent in 1997 to $2.6 billion from
$1.4 billion in 1996. Casino revenue, a component of gaming revenue, increased
114 percent to $1.8 billion in 1997 compared to $857 million in the prior year.
EBITDA increased 137 percent to $512 million from $216 million in the prior year
and operating income increased 118 percent to $201 million from $92 million in
1996. In 1997, Park Place benefited from the addition of the Bally properties in
Las Vegas, Atlantic City, Mississippi and
51
<PAGE>
New Orleans, the July 1 addition of The Wild Wild West casino in Atlantic City,
improved international results and a return to a normal baccarat win percentage
at the Las Vegas Hilton. Revenue, casino revenue and EBITDA increased $1.2
billion, $923 million and $298 million, respectively, as a result of the Bally
Merger.
The completion of a number of room expansion projects and the opening of new
hotel casinos led to a six percent increase in room supply in Las Vegas compared
to the prior year. At the Las Vegas Hilton, though the average rate increased
six percent to $104.27, the additional market capacity contributed to a 5.4
point decline in occupancy to 83.2 percent. However, a 28 percent increase in
the property's premium play baccarat volume combined with an eight point
increase in the baccarat win percentage resulted in 1997 EBITDA of $45 million,
a $16 million increase from the prior year. Results at the Las Vegas Hilton are
more volatile than Park Place's other casinos because this property caters to
the premium play segment of the market. Future fluctuations in premium play
volume and win percentage could result in continued volatility in the results at
this property. However, Park Place believes that its 1998 implementation of new
casino marketing and entertainment strategies and the opening of the "Star Trek"
attraction and SpaceQuest casino has broadened the Las Vegas Hilton's customer
base and increased non-premium play volume.
EBITDA from the Flamingo Hilton-Las Vegas declined $5 million to $109
million. New capacity additions also affected this property, which posted
occupancy of 91.0 percent, a 4.5 point decrease from the prior year. The lower
occupancy contributed to a four percent decrease in slot handle and a seven
percent decrease in table game volume. Bally's Las Vegas generated EBITDA of $93
million in 1997, an increase of seven percent from 1996. Though occupancy
declined 1.7 points, average room rate increased six percent, and slot revenue
increased by seven percent on higher walk-in volume. Due to the completion of
the Bally Merger on December 18, 1996, this property's contribution to overall
1996 Park Place results was not significant.
Occupancy for the Nevada casino hotels was 86.5 percent in 1997 compared to
90.5 percent in the prior period. The average room rate for the Nevada
properties was $76.53 compared to $73.57 in 1996. The 1996 statistical
information includes the results of Bally's Las Vegas for comparison.
In Atlantic City, Bally's Park Place and The Atlantic City Hilton generated
EBITDA of $155 million and $29 million, respectively, in 1997. The properties'
results were not significant to Park Place in 1996 since the Bally Merger did
not close until mid-December; however, full year 1996 EBITDA at these properties
totaled $131 million and $38 million, respectively. The results of Bally's Park
Place include a new casino, The Wild Wild West, which opened on July 1, 1997.
Revenue from The Wild Wild West casino was almost entirely incremental,
resulting in strong margin gains. The Atlantic City Hilton's EBITDA was impacted
by a lower table game win percentage and the effects of its tower construction
on casino volume.
Occupancy and average room rate for the Atlantic City casino hotels were
91.3 percent and $90.35, respectively, in 1997. Although not included in Park
Place's 1996 period, occupancy and average room rate were 92.7 percent and
$91.33, respectively.
Park Place also benefited from the opening of the 43% owned Conrad
International Punta del Este Resort and Casino which contributed EBITDA of $9
million in 1997.
Depreciation and amortization, including Park Place's proportionate share of
depreciation and amortization from its equity investments, increased $91 million
to $214 million in 1997. This increase primarily resulted from the addition of
the Bally properties.
Park Place results were adversely effected by non-recurring charges totaling
$102 million ($96 million non-cash) in 1997 and $38 million ($29 million
non-cash) in 1996. The 1997 charges include an impairment loss relating to the
Flamingo Casino-Kansas City and an impairment loss and other costs associated
with the closure of the Flamingo Casino-New Orleans. The 1996 charges included
the write-off of pre-opening
52
<PAGE>
expenses for the Flamingo Casino-Kansas City and losses associated with the
planned relocation of the Flamingo Casino-New Orleans.
CORPORATE ACTIVITY. Corporate expense increased $6 million to $15 million
due to a non-recurring accrual for certain litigation costs in the 1997 period.
Interest income increased $13 million to $25 million due to interest earned on
restricted cash balances acquired in the Bally Merger and incremental interest
from investment securities. Interest expense reflects the pro rata allocation of
the period costs of Hilton's public and bank debt borrowings and the interest
costs on debt secured by certain Park Place assets. Interest expense, net of
amounts capitalized, was $82 million and $36 million in 1997 and 1996,
respectively. Interest expense, net, from equity investments increased $5
million over 1996. The effective income tax rate in 1997 increased to 47.0% from
42.9% in 1996 primarily due to the amortization of non-deductible goodwill
recorded as a result of the Bally Merger. Park Place's effective income tax rate
is determined by the level and composition of pretax income and the mix of
income subject to varying foreign, state and local taxes.
FISCAL 1996 COMPARED WITH FISCAL 1995
A summary of Park Place's consolidated revenue and earnings for fiscal 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995 % CHANGE
--------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenue........................................................ $ 1,415 $ 1,284 10%
Operating income............................................... 92 165 (44)%
Income before extraordinary item............................... 36 85 (58)%
Other Operating Data
EBITDA......................................................... $ 216 $ 253 (15)%
</TABLE>
OPERATIONS. Total revenue increased ten percent to $1.4 billion in 1996
compared to $1.3 billion in 1995. Casino revenue was $857 million in 1996
compared to $791 million in 1995. Total EBITDA was $216 million in 1996, a 15
percent decrease from $253 million in 1995 and operating income was $92 million
in 1996, a 44 percent decrease from $165 million in 1995.
EBITDA at the Las Vegas Hilton was $29 million, a decrease of $61 million
from the prior year. The decline was due primarily to lower than normal drop
combined with a significant reduction in the win percentage on its premium play
baccarat business. The baccarat win percentage decreased 13 points from a more
normalized win percentage in 1995.
Benefiting from a significant renovation and expansion effort completed in
1995, the Flamingo Hilton-Las Vegas posted outstanding results in 1996. EBITDA
was $114 million, $26 million above the prior year. Occupancy increased 6.1
points to 95.5 percent and the average rate increased eight percent to $79.17. A
generally soft market affected 1996 EBITDA at the Flamingo Hilton-Laughlin which
decreased $3 million from the prior year. Combined EBITDA from the Reno Hilton
and the Flamingo Hilton-Reno decreased $11 million from the prior year primarily
due to increased competition and adverse weather conditions resulting in lower
occupancy and average room rates.
Occupancy for the Nevada casino hotels was 90.2 percent and 88.4 percent in
1996 and 1995, respectively. Average room rates increased four percent in 1996.
The EBITDA contribution from the properties acquired in the Bally Merger on
December 18, 1996 were not significant to the 1996 results.
EBITDA from the 19.9% owned Conrad Jupiters, Gold Coast hotel casino in
Australia increased $7 million from 1995, primarily due to increased table game
win and double-digit REVPAR growth. Benefiting from a full year of operations,
EBITDA from the 19.9% owned Conrad International Treasury Casino, Brisbane
increased $4 million.
53
<PAGE>
Depreciation and amortization, including Park Place's proportionate share of
depreciation and amortization from its equity investments, increased $35 million
to $123 million in 1996.
CORPORATE ACTIVITY. Corporate expense was $9 million in 1996 compared to $8
million in 1995. Interest income increased $5 million to $12 million. Interest
expense, net of amounts capitalized, was $36 million and $39 million in 1996 and
1995, respectively. Interest expense, net, from equity investments increased $3
million to $5 million. The effective tax rate was 42.9% in 1996 versus 35.1% in
the 1995 period. The 1995 effective income tax rate benefited from credits
resulting from the favorable resolution of Federal tax issues for prior years
and higher utilization of foreign tax credits.
EXTRAORDINARY LOSS. The costs and expenses incurred in connection with the
extinguishment of debt, including tender and defeasance premiums, resulted in an
extraordinary loss in 1996 totaling $74 million, net of a tax benefit of $52
million.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
A summary of Park Place's consolidated revenue and earnings for the nine
months ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997 % CHANGE
--------- --------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenue........................................................ $ 2,023 $ 1,925 5%
Operating income............................................... 279 246 13%
Income from continuing operations.............................. 118 116 2%
Other Operating Data
EBITDA......................................................... $ 446 $ 400 12%
</TABLE>
Total revenue increased five percent in the nine month period to $2.0
billion. Casino revenue, a component of gaming revenue, increased seven percent
to $1.5 billion in 1998 compared to $1.4 billion in the prior year. Total EBITDA
was $446 million, a 12 percent increase from $400 million in the 1997 period,
and operating income increased 13 percent to $279 million from $246 million in
1997. Park Place's 1998 nine month results benefited from significantly improved
operations at the Las Vegas Hilton, the addition of 300 hotel rooms at the
Conrad International Punta del Este in late 1997 and the opening of The Wild
Wild West casino in Atlantic City.
EBITDA at the Las Vegas Hilton increased $15 million over the prior year to
$50 million. Park Place's efforts to broaden the property's domestic customer
base have resulted in significant increases in non-baccarat table game and slot
volume and a decrease in baccarat play. Non-baccarat table game win increased 50
percent and slot revenue increased 22 percent on higher volume and comparable
win percentages. Baccarat volume decreased 18 percent from the prior year,
however baccarat win increased 20 percent on a significantly increased win
percentage.
EBITDA from the Flamingo Hilton-Las Vegas declined $4 million from the prior
year to $77 million due to lower table game volume and win and a decline in
non-casino revenues. Occupancy declined one point to 90.3 percent, and the
average rate fell five percent to $76.31. Bally's Las Vegas generated EBITDA of
$67 million for the nine month period, a decrease of $2 million from the prior
year. The decline was due to a one point decrease in table game win percentage
combined with lower drop and lower rooms revenue resulting from a one point
decline in occupancy and a two percent decrease in the average rate to $89.76.
Combined EBITDA from the Reno Hilton and the Flamingo Hilton-Reno decreased $1
million from 1997.
Occupancy for the Nevada hotel-casinos was 88.1 percent in the 1998 period
compared to 87.8 percent last year. The average room rate for the Nevada
properties was $74.28 compared to $75.68 in the prior year period.
54
<PAGE>
In Atlantic City, Bally's Park Place generated EBITDA of $130 million, an
increase of five percent from last year's $124 million, due primarily to the
opening of "The Wild Wild West" casino in July 1997. The Atlantic City Hilton
reported EBITDA of $31 million, $7 million above last year. The improvement was
due to higher table game drop and win as well as increased non-casino revenues
from the property's new 300-room tower.
Occupancy for the Atlantic City hotel-casinos was 94.7 percent in the 1998
period compared to 93.1 percent last year. The average room rate for the
Atlantic City properties was $83.93, down nine percent from $92.34 last year.
Combined EBITDA from Park Place's riverboat properties in Mississippi,
Louisiana, and Missouri increased $7 million over last year, while EBITDA
contribution from Park Place's two hotel-casinos in Australia was flat at $19
million.
The opening of 300 hotel rooms in the latter half of 1997 resulted in
significant growth in casino volume at the 43% owned Conrad International Punta
del Este Resort and Casino in Uruguay. EBITDA totaled $18 million in the nine
month period, a $13 million increase over the prior year. Results from this
property are highly seasonal, with the peak season falling in the first quarter.
Depreciation and amortization, including Park Place's proportionate share of
equity investments, increased $13 million to $166 million in the 1998 period due
primarily to the Las Vegas and Atlantic City expansion projects completed in
1997.
CORPORATE ACTIVITY. Corporate expense decreased $8 million to $6 million
due primarily to a non-recurring accrual for litigation costs in the 1997
period. Interest income decreased $5 million to $17 million. Interest expense,
net of amounts capitalized, was $66 million and $59 million in the 1998 and 1997
nine month periods, respectively. Interest expense, net, from equity investments
increased $3 million to $9 million. The effective tax rate was 45.7% in 1998
versus 41.4% in the 1997 period. Minority interest decreased due to the purchase
of the remaining interest in Bally Grand, Inc.
YEAR 2000
Park Place is currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by its computerized
information systems. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of Park Place's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the Year 2000, which could result
in miscalculations or system failures.
Park Place has a Year 2000 program, the objective of which is to determine
and assess the risks of the Year 2000 issue, and plan and institute mitigating
actions to minimize those risks. Park Place's standard for compliance requires
that for a computer system or business process to be Year 2000 compliant, it
must be designed to operate without error in dates and date-related data prior
to, on and after January 1, 2000. Park Place expects to be fully Year 2000
compliant with respect to all significant business systems prior to December 31,
1999.
Park Place's various project teams are focusing their attention in the
following major areas:
INFORMATION TECHNOLOGY (IT)
Information Technology systems account for much of the Year 2000 work and
include all computer systems and technology managed by Park Place. These core
systems have been assessed, plans are in place, and work is being undertaken to
test and implement changes where required. No significant remediation has been
identified. The appropriate vendors and suppliers have been contacted as to
their Year 2000 compliance and their deliverables have been factored into Park
Place's plans.
55
<PAGE>
NON-IT SYSTEMS
An inventory of all property level non-IT systems (including elevators,
electronic door locks, gaming devices, etc.) is near completion. The majority of
these non-IT systems have been assessed, plans are in place, and work is being
undertaken to test and implement changes where required. The appropriate vendors
and suppliers have been contacted as to their Year 2000 compliance and their
deliverables have been factored into Park Place's plans.
SUPPLIERS
Park Place is communicating with its significant suppliers to understand
their Year 2000 issues and how they might prepare themselves to manage those
issues as they relate to Park Place. To date, no significant supplier has
informed Park Place that a material Year 2000 issue exists which will have a
material effect on Park Place.
During the remainder of 1998 and in 1999, Park Place will continually review
its progress against its Year 2000 plans and determine what contingency plans
are appropriate to reduce its exposure to Year 2000 related issues.
Based on Park Place's current assessment, the costs of addressing potential
problems are expected to be less than $2 million. However, if Park Place is
unable to resolve its Year 2000 issues, contingency plans to update existing
systems (i.e., reservation, payroll, etc.) are in place for which Park Place
expects the cost to be an additional $2 million. If Park Place's customers or
vendors identify significant Year 2000 issues in the future and are unable to
resolve such issues in a timely manner, it could result in a material financial
risk. Accordingly, Park Place plans to devote the necessary resources to resolve
all significant Year 2000 issues in a timely manner.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." This SOP requires that all nongovernmental
entities expense costs of start-up activities (pre-opening, pre-operating and
organizational costs) as those costs are incurred and requires the write-off of
any unamortized balances upon implementation. SOP 98-5 is effective for
financial statements issued for periods beginning after December 15, 1998. Park
Place expects to adopt SOP 98-5 in the first quarter of 1999. Adoption of the
SOP is not expected to have a material impact on 1999 results of operations.
On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus in EITF 97-2 "Application of FASB
Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
Upon the adoption of EITF 97-2, which is expected to be in the fourth
quarter of 1998, Park Place will no longer include in its financial statements
the revenues, operating expenses and working capital of its managed properties.
Application of EITF 97-2 to Park Place's financial statements would have reduced
each of revenues and operating expenses by $427 million, $457 million and $350
million for the years ended December 31, 1997, 1996 and 1995, respectively and
$290 million and $332 million for the nine month periods ended September 30,
1998 and 1997, respectively. Application of the standard would have reduced each
of current assets and current liabilities by $59 million and $84 million at
December 31, 1997 and 1996, respectively, and $31 million at September 30, 1998.
Application of EITF 97-2 would have no impact on reported operating income, net
income, earnings per share or stockholders' equity.
56
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Park Place was formed to succeed to the Hilton Gaming Business. Park Place
considers its casino hotels and riverboat casinos to be leading establishments
with respect to location, size, facilities, physical condition, quality and
variety of services offered in the areas in which they are located. Park Place
is the largest gaming company, as measured by casino square footage and
revenues, with approximately 1.4 million square feet of gaming space in 1999 and
approximately $2.7 billion in revenues in 1997. Park Place is the only gaming
company with a significant presence in Nevada, New Jersey and Mississippi, the
three largest gaming markets in the United States.
Park Place's current operations include eleven U.S. land-based casinos and
interests in three U.S. riverboat casinos, two land-based casinos in Australia
and one land-based casino in Uruguay. Park Place's domestic gaming operations
are conducted under the Bally, Flamingo, Grand and, subject to certain
limitations, Hilton brand names. See "Arrangements between Hilton and Park
Place--Trademark Assignment and License Agreement."
PROPERTIES
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF YEAR CASINO
NAME AND LOCATION ROOMS/SUITES ACQUIRED SQUARE FOOTAGE
- ------------------------------------------------------------------------ --------------- ----------- --------------
<S> <C> <C> <C>
DOMESTIC CASINOS
NEW JERSEY
Bally's Park Place Casino-Resort(1)(2)................................ 1,265 1996 155,000
The Atlantic City Hilton Casino Resort(1)(3).......................... 805 1996 60,000
NEVADA
Flamingo Hilton-Las Vegas(4).......................................... 3,642 1971 93,000
Las Vegas Hilton(5)................................................... 3,174 1971 100,000
Bally's Las Vegas(1)(6)............................................... 2,814 1996 68,000
Reno Hilton(7)........................................................ 2,001 1992 114,000
Flamingo Hilton-Laughlin(8)........................................... 2,000 1990 58,000
Flamingo Hilton-Reno(9)............................................... 604 1981 46,000
MISSISSIPPI
Grand Casino Biloxi(10)............................................... 1,000 1998 115,000
Grand Casino Tunica(11)............................................... 756 1998 140,000
Grand Casino Gulfport(12)............................................. 400 1998 110,000
Bally's Saloon-Gambling Hall-Hotel(1)................................. 238 1996 40,000
MISSOURI
Flamingo Casino--Kansas City(13)...................................... -- 1996 30,000
LOUISIANA
Bally's Casino-Lakeshore Resort(1)(14)(15)............................ -- 1996 30,000
INTERNATIONAL CASINOS
AUSTRALIA(16)
Conrad International Treasury Casino, Brisbane........................ 136 1995 65,000
Conrad Jupiters, Gold Coast........................................... 609 1985 70,000
URUGUAY
Conrad International Punta del Este Resort and Casino(15)(17)......... 300 1997 38,000
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
57
<PAGE>
- ------------------------------
(1) The referenced properties were acquired as a result of the Bally Merger.
(2) Casino square footage includes 75,000 square feet attributable to The Wild
Wild West casino and 8,500 square feet attributable to the race book.
(3) Casino square footage includes 1,500 square feet attributable to the race
book.
(4) Casino square footage includes 20,000 square feet attributable to O'Sheas
Irish theme casino adjacent to the hotel.
(5) Casino square footage includes 29,000 square feet attributable to the race
and sport book and 22,000 square feet attributable to the SpaceQuest
casino.
(6) Casino square footage includes 5,000 square feet attributable to the race
and sports book.
(7) Casino square footage includes 12,000 square feet attributable to the race
and sport book.
(8) Casino square footage includes 3,000 square feet attributable to the race
and sport book.
(9) An extension of the Flamingo Hilton-Reno casino operation is contained in a
structure located on an adjacent block with a skywalk connecting it to the
main building. This structure is held under four long-term leases or
subleases, expiring on various dates from January 2001 to August 2034,
including renewal options, all of which may not necessarily be exercised.
Casino square footage includes 2,500 square feet attributable to the race
and sport book.
(10) Includes two 500-room hotels located adjacent to the casino.
(11) A new resort hotel at Grand Casino Tunica is currently under construction
and is expected to be completed during 1999. Number of rooms/suites
reflects room availability at two hotels.
(12) A new resort hotel at Grand Casino Gulfport is currently under
construction and is expected to be completed during 1999.
(13) Prior to and in connection with the Hilton Distribution on December 31,
1998, Park Place applied for approval from the state gaming authorities to
own and operate this riverboat casino, but did not receive this approval
prior to the Hilton Distribution. Hilton has retained this property and
will cooperate with Park Place to take appropriate action to put Park
Place in the same position it would have been in if the transfer had
occurred. On January 13, 1999, Hilton entered into an agreement to sell
this property to a third party and upon such sale Park Place will be
entitled to the net proceeds of the sale. See "Business and
Properties--Missouri Casino."
(14) Park Place currently has a 49.9% ownership interest in this property.
(15) The owners of these properties are parties to loans under which they are
obligated to make payments to Park Place.
(16) Park Place has a 19.9% ownership interest in these properties.
(17) Park Place has a 43% ownership interest in this property. The casino
opened in January 1997 and the hotel opened in stages over the latter half
of 1997.
Park Place is continually evaluating attractive acquisition opportunities
and may at any time be negotiating to engage in a business combination
transaction or other acquisition. Park Place plans to continuously evaluate its
property portfolio and intends to dispose of its interests in properties that,
in its opinion, no longer yield an adequate return on investment or conform to
Park Place's long range plans. In doing so, Park Place expects to maintain a
balanced mix of sources of revenue and a favorable return on stockholders'
equity.
NEVADA CASINOS
Park Place owns and operates six casino hotels in the State of Nevada: the
Las Vegas Hilton, the Flamingo Hilton-Las Vegas, Bally's Las Vegas, the Flamingo
Hilton-Laughlin, the Reno Hilton and the Flamingo Hilton-Reno.
Park Place's Nevada gaming operations reach diverse markets by offering
gaming alternatives for premium players, convention visitors, mid-market
gamblers and budget-conscious customers. The Las Vegas Hilton is located
adjacent to the Las Vegas Convention Center and focuses on upscale individual
leisure guests and convention groups. Bally's Las Vegas is located at the "Four
Corners" on the Strip in Las Vegas and caters to convention groups and the
mid-to upper mid-market, including the group tour and
58
<PAGE>
travel segment. Bally's Las Vegas is also serviced by a public monorail which
connects to the MGM Grand Hotel and Casino. The Flamingo Hilton-Las Vegas and
the Flamingo Hilton-Reno focus primarily on the mid-market, in particular the
group tour and travel segment. The Flamingo Hilton-Laughlin targets the budget
and mid-market segments. The Reno Hilton focuses primarily on the mid-market, in
particular convention groups. Each of these casino hotels has gaming,
convention, dining, shopping, entertainment and, with the exception of the
Flamingo Hilton-Reno, indoor and outdoor recreational facilities. A variety of
popular entertainment is featured in theaters and lounges at each hotel.
In January 1998, Park Place's "Star Trek: The Experience at the Las Vegas
Hilton" opened, which was developed in collaboration with Paramount Parks Inc.
("Paramount"). This 65,000 square foot attraction features a motion based
simulation ride, interactive video and virtual reality stations, dining and
souvenir shops. The building housing the Star Trek attraction is owned by Park
Place and leased to Paramount. The attraction is also managed by Paramount. In
conjunction with the Star Trek attraction, in November 1997, SpaceQuest casino,
a themed 22,000 square foot addition, opened at the Las Vegas Hilton.
In 1997, continued refurbishment and expansion of existing facilities in
Nevada took place in order to maintain their presence as premier properties in
the market. The Las Vegas Hilton renovated approximately 850 guest rooms,
remodeled the lobby in conjunction with the Star Trek attraction, rebuilt a new
marquee sign, opened new retail stores and a parking garage and upgraded its
slot machines and life safety system. The Flamingo Hilton-Las Vegas opened a new
restaurant, renovated the casino and showroom entrance, enlarged its casino bar
and added a pool bar. Bally's Las Vegas renovated its showroom and upgraded the
Jubilee Show and also continued to renovate its life safety and building
management systems. The Flamingo Hilton-Laughlin renovated 1,000 guestrooms,
installed a riverside dock to accommodate a new boat operation and continued its
slot machine replacement program. At the Reno Hilton, the bowling center, guest
room suites and restaurant areas were renovated. The Flamingo Hilton-Reno
renovated the casino, guest rooms and the gift shop and upgraded slot machines.
Each of the casino hotels is open 24 hours a day, seven days a week, for
gaming activities. Games operated in these casinos include "blackjack," craps,
roulette, "big 6," baccarat, poker, keno and slot and other coin machines. The
Las Vegas Hilton's race and sports book is linked by satellite or modem to the
casinos at the Flamingo Hilton-Las Vegas, the Flamingo Hilton-Laughlin, the Reno
Hilton and the Flamingo Hilton-Reno. Bally's Las Vegas also operates a race and
sport book.
It is impracticable for Park Place's casino hotels to record the total
amount bet in the casinos, although the amount of chips issued for cash and
credit is determined regularly. The amount of gaming activity varies
significantly from time to time primarily due to general economic conditions,
popularity of entertainment in the hotels, and occupancy rates in the hotels and
in the Las Vegas, Laughlin and Reno markets. The amount of revenue from gaming
operations varies depending upon the amount of gaming activity as well as
variations in the odds for different games and the factor of chance. Casino
activities are conducted by experienced personnel who are supervised at all
times.
As is the case of any business that extensively involves the handling of
cash, gaming operations at Park Place's casino hotels are subject to risk of
substantial loss as a result of dishonesty. However, Park Place believes that it
has reduced such risk, by means of procedures for supervision of employees and
other controls, to the fullest extent practicable without impediment to play and
within the limits of reasonable costs. Substantially all table games and slot
machines can be monitored by remote control television and substantially all
slot machines at all six Nevada properties are monitored by computers.
The Las Vegas Hilton and, to a lesser extent, the Flamingo Hilton-Las Vegas,
Bally's Las Vegas, the Flamingo Hilton-Laughlin, the Flamingo Hilton-Reno and
the Reno Hilton invite VIP customers to their casinos and may pay for or
reimburse the cost of their air transportation and provide them with
complimentary rooms, food and beverage. In addition, the Las Vegas Hilton has a
special flight program, pursuant to which free air transportation on Park Place
owned or chartered aircraft and complimentary rooms, food and beverage are
provided to groups or selected persons. These persons either have
59
<PAGE>
established casino credit limits or cash on deposit in the casino and have
previously evidenced a willingness to put substantial amounts at risk at the
casino. The Las Vegas Hilton hosted 37 special flight programs in 1997, compared
to 18 such programs in 1996.
NEW JERSEY CASINOS
Park Place owns and operates two casino hotels in Atlantic City, New Jersey:
the 1,265-room Bally's Park Place Casino--Resort, which includes The Wild Wild
West casino ("Bally's Park Place") and the 805-room Atlantic City Hilton Casino
Resort ("The Atlantic City Hilton").
Bally's Park Place, currently the largest four-star hotel in New Jersey, is
located on an eight-acre site with ocean frontage at the intersection of Park
Place and the Boardwalk. With its strategic location on the Boardwalk, over
2,800 parking spaces and a new bus terminal, Bally's Park Place is strongly
positioned to attract significant walk-in and drive-in business. The Atlantic
City Hilton is located on approximately three acres at the intersection of
Boston and Pacific Avenues at the southern end of the Boardwalk in proximity to
one of the major highways leading into Atlantic City. This location gives The
Atlantic City Hilton an advantage in attraction destination oriented customers
arriving by automobile or bus.
In July 1997, Park Place's new 75,000 square foot western-themed casino, The
Wild Wild West, opened. It is located on approximately four acres of boardwalk
property adjacent to Bally's Park Place. Also in July 1997, The Atlantic City
Hilton completed a new 300-room hotel tower, which includes meeting rooms,
restaurants and other related amenities. In January 1998, the Atlantic City
Country Club in Northfield, New Jersey was acquired, which features an 18-hole
golf course.
Park Place's Atlantic City properties have gaming, dining, shopping,
entertainment, convention and meeting facilities, recreational facilities and
parking. A variety of popular entertainment, sports events and production shows
are featured at both properties. The Atlantic City casinos are open 24 hours a
day, seven days a week, for gaming activities, and feature table games and slot
machines similar to those offered at Park Place's Nevada casino hotels. Atlantic
City casinos do not contain sports books, however, Park Place's Atlantic City
casinos feature simulcast horse racing. Revenue and earnings for Park Place's
Atlantic City casinos peak during the summer, with less favorable operating
results in the winter.
Bally's Park Place focuses on high-end players and the mid-market segment,
including the mid- to upper mid-market slot player segment. The Atlantic City
Hilton primarily focuses on personalized service for high-end and mid-market
casino customers.
MISSISSIPPI CASINOS
Park Place owns and operates four casino hotels in the State of Mississippi:
the Grand Casino Biloxi, the Grand Casino Gulfport, the Grand Casino Tunica and
the Bally's Saloon-Gambling Hall-Hotel, all of which are dockside casinos.
In September 1998, the Grand Casino Gulfport and Grand Casino Biloxi were
temporarily closed as a result of Hurricane Georges. These closings were based
on a mandate by the Mississippi Gaming Commission and also impacted the other
nine casinos on the Mississippi Gulf Coast. Grand is insured for the full
replacement value of its Gulf Coast properties, inclusive of all real and
personal property. Additionally, Grand Casino Gulfport and Grand Casino Biloxi
have full business interruption insurance, including coverage for wind and
flood, covering continuing expenses, as well as lost revenues during the period
the casinos are affected by the storm. Each of the two casinos has a $500,000
deductible on its insurance coverage. Grand Casino Gulfport reopened on October
2, 1998, suffering only minimal damage as a result of the hurricane, principally
to its hotel. Grand Casino Biloxi was more substantially damaged in the storm
but reopened on October 15, 1998.
60
<PAGE>
GRAND CASINO BILOXI
Grand Casino Biloxi opened on January 17, 1994, and is the largest dockside
casino on the Mississippi Gulf Coast. Grand Casino Biloxi is a three-story
building built upon a moored steel barge with approximately 250,000 square feet
of interior space. The Grand Casino Biloxi location is one of a few sites on the
Mississippi Gulf Coast that permits east-west orientation of the casino, thus
maximizing visibility from the highway. A pedestrian walkway connects the casino
to 3,500 parking spaces available for guests.
The casino area features approximately 115,000 square feet of gaming space
and six restaurants. In 1995, Grand Casino Biloxi opened a twelve-story,
500-room hotel adjacent to the casino, together with a Grand Casino Kids
Quest--child care entertainment center located on the first floor. Grand Casino
Biloxi also operates a 1,600-seat show theater adjacent to the casino that
features a production/variety show with matinee and evening performances, boxing
events, and other professional entertainment. In February 1998, a second hotel
was opened with 500 rooms and a 60,000 square-foot convention center.
GRAND CASINO GULFPORT
Grand Casino Gulfport, which opened in May 1993, is a three story building
set upon moored steel linked barges consisting of approximately 225,000 square
feet of interior space. There are 3,500 parking spaces available for guests.
Grand Casino Gulfport also offers a nightclub/entertainment complex adjacent to
the casino that contains separately themed nightclubs.
The casino area consists of approximately 110,000 square feet of gaming area
and is decorated in a "carnival" Mardi Gras theme. Other amenities include four
restaurants, a Grand Casino Kids Quest(sm), a Grand Arcade, a multi-venue
entertainment complex and America Live, a nightclub/entertainment complex
containing separately-themed nightclubs. Grand Casino Gulfport has a
seventeen-story, 400-room hotel adjacent to the casino.
GRAND CASINO TUNICA
Grand Casino Tunica opened in June 1996 and is the largest dockside casino
in Mississippi and one of the largest casinos in the United States. Grand Casino
Tunica is being developed into a destination gaming resort featuring a
multi-themed casino and currently features two hotels with an aggregate of 756
rooms. Recent additions include an 18-hole professionally designed championship
golf course and driving range.
Grand Casino Tunica is located in Tunica County, Mississippi, approximately
15 miles south of the Memphis metropolitan area. Located directly on the
northern border of Tunica County, Grand Casino Tunica is currently the closest
legal gaming site to Memphis, Tennessee, and the only casino property in Tunica
County that has direct frontage on U.S. Highway 61, the most direct route from
Memphis to Tunica County gaming sites.
Grand Casino Tunica is a 400,000-square-foot, three-story, multi-themed
casino complex containing approximately 140,000 square feet of gaming space.
Grand Casino Tunica features four unique themes of Americana: Gold Rush Era San
Francisco, an 1890s Mississippi Riverboat Town, New Orleans Mardi Gras and the
Great American West of the 1870s. Grand Casino Tunica offers its guests a choice
of six restaurants, as well as an entertainment lounge and Player's Club.
BALLY'S SALOON-GAMBLING HALL-HOTEL
Park Place owns and manages Bally's Saloon-Gambling Hall-Hotel, a casino and
hotel complex located in Robinsonville, Mississippi, near Memphis, Tennessee.
The complex features a dockside casino and an adjacent 30,000 square foot
land-based facility which includes entertainment facilities and a restaurant.
Park Place also owns and operates a 238-room hotel at this complex.
61
<PAGE>
MISSOURI CASINO
Prior to and in connection with the Hilton Distribution, Park Place applied
to the Missouri Gaming Commission (the "MGC") for approval to own and operate
the Flamingo Casino--Kansas City, which features a dockside casino and
concession and entertainment facilities, which approval was not received prior
to the Hilton Distribution. Hilton has retained this property and will cooperate
with Park Place to take appropriate action to put Park Place in the same
position it would have been if the transfer had occurred. On January 13, 1999,
Hilton entered into an agreement to sell this property to a third party and upon
such sale, Park Place will be entitled to the net proceeds of the sale. See
"Arrangements Between Hilton and Park Place--Hilton Distribution Agreement" and
"Regulation and Licensing--Missouri Gaming Laws."
In November 1997, the Missouri Supreme Court ruled that riverboat casinos
operating in man-made basins must meet certain requirements as to contiguity
with the Mississippi or Missouri rivers in order to comply with the Missouri
constitution. In response to this decision, Hilton and other operators of
riverboat casinos in man-made basins filed a referendum which was approved by
voters in Missouri in the November 3, 1998 election. The approval of this
referendum permits the continuing operation of games of chance on the riverboat
casino at its present location. The assets of the Flamingo Casino-Kansas City
have been written down to their net realizable value.
On August 12, 1998, the MGC announced that it would reopen the licensing
investigation of a subsidiary of Hilton regarding alleged actions in 1993 by a
former employee of another Hilton subsidiary to influence an official of the
Kansas City Port Authority. This investigation arises out of a diversion
agreement executed on August 12, 1998 between such two Hilton subsidiaries and
the United States Attorney in Kansas City relating to such alleged actions.
Pursuant to the diversion agreement, such subsidiaries accepted responsibility
for whatever actions may have been taken by any former employees and paid the
sum of $655,000 to settle the matter, and the government confirmed that no
current employees, officers or directors of Hilton and such two subsidiaries
were in any way involved. Hilton has advised the MGC that it will cooperate
fully in such investigation. A prior investigation of the same matter by the MGC
in 1996 concluded in the grant of a license to operate the Missouri casino.
In connection with its reexamination of the circumstances relating to the
diversion agreement, the MGC has requested the Jackson County prosecutor in
Kansas City to conduct an investigation of the matter. On December 18, 1998, the
Jackson County prosecutor indicted a former officer of a Hilton subsidiary on
three Class D felony counts for allegedly making false statements to the MGC in
1996. The former employee pled not guilty and is awaiting trial. The prosecutor
did not bring any charges against Hilton, its subsidiaries or any of their
respective current directors, officers or employees. If the proposed sale of the
Flamingo Casino--Kansas City is not completed, it is possible that the MGC could
institute disciplinary proceedings against such Hilton subsidiaries or Hilton.
LOUISIANA CASINO
Park Place has a 49.9% ownership interest in the Belle of Orleans, L.L.C.
(the "Belle") which owns Bally's Casino-Lakeshore Resort, a riverboat casino
facility that operates out of South Shore Harbor on Lake Pontchartrian in
Orleans Parish, which is approximately eight miles from the French Quarter of
New Orleans.
The subsidiary which holds the Belle (the "Louisiana Subsidiary") and Metro
Riverboat Associates, Inc. ("Metro"), which owns the remaining 50.1% interest in
the Belle, are engaged in certain litigation. The Louisiana Subsidiary and Metro
entered into an operating agreement defining the rights and obligations of the
members of Belle, along with a management agreement providing for the Louisiana
Subsidiary to manage the riverboat casino. In early 1997, Metro filed suit in
Louisiana state court seeking contractual and injunctive relief under the terms
of the operating and management agreements based on non-competition and change
of control provisions which were allegedly triggered as a result of the Bally
62
<PAGE>
Merger. Preliminary injunctive relief was granted to Metro by the trial court.
After various hearings and appeals by the Louisiana Subsidiary, the injunctive
relief granted by the trial court has been suspended. In June 1998, Metro filed
a second, related suit for damages in an unspecified amount against the
Louisiana Subsidiary and certain of its affiliates. The two suits filed by Metro
were consolidated by the trial court. The Louisiana Subsidiary filed certain
exceptions which were denied, and has filed a writ with the Court of Appeals
seeking discretionary review of the judgment. In November of 1998, Metro filed a
third suit in Louisiana state court against the Louisiana Subsidiary, seeking a
temporary restraining order and preliminary injunction to prevent the Louisiana
Subsidiary from continuing as manager of the riverboat casino. A temporary
restraining order was issued on November 23, 1998 by the trial court and has
been stayed by the Court of Appeals pending a decision by the trial court on
Metro's petition for preliminary injunction. A hearing was held on December 3,
1998, and the trial court has taken the matter under advisement and given the
parties until December 15, 1998 to file post-hearing and supplemental briefs.
The Louisiana Subsidiary has filed an action in Illinois state court seeking
judgment against Metro based upon Metro's default under certain agreements
between the parties relating to a $4 million loan to Metro.
Park Place will vigorously defend the claim for damages under such suits and
vigorously pursue its claim against Metro.
OTHER DOMESTIC ASSETS
Park Place also owns two riverboats not currently in operation. These
riverboats, which have 25,000 and 20,000 square feet of casino space,
respectively, are being held for sale in Louisiana and Ontario, Canada.
INTERNATIONAL CASINOS
Park Place, through its subsidiaries, manages three international casino
hotels which feature table games and slot machines similar to those offered at
Park Place's casino hotels in Nevada and New Jersey.
In January 1997, casino operations commenced at the 43% owned Conrad
International Punta del Este Resort and Casino in Uruguay. The hotel opened in
stages over the latter half of 1997, and features convention facilities,
restaurants and related amenities.
Park Place has 19.9% ownership interests in the Conrad Jupiters, Gold Coast
and the Conrad International Treasury Casino, Brisbane, both of which are
located in Queensland, Australia. The Conrad International Treasury Casino,
Brisbane has the exclusive right to conduct casino gaming in Brisbane until
2005.
EXPANSION PROGRAM
NEVADA
Park Place continues to expand its domestic gaming operations through the
development of the 2,900-room Paris Casino-Resort, a new casino resort adjacent
to Bally's Las Vegas which will feature an 85,000 square foot casino, 13
restaurants, 130,000 square feet of convention space and a retail shopping
complex with a French influence. In addition to a 50-story replica of the Eiffel
Tower, the resort will also feature replications of some of Paris' most
recognized landmarks, including the Arc de Triomphe, the Paris Opera House, The
Louvre and rue de la Paix. The Paris Casino-Resort is scheduled to be completed
in the fall of 1999.
In 1998, Park Place's Nevada casino hotels are scheduled to complete
additional expansion and renovation programs. The Las Vegas Hilton plans to
renovate an additional 850 guest rooms and the casino and sportsbook, expand
valet parking and renovate the pool and spa. The Flamingo Hilton-Las Vegas plans
to renovate guest rooms, and casino areas, upgrade slots and enhance signage and
the cooling and information systems. Bally's Las Vegas plans to continue its
participation in a joint venture to erect
63
<PAGE>
pedestrian bridges over the Strip and Flamingo Road connecting the property to
other hotel casinos, and also plans to remodel the ballroom and events center
and upgrade elevators. The Flamingo Hilton-Laughlin plans to renovate an
additional 1,000 guest rooms, along with the casino and the main level of the
property, and continue its slot machine replacement program. At the Reno Hilton,
planned improvements include renovation of guest rooms suites, slot upgrades,
additional signage and enhancement of the cooling and information systems. The
Flaming Hilton-Reno plans to continue to renovate guest rooms and upgrade slot
machines.
NEW JERSEY
Park Place's Atlantic City, New Jersey casino hotels are also commencing
renovation projects in 1998. Bally's Park Place plans to renovate 500 guest
rooms and restaurant areas. The Atlantic City Hilton plans to renovate the
property's previously existing guest rooms to be consistent with the standard of
the guest rooms in the new 300-room tower addition.
MISSISSIPPI
The Gulfport Oasis, a new resort hotel, is currently under construction at
Grand Casino Gulfport and is expected to be completed during the summer of 1999.
Also under development is an approximately 1,750-acre recreation area between
Gulfport and Biloxi. Park Place intends to build an 18-hole championship golf
course on the property, together with a clubhouse and sporting clay shooting
facility. These projects are expected to be completed in mid-1999.
The 2,000 acre site for Grand Casino Tunica is conducive to significant
long-term development of the site. Grand Casino Tunica's master plan
contemplates additional entertainment amenities, including additional hotels, a
second championship golf course, a village center containing additional hotel
sites, restaurants, retail shopping and other attractions, and residential
properties on the golf course. Such future developments are expected to be
funded primarily from cash flow. Such future developments, if completed, are
expected to further enhance Grand Casino Tunica's status as a premier
destination gaming resort and to encourage repeat visits. Any such additional
development, however, will be dependent upon the operating results of Grand
Casino Tunica and other future conditions, and no assurance can be given that
any such additions will be completed.
EMPLOYEES
At December 31, 1998, Park Place had approximately 40,000 employees, of
which approximately 12,000 were covered by various collective bargaining
agreements providing, generally, for basic pay rates, working hours, other
conditions of employment and orderly settlement of labor disputes. Park Place
believes that the aggregate compensation benefits and working conditions
afforded its employees compare favorably with those received by employees in the
gaming industry generally. Although strikes of short duration have from time to
time occurred at certain of Park Place's facilities, Park Place believes its
employee relations are satisfactory.
COMPETITION
Park Place will seek to maintain the diversity of its gaming businesses
while expanding both domestically and internationally. Park Place intends to
improve and expand its core business by leveraging its strong brand names,
maximizing operating efficiencies, expanding and enhancing properties and
acquiring or developing properties as appropriate.
To the extent that the casino hotel capacity is expanded by others in a city
where Park Place casino hotels are located, competition will increase. The
completion of a number of room expansion projects and the opening of new casino
hotels led to a 6% increase in hotel capacity in Las Vegas in 1997 compared to
1996, thereby increasing competition in all segments of the Las Vegas market.
Certain of Park Place's
64
<PAGE>
competitors have also announced, or are developing, new casino projects in Las
Vegas and Atlantic City which, if completed, will add significant casino space
and hotel rooms to these markets. Such new capacity additions to the Las Vegas
and Atlantic City markets could adversely impact Park Place's future operating
results. The business of Park Place's Nevada casino hotels might also be
adversely affected if gaming operations of the type conducted in Nevada were to
be permitted under the laws of other states, particularly California. Similarly,
legalization of gaming operations in any jurisdiction located near Atlantic
City, New Jersey, or the establishment of new large scale gaming operations on
nearby Indian tribal lands, could adversely affect Park Place's Atlantic City
casino hotels. The expansion of riverboat gaming or casino gaming on Indian
tribal lands could also impact Park Place's gaming operations. Gaming related
referenda have been voted upon or are being proposed in several states which
could, if passed, materially affect Park Place. See "Risk Factors."
STATISTICAL DATA
The following table sets forth certain statistical information as of and for
the year ended December 31, 1997, with respect to Park Place's properties:
<TABLE>
<CAPTION>
AVERAGE
PROPERTIES ROOMS OCCUPANCY ROOM RATE REVPAR(1)
--------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OWNED & MANAGED HOTEL CASINOS
Western Region................................ 6 14,235 86.5% $ 76.53 $ 66.20
Eastern Region................................ 3 2,308 88.1 87.01 76.63
International................................. 3 1,047 68.9 99.86 68.84
--
--------- ----- ----------- -----------
Total......................................... 12 17,590 85.8% $ 78.81 $ 67.62
--
--
--------- ----- ----------- -----------
--------- ----- ----------- -----------
</TABLE>
- ------------------------
(1) RevPar is equal to rooms revenue divided by available rooms.
LITIGATION
Hilton or its subsidiaries are parties to legal proceedings relating to the
Hilton Gaming Business that were assumed by Park Place pursuant to the Hilton
Distribution Agreement. In the opinion of management, the resolution of these
matters will not have a material effect on Park Place's financial position or
results of operation. In addition, Grand and its subsidiaries are parties to
various lawsuits and any liability with respect thereto will be an obligation of
the Park Place consolidated group. Pursuant to the Grand Distribution Agreement
and the Merger Agreement, Grand will be indemnified by Lakes for certain
liabilities. If Lakes is unable to satisfy its indemnification obligations,
Grand will be responsible for such liabilities which could have a material
adverse effect on Park Place. See "Risk Factors."
ENVIRONMENTAL MATTERS
Park Place, like others in its industry, is subject to various federal,
state, local and, in some cases, foreign laws, ordinances and regulations that
(i) govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous or toxic wastes, or (ii) may impose liability for the
costs of cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous or toxic substances or wastes
(together, "Environmental Laws").
Park Place endeavors to maintain compliance with Environmental Laws, but,
from time to time, current or historical operations at Park Place's properties
may have resulted or may result in noncompliance or liability for cleanup
pursuant to Environmental Laws. In that regard, Park Place may incur costs for
cleaning up contamination relating to historical uses of certain of its
properties. In addition, Park Place received notice from the current landowner
of a prior Park Place facility in Chicago, Illinois that the landowner may seek
to recover past and future costs of investigating and remediating alleged soil
and
65
<PAGE>
groundwater contamination at the facility. Park Place does not believe that Park
Place's prior operations at the site have contributed to the alleged
contamination; as a result, if the current landowner pursues its claim, Park
Place expects to vigorously defend against the claim. Park Place cannot at this
time estimate the potential costs of investigation or cleanup, if any, however,
based on currently available information, Park Place believes that any such
costs would be shared by several parties and, in any event, the cost estimates
provided to date indicate that any such liability would not have a material
adverse effect on Park Place's results of operations or financial condition.
66
<PAGE>
REGULATION AND LICENSING
Each of Park Place's casinos are subject to extensive regulation under laws,
rules and supervisory procedures primarily in the jurisdiction where located or
docked. Some jurisdictions, however, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and require
access to and periodic reports respecting such gaming activities. Violations of
laws in one jurisdiction could result in disciplinary action in other
jurisdictions.
In connection with the Transactions, Park Place was found suitable as the
parent holding company of subsidiaries which hold gaming licenses in all
domestic jurisdictions in which such licenses are held. In addition, in certain
jurisdictions, certain indirectly owned subsidiaries of Park Place were
registered, licensed or found suitable in connection with the Transactions.
Under provisions of gaming laws in which Park Place has operations and Park
Place's Certificate of Incorporation, certain securities of Park Place are
subject to restrictions on ownership which may be imposed by specified
governmental authorities. Such restrictions may require the holder to dispose of
the securities or, if the holder refuses to make such disposition, Park Place
may be obligated to repurchase the securities.
NEVADA GAMING LAWS
The ownership and operation of casino gaming facilities in the State of
Nevada, such as those at the Las Vegas Hilton, the Flamingo Hilton-Las Vegas,
Bally's Las Vegas, the Flamingo Hilton-Laughlin, the Reno Hilton and the
Flamingo Hilton-Reno, are subject to the Nevada Gaming Control Act and the
regulations promulgated thereunder (the "Nevada Act") and various local
regulations. Hilton's Nevada gaming operations are, and Park Place's Nevada
gaming operations will be, subject to the licensing and regulatory control of
the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming
Control Board (the "Nevada Board") and, depending on the facility's location,
the Clark County Liquor and Gaming Licensing Board (the "CCB") and the City of
Reno. The Nevada Commission, the Nevada Board, the CCB and the City of Reno are
collectively referred to as the "Nevada Gaming Authorities." The following
regulatory requirements are currently applicable to Hilton and will be
applicable to Park Place upon consummation of the Transactions.
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (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 and maintenance of
effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and (v) providing a
source of state and local revenues through taxation and licensing fees. Changes
in such laws, regulations and procedures could have an adverse effect on Park
Place's gaming operations.
Each subsidiary of Park Place that currently operates a casino in Nevada
(individually, a "Corporate Licensee" and collectively, the "Corporate
Licensees"), is required to be licensed by the Nevada Gaming Authorities. The
gaming license requires the periodic payment of fees and taxes and is not
transferable. Park Place is, required to be registered by the Nevada Commission
as a publicly traded corporation ("Registered Corporation") and as such, is
required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information that the Nevada Commission
may require. No person may become a stockholder of, or receive any percentage of
profits from, a Corporate Licensee without first obtaining licenses and
approvals from the Nevada Gaming Authorities. Park Place and the Corporate
Licensees have obtained from the Nevada Gaming Authorities the various
registrations,
67
<PAGE>
findings of suitability, approvals, permits and licenses (individually, a
"Gaming License" and collectively, "Gaming Licenses") required in order to
engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Park Place or any of its
Corporate Licensees 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 Park Place and the Corporate Licensees
must file applications with the Nevada Gaming Authorities and may be required to
be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. An applicant for licensing or an applicant for a
finding of suitability must pay for all the costs of the investigation. Changes
in licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove
a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with Park Place or any Corporate Licensee, Park Place and the
Corporate Licensee would have to sever all relationships with such person. In
addition, the Nevada Commission may require Park Place or a Corporate Licensee
to terminate the employment of any person who refuses to file appropriate
applications. Determinations of suitability or questions pertaining to licensing
are not subject to judicial review in Nevada.
Park Place and all Corporate Licensees 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
of Park Place or a Corporate Licensee must be reported to, or approved by, the
Nevada Commission.
If it were determined that the Nevada Act was violated by Park Place or a
Corporate Licensee, the Gaming Licenses it holds could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Corporate Licensee, Park Place 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 a Corporate
Licensee's gaming establishment and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the reasonable rental
value of the gaming establishment) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any Gaming License of a Corporate
Licensee or the appointment of a supervisor could (and revocation of any Gaming
License would) have a material adverse effect on Park Place's gaming operations.
Any beneficial holder of Park Place's Common Stock, or any other voting
security of Park Place ("Park Place Voting Securities"), regardless of the
number of shares owned, may be required to file an application, be investigated,
and have such person's suitability as a beneficial holder of Park Place Voting
Securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of the investigation incurred
by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires a beneficial ownership of
more than 5% of Park Place Voting Securities to report the acquisition to the
Nevada Commission. The Nevada Act requires that beneficial owners of more than
10% of Park Place Voting Securities apply to the Nevada Commission for a finding
of suitability within thirty days after the Chairman of the Nevada Board mails
the written notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which acquires
beneficial ownership of more than 10%, but not more than 15%, of Park Place
Voting Securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds Park Place Voting
Securities for investment purposes only. An institutional
68
<PAGE>
investor shall not be deemed to hold Park Place Voting Securities for investment
purposes unless Park Place 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 Park Place Board, any change in Park Place's corporate charter, bylaws,
management, policies or operations, or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
Park Place Voting Securities for investment purposes only. Activities which are
not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of Park Place Voting Securities who must be found suitable
is a corporation, partnership, limited partnership, limited liability company or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
by the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of Park Place Voting
Securities beyond such period of time as may be prescribed by the Nevada
Commission may be guilty of a criminal offense. Park Place will be 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 Park Place or a
Corporate Licensee, Park Place (i) pays that person any dividend or interest
upon any Park Place Voting Securities; (ii) allows that person to exercise,
directly or indirectly, any voting right conferred through securities held by
that person; (iii) pays remuneration in any form to that person for services
rendered or otherwise; or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish the voting securities including, if
necessary, the immediate purchase of such voting securities for cash at fair
market value. Additionally, the CCB has the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation, such as the Notes or the Exchange Notes
(as defined below) to file applications, be investigated and be found suitable
to own such debt security of a Registered Corporation. 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.
Park Place is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. Park Place is also required to render maximum
assistance in determining the identity of the beneficial owner of any Park Place
Voting Securities. The Nevada Commission has the power to require Park Place'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 Park Place.
Park Place is permitted to make a public offering of its securities without
the prior approval of the Nevada Commission if the securities or the 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 December 17, 1998, the Nevada Commission granted Park Place prior
approval to make
69
<PAGE>
public offerings for a period of two years, subject to certain conditions (the
"Shelf Approval"). The Shelf Approval also applies to any affiliated company
wholly owned by Park Place (an "Affiliate") which is a publicly traded
corporation or would thereby become a publicly traded corporation pursuant to a
public offering. The Shelf Approval also includes approval for the Corporate
Licensees to guarantee any security issued by, or to hypothecate their assets to
secure the payment or performance of any obligations issued by, Park Place or an
Affiliate in a public offering under the Shelf Registration. The Shelf Approval
also includes approval to place restrictions upon the transfer of and enter into
agreements not to encumber the equity securities of the Corporate Licensees
(collectively, "Stock Restrictions"). The Shelf Approval, however, may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval
does not constitute a finding, recommendation or approval of the Nevada Gaming
Authorities as to the accuracy or adequacy of the prospectus or the investment
merits of the securities offered thereby. Any representation to the contrary is
unlawful. The Exchange Offer will constitute a public offering (as defined in
the Nevada Act) and will be made pursuant to the Shelf Approval. Any Stock
Restrictions in respect of the Exchange Notes are covered by the Shelf Approval.
However, any Stock Restrictions in respect of the Old Notes are not covered by
the Shelf Approval and will therefore require the prior approval of the Nevada
Commission in order to be effective. Park Place has filed an application for
such approval.
Changes in control of Park Place through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before Park Place 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 Park Place's
Board in response to a tender offer made directly to its stockholders for the
purpose of acquiring control of Park Place.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Corporate Licensees' 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 or serving of food or refreshments or
the selling of merchandise. Nevada Corporate Licensees that hold a license as an
operator of a slot route, or a manufacturer's or distributor's license also pay
certain fees and taxes to the State of Nevada. The Corporate Licensees currently
pay monthly fees to the Nevada Commission equal to a maximum of 6.25% of gross
revenues.
70
<PAGE>
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 of
the Nevada Board of the Licensee's participation in such foreign gaming. The
revolving fund is subject to increase or decrease in the discretion of the
Nevada Commission. Thereafter, Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. A Licensee is also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities or
enters into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employs, contracts with or associates with
a person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
The sale of alcoholic beverages at establishments operated by a Corporate
Licensee is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
such license, and any such disciplinary action could (and revocation would) have
a material adverse effect upon the operations of the Corporate Licensee.
NEW JERSEY GAMING LAWS
The ownership and operation of casino gaming facilities in Atlantic City are
subject to the New Jersey Casino Control Act (the "New Jersey Act"), regulations
of the New Jersey Casino Control Commission (the "New Jersey Commission") and
other applicable laws. No casino may operate unless the required permits or
licenses and approvals are obtained from the New Jersey Commission. The New
Jersey Commission is authorized under the New Jersey Act to adopt regulations
covering a broad spectrum of gaming and gaming related activities and to
prescribe the methods and forms of applications from all classes of licensees.
These laws and regulations concern primarily: (i) the financial stability,
integrity, responsibility, good character, honesty and business ability of
casino service suppliers and casino operators, their directors, officers and
employees, their security holders and others financially interested in casino
operations; (ii) the nature of casino hotel facilities; and (iii) the operating
methods and financial and accounting practices used in connection with the
casino operations.
Taxes are imposed by the State of New Jersey on gaming operations at the
rate of 8% of gross gaming revenues. In addition, the New Jersey Act provides
for an investment alternative tax of 2.5% of gross gaming revenues. This
investment alternative tax may be offset by investment tax credits equal to
1.25% of gross gaming revenues, which are obtained by purchasing bonds issued
by, or investing in housing or other development projects approved by, the
Casino Reinvestment Development Authority ("CRDA").
The New Jersey Commission has broad discretion with regard to the issuance,
renewal and revocation or suspension of casino licenses. A casino license is not
transferable, is issued for a term of up to one year for the first two renewals
and thereafter for a term of up to four years (subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time),
and must be renewed by filing an application which shall be acted on by the New
Jersey Commission prior to the expiration of the license in force. At any time,
upon a finding of disqualification or noncompliance, the New Jersey Commission
may revoke or suspend a license or impose fines or other penalties.
The New Jersey Act imposes certain restrictions on the ownership and
transfer of securities issued by a corporation that holds a casino license or is
deemed a holding company, intermediary company, subsidiary or entity qualifier
(each, an "affiliate") of a casino licensee. "Security" is defined by the New
Jersey Act to include instruments that evidence either a beneficial ownership in
an entity (such as common stock or preferred stock) or a creditor interest in an
entity (such as a bond, note or mortgage). Pursuant to the New Jersey Act, the
corporate charter of a publicly-traded affiliate of a casino licensee must
require
71
<PAGE>
that a holder of the company's securities dispose of such securities if the
holder's continued interest would result in the company or any other affiliate
being no longer qualified to continue as a casino licensee under the New Jersey
Act. The corporate charter of a casino licensee or any privately held affiliate
of the licensee must: (i) establish the right of prior approval by the New
Jersey Commission with regard to a transfer of any security in the company and
(ii) create the absolute right of the company to repurchase at the market price
or purchase price, whichever is less, any security in the company in the event
the New Jersey Commission disapproves a transfer of such security under the New
Jersey Act. The corporate charter of Park Place has been approved by the New
Jersey Commission. The corporate charters of Park Place's subsidiaries that
operate Bally's Park Place and The Atlantic City Hilton and their privately held
affiliates conform to the New Jersey Act's requirements described above for
privately held companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of such corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action. The New Jersey Commission may require divestiture of the
securities held by any disqualified holder who is required to be qualified under
the New Jersey Act (e.g., officers, directors, security holders and key casino
and other employees). In the event that disqualified persons fail to divest
themselves of such securities, the New Jersey Commission may revoke or suspend
the license. However, if an affiliate of a casino licensee is a publicly-traded
company and the New Jersey Commission makes a finding of disqualification with
respect to any holder of any security thereof who is required to be qualified,
and the New Jersey Commission also finds that: (i) such company has complied
with aforesaid charter provisions; (ii) such company has made a good faith
effort, including the prosecution of all legal remedies, to comply with any
order of the New Jersey Commission requiring the divestiture of the security
interest held by the disqualified holder; and (iii) such disqualified holder
does not have the ability to control the corporate licensee or the affiliate, or
to elect one or more members of the board of directors of such affiliate, the
New Jersey Commission will not take action against the casino licensee or its
affiliate with respect to the continued ownership of the security interest by
the disqualified holder.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly-traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if such
holder owns or beneficially holds 5% or more of any class of the equity
securities of such corporation, unless such presumption of control or ability to
elect is rebutted by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly-traded holding or intermediary company of a casino licensee and: (i)
the holdings were purchased for investment purposes only; (ii) there is no cause
to believe the institutional investor may be found unqualified; and (iii) upon
request by the New Jersey Commission, the institutional investor files a
certified statement to the effect that it has no intention of influencing or
affecting the affairs of the issuer, the casino licensee or its other
affiliates. The New Jersey Commission may grant a waiver of qualification to an
institutional investor holding 10% or more of such securities upon a showing of
good cause and if the conditions specified above are met.
With respect to debt securities, the New Jersey Commission generally
requires a person holding 15% or more of a debt issue of a publicly-traded
affiliate of a casino licensee to qualify under the New Jersey Act. There can be
no assurance that the New Jersey Commission will continue to apply the 15%
threshold, and the New Jersey Commission could at any time establish a lower
threshold for qualification. An exception to the qualification requirement is
made for institutional investors, in which case the institutional holder is
entitled to a waiver of qualification if the holder's position in the aggregate
is less than 20% of the total outstanding debt of the affiliate and less than
50% of any outstanding publicly-traded issue of such debt, and if the conditions
specified in the above paragraph are met. As with equity securities, a waiver of
qualification may be granted to institutional investors holding larger positions
upon a showing of good cause and if all conditions specified in the above
paragraph are met.
72
<PAGE>
Generally, the New Jersey Commission would require each institutional holder
seeking a waiver of qualification to execute a certificate to the effect that:
(i) the holder has reviewed the definition of institutional investor under the
New Jersey Act and believes that it meets the definition of institutional
investor; (ii) the holder purchased the securities for investment purposes only
and holds them in the ordinary course of business; (iii) the holder has no
involvement in the business activities of, and no intention of influencing or
affecting the affairs of, the issuer, the casino licensee or any affiliate; and
(iv) if the holder subsequently determines to influence or affect the affairs of
the issuer, the casino licensee or any affiliate, it shall provide not less than
30 days' notice of such intent and shall file with the New Jersey Commission an
application for qualification before taking any such action.
Commencing on the date the New Jersey Commission serves notice on a
corporate licensee or an affiliate of such corporate licensee that a security
holder of such corporation has been found disqualified, it will be unlawful for
the security holder to: (i) receive any dividends or interest upon any such
securities; (ii) exercise, directly or through any trustee or nominee, any right
conferred by such securities; or (iii) receive any remuneration in any form from
the corporate licensee for services rendered or otherwise.
Persons who are required to qualify under the New Jersey Act by reason of
holding debt or equity securities, and are not otherwise previously qualified,
are required to place the securities into an Interim Casino Authorization
("ICA") trust pending qualification. Unless and until the New Jersey Commission
has reason to believe that the investor may not qualify, the investor will
retain the ability to direct the trustee how to vote, or whether to dispose of,
the securities. If at any time the New Jersey Commission finds reasonable cause
to believe that the investor may be found unqualified, it can order the trust to
become "operative," in which case the investor will lose voting power, if any,
over the securities but will retain the right to petition the New Jersey
Commission to order the trustee to dispose of the securities.
Once an ICA trust is created and funded, and regardless of whether it
becomes operative, the investor has no right to receive a return on the
investment until the investor becomes qualified. Should an investor ultimately
be found unqualified, the trustee would dispose of the trust property, and the
proceeds would be distributed to the unqualified applicant only in an amount not
exceeding the actual cost of the trust property. Any excess proceeds would be
paid to the State of New Jersey. If the securities were sold by the trustee
pending qualification, the investor would receive only actual cost, with
disposition of the remainder of the proceeds, if any, to await the investor's
qualification hearing.
In the event it is determined that a licensee has violated the New Jersey
Act or its regulations, then under certain circumstances, the licensee could be
subject to fines or have its license suspended or revoked. In addition, if a
person who is required to qualify under the New Jersey Act fails to qualify, or
if a security holder who is required to qualify fails to qualify and does not
dispose of the related securities in the licensee or in any affiliate of the
licensee, as may be required by the New Jersey Act, then, under certain
circumstances, the licensee could have its license suspended or revoked.
If a casino license was not renewed, was suspended for more than 120 days or
was revoked, the New Jersey Commission could appoint a conservator. The
conservator would be charged with the duty of conserving and preserving the
assets so acquired and continuing the operation of the casino hotel casino of a
suspended licensee or with operating and disposing of the casino hotel
facilities of a former licensee. Such suspended licensee or former licensee,
however, would be entitled only to a fair return on its investment, to be
determined under New Jersey law, with any excess to go to the State of New
Jersey, if so directed by the New Jersey Commission. Suspension or revocation of
any licenses or the appointment of a conservator by the New Jersey Commission
would have a material adverse effect on the businesses of Park Place's Atlantic
City casino hotels.
On November 18, 1998, the New Jersey Commission approved the Hilton
Distribution and found Park Place qualified as a holding company of the New
Jersey casino licensees.
73
<PAGE>
MISSISSIPPI GAMING LAWS
The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission (the "Mississippi
Commission") and the Mississippi State Tax Commission.
The Mississippi Gaming Control Act (the "Mississippi Act"), which legalized
dockside casino gaming in Mississippi, was enacted on June 29, 1990. Although
not identical, the Mississippi Act is similar to the Nevada Gaming Control Act.
The Mississippi Commission has adopted regulations which are also similar in
many respects to the Nevada gaming regulations.
On August 5, 1998, Park Place filed an application with the Mississippi
Commission for approval of the Transactions. On September 15, 1998, the
Mississippi Commission found Park Place's wholly owned subsidiary, Gaming
Acquisition Corporation, suitable to be associated with a gaming license granted
under the Mississippi Act and granted Gaming Acquisition Corporation authority
to acquire control of Grand through the Merger. On December 15, 1998, the
Mississippi Commission granted final approval of the Merger and the other
Transactions.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Commission seek to: (i) prevent unsavory or unsuitable persons from
having any direct or indirect involvement with gaming at any time or in any
capacity; (ii) establish and maintain responsible accounting practices and
procedures; (iii) maintain effective control over the financial practices of
licensees, including establishing minimum procedures for internal fiscal affairs
and safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Commission; (iv) prevent cheating and
fraudulent practices; (v) provide a source of state and local revenues through
taxation and licensing fees; and (vi) ensure that gaming licensees, to the
extent practicable, employ Mississippi residents. The regulations are subject to
amendment and interpretation by the Mississippi Commission. Management believes
that compliance by Park Place with the licensing procedures and regulatory
requirements of the Mississippi Commission will not affect the marketability of
Park Place's securities. Changes in Mississippi law or regulations may limit or
otherwise materially affect the types of gaming that may be conducted and could
have an adverse effect on Park Place and Park Place's Mississippi gaming
operations.
The Mississippi Act provides for legalized dockside gaming at the discretion
of the 14 counties that either border the Gulf Coast or the Mississippi River,
but only if the voters in such counties have not voted to prohibit gaming in
that county. Certain amendments to the Mississippi Constitution have been
proposed for adoption through the initiative and referendum process which, if a
sufficient number of signatures are gathered to place the matter on the ballot
and if adopted by the voters of the state, would prohibit gaming in Mississippi.
See "Risk Factors." As of December 1998, dockside gaming was permissible in nine
of the 14 eligible counties in the state and gaming operations had commenced in
Adams, Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. Under
Mississippi law, gaming vessels must be located on the Mississippi River or on
navigable waters in eligible counties along the Mississippi River, or in the
waters of the State of Mississippi lying south of the state in eligible counties
along the Mississippi Gulf Coast. The law permits unlimited stakes gaming on
permanently moored vessels on a 24-hour basis and does not restrict the
percentage of space which may be utilized for gaming. There are no limitations
on the number of gaming licenses which may be issued in Mississippi.
Park Place and each of its Mississippi licensee affiliates are subject to
the licensing and regulatory control of the Mississippi Commission. Park Place
is registered under the Mississippi Act as a publicly traded holding company of
its Mississippi licensee affiliates and will be required periodically to submit
detailed financial and operating reports to the Mississippi Commission and
furnish any other information which the Mississippi Commission may require. If
Park Place is unable to satisfy the registration requirements of the Mississippi
Act, Park Place and its affiliates cannot own or operate gaming facilities in
Mississippi. Each of Park Place's Mississippi licensee affiliates must maintain
a gaming license from the Mississippi Commission to operate a casino in
Mississippi. Such licenses are issued by the Mississippi
74
<PAGE>
Commission subject to certain conditions, including continued compliance with
all applicable state laws and regulations.
Gaming licenses are not transferable, are issued for a two-year period and
must be renewed periodically thereafter. No person may become a stockholder of
or receive any percentage of profits from a licensed subsidiary of a holding
company without first obtaining licenses and approvals from the Mississippi
Commission.
Certain officers and employees of Park Place and the officers, directors and
certain key employees of Park Place's licensed Mississippi subsidiaries must be
found suitable or be licensed by the Mississippi Commission. Park Place believes
it has applied for all necessary findings of suitability with respect to such
persons, although the Mississippi Commission, in its discretion, may require
additional persons to file applications for findings of suitability. In
addition, any person having a material relationship or involvement with Park
Place may be required to be found suitable, in which case those persons must pay
the costs and fees associated with such investigation. The Mississippi
Commission may deny an application for a finding of suitability for any cause
that it deems reasonable. Changes in certain licensed positions must be reported
to the Mississippi Commission. In addition to its authority to deny an
application for a finding of suitability, the Mississippi Commission has
jurisdiction to disapprove a change in a licensed position. The Mississippi
Commission has the power to require Park Place and its registered or licensed
subsidiaries to suspend or dismiss officers, directors and other key employees
or sever relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in such capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension under certain circumstances. The Mississippi Commission
shall refuse to issue a work permit to a person convicted of a felony and it may
refuse to issue a work permit to a gaming employee if the employee has committed
certain misdemeanors or knowingly violated the Mississippi Act or for any other
reasonable cause.
At any time, the Mississippi Commission has the power to investigate and
require a finding of suitability of any record or beneficial stockholder of Park
Place. Mississippi law requires any person who acquires more than 5% of the
common stock of a publicly traded corporation registered with the Mississippi
Commission to report the acquisition to the Mississippi Commission, and such
person may be required to be found suitable. Also, any person who becomes a
beneficial owner of more than 10% of the common stock of such a company, as
reported to the SEC, must apply for a finding of suitability by the Mississippi
Commission and must pay the costs and fees that the Mississippi Commission
incurs in conducting the investigation. The Mississippi Commission has generally
exercised its discretion to require a finding of suitability of any beneficial
owner of more than 5% of a public company's common stock. However, the
Mississippi Commission has adopted a policy that permits certain institutional
investors to own beneficially up to 10% of a registered public company's common
stock without a finding of suitability. If a stockholder who must be found
suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the securities of Park Place
beyond such time as the Mississippi Commission prescribes, may be guilty of a
misdemeanor. Park Place is subject to disciplinary action if, after receiving
notice that a person is unsuitable to be a stockholder or to have any other
relationship with Park Place or its licensed subsidiaries, Park Place: (i) pays
the unsuitable person any dividend or other distribution upon the voting
securities of Park Place; (ii) recognizes the exercise, directly or indirectly,
of any voting rights conferred by securities held by the unsuitable person;
(iii) pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances; or
(iv) fails to pursue all lawful efforts to require the unsuitable
75
<PAGE>
person to divest himself of the securities, including, if necessary, the
immediate purchase of the securities for cash at a fair market value.
Park Place may be required to disclose to the Mississippi Commission upon
request the identities of the holders of any debt or other securities. In
addition, under the Mississippi Act the Mississippi Commission may, in its
discretion, (i) require holders of debt securities of registered corporations to
file applications, (ii) investigate such holders, and (iii) require such holders
to be found suitable to own such debt securities. Although the Mississippi
Commission generally does not require the individual holders of obligations such
as notes to be investigated and found suitable, the Mississippi Commission
retains the discretion to do so for any reason, including but not limited to a
default, or where the holder of the debt instrument exercises a material
influence over the gaming operations of the entity in question. Any holder of
debt or equity securities required to apply for a finding of suitability must
pay all investigative fees and costs of the Mississippi Commission in connection
with such an investigation.
Each of Park Place's Mississippi licensed subsidiaries must maintain in
Mississippi a current ledger with respect to the ownership of their equity
securities and Park Place must maintain in Mississippi a current list of
stockholders of Park Place which must reflect the record ownership of each
outstanding share of any equity security issued by Park Place. The ledger and
stockholder lists must be available for inspection by the Mississippi Commission
at any time. If any securities of Park Place are held in trust by an agent or by
a nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Mississippi Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Park Place
must also render maximum assistance in determining the identity of the
beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a registered publicly traded corporation bear a legend to the general effect
that such securities are subject to the Mississippi Act and the regulations of
the Mississippi Commission. The Mississippi Commission has granted Park Place an
exemption from this legend requirement. The Mississippi Commission has the power
to impose additional restrictions on the holders of Park Place's securities at
any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Commission. A licensed gaming subsidiary may not make a public
offering of its securities, but may pledge or mortgage casino facilities if it
obtains the prior approval of the Mississippi Commission. Park Place may not
make a public offering of its securities without the prior approval of the
Mississippi Commission if any part of the proceeds of the offering is to be used
to finance the construction, acquisition or operation of gaming facilities in
Mississippi or to retire or extend obligations incurred for one or more such
purposes. Such approval, if given, does not constitute a recommendation or
approval of the investment merits of the securities subject to the offering.
Changes in control of Park Place through merger, consolidation, acquisition
of assets, management or consulting agreements or any form of takeover cannot
occur without the prior approval of the Mississippi Commission. 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 other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi 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 operators and their affiliates; (ii) preserve the
beneficial aspects of conducting business in the corporate form; and (iii)
promote a neutral environment for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi
Commission before Park Place may make exceptional repurchases of voting
securities in excess of the current market price of its common stock
76
<PAGE>
(commonly called "greenmail") or before a corporate acquisition opposed by
management may be consummated. Mississippi's gaming regulations will also
require prior approval by the Mississippi Commission if Park Place adopts a plan
of recapitalization proposed by its Board of Directors opposing a tender offer
made directly to the stockholders for the purpose of acquiring control of Park
Place.
Neither Park Place nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission may
require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of Park Place and its affiliates. Park Place received a waiver
of foreign gaming approval from the Mississippi Commission for operations in
other states, but may be required to obtain the approval or a waiver of such
approval from the Mississippi Commission prior to engaging in any additional
future gaming operations outside of Mississippi.
If the Mississippi Commission decides that a licensed gaming subsidiary
violated a gaming law or regulation, the Mississippi Commission could limit,
condition, suspend or revoke the license of the subsidiary. In addition, the
licensed subsidiary, Park Place and the persons involved could be subject to
substantial fines for each separate violation. Because of such a violation, the
Mississippi Commission could attempt to appoint a supervisor to operate the
casino facilities. Limitation, conditioning or suspension of any gaming license
or the appointment of a supervisor could (and revocation of any gaming license
would) materially adversely affect Park Place's Mississippi gaming operations.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Mississippi and to the county or
city in which a licensed gaming subsidiary's 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 (i) a
percentage of the gross gaming revenues received by the casino operation, (ii)
the number of slot machines operated by the casino or (iii) the number of table
games operated by the casino. The license fee payable to the State of
Mississippi is based upon "gaming receipts" (generally defined as gross receipts
less payouts to customers as winnings) and equals 4% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and less than
$134,000 per month, and 8% of gaming receipts over $134,000. The foregoing
license fees are allowed as a credit against Park Place's Mississippi income tax
liability for the year paid. The gross revenue fee imposed by the Mississippi
cities and counties in which Park Place's casino operations are located, equals
approximately 4% of the gaming receipts.
The Mississippi Commission has adopted a regulation requiring as a condition
of licensure or license renewal that a gaming establishment's plan include a
500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
Management of Park Place believes it is in compliance with this requirement.
Recently, the Mississippi Commission released for public comment a proposed
regulation which would increase the infrastructure requirement to 100% from the
existing 25%; however, the proposed regulation in its present form would apply
only to new casino projects and casinos that are not operating at the time of
acquisition or purchase.
The sale of alcoholic beverages by Park Place's subsidiaries is subject to
the licensing, control and regulation by both the local jurisdiction and the
Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax
Commission. All of Park Place's Mississippi casinos are in areas designated as
special resort areas, which allows the casinos to serve alcoholic beverages on a
24-hour basis. The ABC has the full power to limit, condition, suspend or revoke
any license for the serving of alcoholic beverages or to place such a licensee
on probation with or without conditions. Any such disciplinary action could (and
revocation would) have a material adverse effect upon the casino's operations.
Certain officers and managers of Park Place and its Mississippi casinos must be
investigated by the ABC in connection with its liquor permits and changes in
certain positions must be approved by the ABC.
77
<PAGE>
LOUISIANA GAMING LAWS
The ownership and operation of a riverboat gaming vessel in the State of
Louisiana is subject to the Louisiana Riverboat Economic Development and Gaming
Control Act (the "Act"). Gaming activities are regulated by the Louisiana Gaming
Control Board (the "Louisiana Board"). The Louisiana Board is responsible for
investigating the background of all applicants seeking a riverboat gaming
license, issuing the license and enforcing the laws, rules and regulations
relating to riverboat gaming activities.
The applicant, its officers, directors, key personnel, partners and persons
holding a 5% or greater interest in the holder of a gaming license are required
to be found suitable by the Louisiana Board. The Louisiana Board may, in its
discretion, also review the suitability of other security holders of, or persons
affiliated with, a licensee. This finding of suitability requires the filing of
an extensive application to the Louisiana Board disclosing personal, financial,
criminal, business and other information. Park Place's Louisiana affiliate,
Bally's Louisiana, Inc., has filed the required notice with the Louisiana Board
with respect to such finding of suitability.
On March 24, 1994, the Louisiana Board's predecessor issued a riverboat
gaming license to Belle of Orleans, L.L.C., a limited liability company in which
Park Place has a 49.9% interest. Belle of Orleans, L.L.C. commenced riverboat
gaming operations in New Orleans on July 9, 1995. Park Place is engaged in
litigation with its 50.1% partner in the Belle of Orleans, L.L.C. See "Business
and Properties--Louisiana Casino."
The transfer of a Louisiana gaming license is prohibited under the Act. The
sale, assignment, transfer, pledge or disposition of securities which represent
5% or more of the total outstanding shares issued by a holder of a license is
subject to Louisiana Board approval and the transferee must be found suitable.
In addition, all contracts and leases entered into by a licensee are subject to
approval and certain enterprises which transact business with the licensee must
be licensed.
If a security holder of a licensee is found unsuitable, it will be unlawful
for the security holder to (i) receive any dividend or interest with regard to
the securities; (ii) exercise, directly or indirectly, any rights conferred by
the securities; or (iii) receive any remuneration from the licensee for services
rendered or otherwise. The Louisiana Board may impose similar approval
requirements on holders of securities of any intermediary or holding company of
the licensee, but may waive those requirements with respect to holders of
publicly-traded securities of intermediary and holding companies if such holders
do not have the ability to control the publicly-traded corporation or elect one
or more directors thereof. Taxes are imposed by the State of Louisiana on gaming
operations at the rate of 18.5% of net gaming proceeds.
On April 19, 1996, the Louisiana legislature approved legislation mandating
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming. On November 5,
1996, Louisiana voters determined whether each of the following types of gaming
would be prohibited or permitted in the following described Louisiana parishes:
(i) the operation of video draw poker devices in each parish; (ii) the conduct
of riverboat gaming in each parish that is contiguous to a statutorily
designated river or waterway; or (iii) the conduct of land-based casino gaming
operations in Orleans Parish. In Orleans Parish, where Park Place's riverboat
casino currently operates, a majority of the voters elected to continue to
permit the three types of gaming described above. The current legislation does
not provide for any moratorium on future local elections on gaming. Further, the
current legislation does not provide for any moratorium that must expire before
future local elections on gaming could be mandated or allowed. In addition, a
change of berth by a licensee would require voter approval in the parish in
which the new berth is located.
MISSOURI GAMING LAWS
Missouri has enacted the Missouri Gaming Law (the "MGL") and established the
Missouri Gaming Commission (the "MGC"), which is responsible for licensing and
regulating riverboat gaming in Missouri.
78
<PAGE>
The MGL does not specifically limit the number of licenses that the MGC may
grant, but generally authorizes the MGC to limit the number of licenses granted.
The MGL grants specific powers and duties to the MGC to supervise riverboat
gaming, implement the MGL and take other action as may be reasonable or
appropriate to enforce the MGL. The MGC may approve permanently moored
("dockside") riverboat casinos subject to specific criteria.
The MGL extensively regulates owning and operating riverboat gaming
facilities in Missouri. Generally, a licensed company and its officers,
directors, employees, related subsidiaries and significant shareholders are
subject to such extensive regulation. Prior to and in connection with the Hilton
Distribution, Park Place applied to the MGC for approval to own and operate the
Flamingo Casino--Kansas City, which approval was not received prior to the
Hilton Distribution. On January 13, 1999, Hilton entered into an agreement to
sell this property to a third party. Such sale is subject to approval by the
MGC. See "Business and Properties--Missouri Casino."
QUEENSLAND GAMING LAWS
Queensland, Australia, like the jurisdictions discussed above, has
comprehensive laws and regulations governing the conduct of casino gaming. All
persons connected with the ownership and operation of a casino, including Park
Place, its subsidiary that manages the Conrad Jupiters, Gold Coast and the
Conrad International Treasury Casino, Brisbane and certain of their principal
stockholders, directors and officers, must be found suitable and licensed. A
casino license once issued remains in force until surrendered or canceled.
Queensland law defines the grounds for cancellation and, in such event, an
administrator may be appointed to assume control of the casino hotel complex.
The Queensland authorities have conducted an investigation of, and have found
suitable, Hilton and its subsidiary. The Queensland authorities have also
conducted an investigation of, and have found suitable, Park Place and its
subsidiary BI Gaming Corporation (which will hold the Australian gaming assets
of Park Place).
Taxes are imposed by Queensland on gaming operations at the rate of 20% of
gross gaming revenues, except that gaming revenues arising from persons or
groups participating in special flight programs or "junkets" are taxed at a 10%
rate. A casino community benefit levy of 1% of gross gaming revenues is also
imposed.
URUGUAY GAMING LAWS
Uruguay also has laws and regulations governing the establishment and
operation of casino gaming. The Internal Auditors Bureau of Uruguay, under the
authority of the Executive Power of the Oriental Republic of Uruguay, is
responsible for establishing the terms under which casino operations are
conducted, including suitability requirements of persons associated with gaming
operations, authorized games, specifications for gaming equipment, security,
surveillance and compliance. Baluma S.A., a corporation duly organized and
existing under the laws of the Oriental Republic of Uruguay, as owner of the
Conrad International Punta del Este Resort & Casino (the "Complex") has been
authorized to conduct casino operations by the Executive Power of the Oriental
Republic of Uruguay. Such authorization was granted based on the expertise and
financial suitability of Hilton and its subsidiary Conrad International Hotels
Corporation, which acted as manager of the Complex. By resolution dated December
29, 1998, the Executive Power of the Oriental Republic of Uruguay authorized the
replacement of Conrad International Hotels Corporation by B I Gaming
Corporation, a subsidiary of Park Place, as manager of the Complex, subject to
the fullfilment of certain formal requirements set forth in such resolution.
A casino concession fee is imposed by Uruguay on gaming operations conducted
by Conrad International Punta del Este Resort and Casino at a fixed amount per
fiscal year. For the years ending December 31, 1997, 1998 and 1999, the casino
concession fee imposed is $3.2 million, $3.3 million and $3.3 million,
respectively.
79
<PAGE>
IRS REGULATIONS
The Internal Revenue Service ("IRS") requires operators of casinos located
in the United States to file information returns for U.S. citizens (including
names and addresses of winners) for keno and slot machine winnings in excess of
stipulated amounts. The IRS also requires operators to withhold taxes on certain
keno, bingo and slot machine winnings of nonresident aliens. Management is
unable to predict the extent, if any, to which such requirements, if extended,
might impede or otherwise adversely affect operations of, and/or income from,
such other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in certain domestic
jurisdictions in which Park Place operates casinos, or in which Park Place has
applied for licensing to operate a casino, require the reporting of currency
transactions in excess of $10,000 occurring within a gaming day, including
identification of the patron by name and social security number. This reporting
obligation commenced in May 1985 and may have resulted in the loss of gaming
revenues to jurisdictions outside the United States which are exempt from the
ambit of such regulations.
OTHER LAWS AND REGULATIONS
Each of the casino hotels and riverboat casinos described in "Business and
Properties" is subject to extensive state and local regulations and, on a
periodic basis, must obtain various licenses and permits, including those
required to sell alcoholic beverages. Management believes that Park Place has
obtained all required licenses and permits and its businesses are conducted in
substantial compliance with applicable laws.
HEADQUARTERS
Park Place's principal executive offices are located at 3930 Howard Hughes
Parkway, Las Vegas, Nevada 89109. The telephone number is (702) 699-5000.
80
<PAGE>
MANAGEMENT
PARK PLACE BOARD OF DIRECTORS
The business of Park Place is managed under the direction of the Park Place
Board of Directors (the "Park Place Board"). The Park Place Board is divided
into three classes. Directors for each class are elected at the annual meeting
of stockholders held in the year in which the term for such class expires and
serve thereafter for three years. The following table sets forth information
concerning the persons who are directors of Park Place.
<TABLE>
<CAPTION>
INITIAL
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE TERM EXPIRES
- ---------------------------------------------------------------------------------------------- --- ---------------
<S> <C> <C>
Lyle Berman................................................................................... 57 2000
Chairman of the Board of Grand Casinos, Inc. since October 1991. Mr. Berman is also a
director of G-III Apparel Group Ltd., Innovative Gaming Corporation of America, New Horizon
Kids Quest, Inc. and Wilsons The Leather Experts Inc. and Chairman of the Board and Chief
Executive Officer of Rainforest Cafe, Inc.
Stephen F. Bollenbach......................................................................... 56 2002
President and Chief Executive Officer, Host Marriott Corporation, until April 1995, Senior
Executive Vice President and Chief Financial Officer, The Walt Disney Co. until February
1996 and, thereafter, President and Chief Executive Officer, Hilton Hotels Corporation. Mr.
Bollenbach is a director of Hilton Hotels Corporation, Kmart Corporation, Ladbroke Group
PLC, Spring Group PLC and Time Warner, Inc.
A. Steven Crown............................................................................... 46 2001
General Partner, Henry Crown and Company, a holding company which includes diversified
manufacturing operations, marine operations and real estate ventures. Mr. Crown is a
director of Hilton Hotels Corporation.
Clive S. Cummis............................................................................... 70 2000
Chairman of the law firm of Sills Cummis Radin Tischman Epstein & Gross, which provided
legal services to Hilton and is expected to provide such services to Park Place.
Arthur M. Goldberg............................................................................ 56 2002
Chairman and Chief Executive Officer of Bally Entertainment Corporation until December 1996,
Executive Vice President and President--Gaming Operations of Hilton Hotels Corporation until
December 31, 1998, and thereafter, President and Chief Executive Officer of Park Place. Mr.
Goldberg is a director of Hilton Hotels Corporation, Bally Total Fitness Holding Corporation
and First Union Corporation.
Barron Hilton................................................................................. 70 2002
Chairman of the Board and Chief Executive Officer, Hilton Hotels Corporation until February
1996 and, thereafter, Chairman of the Board, Hilton Hotels Corporation.
Eric M. Hilton................................................................................ 65 2000
Director of Hilton Hotels Corporation, and Vice Chairman of the Board of Hilton Hotels
Corporation until March 1997. Barron Hilton and Eric Hilton are brothers.
J. Kenneth Looloian........................................................................... 76 2001
Executive Vice President of DiGiorgio Corporation and a consultant. Mr. Looloian is also a
director of Bally Total Fitness Holdings and ContinuCare.
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
INITIAL
NAME, PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS AGE TERM EXPIRES
- ---------------------------------------------------------------------------------------------- --- ---------------
<S> <C> <C>
Gilbert L. Shelton............................................................................ 62 2001
Private investor.
Rocco J. Marano............................................................................... 70 2001
Retired Executive. Mr. Marano is a director of Computer Horizons Corporation.
Barbara Bell Coleman.......................................................................... 48 2000
President of BBC Associates LLC.
</TABLE>
COMMITTEES OF THE PARK PLACE BOARD
The Park Place Board has four standing committees: (i) the Audit Committee,
(ii) the Compliance Committee, (iii) the Personnel and Compensation Committee
and (iv) the Nominating Committee.
AUDIT COMMITTEE. The functions of the Audit Committee include reviewing the
independence of the independent auditors, recommending to the Park Place Board
the engagement and discharge of independent auditors, reviewing with the
independent auditors the plan and results of auditing engagements, approving or
ratifying each professional service provided by independent auditors which is
estimated by management to cost more than 10% of the previous year's audit fee,
considering the range of audit and nonaudit fees, reviewing the scope and
results of Park Place procedures for internal auditing and the adequacy of
internal accounting controls and directing and supervising special
investigations. As of January 1, 1999, the members of the Audit Committee were
Gilbert L. Shelton (Chair), Eric M. Hilton, J. Kenneth Looloian and Rocco J.
Marano.
COMPLIANCE COMMITTEE. The Compliance Committee supervises Park Place's
efforts to assure that its business and operations are conducted in compliance
with the highest standards applicable to it as a matter of legal and regulatory
requirements as well as ethical business practices. In particular, the
Compliance Committee is responsible for the establishment and implementation of
Park Place's internal reporting system regarding compliance by Park Place with
regulatory matters associated with its gaming operations. The committee
supervises the activities of Bally's Compliance Officer and communicates on a
periodic basis with gaming regulatory agencies on compliance matters. It reviews
information and reports regarding the suitability of potential key employees of
Park Place as well as persons and entities proposed to be involved in material
transactions or relationships with Park Place. As of January 1, 1999, the
members of the Compliance Committee were A. Steven Crown (Chair), Lyle Berman,
Clive S. Cummis, Eric M. Hilton, Gilbert L. Shelton and Rocco J. Marano.
PERSONNEL AND COMPENSATION COMMITTEE. The Personnel and Compensation
Committee reviews and establishes the general employment and compensation
practices and policies of Park Place and approves procedures for the
administration thereof, including such matters as the total salary and fringe
benefit programs. As of January 1, 1999, the members of the Personnel and
Compensation Committee were A. Steven Crown (Chair), Barron Hilton, Eric M.
Hilton and Rocco J. Marano.
NOMINATING COMMITTEE. The functions of the Nominating Committee include
recommending nominees to the Park Place Board to fill vacancies on the Board,
reviewing on a continuing basis, and at least once a year, the structure of the
Board to assure its continuity and to assure that the proper skills and
experience are represented on the Board, and reviewing any potential conflicts
of Board members individually whenever a prospective Board member is being
considered for election to the Board. As of January 1, 1999, the members of the
Nominating Committee were Stephen F. Bollenbach (Chair), Arthur M. Goldberg,
Barron Hilton and J. Kenneth Looloian.
82
<PAGE>
COMPENSATION OF PARK PLACE DIRECTORS
Directors who are not officers of Park Place receive an annual fee of
$30,000, and a fee of $1,000 for attendance at Board and Committee meetings.
Directors are also reimbursed for travel expenses and other out-of-pocket costs
when incurred in attending meetings.
EXECUTIVE OFFICERS OF PARK PLACE
Set forth below is certain information with respect to the persons who serve
as executive officers of Park Place. Effective December 31, 1998, those persons
named below who were officers of Hilton and its subsidiaries as of such date
(except for Stephen Bollenbach) relinquished their positions as officers of
Hilton.
<TABLE>
<CAPTION>
NAME AGE BACKGROUND
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Stephen F. Bollenbach ............. 56 See "Management--Park Place Board of Directors" above.
Chairman of the Board
Arthur M. Goldberg ................ 56 See "Management--Park Place Board of Directors" above.
President and Chief Executive
Officer
52 Executive Vice President--Eastern Region, Hilton Gaming Corporation
since December 1996, and President, Chief Operating Officer and a
director of Bally's Park Place and The Atlantic City Hilton since
February 1993, and President and Chief Operating Officer of Bally's
Saloon--Gambling Hall--Hotel and Bally's Casino--Lakeshore Resort
since April 1993 and June 1993, respectively, and Executive Vice
President and Chief Operating Officer of Bally's Casino Holdings,
Inc. from June 1993 until December 1996.
Wallace R. Barr ...................
Executive Vice President
Clive S. Cummis ................... 70 See "Management--Park Place Board of Directors" above.
Executive Vice President-- Law &
Corporate Affairs, and Secretary
36 Executive Vice President and Treasurer, Hilton Gaming Corporation
since January 1998, Senior Vice President-- Gaming Operations and
Treasurer, Hilton Gaming Corporation from December 1996 until
January 1998, Senior Vice President, Bally's Park Place from January
1996 until December 1996, Vice President--Development, Bally's
Casino Holdings, Inc. from December 1994 until January 1996, and
Director of Corporate Development, Bally Entertainment Corporation
from February 1993 until December 1994.
Mark Dodson .......................
Executive Vice President
36 Senior Vice President and Treasurer, Hilton Hotels Corporation since
May 1996, and prior thereto, Senior Vice President and Treasurer,
Host Marriott Corporation.
Scott A. LaPorta ..................
Executive Vice President and
Chief Financial Officer
</TABLE>
EXECUTIVE OFFICER COMPENSATION
Prior to the Hilton Distribution on December 31, 1998, Park Place had not
paid any compensation to its executive officers and therefore no such
information is available with respect to the year ended December 31, 1998.
Compensation of the Park Place executive officers will be determined by the
83
<PAGE>
Personnel and Compensation Committee of the Park Place Board. Stephen
Bollenbach, who is Chairman of the Board of Park Place, and Arthur Goldberg, who
is the President and Chief Executive Officer of Park Place, are parties to
employment agreements with Park Place. See "--Park Place CEO and Chairman
Agreements" for a description of such compensation arrangements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Park Place was formed in June 1998. Compensation for Park Place executives
will be determined by the Personnel and Compensation Committee of the Park Place
Board. See "--Committees of the Park Place Board."
PARK PLACE CEO AND CHAIRMAN EMPLOYMENT AGREEMENTS
PARK PLACE CEO AGREEMENT
Park Place and Mr. Goldberg have entered into an employment agreement (the
"Park Place CEO Agreement") for the period beginning on December 31, 1998 and
ending on January 1, 2004, subject thereafter to automatic renewal for periods
of one year unless either Park Place or Mr. Goldberg gives notice of nonrenewal
pursuant to the terms of the Park Place CEO Agreement. The Park Place CEO
Agreement provides for the employment of Mr. Goldberg as the President and Chief
Executive Officer of Park Place.
The Park Place CEO Agreement establishes a minimum annual base salary of
$2,000,000 and provides for an annual bonus opportunity of $1,000,000, provided,
however, that the payment of any portion of such salary and bonus which would
not be deductible by Park Place on a current basis because of the application of
the $1 million limitation on deductible compensation of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") will be deferred and paid
to Mr. Goldberg, with interest, within 30 days after Park Place's deduction with
respect to the compensation is not limited by Section 162(m). The Park Place CEO
Agreement provides that Mr. Goldberg (and his family, if applicable) is entitled
to fringe benefits and participation in Park Place's employee benefits plans, in
each case at least to the same extent as Park Place's other senior executives.
Mr. Goldberg is also entitled to the unrestricted, but not exclusive, use of
Park Place's aircraft, provided that he shall reimburse Park Place for the cost
of such use if such use is for personal purposes. During the term of the Park
Place Agreement, Mr. Goldberg is entitled to four weeks of paid vacation
annually.
In addition, the Park Place CEO Agreement provides that Mr. Goldberg shall,
pursuant to the Park Place 1998 Stock Incentive Plan (the "Park Place 1998
Plan") Plan, be granted an option (the "Park Place CEO Special Option" and,
together with the Chairman Special Option (as defined below), the "Park Place
Special Options") to purchase 6,000,000 shares of Common Stock under the Park
Place 1998 Plan in tranches of 4,000,000 shares (the "Tranche A Option") and
2,000,000 shares (the "Tranche B Option"). The per share exercise price of the
Tranche A Option is equal to $6.375 and the exercise price of the Tranche B
Option is equal to the greater of (i) 150% of the closing price of the Hilton
Common Stock on the NYSE on July 9, 1998 (which was $26.94), ratably reduced
after the Hilton Distribution so as to reflect the July 9, 1998 closing price as
if only the post-Hilton Distribution shares of Park Place Common Stock existed
on that date (the "Park Place July 9, 1998 Adjusted Price") and (ii) the closing
price of the Park Place Common Stock on the NYSE on December 31, 1998 (which was
$6.375). The Park Place CEO Special Option is exercisable for 10 years after the
Hilton Distribution Date, except as otherwise specifically provided in the Park
Place CEO Agreement.
The Tranche A Option vests cumulatively in four equal annual installments
which begin on the first anniversary of the Hilton Distribution Date, provided
that Mr. Goldberg is employed by Park Place as of the applicable vesting date
(except as otherwise provided in the Park Place CEO Agreement), subject to
acceleration as provided in the Park Place CEO Agreement. The Tranche B Option
will become fully vested and exercisable on the date that is nine years and nine
months after the Hilton Distribution Date if
84
<PAGE>
Mr. Goldberg is employed by Park Place on such date; provided, however, that if
at any time prior to the fifth anniversary of the Hilton Distribution Date, the
closing price of the Park Place Common Stock on the NYSE on each of any seven
consecutive trading days equals or exceeds 200% of the Park Place July 9, 1998
Adjusted Price, the Tranche B Option will immediately become fully vested and
exercisable if Mr. Goldberg is employed by Park Place as of the applicable
vesting date (except as otherwise provided in the Park Place CEO Agreement). In
addition, the Park Place CEO Special Option will become fully vested and
exercisable upon the occurrence of any of the following events (each, a
"Triggering Event"): (i) the termination of Mr. Goldberg's employment by Park
Place other than for Cause (as defined in the Park Place CEO Agreement), (ii)
the termination of Mr. Goldberg's employment by reason of death or Disability
(as defined in the Park Place CEO Agreement), or (iii) the termination of Mr.
Goldberg's employment by Mr. Goldberg for Good Reason (as defined in the Park
Place CEO Agreement); provided, however, that the Tranche B Option will only
become fully vested and exercisable upon a Triggering Event if Mr. Goldberg does
not breach certain covenants described below. If a Triggering Event occurs, the
vested portion of the Park Place CEO Special Option will remain exercisable
until the earlier to occur of (i) the fifth anniversary of the date of
termination, and (ii) the tenth anniversary of the Hilton Distribution Date, and
any non-vested portion of the Park Place CEO Special Option will thereupon
terminate. To the extent not described in the Park Place CEO Agreement, the Park
Place CEO Special Option will be subject to the terms and conditions of the Park
Place 1998 Plan.
The Park Place CEO Agreement also provides that, as a result of the Hilton
Distribution and effective as of the Hilton Distribution Date, all outstanding
options held by Mr. Goldberg to purchase shares of Hilton Common Stock will
become options to purchase shares of Park Place Common Stock, and the number of
shares subject to and the exercise price of such options will be adjusted to
preserve the intrinsic value of such options on the Hilton Distribution Date.
The Park Place CEO Agreement provides that if, during the term of the Park
Place CEO Agreement, Mr. Goldberg's employment with Park Place is terminated by
Park Place other than for Cause or Disability, or by reason of Mr. Goldberg's
death, or by Mr. Goldberg for Good Reason, then Park Place will be required to
pay Mr. Goldberg his base salary for the balance of the term of the Park Place
CEO Agreement and his accrued but unpaid cash compensation through the
termination date. In addition, Park Place shall provide Mr. Goldberg with all
benefits due in accordance with the terms of any applicable employee benefits
plans of Park Place. Park Place's obligation to make such payments, to the
extent that such payments shall not have accrued as of the day before the
termination date, will be conditioned upon Mr. Goldberg's execution of a written
release of certain claims against Park Place (the "Release"). In the event that
such a termination occurs following a Change of Control (as defined in the Park
Place CEO Agreement) of Park Place and provided that Mr. Goldberg has executed
the Release, then, in lieu of the payment of Mr. Goldberg's base salary for the
balance of the term of the Park Place CEO Agreement, Mr. Goldberg shall receive
a lump-sum cash payment equal to 2.99 times the sum of his annual base salary
and his annual bonus for the last full fiscal year ending during the term of the
Park Place CEO Agreement (or, if higher, his annual bonus for the last full
fiscal year prior to the Change of Control). In addition, Mr. Goldberg will be
entitled to receive a lump-sum payment of all compensation previously deferred
by him and not yet paid by Park Place. For the remainder of the term of the Park
Place CEO Agreement (or such longer period as any plan may provide), Park Place
will also be required to provide Mr. Goldberg (and his family, if applicable)
with continued benefits under Park Place's employee benefits plans at least
equal to those which would have been provided had Mr. Goldberg's employment not
terminated.
If Mr. Goldberg's employment with Park Place is terminated by reason of his
death or Disability during the term of the Park Place CEO Agreement, then Park
Place will be required to pay Mr. Goldberg (or his estate or legal
representative) his base salary for the balance of the term of the Park Place
CEO Agreement and his accrued but unpaid cash compensation through the
termination date. In addition, Park Place shall provide Mr. Goldberg (or his
estate or legal representative) with all benefits accrued by Mr. Goldberg under
the terms of any applicable employee benefits plans of Park Place.
85
<PAGE>
If Park Place terminates Mr. Goldberg's employment for Cause during the term
of the Park Place CEO Agreement, Park Place must pay Mr. Goldberg his unpaid
annual base salary through the date of termination, the amount of any unpaid
compensation deferred by Mr. Goldberg, and the amount of any earned but unpaid
annual bonuses and vacation pay. Park Place shall also provide Mr. Goldberg with
any benefits accrued by Mr. Goldberg under the terms of any applicable employee
benefits plans of Park Place. If Mr. Goldberg terminates employment with Park
Place other than for Good Reason during the term of the Park Place CEO
Agreement, Park Place must pay Mr. Goldberg his accrued but unpaid cash
compensation through the termination date and must provide Mr. Goldberg with any
benefits accrued by Mr. Goldberg under the terms of any applicable employee
benefits plans of Park Place.
Under the Park Place CEO Agreement, Mr. Goldberg covenants not to disclose
confidential information of Park Place. In addition, Mr. Goldberg covenants
that, for a period of two years following his termination of employment, he will
not compete with Park Place or employ or solicit certain of its employees and
agents.
The Park Place CEO Agreement also provides that upon a Change of Control of
Park Place, the Park Place CEO Special Option will become fully vested and
exercisable; provided, however that the Tranche B Option will only become fully
vested and exercisable upon a Change of Control if Mr. Goldberg does not breach
the covenants described above. In addition, Park Place will pay Mr. Goldberg any
excise tax incurred by him under Section 4999 of the Code on any payments or
benefits paid or payable by Park Place to Mr. Goldberg under the Park Place CEO
Agreement or otherwise, which constitute "parachute payments" under Code Section
280G, and Park Place will bear the cost of all income, excise and employment
taxes imposed on such gross-up payment.
Effective upon the Hilton Distribution, the Park Place CEO Agreement
superseded Mr. Goldberg's employment agreement with Hilton dated as of November
12, 1996 and his Change of Control Agreement with Hilton dated as of April 1,
1997. However, the Park Place CEO Agreement provides for Park Place to assume
Hilton's obligations to Mr. Goldberg with respect to certain excise tax gross-up
payments, certain indemnification obligations, certain income tax indemnities,
certain compensation deferred by Mr. Goldberg, and certain health and life
insurance benefits which Mr. Goldberg is entitled to receive, under his
superseded employment agreement with Hilton. In addition, Park Place has agreed
to assume Hilton's obligations to Mr. Goldberg under Hilton's Deferred
Compensation Agreement, dated as of January 16, 1997, with Mr. Goldberg.
PARK PLACE CHAIRMAN AGREEMENT
Park Place and Mr. Bollenbach have entered into the Park Place Chairman
Agreement pursuant to which Mr. Bollenbach has agreed to serve as Chairman of,
and advisor to, the Park Place Board for the period beginning on December 31,
1998 and ending on July 1, 2005. Under the Park Place Chairman Agreement, Mr.
Bollenbach will be paid an annual base salary of $100,000 per year, will not be
entitled to receive a bonus and will not be entitled to receive any benefits
provided to Park Place employees other than an annual vacation and reimbursement
of expenses he may incur in providing his services under the Park Place Chairman
Agreement. In addition, the Park Place Chairman Agreement provides that Mr.
Bollenbach shall, pursuant to the Park Place 1998 Plan, be granted an option
(the "Chairman Special Option") to purchase 3,000,000 shares of Park Place
Common Stock under the Park Place 1998 Plan in tranches of 2,000,000 shares (the
"Tranche A Option") and 1,000,000 shares (the "Tranche B Option"). The per share
exercise prices, vesting provisions, termination provisions and other terms of
Mr. Bollenbach's Tranche A Option and Tranche B Option under the Park Place
Chairman Agreement are substantially identical to those which apply to Mr.
Goldberg's Tranche A Option and Tranche B Option, respectively, as set forth
above.
86
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as to the shares of Park Place
Common Stock beneficially owned (or deemed to be owned pursuant to the rules of
the Commission) as of December 31, 1998, by each person who is a director or an
executive officer of Park Place, all directors and executive officers of Park
Place as a group, and each person known to be the beneficial owner of more than
5% of the outstanding Park Place Common Stock, after giving effect to:
- the issuance of one share of Park Place Common Stock for each share of
Hilton Common Stock in the Hilton Distribution;
- the issuance of one share of Park Place common stock for each share of
common stock of Grand in the Merger; and
- the adjustment of stock options in the Hilton Distribution and the Merger.
Except as otherwise noted, each stockholder has sole voting and investment power
with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
NAME AND ADDRESS OF OWNER COMMON STOCK COMMON STOCK
- --------------------------------------------------------------- -------------------- ---------------------------
<S> <C> <C>
Barron Hilton.................................................. 22,935,330(1) 7.6
9336 Civic Center Drive Beverly Hills, California 90210
Conrad N. Hilton Fund.......................................... 16,498,736(1) 5.4
100 West Liberty Street
Reno, Nevada 89501
The Prudential Insurance Company of America.................... 16,247,133(2) 5.4
751 Broad Street
Newark, New Jersey 07102
Stephen F. Bollenbach.......................................... 4,540,000(3) 1.2
A. Steven Crown................................................ 2,781,228(3)(4) *
Arthur M. Goldberg............................................. 7,254,738(3) 2.4
Eric M. Hilton................................................. 11,400(1)(3) *
Lyle M. Berman................................................. 4,299,844(3)(5) 1.4
J. Kenneth Looloian............................................ 12,500(3) *
Clive S. Cummis................................................ 2,600 *
Gilbert L. Shelton............................................. 22,000(3) *
Rocco J. Marano................................................ 7,000(3) *
Wallace R. Barr................................................ 47,401(3) *
Mark R. Dodson................................................. 21,661(3) *
Scott A. LaPorta............................................... 71,750(3) *
All Directors and Executive Officers 42,007,452(5)(6) 13.9
as a Group (13 persons)......................................
</TABLE>
- ------------------------
* The securities owned do not exceed 1% of the applicable class.
(1) Barron and Eric Hilton are two of the 11 directors of the Conrad N. Hilton
Fund (the "Fund"). They disclaim beneficial ownership of the 16,498,736
shares owned by the Fund.
(2) The amount of Park Place Common Stock beneficially owned by The Prudential
Insurance Company of America is reported on the basis of an amended Schedule
13G with respect to Hilton filed with the SEC on February 13, 1998.
87
<PAGE>
(3) Includes options to acquire 4,500,000, 6,000, 4,950,000, 2,000, 2,000,
2,000, 2,000, 2,000, 18,000, 17,500, and 70,750 shares of Park Place Common
Stock, exercisable within the next 60 days, held by Messrs. Bollenbach,
Crown, Goldberg, E. Hilton, Berman, Looloian, Shelton, Marano, Barr, Dodson
and LaPorta, respectively. See "Arrangements Between Hilton and Park
Place--Stock Option Plans." See also "Management--Park Place CEO and
Chairman Employment Agreements."
(4) Mr. Crown is a partner of The Crown Fund, which owns 239,888 shares of Park
Place Common Stock. In addition, Pines Trailer Limited Partnership, of which
a corporation of which Mr. Crown is a director, officer and shareholder and
a partnership of which Mr. Crown is a partner, are partners, owns 600,000
shares of Park Place Common Stock; and Areljay, L.P., of which a corporation
of which Mr. Crown is a director, officer and shareholder and a trust of
which Mr. Crown is a beneficiary are partners, owns 1,935,340 shares of Park
Place Common Stock. Mr. Crown disclaims beneficial ownership of the shares
held by The Crown Fund, Pines Trailer Limited Partnership and Areljay, L.P.,
except to the extent of his beneficial interest therein.
(5) Includes 82,500 shares of Park Place Common Stock beneficially owned by Mr.
Berman's spouse. Also includes 45,615 shares of Park Place Common Stock held
by Berman Consulting Corporation, a corporation wholly owned by Mr. Berman.
(6) Includes 9,572,250 shares issuable upon exercise of employee stock options
granted to executive officers and directors, exercisable within 60 days, but
excludes the shares owned by the Fund (see note (1) above).
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Park Place's reporting officers and directors, and persons who beneficially own
more than 10% of Park Place's Common Stock, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Commission, the NYSE and Park
Place. To date all Section 16(a) filing requirements have been complied with.
88
<PAGE>
ARRANGEMENTS BETWEEN HILTON AND PARK PLACE
Pursuant to the Hilton Distribution Agreement, the assets, liabilities and
operations relating to the Hilton Lodging Business and the Hilton Gaming
Business, subject to certain exceptions identified below, were allocated to
Hilton and Park Place, respectively. In connection with the Hilton Distribution,
Hilton and Park Place also entered into a number of other transaction documents
governing their relationship after the Hilton Distribution. These transaction
documents, including the Hilton Distribution Agreement, are described below.
HILTON DISTRIBUTION AGREEMENT
On the date of the Hilton Distribution, Hilton and Park Place entered into
the Hilton Distribution Agreement which provided for, among other things, (i)
the transfer of assets related to the Hilton Gaming Business to Park Place, (ii)
the Hilton Distribution, (iii) the division of certain liabilities between
Hilton and Park Place and (iv) certain other agreements governing the
relationship between Hilton and Park Place following the Hilton Distribution. In
general, in order to effectuate the Hilton Distribution, (x) Hilton effected a
series of mergers and asset and stock transfers that resulted in the transfer to
Park Place of all of the operations, assets and liabilities of Hilton and its
subsidiaries comprising the Hilton Gaming Business (the "Hilton Restructuring"),
(y) the assets and liabilities of the Hilton Lodging Business were allocated to
Hilton and (z) the assets and liabilities of the Hilton Gaming Business were
allocated to Park Place.
The "Hilton Lodging Business" refers to the business conducted by Hilton and
its subsidiaries relating to: (a) the management, ownership, operation and
development of (i) hotels, resorts and other lodging facilities (other than
casino hotels) and (ii) timeshare and vacation ownership facilities (including
facilities located at casino hotels); and (b) Hilton's strategic alliance with
Ladbroke Group PLC and its affiliates. The "Hilton Gaming Business" refers to
the business conducted by Hilton and its subsidiaries relating to: the
management, ownership, operation and development of casino hotels and gaming
facilities (except its interest in the Casino Windsor property and small gaming
facilities which are included as an adjunct to hotel operations and legal title
to the Kansas City, Missouri riverboat).
Transfers relating to the Kansas City, Missouri riverboat gaming facility
and related assets (the "Missouri Gaming Business") are governed by a
disposition agreement among Hilton, Park Place and the subsidiary owning the
Missouri Gaming Business. On January 13, 1999, Hilton entered into an agreement
to sell the Missouri Gaming Business to a third party. Upon such sale, Park
Place is entitled to the benefit of the net proceeds from the sale.
Under the Hilton Distribution Agreement, all debt secured by or specifically
associated with assets of the Hilton Lodging Business was retained by Hilton and
all debt secured by or specifically associated with assets of the Hilton Gaming
Business was assumed by Park Place. Generally, the remaining debt of Hilton at
the time of the Hilton Distribution was allocated between Hilton and Park Place
so as to approximately equalize the total debt between the two companies, pro
forma for the Hilton Distribution and the Merger. See "--Assumption Agreement
Relating to Certain Indebtedness" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In connection with such allocation of assets and liabilities, the Hilton
Distribution Agreement also contained general indemnities and the procedures by
which indemnification may be claimed. Hilton agreed generally to indemnify Park
Place against liabilities that relate to the Hilton Lodging Business, and Park
Place agreed generally to indemnify Hilton against liabilities that relate to
the Hilton Gaming Business. In each instance, indemnities are offset by
insurance proceeds recovered by the indemnified party that reduce the amount of
loss, liability or damage. The Hilton Distribution Agreement also included
provisions governing the administration of certain insurance programs and the
procedures for making such claims.
89
<PAGE>
With respect to corporate governance issues, the Hilton Distribution
Agreement provided for the resignation of all of Hilton's directors and the
Hilton Employees (as defined below) from all governing bodies or positions as
officers or employees, as applicable, of Park Place or any of the gaming
subsidiaries and the resignation of all of Park Place's directors and the Park
Place Employees (as defined below) from all governing bodies or positions as
officers or employees, as applicable, of Hilton or any of the Hilton Lodging
subsidiaries, effective as of the Hilton Distribution Date, except as otherwise
set forth in the Hilton Distribution Agreement. However, Stephen F. Bollenbach
continued as President, Chief Executive Officer and a Director of Hilton and is
Chairman of the Board of Directors of Park Place, Arthur Goldberg continued as a
Director of Hilton and is President and Chief Executive Officer and a Director
of Park Place, Barron Hilton and A. Steven Crown each continued as Directors of
Hilton and are Directors of Park Place and Eric Hilton resigned as a Director of
Hilton and is a Director of Park Place.
The Hilton Distribution Agreement also provided that Hilton and Park Place
enter into the other agreements described below.
TAX ALLOCATION AND INDEMNITY AGREEMENT
Hilton and Park Place have entered into the Tax Allocation and Indemnity
Agreement (the "Hilton Tax Agreement") which defines the parties' rights and
obligations with respect to (a) the preparation and filing of tax returns on a
basis consistent with prior practice and the payment of taxes with respect
thereto, (b) the allocation of, and indemnification against, certain liabilities
for taxes of the parties and (c) certain other related matters.
Pursuant to the Hilton Tax Agreement, Hilton is responsible for preparing
and filing (a) all tax and information returns of the Hilton Group (as defined
in the Hilton Tax Agreement) prior to the Hilton Distribution and any members
thereof for all Pre-Distribution Taxable Periods (as defined below) with certain
exceptions and (b) all tax and information returns of the Hilton Group
subsequent to the Hilton Distribution and any members thereof for all Straddle
Periods (as defined below) and Post-Distribution Taxable Periods (as defined
below). Park Place is responsible for (i) all tax and information returns that
relate solely to any member of the Park Place Group (as defined in the Hilton
Tax Agreement) for all Pre-Distribution Taxable Periods, which were not required
to be filed on or before the Hilton Distribution Date and (ii) all tax and
information returns of the Park Place Group and any members thereof for all
Straddle Periods and Post-Distribution Taxable Periods. The Hilton Tax Agreement
also provides mechanisms for cooperation in preparing returns, including a
requirement that the party responsible for preparing and filing the returns
shall allow the other party to review and comment on the tax returns to the
extent they pertain to the business operations of the other party or the other
party has an indemnity obligation with respect to taxes for a period covered by
such tax return. As used herein, "Pre-Distribution Taxable Period" means a
taxable year that ends on or before the Hilton Distribution Date, "Post-
Distribution Taxable Period" means a taxable year that begins after the close of
business on the Hilton Distribution Date, and "Straddle Period" means any
taxable year beginning before and ending after the close of business on the
Hilton Distribution Date.
The Hilton Tax Agreement also provides that Hilton is liable for all taxes
payable on all tax returns it is responsible for filing and all tax returns that
Park Place is responsible for filing if such taxes are allocable to a
Pre-Distribution Taxable Period or the Pre-Distribution portion of any Straddle
Period. However, with respect to the 1998 Hilton consolidated federal income tax
return and any other 1998 tax return filed on a combined basis, Park Place will
reimburse 50% of Hilton's costs for any additional payment of income taxes
required to be made by Hilton with any request for extension or the filing of
any such tax return. If tax payments previously made with respect to such
returns and requests for extensions exceed the tax shown to be due on such
returns, Hilton will refund 50% of any excess to Park Place. With respect to any
such tax returns that relate solely to Park Place, Park Place will reimburse
Hilton 100% of any such additional payments. The Hilton Tax Agreement also
contains indemnification provisions that effectuate the payment obligations
described above.
90
<PAGE>
Under the Hilton Tax Agreement, if there is a final determination that the
Hilton Distribution is a taxable transaction and there has been no material
breach of certain specified covenants contained in the Hilton Distribution
Agreement by either party and neither party has taken actions after the Hilton
Distribution which result in such determination (or both parties have either
breached such covenants or taken such actions), then any such tax liability
incurred by Hilton shall be divided between Hilton and Park Place equally. If
any member of the Park Place Group (and no member of the Hilton Group) has
either materially breached such covenants or has taken any action after the
Hilton Distribution which results in a final determination that the Hilton
Distribution is a taxable event, then Park Place will indemnify Hilton for the
resulting tax liability which would not otherwise have been incurred (including
interest and penalties). A reciprocal indemnity is to be given by Hilton to Park
Place with respect to its actions. The Hilton Tax Agreement also provides for
various means of cooperation regarding document retention and confidentiality,
as well as customary and appropriate procedures for controlling and settling
audits.
HILTON EMPLOYEE BENEFITS ALLOCATION AGREEMENT
The Employee Benefits and Other Employment Matters Allocation Agreement (the
"Hilton Employee Benefits Agreement") entered into between Hilton and Park Place
provides for the allocation of employees of Hilton and its subsidiaries and
obligations and responsibilities regarding compensation, benefits, labor and
other employment matters. Under the Hilton Employee Benefits Agreement,
effective as of the Hilton Distribution Date, Hilton and Park Place agreed to
allocate all employees of Hilton and its subsidiaries as of the Hilton
Distribution Date to either Park Place (the "Park Place Employees") or Hilton
(the "Hilton Employees"), based upon whether each employee's employment duties
before the Hilton Distribution Date relate to the Hilton Gaming Business or the
Hilton Lodging Business and upon various other factors as applicable.
Subject to the exceptions discussed below, the Hilton Employee Benefits
Agreement provides that Hilton is responsible for historical liabilities and
obligations under Hilton employee benefit plans and agreements with respect to
Hilton Employees and Hilton Terminees (as defined below) whose employment
related to the Hilton Lodging Business, and that Park Place is responsible for
historical liabilities and obligations under such plans and agreements with
respect to Park Place Employees and Hilton Terminees whose employment related to
the Hilton Gaming Business. "Hilton Terminees" refers to employees who
terminated employment with Hilton prior to the Hilton Distribution Date. Park
Place and Hilton will generally assume or retain, as the case may be, benefit
plans maintained at the division level by the Hilton Gaming Business (in the
case of Park Place) or the Hilton Lodging Business (in the case of Hilton)
before the Hilton Distribution Date. Hilton and Park Place will diligently work
to substitute the appropriate employer for Hilton in collective bargaining
agreements with respect to Park Place Employees. Except as expressly provided in
the Hilton Employee Benefits Agreement, Hilton and Park Place may amend and/or
terminate any of the benefit plans covering their employees at any time.
Specific provisions of the Hilton Employee Benefits Agreement include the
following:
401(K) PLAN AND RETIREMENT PLANS. Hilton is to maintain sponsorship of the
Hilton 401(k) Plan (the "Hilton 401(k) Plan") as of the Hilton Distribution
Date, and Park Place is to establish and administer a separate 401(k) plan (the
"Park Place 401(k) Plan"). Plan accounts of Hilton Employees and Hilton
Terminees whose employment related to the Hilton Lodging Business are to remain
in the Hilton 401(k) Plan, and plan accounts of Park Place Employees and Hilton
Terminees whose employment related to the Hilton Gaming Business are to be
transferred from the Hilton 401(k) Plan to the Park Place 401(k) Plan. Matching
and discretionary contributions under the Hilton 401(k) Plan with respect to
Hilton Employees are to be made solely by Hilton pursuant to the terms of the
Hilton 401(k) Plan, and matching and discretionary contributions under the Park
Place 401(k) Plan with respect to Park Place Employees are to be made solely by
Park Place pursuant to the terms of the Park Place 401(k) Plan.
91
<PAGE>
Hilton will retain and be responsible for the administration of each of the
Retirement Plan of Hilton (as amended, the "Hilton Retirement Plan"), the
Supplemental Executive Retirement Plan ("SERP") and the Retirement Benefit
Replacement Plan of Hilton (as amended, the "Hilton Replacement Plan").
Employees who were participants in each of the Hilton Retirement Plan, SERP and
the Hilton Replacement Plan ceased accruing additional benefits thereunder
effective as of January 1, 1997. Each of Hilton and Park Place is to retain or
assume, as applicable, all liabilities and excess assets, if any, relating to or
arising under each of the Hilton Retirement Plan, SERP and the Hilton
Replacement Plan in a proportion based upon the ratios of the accrued benefits
of Hilton Employees and Hilton Terminees whose employment related to the Lodging
Business, on the one hand, and Park Place Employees and Hilton Terminees whose
employment related to the Gaming Business, on the other hand.
Hilton is responsible for all liabilities incurred by Hilton or Park Place
as a result of any failure of the Hilton 401(k) Plan or the Hilton Retirement
Plan to be qualified under the Code, or any other liability which might be
incurred with respect to such plans (including, without limitation, all
liabilities relating to or arising out of claims made by or on behalf of
participants therein for, or with respect to, benefits under such plan), with
respect to Hilton Individuals (as defined in the Hilton Employee Benefits
Agreement), and Park Place is responsible for all such liabilities incurred by
Hilton or Park Place with respect to Park Place Individuals (as defined in the
Hilton Employee Benefits Agreement). To the extent that any such liabilities
incurred by Hilton or Park Place are not directly or indirectly attributable to
either Hilton Individuals or Park Place Individuals, then each of Hilton and
Park Place is responsible for such liabilities in a proportion based upon the
ratios of the accrued benefits of Hilton Individuals and of Park Place
Individuals, respectively, under each such plan, as of December 31, 1997.
STOCK OPTION PLANS. Hilton has outstanding awards in the form of stock
options (the "Hilton Options") under the 1984 Stock Option and Stock
Appreciation Rights Plan of Hilton, the 1990 Stock Option and Stock Appreciation
Rights Plan of Hilton, the 1996 Stock Incentive Plan of Hilton, the 1996 Chief
Executive Stock Incentive Plan of Hilton and the 1997 Independent Director Stock
Option Plan of Hilton (collectively, the "Hilton Stock Option Plans"). Pursuant
to the Hilton Employee Benefits Agreement, Hilton will continue the Hilton Stock
Option Plans. Effective as of the Hilton Distribution Date, all outstanding
options under such plans, other than options held by Mr. Goldberg, were adjusted
to represent options to purchase an equivalent number of shares of Hilton Common
Stock and shares of Park Place Common Stock. Pursuant to such adjustment, the
intrinsic value of the Hilton Options prior to the Hilton Distribution was
preserved after the Hilton Distribution and the exercise price of the Hilton
Options was allocated between Hilton Options, as adjusted, and options to
purchase shares of Park Place Common Stock ("Park Place Options") based upon the
relative values of Hilton Common Stock and Park Place Common Stock on December
21, 1998, all as determined by Hilton. All outstanding options held by Mr.
Goldberg under such plans were adjusted to represent Park Place Options.
Pursuant to such adjustment, the intrinsic value of Mr. Goldberg's outstanding
options prior to the Hilton Distribution was preserved after the Hilton
Distribution, and the number of shares subject to and the exercise price of such
options was adjusted based on the relative values of the Hilton Common Stock and
the Park Place Common Stock on December 21, 1998, all as determined by Hilton.
Park Place adopted, effective no later than the Hilton Distribution Date,
stock option plans in substantially the same form as the Hilton Stock Option
Plans, with such changes as were necessary to reflect Park Place as the issuer
thereunder and such other changes as Park Place determined to be necessary (such
plans as adopted, the "Park Place Stock Option Plans"). Park Place Options are
to be issued under the Park Place 1998 Stock Incentive Plan or the Park Place
1998 Independent Director Stock Option Plan.
The conversion of awards under the Hilton Stock Option Plans involved
adjustments pursuant to formulas designed to preserve the value of the awards.
Pursuant to such formulas, the number of shares subject to options and the
exercise price of options under the Hilton Stock Option Plans and the Park Place
Stock Option Plans following the Hilton Distribution were adjusted so that the
aggregate value of
92
<PAGE>
the awards remained the same before and after the conversion of the awards. For
options, the per share value of the awards is the "spread" (i.e., the difference
between the exercise price of the option and the value of the stock underlying
the option). The exercise price of an adjusted option bears the same ratio to
the per share value of the shares underlying the option after the conversion as
the exercise price bears to the per share value of the shares underlying the
option before the conversion. Using these formulas, except with respect to
options held by Mr. Goldberg, the number of shares subject to awards following
the conversion remained the same and the exercise price of options decreased as
a result of the Hilton Distribution. With respect to options held by Mr.
Goldberg, the number of shares subject to such options following the conversion
increased and the exercise price of such options decreased as a result of the
Hilton Distribution.
STOCK PURCHASE PLANS. As of the Effective Date, the Employee Stock Purchase
Plan of Hilton (the "Hilton Stock Purchase Plan") was amended and will be
administered to provide that all contributions withheld from the compensation of
participants through the Effective Date shall be used on such date to purchase
Hilton Common Stock under the Hilton Stock Purchase Plan.
Park Place adopted, effective as of the Hilton Distribution Date, a plan
substantially similar to the Hilton Stock Purchase Plan, with such changes as
were necessary to reflect Park Place as the issuer of awards thereunder and such
other changes as Park Place determined to be necessary (such plan as adopted,
the "Park Place Stock Purchase Plan").
COMPENSATION PLANS. Hilton will pay all compensation earned by each Hilton
Individual (as defined below) who, on the Hilton Distribution Date, was a
participant in the Incentive Compensation Plan of Hilton, the Executive Deferred
Compensation Plan of Hilton or any other incentive or bonus compensation plan of
Hilton (collectively, the "Hilton Compensation Plans"), for the period prior to
the Hilton Distribution Date. From and after the Hilton Distribution Date,
Hilton retains all liabilities relating to or arising under the Hilton
Compensation Plans with respect to any Hilton Individuals. "Hilton Individual"
refers to any individual who (a) is a Hilton Employee, (b) was, as of the Hilton
Distribution Date, a Hilton Terminee whose last employment with Hilton or any of
its subsidiaries was with the Lodging Business or (c) is a dependent or
beneficiary of any individual specified in (a) or (b).
Park Place assumed all obligations to pay all compensation earned by each
Park Place Individual (as defined below) who, on the Hilton Distribution Date,
is a participant under the Hilton Compensation Plans. Park Place adopted,
effective as of the Hilton Distribution Date, compensation plans in
substantially the same form as the Hilton Compensation Plans which cover Park
Place Individuals, with such changes as may be necessary to reflect the change
in the issuer of awards thereunder and such other changes as Park Place shall
determine (such plan as adopted, the "Park Place Compensation Plans"). From and
after the Hilton Distribution Date, the Park Place Compensation Plans are to
provide future compensation benefits to Park Place Individuals. The terms and
conditions of the Park Place Compensation Plans are to be substantially similar
to the terms and conditions of the Hilton Compensation Plans. "Park Place
Individual" refers to any individual who (a) is a Park Place Employee, (b) is,
as of the Hilton Distribution Date, a Hilton Terminee whose last employment with
Hilton or a subsidiary of Hilton was with a Gaming Business, or (c) is a
dependent or beneficiary of any individual described in (a) or (b).
In addition, Park Place will pay all compensation earned by Arthur M.
Goldberg under the Deferred Compensation Agreement, dated as of January 16,
1997, between Hilton and Arthur M. Goldberg, which amounted to approximately
$2,200,000 on December 31, 1998. As of the Hilton Distribution Date, Park Place
is solely responsible for all liabilities and obligations under such agreement.
MEDICAL AND OTHER WELFARE BENEFITS PLANS. On the Hilton Distribution Date,
Hilton is to assume or retain sponsorship of Hilton's medical, health, dental,
disability, accident, death, vacation and group term life insurance plans and be
responsible for all claims under Hilton's plans incurred before the Hilton
Distribution Date by Hilton Employees and Hilton Terminees. Park Place is to
maintain separate medical,
93
<PAGE>
heath, dental, disability, accident, death, vacation and group term life
insurance plans for Park Place Employees following the Hilton Distribution Date.
On the Hilton Distribution Date, Park Place is to assume sponsorship of Hilton's
long-term disability plan to cover Park Place Employees and Hilton Terminees
whose employment related to the Hilton Gaming Business, and Hilton is to
establish a long-term disability plan to cover Hilton Employees and Hilton
Terminees whose employment related to the Hilton Lodging Business. On the Hilton
Distribution Date, Park Place is to assume and be responsible for providing
post-retirement benefits with respect to those former employees who became
entitled to the benefits before the Hilton Distribution Date.
TRADEMARK ASSIGNMENT AND LICENSE AGREEMENT
Pursuant to the terms of the Assignment and License Agreement (the "Hilton
Trademark Agreement") entered into by and among Hilton, Park Place and Conrad
International Royalty Corporation ("CIRC"), Hilton agreed to transfer and assign
to Park Place all of Hilton's right, title and interest in certain trademarks
used in the Hilton Gaming Business, including the trademarks "Flamingo's,"
"Bally's" and any other marks obtained by Hilton or its subsidiaries as a result
of the acquisition of Bally Entertainment Corporation by Hilton (collectively,
the "Assigned Marks"). Hilton also granted to Park Place (with respect to the
"Hilton" mark and certain variations thereof) and CIRC granted to Park Place
(with respect to the "Conrad" mark and certain variations thereof) a limited
nonexclusive right to use (a) the "Hilton" mark solely in connection with the
operation of the Hilton Casino Hotels (as defined in the Hilton Trademark
Agreement) in the United States and in connection with the advertising and
promotion of such hotels worldwide and the participation of certain other hotels
(e.g., Bally's Las Vegas, Bally's Park Place, Paris-Las Vegas and other hotels
now or hereafter owned, operated, managed or acquired by Park Place) in Hilton
Reservations Worldwide and/or the Hilton HHonors--Program and (b) the "Conrad"
mark solely in connection with the operation of Conrad Properties (as defined in
the Hilton Trademark Agreement) and in connection with the advertising and
promotion of such properties worldwide. Park Place's license with respect to the
"Hilton" mark is for a term of five years following the Hilton Distribution
Date, except with respect to the Atlantic City Hilton, Las Vegas Hilton and the
Reno Hilton, in which case, the term is 10 years from the Hilton Distribution
Date. Park Place's license with respect to the "Conrad" mark is for the duration
of the respective Conrad License Agreements (as defined in the Hilton Trademark
Agreement).
During the initial two-year term of the license, Park Place will pay no
royalty fees to Hilton; thereafter, Park Place will pay a license fee of 3% of
the "Net Room Revenues" of each hotel that is branded with the "Hilton" mark;
provided, that, with respect to the Las Vegas Hilton, the Reno Hilton and the
Atlantic City Hilton, Park Place will pay a fixed fee of $5 million per year (in
the aggregate) after the initial two-year term of the license. Park Place will
pay no royalty fees to CIRC with respect to the license to use the "Conrad"
mark. So long as Park Place licenses the "Hilton" or "Conrad" mark, Park Place
agreed to cause each of the Hilton Casino Hotels and Conrad Properties to
participate in Hilton Reservations Worldwide and in the Hilton HHonors--Program
and pay the applicable fees in connection therewith. Park Place is also subject
to certain limitations on use and certain quality control restrictions. During
the initial two-year term, Park Place is required to use the "Hilton" mark at
each of the Hilton Casino Hotels. Thereafter, Park Place may terminate such use
upon six months' written notice; provided, however, that with respect to the
Atlantic City Hilton, the Las Vegas Hilton and the Reno Hilton, Park Place will
be required to use the "Hilton" mark for the 10-year term, except that such
license may be terminated upon payment of the present value of the yearly fee
due under the remainder of such term (a) if the Atlantic City Hilton, the Las
Vegas Hilton and the Reno Hilton are sold by Park Place or (b) upon six months'
written notice (after the fifth anniversary of the Hilton Distribution Date).
Either party may terminate the Hilton Trademark Agreement prior to the
expiration of its term if any party materially breaches any term of the Hilton
Trademark Agreement and such breach is not cured within 10 days.
94
<PAGE>
CORPORATE SERVICES AGREEMENTS In connection with the Hilton Distribution
Agreement, on the Hilton Distribution Date, Hilton and Park Place entered into
corporate services agreements for the delivery of certain transitional and other
services from Hilton to Park Place and from Park Place to Hilton substantially
in accordance with the scope of such services as currently provided. The terms
and conditions of the Hilton Hotels Corporation Corporate Services Agreement
(the "Hilton Services Agreement"), the Park Place Corporate Services Agreement
(the "Park Place Services Agreement"), and the Architecture and Construction
Services Agreement (the "A&C Agreement"), including the fees to be paid in
connection with such services, will be negotiated by the parties bargaining at
arm's length. These agreements are summarized below.
HILTON SERVICES AGREEMENT. Pursuant to the Hilton Services Agreement,
Hilton agreed to provide, at Park Place's request, certain services, including
cash management, accounting, payroll, accounts payable and tax preparation and
assistance, for an initial period of 12 months from the Hilton Distribution
Date, with an option by Park Place to extend the term not to exceed 18 months
from the Hilton Distribution Date on the same terms and conditions, subject to
certain adjustments. During the initial term, Park Place will pay a fee based on
the fair value of such services based on an arm's length negotiation between
Hilton and Park Place. Fees for work performed by outside consultants or
contractors retained by Hilton outside the ordinary course of business will be
paid directly by Park Place and fees during any extension of the initial
12-month term will be based on mutual agreement of the parties. Park Place may
terminate the Hilton Services Agreement at any time for any or no reason upon 30
days' prior written notice to Hilton and either party may terminate the Hilton
Services Agreement at any time in the event of a material default of such
agreement by the other party.
PARK PLACE SERVICES AGREEMENT. Pursuant to the Park Place Services
Agreement, Park Place agreed to provide, at Hilton's request, certain services,
including aviation, food and beverage purchasing and procurement and retail
management and administration. Park Place will provide such services for an
initial period of 12 months from the Hilton Distribution Date, with an option by
Hilton to extend the term not to exceed 18 months from the Hilton Distribution
Date on the same terms and conditions, subject to certain adjustments. During
the initial term, Hilton will pay a fee based on the fair value of such services
based on an arm's length negotiation between Hilton and Park Place. Fees for
work performed by outside consultants or contractors retained by Park Place
outside the ordinary course of business will be paid directly by Hilton and fees
during any extension of the initial 12-month term will be based on mutual
agreement of the parties. Hilton may terminate the Park Place Services Agreement
at any time for any or no reason upon 30 days' prior written notice to Park
Place and either party may terminate the Park Place Services Agreement at any
time in the event of a material default of such agreement by the other party.
ARCHITECTURE AND CONSTRUCTION SERVICES AGREEMENT. The scope and cost of
services relating to architecture and construction management services are
governed by a separate agreement entered into by Hilton and Park Place on the
Hilton Distribution Date. Pursuant to the A&C Agreement, Park Place agreed to
provide, at Hilton's request, design, construction and financial management
services as specified in a work order. Hilton agreed to provide the services of
its Senior Vice President of Architecture and Construction to operate Park
Place's Architecture and Construction group ("A&C"), including supervision and
management of A&C employees, the establishment of A&C policies, goals and
budgets and the development of A&C strategies, all subject to Park Place's
approval. The term of the A&C Agreement and the fees to be paid in connection
with the services provided thereunder are substantially similar as under the
Hilton Services Agreement and the Park Place Services Agreement, except that
either party may terminate the A&C Agreement at any time for any or no reason
upon 90 days' prior written notice to the other party, or effective 90 days
thereafter in the event of a material default by the other party.
95
<PAGE>
ASSUMPTION AGREEMENT RELATING TO CERTAIN INDEBTEDNESS
Hilton and Park Place entered into a Debt Assumption Agreement, pursuant to
which Park Place assumed and agreed to pay 100% of the amount of each payment
required to be made by Hilton under the terms of the indentures governing
Hilton's $300 million aggregate principal amount of 7.375% Senior Notes due 2002
and $325 million aggregate principal amount of 7% Senior Notes due 2004. In the
event of an increase in the interest rate on these Notes pursuant to their terms
as a result of certain actions taken by Hilton, and certain other limited
circumstances, Hilton is required to reimburse Park Place for any such increase.
Hilton is obligated to make any payment Park Place fails to make and in such
event Park Place shall pay to Hilton the amount of such payment together with
interest, at the rate per annum borne by the applicable notes plus 2% per annum,
to the date of such reimbursement.
96
<PAGE>
ARRANGEMENTS BETWEEN GRAND AND LAKES
Pursuant to the Grand Distribution Agreement, Grand and Lakes have allocated
between them Grand's assets and liabilities related to the Mississippi Business
and the Non-Mississippi Business. Grand and Lakes have also entered into certain
other transaction documents governing their relationship following consummation
of the Grand Distribution. These documents, including the Grand Distribution
Agreement, are described below.
GRAND DISTRIBUTION AGREEMENT
On December 31, 1998, Grand and Lakes entered into the Grand Distribution
Agreement which provided for, among other things, certain corporate transactions
required to effect the restructuring of Grand, the Grand Distribution and other
arrangements among Grand and Lakes subsequent to the Grand Distribution.
In particular, the Grand Distribution Agreement defines the assets and
liabilities which were retained by Grand and those which are being contributed
by Grand to Lakes. Pursuant to the Grand Distribution Agreement, (i) Grand
retained the assets and liabilities associated with the Mississippi Business,
which includes the Mississippi-based operations of Grand Casino Tunica, Grand
Casino Biloxi and Grand Casino Gulfport and (ii) Lakes assumed the assets and
liabilities associated with the Non-Mississippi Business which includes the
Indian management contracts associated with Grand Casino Avoyelles and Grand
Casino Coushatta, both located in Louisiana, an interest in the development of
the Polo Plaza in Las Vegas and up to $33 million in cash, in addition to
certain other assets and liabilities.
The Grand Distribution Agreement may be amended upon the written consent of
both Grand and Lakes.
GRAND RESTRUCTURING
In order to effectuate the Grand Distribution, Grand consummated a series of
mergers, asset and stock transfers and liability assumptions among its
subsidiaries, including Lakes (the "Grand Restructuring"). The purpose and
effect of the Grand Restructuring was to separate substantially all of Grand's
Non-Mississippi Business from its Mississippi Business. In connection with the
Grand Restructuring, Lakes, or one of its subsidiaries, has assumed, all
liabilities associated with the Non-Mississippi Business and Grand, or one of
its subsidiaries, has retained, all liabilities associated with the Mississippi
Business.
Prior to the Grand Restructuring, all of Grand's assets were held indirectly
by and operated through various wholly owned subsidiaries of Grand. The
subsidiaries that relate to the Non-Mississippi Business were transferred by
Grand through a series of transactions to Lakes. With the transfer of such
subsidiaries, Lakes assumed, unless otherwise provided for in the Grand
Distribution Agreement, all assets and liabilities associated with such
subsidiaries. The interests of the subsidiaries that relate to the Mississippi
Business, and the assets and liabilities associated with such subsidiaries,
were, unless otherwise provided for in the Grand Distribution Agreement,
retained by Grand. Certain other assets, such as stock in publicly-traded
companies and leases related to the Grand Minnetonka, Minnesota headquarters
(the "Assigned Lakes Assets"), were assigned to Lakes. Finally, the Grand
Distribution Agreement provided that Grand contribute up to $33 million in cash
to Lakes in order to provide necessary and needed levels of working capital and
appropriate reserves.
Prior to the Grand Distribution, Grand and Lakes consummated the following
transactions subject to certain conditions provided for in the Grand
Distribution Agreement:
(1) Certain Non-Mississippi subsidiaries formed limited liability
companies and contributed their respective assets and liabilities to such
limited liability companies;
97
<PAGE>
(2) One Non-Mississippi subsidiary will form a limited liability company
and will then form a partnership with such limited liability company. Such
Non-Mississippi subsidiary will then contribute its assests and liabilities
to such partnership;
(3) Grand contributed all of its other assets and liabilities not
related to the Mississippi Business, other than the stock of the
Non-Mississippi subsidiaries which organized the limited liability
companies, to Lakes;
(4) Grand transfered $39 million of cash to Lakes which amount
represents the $33 million in cash required for necessary working capital
and appropriate reserves less amounts paid by Grand prior to the Grand
Distribution Date in connection with Stratosphere and increased by the
proceeds of any sale of any Assigned Lakes Assets prior to the Grand
Distribution Date; and
(5) The Non-Mississippi subsidiaries which organized the limited
liability companies merged with and into Lakes.
GRAND TAX ALLOCATION AND INDEMNITY AGREEMENT
Grand and Lakes have entered into the Tax Allocation and Indemnity Agreement
(the "Grand Tax Agreement") which defines the parties' rights and obligations
with respect to (a) the preparation and filing of tax returns on a basis
consistent with prior practice and the payment of taxes with respect thereto,
(b) the allocation of, and indemnification against, certain liabilities for
taxes of the parties and (c) certain other related matters.
Pursuant to the Grand Tax Agreement, Grand is responsible for preparing and
filing (a) all tax and information returns of the Grand Group (as defined in the
Grand Tax Agreement) prior to the Grand Distribution and of any members thereof
for all Pre-Distribution Taxable Periods (as defined below) with certain
exceptions and (b) all tax and information returns of the Grand Group subsequent
to the Grand Distribution and of any members thereof for all Straddle Periods
(as defined below) and Post-Distribution Taxable Periods (as defined below).
Lakes is responsible for (i) all tax and information returns that relate solely
to any member of the Lakes Group (as defined in the Grand Tax Agreement) for all
Pre-Distribution Taxable Periods, and are not required to be filed on or before
the Grand Distribution Date and (ii) all tax and information returns of the
Lakes Group and any members thereof for all Straddle Periods and Post-
Distribution Taxable Periods. The Tax Agreement also provides mechanisms for
cooperation in preparing returns, including a requirement that the party
responsible for preparing and filing the returns to allow the other party to
review and comment on the tax returns to the extent they pertain to the business
operations of the other party or the other party is indemnifying for taxes for a
period covered by the tax return. As used herein, "Pre-Distribution Taxable
Period" means a taxable year that ends on or before the Grand Distribution Date,
"Post-Distribution Taxable Period" means a taxable year that begins after the
close of business on the Grand Distribution Date, and "Straddle Period" means
any taxable year beginning before and ending after the close of business on the
Grand Distribution Date.
The Grand Tax Agreement generally provides that Grand will be liable for all
taxes and entitled to all refunds shown on tax returns of Grand and its
subsidiaries for all taxable periods, except as follows or as provided in the
next paragraph. Taxes and refunds on returns to be filed only by Lakes or any of
its post-Distribution subsidiaries after the Grand Distribution Date are
allocated only to them. Taxes and refunds shown on consolidated, combined or
unitary returns filed after the Grand Distribution Date for periods beginning
before or including the Grand Distribution Date are allocated between Grand and
Lakes by allocating to each the amounts traceable to the assets and business
allocated to each under the Grand Distribution Agreement, except that income
taxes are first allocated among Grand and its pre-Distribution subsidiaries
based on the ratios of taxable income of the corporations with taxable income
included in the return, and then re-allocated under the asset and business
tracing method above. If any taxes or refunds on such returns cannot be traced,
or any transaction taxes (such as sales and transfer taxes, but not income
taxes) are caused by the Grand Distribution or the Merger, they are allocated
between Grand and Lakes at
98
<PAGE>
a level equal to the percentage allocation of transaction costs as calculated
under the Merger Agreement. Any taxes and refunds resulting from any final tax
determinations made by taxing authorities, or any amended returns filed, after
the Grand Distribution Date are allocated by tracing the tax or refund to the
assets and business allocated to Grand or Lakes under the Grand Distribution
Agreement.
The Grand Tax Agreement provides that the economic benefit of the
Stratosphere Losses and the economic burden of the Section 355(e) Gain be
allocated between Grand and Lakes as follows: (i) all Stratosphere Losses will
be first applied to reduce the Section 355(e) Gain, (ii) Stratosphere Losses in
excess of the amount required to eliminate the Section 355(e) Gain will be
allocated to Lakes in an amount not to exceed $50 million of the Stratosphere
Losses, and (iii) any remaining Stratosphere Losses will be allocated equally
between Grand and Lakes. Because the Stratosphere Losses allocable to Lakes in
(ii) above provided economic benefits to Lakes, such losses were escrowed to
secure Lakes' obligation to indemnify Grand against any liability resulting from
the Section 355(e) Gain not offset by the Stratosphere Losses. The escrow
account was created pursuant to an escrow agreement to be entered into by an
escrow agent, Lakes, Grand and Park Place, in the form attached to the Grand Tax
Agreement. The Grand Tax Agreement also includes procedures for cooperation in
preparing returns, sharing and retaining tax information and responding to and
controlling audit adjustments.
The Grand Tax Agreement is not binding on the IRS or any other taxing
authority and does not affect the several liability of Grand, Lakes and their
respective subsidiaries for all federal and certain state income taxes of
Grand's consolidated group relating to the taxable periods ending on or before
the Grand Distribution Date (including any tax liability resulting from the
Section 355 Gain described above).
INTELLECTUAL PROPERTY LICENSE AGREEMENT
In the Grand Distribution, Grand, as a wholly owned subsidiary of Park
Place, retained all of its right, title, and interest in certain trademarks,
including the trademarks "Grand Casinos," "Grand Advantage Players Club," "Grand
Casino Kid Quest," "Marketplace Buffet," "Rapid Change," "Show & Tell
Blackjack," and "There's More Than One Reason To Call Us Grand." Pursuant to the
terms of an Intellectual Property License Agreement (the "License"), entered
into between Grand and Lakes, Grand granted Lakes a world-wide, royalty-free and
non-exclusive right and license to use the Intellectual Property (as defined in
the License) solely in connection with Lakes' management of certain Facilities
(as defined in the License) for the Mille Lacs Band of Chippewa Indians (the
"Minnesota Tribe") and the Coushatta Tribe of Louisiana and the Tunica-Biloxi
Tribe of Louisiana. The Minnesota Tribe retains the right to certain of these
trademarks indefinitely. While the Minnesota Tribe's rights to certain
trademarks are perpetual, the rights of the Tunica-Biloxi Tribe of Louisiana and
the Coushatta Tribe of Louisiana will expire upon termination of the "Louisiana
Management Agreements," as defined in such agreement. Upon termination of its
management agreement with the Minnesota Tribe, Lakes may sublicense the
Intellectual Property to the Minnesota Tribe for use solely in connection with
the operation of the Minnesota Tribe's Facilities. For so long as the applicable
License remains in effect, Grand will not itself (nor will authorize any other
person or entity to) use the Intellectual Property in connection with the
operation of any hotel, restaurant, retail, gaming, or other facility of a
similar type or nature within a twenty mile radius of a facility owned by the
Minnesota Tribe.
The Intellectual Property may only be used in a manner consistent with its
use during the year preceding execution of the License. The License also
provides for certain limitations governing use of the Intellectual Property,
including certain quality control restrictions. Finally, Lakes is required to
indemnify Grand against certain claims relating to the use of the Intellectual
Property by Lakes, its assignees or sublicensees.
Grand may terminate the License prior to the expiration of its term: (a) if
Lakes makes an assignment of assets or business for the benefit of creditors, or
if a trustee or receiver is appointed to administer or conduct Lakes' business
or affairs, or if Lakes is adjudged in any legal proceeding to be either a
voluntary
99
<PAGE>
or involuntary bankrupt without prior notice or legal action by Grand; or (b)
upon 30 days' advance written notice in the event of Lakes' material breach of
the License. Lakes also may terminate the License upon 90 days' prior written
notice to Grand.
GRAND EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Grand and Lakes have entered into an Employee Benefits and Other Employment
Matters Allocation Agreement (the "Grand Employee Benefits Agreement"), which
generally provides for the allocation of current employees of Grand and its
subsidiaries and the respective obligations of Grand and Lakes regarding
compensation, benefits and labor matters affecting such employees and those
former employees who have terminated employment with Grand and its subsidiaries
prior to the Grand Distribution Date ("Former Grand Employees"). Under the Grand
Employee Benefits Agreement, Grand and Lakes allocated such employees as of the
Grand Distribution Date to either Grand and its post-Distribution subsidiaries
(the "Grand Retained Employees") or Lakes and its post-Distribution subsidiaries
(the "Lakes Employees"), based upon whether each employee's employment duties
before the Grand Distribution Date primarily related to the Mississippi Business
(being retained by Grand and its post-Distribution subsidiaries) or the
Non-Mississippi Business (to be operated by Lakes and its post-Distribution
subsidiaries), and upon various other factors as may apply. The Grand Employee
Benefits Agreement also allocates certain obligations and responsibilities of
Grand and Lakes regarding any benefits of eligible dependents and beneficiaries
of current employees and Former Grand Employees.
Subject to the exceptions discussed below, the Grand Employee Benefits
Agreement provides that Grand will be responsible for any employment contract
obligations with respect to all Grand Retained Employees and for all historical
obligations under the Grand employee benefit plans on behalf of all Grand
Retained Employees, those Former Grand Employees whose employment related to the
Mississippi Business, and their respective dependents and beneficiaries
(collectively, the "Grand Retained Individuals"); and that Lakes will be
responsible for any employment contract obligations with respect to all Lakes
Employees and for historical obligations under the Grand employee benefit plans
on behalf of all Lakes Employees, those Former Grand Employees whose employment
related to the Non-Mississippi Business, and their respective dependents and
beneficiaries (collectively, the "Lakes Individuals"). Grand or Lakes may amend
and/or terminate any compensation or benefit plans covering its employees at any
time or create new compensation or employee benefit plans.
Specific provisions of the Grand Employee Benefits Agreement include the
following:
COMPENSATION PLANS. Grand is responsible for payment of all compensation
and bonuses payable for periods ending on or before the Grand Distribution Date
to each Grand Retained Individual or Lakes individuals who, on the Grand
Distribution Date, was a participant under any of Grand's cash compensation
plans, in accordance with the terms of each applicable plan. Lakes adopted, as
of the Grand Distribution Date, all of Grand's cash compensation plans that
covered Lakes Individuals, and amended such plans to reflect the new issuer of
awards thereunder.
SEVERANCE BENEFITS. The Grand Employee Benefits Agreement provides that no
Lakes Employee who is transferred to Lakes or any of its subsidiaries from Grand
or any of its other subsidiaries in connection with the Grand Distribution will
thereby become entitled to any severance pay or similar benefits under any plan
or contract. Grand and Lakes will each assume any risk that its employees may
claim such benefits as a result of the Grand Distribution or otherwise,
including any benefits under change in control agreements.
401(K) SAVINGS PLANS. As of the Grand Distribution Date, Lakes assumed
sponsorship of the Grand Casinos 401(k) Savings Plan (the "401(k) Savings Plan")
from Grand. The 401(k) Savings Plan now provides additional benefits only for
eligible Lakes Individuals, according to its terms; and the Grand Retained
Employees are not eligible to participate, except that the 401(k) Savings Plan
will continue to
100
<PAGE>
hold the previously accrued benefits of Grand Retained Individuals until
completion of the transfer described at the end of this paragraph. For periods
on or before the Grand Distribution Date, any employer contributions under the
401(k) Savings Plan with respect to Grand Retained Individuals were made by
Grand; and any employer contributions under the 401(k) Savings Plan with respect
to Lakes Individuals were made by Lakes. Lakes is in the process of separating
the portion of the 401(k) Savings Plan held for Grand Retained Individuals and
transferring that portion to a similar plan sponsored by Park Place and covering
the Grand Retained Employees.
STOCK OPTION PLANS. Grand has awarded stock options under the 1991 Grand
Casinos, Inc. Stock Option and Compensation Plan, and amendments thereto (the
"1991 Option Plan"); options to certain non-employee directors not pursuant to a
plan (the "Non-Plan Director Options") and options under the 1995 Director Stock
Option Plan (the "1995 Option Plan" and, together with the 1991 Option Plan, the
"Grand Option Plans"). Grand, as a subsidiary of Park Place, will maintain the
Grand Option Plans on and after the Effective Date until it chooses to amend or
terminate them.
As of the Grand Distribution Date, all of the options to purchase Grand
Common Stock that were outstanding under the Grand Option Plans, including the
Non-Plan Director Options, were adjusted and converted into options to purchase
shares of Grand Common Stock ("Grand Options") and shares of Lakes Common Stock
("Lakes Options"). Pursuant to such adjustment, the value of the Grand Options
immediately prior to the Grand Distribution was preserved immediately after the
Grand Distribution and the exercise prices of the Grand Options were allocated
between Grand Options and the Lakes Options, based upon the relative values of
Grand Common Stock and Lakes Common Stock immediately after the Grand
Distribution, all as agreed by Grand and Lakes (the "Adjustment"). The vesting
of all Grand Options and Lakes Options accelerated as of the Effective Date in
connection with the Merger and were amended to permit exercises after the
Effective Date so long as such optionee is either an employee or board member of
either entity. With respect to Lakes Individuals holding Grand Options after the
Effective Date, Grand has amended the Grand Option Plans and their Grand Options
to change all references to their employment or termination of employment with
Grand and its affiliates to substitute their employment by or termination of
employment with Lakes and its affiliates. Following the Adjustment, the Grand
Options became options to purchase shares of Park Place.
As of the Grand Distribution Date, Lakes adopted new option plans
substantially identical to the Grand Option Plans which Grand shareholders
approved at the Grand Special Meeting. All awards under the Lakes Option Plans
relate to Lakes Common Stock.
All Lakes Options issued pursuant to the conversion of the Grand Options
under the preceding paragraph, in addition to the Non-Plan Director Options that
were converted into Lakes options in the Grand Distribution, are treated as
awards outside of the Lakes Option Plans, pursuant to assumed option plans under
which Lakes will make no new grants (the "Lakes Assumed Option Plans"). The
Lakes Assumed Option Plans are identical in all material respects to the Grand
Options from which they were converted (including the amendment to permit
exercises so long as such optionee is either an employee or board member of
either entity). With respect to Grand Retained Individuals receiving any Lakes
options as a result of such conversion, all provisions in the Lakes assumed
Option Plans and option agreements that would otherwise refer to their
employment by or termination of employment with Lakes and its affiliates shall
instead reflect their employment by or termination of employment with Grand and
its affiliates. After the Effective Date, Lakes assumed all obligations with
respect to the Lakes Options converted from Grand Options, and administers such
options under the terms of the Lakes Assumed Option Plans governing such
options.
STOCK PURCHASE PLANS. As of the Effective Date, the Grand Casinos, Inc.
Associate Stock Purchase Plan established by Grand as of March 1, 1997 (the
"Grand Stock Purchase Plan") was amended to provide that all contributions
withheld from the compensation of participants through the day before the
101
<PAGE>
Effective Date (the "Purchase Date") be used on the Purchase Date to purchase
Grand Common Stock under the Grand Stock Purchase Plan.
MEDICAL AND OTHER WELFARE BENEFIT PLANS. Grand is responsible for all
obligations under Grand's medical, dental, "cafeteria," disability, sick leave,
vacation and group term life insurance plans ("Welfare Plans") with respect to
Grand Retained Individuals. On and after the Grand Distribution Date, Grand is
to maintain its sick leave and vacation plans for eligible Grand Retained
Individuals, including all accrued benefits thereunder (vested and unvested);
and Grand may continue or adopt other Welfare Plans for Grand Retained
Individuals as Grand may choose or as may be required by applicable laws. Lakes
is responsible for all obligations under Grand's Welfare Plans with respect to
Lakes Individuals. As of the Grand Distribution Date, Lakes adopted sick leave
and vacation plans (including all accrued benefits thereunder, whether vested or
unvested) and medical, dental and "cafeteria" plans for eligible Lakes
Individuals following the Grand Distribution Date, that are substantially
comparable to the applicable Grand Welfare Plans. After the Grand Distribution
Date, Lakes may adopt other Welfare Plans for Lakes Individuals as Lakes may
choose or as may be required by applicable laws.
However, if a Grand Retained Employee is hired by Lakes (or a Lakes
subsidiary) or a Lakes Employee is hired by Grand (or a Grand subsidiary) within
90 days after the Grand Distribution Date, the employee will be credited by the
successor employer with the same vacation and sick leave benefits (vested and
unvested) the employee had accrued with the former employer. The former employer
shall also pay to the successor employer the vested balance of vacation and sick
leave accrued by the employee with the former employer, based on the employee's
final rate of pay.
PLAN SERVICE CREDITS. In connection with the Grand Distribution and for
purposes of determining length of service or plan participation to satisfy
eligibility, vesting, benefit accrual and similar requirements under any
employee benefit or compensation plan, Grand credited each Grand Retained
Employee and Lakes credited each Lakes Employee with such employee's service and
original hire date as reflected in the records of Grand or any of its
subsidiaries as of the Grand Distribution Date. This credited service and hire
date shall be maintained until the employee terminates employment or as may be
otherwise required by applicable law or such a plan.
ADMINISTRATIVE COOPERATION. Grand and Lakes will also cooperate in the
transition of such employee-related matters as payroll deductions, unemployment
tax experience and benefit elections made by employees.
102
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CHANGE IN CONTROL AND EMPLOYMENT ARRANGEMENTS
Lyle Berman, the former Chairman of the Board of Grand had an employment
agreement with Grand which contained certain "change of control" provisions
which were triggered as a result of the Merger. Under his agreement, in the
event of a termination of employment not for "cause" or his resignation
following a "change of control" (as defined therein), Grand was required to pay
Mr. Berman up to three years of his then current base salary in addition to any
outstanding incentive compensation to which he would otherwise be entitled in
the absence of such termination or resignation, in addition to the continuation
of certain employee benefits to which he would otherwise be entitled for an
additional year. The "change of control" provisions also provide for a two year
period in which Mr. Berman may exercise any outstanding options to purchase
Common Stock. For purposes of Mr. Berman's agreement, a "change of control"
occurred by reason of the Merger and Mr. Berman was paid $1,895,833 on January
4, 1999 in connection therewith (which amount did not include payments for
outstanding incentive compensation).
For additional employment agreement arrangements, see "Management--Park
Place CEO and Chairman Employment Agreements--Park Place CEO Agreement" and
"--Park Place Chairman Agreement."
OTHER INTERESTS
Park Place's casinos in Las Vegas and Reno, Nevada, regularly send and pay
for their guests to visit certain conference facilities in Yerington, Nevada,
which are owned by Barron Hilton. In this regard, Mr. Hilton received payments
in excess of $100,000 in 1997. Management believes that the rates paid were
comparable to those which would have been paid to unaffiliated parties providing
similar services.
103
<PAGE>
DESCRIPTION OF THE NEW SENIOR CREDIT FACILITY
In connection with the Transactions, Park Place entered into the New Senior
Credit Facility with a syndicate of financial institutions for whom Bank of
America National Trust and Savings Association will act as administrative agent
("Administrative Agent"), NationsBanc Montgomery Securities LLC will act as lead
arranger ("Lead Arranger"), The Bank of New York will act as syndication agent
("Syndication Agent") and PNC Bank, National Association and SG will act as
documentation agents ("Documentation Agent"). The following is a summary of the
material terms and conditions of the New Senior Credit Facility. This summary
does not purport to be a complete description of the New Senior Credit Facility
and is subject to the detailed provisions of the loan agreement and various
related documents entered into in connection with the New Senior Credit
Facility. The New Senior Credit Facility (which is governed by two separate loan
agreements) provides for borrowing of up to $2.15 billion, consisting of (i) a
364-day senior unsecured revolving credit facility of up to $650 million
("364-day Revolver"); and (ii) a five-year senior unsecured revolving credit
facility of up to $1.5 billion ("Five-year Revolver").
Proceeds of the New Senior Credit Facility, together with proceeds from the
issuance of the Old Notes, were used to consummate the Transactions and pay
related fees and expenses.
The 364-day Revolver matures 364 days from the closing of the Transactions.
The Five-year Revolver matures five years from the closing of the Transactions.
Both the 364-day Revolver and the Five-year Revolver may be extended in one year
increments at the request of Park Place with the prior written consent of the
lenders. Within 60 days of the occurrence of any Change in Control (as defined
therein), lenders with 51% of the total aggregate commitments under the New
Senior Credit Facility may elect to terminate both or either of the 364-day
Revolver and the Five-year Revolver upon 60 days' written notice to Park Place.
The borrowings under the New Senior Credit Facility will bear interest at a
floating rate and may be obtained at Park Place's option as LIBOR advances for
one week or 1, 2, 3, or 6 months, or as base rate advances, each adjusted for an
applicable margin (as further described in the New Senior Credit Facility), or
as competitive bid loans. The maximum applicable margin for LIBOR loans is 1.65
under the 364-day Revolver and 1.90 under the Five-year Revolver and are based
on a maximum of 1.75 plus or minus pre-determined discounts based on Park
Place's leverage ratios and credit ratings received from specified rating
agencies. The Five-year Revolver provides for a $250 million commitment for the
issuance of letters of credit. LIBOR advances will bear interest initially at
LIBOR plus 112.5 basis points. Base rate advances will bear interest at the base
rate (defined as the higher of (i) the federal funds rate plus 0.50%, or (ii)
the reference rate as publicly announced by Bank of America in San Francisco)
plus a margin equal to the applicable margin for LIBOR loans in effect from time
to time minus 1.25. Competitive bid loans shall bear interest either on an
absolute rate bid basis or on the basis of a spread above or below LIBOR. At the
election of Lenders comprising 51% of total aggregate commitments under the New
Senior Credit Facility, should an Event of Default occur and remain, continuing
interest will accrue at a rate 2% per annum in excess of that otherwise payable.
Any unused portion of either the 364-day Revolver or the Five-year Revolver
may be reduced permanently by Park Place, in whole or in part, in a minimum
amount of $25,000,000 and in increments of $1,000,000 thereafter upon five
business days' prior written notice. Base rate advances may be prepaid at any
time with one business day's notice and LIBOR advances may be prepaid at any
time on not less than three business days' notice, subject to funding loss
indemnity in the case of prepayments of LIBOR advances. In each case, the
prepayment must be at least $10,000,000 and in $1,000,000 increments thereafter.
Competitive bid advances may not be prepaid.
The obligation of the lenders under the New Senior Credit Facility to
advance funds is subject to the satisfaction of certain conditions customary in
agreements of this type, including without limitation, that no default exists
and that certain representations and warranties continue to be true.
104
<PAGE>
The New Senior Credit Facility contains certain customary affirmative and
negative covenants, including, without limitation, covenants that restrict,
subject to specified exceptions, (i) the incurrence of additional liens, (ii)
consolidations, mergers and sales of assets, and (iii) hostile tender offers for
securities of other companies. In addition, the New Senior Credit Facility
requires that Park Place maintain certain specified financial covenants,
including a maximum total debt/EBITDA ratio of 4.75x reducing to 4.5x two years
from closing and a minimum consolidated interest coverage ratio of not less than
3.0x. The New Senior Credit Facility contains customary events of default,
including without limitation, payment defaults, breaches of representations and
warranties, covenant defaults, certain events of bankruptcy and insolvency and
cross defaults to other material indebtedness.
105
<PAGE>
THE EXCHANGE OFFER
GENERAL
As of the date of this prospectus, $400 million in aggregate principal
amount of the Old Notes is outstanding. This prospectus, together with the
Letter of Transmittal, is first being sent to holders on February 16, 1999.
PURPOSE OF THE EXCHANGE OFFER
The Company issued the Old Notes on December 21, 1998 (the "Issuance Date")
in a transaction exempt from the registration requirements of the Securities
Act. Accordingly, the Old Notes may not be reoffered, resold, or otherwise
transferred unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement, which requires the Company to:
- file a registration statement with the Commission relating to the Exchange
Offer not later than 30 days after the date of issuance of the Old Notes,
- use its best efforts to cause the registration statement relating to the
Exchange Offer to become effective under the Securities Act within 90 days
after the date of issuance of the Old Notes, and
- use its best efforts to complete the Exchange Offer within 150 days from
the original issuance of the Old Notes (or, if obligated to file a shelf
registration statement, to use its best efforts to cause the shelf
registration statement to be declared effective by the 150th day after the
original issuance of the Old Notes). A copy of the Registration Rights
Agreement has been filed as an exhibit to the registration statement of
which this prospectus is a part.
The Company is making the Exchange Offer to satisfy its obligations under
the Registration Rights Agreement. Other than pursuant to the Registration
Rights Agreement, the Company is not required to file any registration statement
to register any outstanding Old Notes. Holders of Old Notes who do not tender
their Old Notes or whose Old Notes are tendered but not accepted in the Exchange
Offer must rely on an exemption from the registration requirements under the
securities laws, including the Securities Act, if they wish to sell their Old
Notes.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in
interpretive letters to third parties. Based on these interpretations by the
staff, the Company believes that the Exchange Notes issued in the Exchange Offer
in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder (other than any holder who is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of the holder's business and that the holder is
not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of the
Exchange Notes. See "--Resale of Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where the
broker-dealer acquired the Old Notes as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the Exchange Notes. See "Plan of Distribution."
106
<PAGE>
TERMS OF THE EXCHANGE
The Company is offering to exchange, subject to the conditions set forth in
this prospectus and in the Letter of Transmittal accompanying this prospectus,
$1,000 in principal amount of Exchange Notes for each $1,000 in principal amount
of the Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes, except that the Exchange Notes will
generally be freely transferable by holders thereof and will not be subject to
the terms of the Registration Rights Agreement. The Exchange Notes will evidence
the same indebtedness as the Old Notes and will be entitled to the benefits of
the Indenture. See "Description of the Exchange Notes."
The Exchange Offer is not conditioned upon the tender of any minimum
aggregate principal amount of Old Notes for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission as to whether the Exchange Notes
issued in exchange for the Old Notes may be offered for sale, resold or
otherwise transferred by any holder without compliance with the registration and
prospectus delivery provisions of the Securities Act. Instead, based on an
interpretation by the staff of the Commission set forth in a series of no-action
letters issued to third parties, the Company believes that Exchange Notes issued
in the Exchange Offer in exchange for Old Notes may be offered for sale, resold
and otherwise transferred by any holder of Exchange Notes (other than any holder
that is a broker-dealer or is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that:
- the Exchange Notes are acquired in the ordinary course of such holder's
business;
- the holder has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes; and
- the holder is not engaged in, and does not intend to engage in a
distribution of the Exchange Notes.
Since the Commission has not considered the Exchange Offer in the context of
a no-action letter, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer. Any
holder who is an affiliate of the Company or who tenders Old Notes in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where the
Old Notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes. See "Plan of
Distribution."
The Exchange Notes will accrue interest from the last interest payment date
on which interest was paid on the Old Notes or, if no interest was paid on the
Old Notes, from the date of issuance of the Old Notes on December 21, 1998.
Holders whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the Old Notes.
Tendering holders of the Old Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes in the
Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on March
18, 1999, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such time and date, as it may be
extended, is referred to herein as the "Expiration Date"). The Expiration
107
<PAGE>
Date will be at least 20 business days after the commencement of the Exchange
Offer in accordance with Rule 14e-1(a) under the Exchange Act. The Company
expressly reserves the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open, and thereby delay
acceptance for exchange of any Old Notes, by giving oral or written notice to
the Exchange Agent and by timely public announcement no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. During any such extension, all Old Notes previously tendered
will remain subject to the Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to:
- terminate or amend the Exchange Offer and not to accept for exchange any
Old Notes not previously accepted for exchange upon the occurrence of any
of the events specified below under "--Certain Conditions to the Exchange
Offer" which have not been waived by the Company; and
- amend the terms of the Exchange Offer in any manner which, in its good
faith judgment, is advantageous to the holders of the Old Notes, whether
before or after any tender of the Notes.
If any such termination or amendment occurs, the Company will notify the
Exchange Agent and will either issue a press release or give oral or written
notice to the holders of the Old Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will exchange the Exchange Notes for the Old Notes
promptly following the Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender of Old Notes by a holder as set forth below and the acceptance of
Old Notes by the Company will constitute a binding agreement between the
tendering holder and the Company upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying Letter of Transmittal.
A holder of Old Notes may tender the same by:
- properly completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this prospectus to the Letter of Transmittal
shall be deemed to include a facsimile thereof) and delivering the same,
together with the certificate or certificates representing the Old Notes
being tendered and any required signature guarantees and any other
documents required by the Letter of Transmittal, to the Exchange Agent at
its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below); or
- complying with the guaranteed delivery procedures described below.
The method of delivery of Old Notes, Letters of Transmittal and all other
required documents is at the election and risk of the holders. If such delivery
is by mail, it is recommended that registered mail properly insured, with return
receipt requested, be used. In all cases, sufficient time should be allowed to
insure timely delivery. No Old Notes or Letters of Transmittal should be sent to
the Company.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
holder, the signature of such signer need not be guaranteed. In any other case,
the tendered Old Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the holder,
and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
108
<PAGE>
clearing agency or other institution (each an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act. If the Exchange Notes and/or Old Notes
not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Old Notes, the
signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the Old
Notes at DTC (the "book-entry transfer facility") for the purpose of
facilitating the Exchange Offer. Subject to establishing the accounts, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Old Notes by causing such
book-entry transfer facility to transfer the Old Notes into the Exchange Agent's
account with respect to the Old Notes in accordance with the book-entry transfer
facility's procedures for the transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
book-entry transfer facility, an appropriate Letter of Transmittal with any
required signature guarantee and all other required documents, or an Agent's
Message, must in each case be properly transmitted to and received or confirmed
by the Exchange Agent at its address set forth below prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may, in lieu of physically completing and signing the Letter of
Transmittal and delivering it to the Exchange Agent, electronically transmit
their acceptance of the Exchange Offer by causing DTC to transfer Old Notes to
the Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC
will then send an Agent's Message.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the book-entry transfer, which states
that DTC has received an express acknowledgment from a participant in DTC that
is tendering Old Notes which are the subject of such book-entry transfer, that
such participant has received and agrees to be bound by all of the terms of the
Letter of Transmittal and that Park Place may enforce such agreement against
such participant.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, the holder may effect a tender if the Exchange Agent has
received at its address set forth below on or prior to the Expiration Date, a
letter, telegram or facsimile transmission (and an original delivered by
guaranteed overnight courier) from an Eligible Institution setting forth:
- the name and address of the tendering holder;
- the names in which the Old Notes are registered and, if possible, the
certificate numbers of the Old Notes to be tendered; and
- a statement that the tender is being made thereby and guaranteeing that
within three business days after the Expiration Date, the Old Notes in
proper form for transfer (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer
facility and an Agent's Message), will be delivered by the Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents).
Unless Old Notes being tendered by the above-described method are deposited
with the Exchange Agent, a tender will be deemed to have been received as of the
date when:
- the tendering holder's properly completed and duly signed Letter of
Transmittal, or a properly transmitted Agent's Message, accompanied by the
Old Notes or a confirmation of book-entry
109
<PAGE>
transfer of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility is received by the Exchange Agent; or
- a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible
Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Old Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes or a confirmation of book-entry and an Agent's
Message.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any Old Notes not properly tendered or not to accept any Old Notes which
acceptance might, in the judgment of the Company or its counsel, be unlawful.
The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any Old Notes either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder represents to the Company that, among other
things:
- the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the holder,
- such holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of such Exchange Notes, and
- such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
110
<PAGE>
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Notes or transfer
ownership of such Old Notes on the account books maintained by a book-entry
transfer facility. The Transferor further agrees that acceptance of any tendered
Old Notes by the Company and the issuance of Exchange Notes in exchange therefor
shall constitute performance in full by the Company of certain of its
obligations under the Registration Rights Agreement. All authority conferred by
the Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of Exchange Notes.
Each Transferor which is a broker-dealer receiving Exchange Notes for its own
account must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. By so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must:
(i) specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Old Notes),
(iii) specify the principal amount of Old Notes to be withdrawn,
(iv) include a statement that such holder is withdrawing his election to
have such Old Notes exchanged,
(v) be signed by the holder in the same manner as the original signature
on the Letter of Transmittal by which such Old Notes were tendered or as
otherwise described above (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee under
the Indenture register the transfer of such Old Notes into the name of the
person withdrawing the tender and
(vi) specify the name in which any such Old Notes are to be registered,
if different from that of the Depositor.
111
<PAGE>
The Exchange Agent will return the properly withdrawn Old Notes promptly
following receipt of the notice of withdrawal. If Old Notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the book-entry transfer facility
to be credited with the withdrawn Old Notes or otherwise comply with the
book-entry transfer facility procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Company and such determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
book-entry transfer facility specified by the holder) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "Procedures for Tendering Old Notes" above at any
time prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, on the Expiration Date, all Old Notes properly tendered
and will issue the Exchange Notes promptly after such acceptance. See "--Certain
Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted properly tendered Old Notes for
exchange when, and if, the Company has given oral or written notice thereof to
the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility, a properly completed and duly executed Letter of
Transmittal, or a properly transmitted Agent's Message, and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, such
non-exchanged Old Notes will be credited to an account maintained with such
book-entry transfer facility) as promptly as practicable after the expiration of
the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old Notes and may terminate or
amend the Exchange Offer (by oral or written notice to the Exchange Agent or by
a timely press release) if at any time before the acceptance of such Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the judgment of the Company, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer; or
112
<PAGE>
(b) the Exchange Offer, or the making of any exchange by a holder,
violates applicable law or any applicable interpretation of the staff of the
Commission.
Regardless of whether any of such conditions has occurred, the Company may
amend the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to holders of the Old Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If the Company waives or amends the foregoing conditions, it will, if
required by law, extend the Exchange Offer for a minimum of five business days
from the date that the Company first gives notice, by public announcement or
otherwise, of such waiver or amendment, if the Exchange Offer would otherwise
expire within such five business-day period. Any determination by the Company
concerning the events described above will be final and binding upon all
parties.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
First Union National Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C> <C>
By Registered or By Facsimile: Hand or Overnight
Certified Mail: (704) 590-7628 Courier:
First Union Customer First Union Customer
Information Center Information Center
Corporate Trust Conform by Corporate Trust
Operations-NC1153 telephone: Operations-NC1153
1525 West W.T. Harris Blvd. 3C3 (704) 590-7408 1525 West W.T. Harris Blvd. 3C3
Charlotte, NC 28288-1153 Charlotte, NC 28288-1153
Attention: Michael Klotz Attention: Michael Klotz
</TABLE>
Questions and requests for assistance, requests for additional copies of
this prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses
113
<PAGE>
incurred by them in forwarding copies of this and other related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $250,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction in which the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
For accounting purposes, no gain or loss will be recognized by the Company
upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.
114
<PAGE>
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. All untendered Old Notes will continue to be subject to the
restrictions on transfer set forth in the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered Old Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a holder (other than any holder who is a broker-dealer
or an "affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that
- such Exchange Notes are acquired in the ordinary course of such holder's
business, and
- such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of
the Securities Act) of such Exchange Notes.
However, any holder who is an "affiliate" of the Company or who has an
arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who
purchased Old Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act (i) could not rely on the
applicable interpretations of the staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge, as provided in the
Letter of Transmittal, that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
115
<PAGE>
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
SHELF REGISTRATION STATEMENT
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer is not consummated within 150
days following the date of original issuance of the Old Notes, or if any holder
of the Old Notes (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer, or upon the request of any Initial Purchaser
under certain circumstances, the Company will, at, its cost;
(a) as promptly as practicable, file the Shelf Registration Statement
covering resales of the Old Notes;
(b) use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act by the 90th day after the original
issuance of the Old Notes; and
(c) use its best efforts to keep the Shelf Registration Statement effective
until two years after its effective date (or until one year after such effective
date if such Shelf Registration Statement is filed at the request of any Initial
Purchaser).
The Company will, in the event of the filing of a Shelf Registration
Statement, provide to each holder of the Old Notes copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement for the Old Notes has become effective and
take certain other actions as are required to permit unrestricted resales of the
Old Notes. A holder of Old Notes that sells such Old Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Old Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Old Notes included in the
Shelf Registration Statement and to benefit from the provisions regarding
liquidated damages set forth below.
LIQUIDATED DAMAGES
In the event that:
(a) the Exchange Offer Registration Statement is not filed with the
Commission on or prior to the 30th calendar day following the date of original
issue of the Old Notes;
(b) the Exchange Offer Registration Statement is not declared effective on
or prior to the 120th calendar day following the date of original issue of the
Old Notes; or
(c) the Exchange Offer is not consummated or a Shelf Registration Statement
is not declared effective, in either case, on or prior to the 150th calendar day
following the date of original issue of the Old Notes (each such event referred
to in clauses (a) through (c) above, a "Registration Default"),
the interest rate borne by the Old Notes shall be increased ("Additional
Interest") by .25% per annum upon the occurrence of each Registration Default,
which rate will increase by .25% each 90 day period that such Additional
Interest continues to accrue under any such circumstance, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Following the cure of all Registration Defaults the
accrual of Additional Interest will cease and the interest rate will revert to
the original rate.
116
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to Park Place Entertainment Corporation and not to any of its
subsidiaries.
The Company will issue the Exchange Notes under an Indenture (the
"Indenture") between itself and First Union National Bank, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
Indenture. It does not restate this agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of these Exchange Notes. A copy of the Indenture may be obtained from
the Company or the Initial Purchasers.
BRIEF DESCRIPTION OF THE EXCHANGE NOTES
These Exchange Notes:
- are general obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Debt of the Company; and
- are senior in right of payment to any future Subordinated Debt of the
Company.
Assuming we had completed the Transactions and the Refinancing as of
September 30, 1998, the Company would have had total Senior Debt of
approximately $1.8 billion. As indicated above and as discussed in detail below
under the subheading "Subordination," payments on the Exchange Notes will be
subordinated to the payment of Senior Debt. The Exchange Notes will effectively
rank junior to all liabilities of our Subsidiaries, including trade payables.
Assuming completion of the Transactions and the Refinancings on September 30,
1998, the Company's Subsidiaries had approximately $14 million of indebtedness
outstanding at such time. The Indenture will permit the Company and its
Subsidiaries to incur additional Debt, including the incurrence of additional
Senior Debt by the Company.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue Exchange Notes in a maximum aggregate principal
amount of $400,000,000. The Company will issue Exchange Notes in denominations
of $1,000 and integral multiples of $1,000. The Exchange Notes will mature on
December 15, 2005.
Interest on these Exchange Notes will accrue at the rate of 7 7/8% per annum
and will be payable semi-annually in arrears on June 15 and December 15,
commencing on June 15, 1999. The Company will make each interest payment to the
Holders of these Exchange Notes on the immediately preceding June 1 and December
1.
Interest on these Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Old Notes or, if no interest was paid on
the Old Notes, from the date of issuance of the Old Notes (December 21, 1998).
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
OPTIONAL REDEMPTION
OPTIONAL REDEMPTION. Upon not less than 30 nor more than 60 days' notice,
the Company may redeem the Exchange Notes in whole but not in part at any time
at a redemption price equal to 100% of the principal amount thereof plus the
Make-Whole Premium, together with accrued and unpaid interest thereon, if any,
to the applicable redemption date.
117
<PAGE>
MANDATORY REDEMPTION
The Company will not be required to make any mandatory sinking fund payments
in respect of the Exchange Notes.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
Each holder, by accepting an Exchange Note, shall be deemed to have agreed
that if the gaming authority of any jurisdiction in which the Company or any of
its subsidiaries conducts or proposes to conduct gaming requires that a person
who is a holder or the beneficial owner of Exchange Notes be licensed, qualified
or found suitable under applicable gaming laws, such holder or beneficial owner,
as the case may be, shall apply for a license, qualification or a finding of
suitability within the required time period. If such person fails to apply or
become licensed or qualified or is found unsuitable, the Company shall have the
right, at its option:
(i) to require such person to dispose of its Exchange Notes or beneficial
interest therein within 30 days of receipt of notice of the Company's election
or such earlier date as may be requested or prescribed by such gaming authority,
or
(ii) to redeem such Exchange Notes at a redemption price equal to the lesser
of (A) such person's cost or (B) 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the earlier of the redemption date or
the date of the finding of unsuitability, which may be less than 30 days
following the notice of redemption if so requested or prescribed by the
applicable gaming authority. The Company shall notify the Trustee in writing of
any such redemption as soon as practicable. The Company shall not be responsible
for any costs or expenses any such holder may incur in connection with its
application for a license, qualification or a finding of suitability.
SUBORDINATION
The payment of principal, premium and interest, if any, on these Exchange
Notes will be subordinated to the prior payment in full of all Senior Debt of
the Company.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy, insolvency or similar proceeding at the rate
specified in the applicable Senior Debt, whether or not such interest is an
allowed claim in any such proceeding) before the Holders of Exchange Notes will
be entitled to receive any payment with respect to the Exchange Notes (except
that Holders of Exchange Notes may receive payments made from the trust
described under "--Legal Defeasance and Covenant Defeasance"), in the event of
any distribution to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the Exchange Notes
(except from the trust described under "--Legal Defeasance and Covenant
Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such
118
<PAGE>
default (a "Payment Blockage Notice") from the Company or the holders of
any Designated Senior Debt.
Payments on the Exchange Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 180 days.
The Company must promptly notify holders of Senior Debt if payment of the
Exchange Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Company, Holders of these
Exchange Notes may recover less ratably than creditors of the Company who are
holders of Senior Debt. See "Risk Factors--Subordination--Your right to receive
payments on the Exchange Notes will be junior to all of our existing and
possibly all of our future borrowings."
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the
subordination provisions referred to above, such failure would constitute an
Event of Default under the Indenture and would enable the holders of the
Exchange Notes to accelerate the maturity thereof. See "--Events of Default and
Remedies."
ADDITIONAL COVENANTS OF THE COMPANY
LIMITATION ON LIENS. Neither the Company nor any Restricted Subsidiary will
create, assume or suffer to exist any Lien (i) upon any Principal Property, (ii)
upon any shares of capital stock of any Restricted Subsidiary owned by the
Company or any Restricted Subsidiary or (iii) securing Debt of any Restricted
Subsidiary, without equally and ratably securing the Exchange Notes with (or
prior to) the Debt secured by such Lien, for so long as such Debt shall be so
secured, provided, however, that this limitation will not apply to:
(a) Liens existing on the date of issuance of the Exchange Notes;
(b) Liens existing (i) on property at the time of acquisition thereof by the
Company or a Restricted Subsidiary (whether such property is acquired through a
merger, a consolidation or otherwise), or (ii) on property or securing Debt of,
or an Equity Interest in, any corporation, partnership or other entity at the
time such corporation, partnership or other entity becomes a Restricted
Subsidiary;
(c) Liens to secure Debt with respect to all or any part of the acquisition
cost or the cost of construction or improvement of property, provided, such Debt
is incurred and related Liens are created within 24 months of the acquisition,
completion of construction or improvement or commencement of full operation,
whichever is later, and such Debt does not exceed the aggregate amount of the
acquisition cost and/or the construction cost thereof;
(d) Liens on shares of capital stock or property of a Restricted Subsidiary
to secure Debt with respect to all or part of the acquisition cost of such
Restricted Subsidiary, provided that such Debt is incurred and
119
<PAGE>
related Liens are created within 24 months of the acquisition of such Restricted
Subsidiary and such Debt does not exceed the acquisition cost of such Restricted
Subsidiary;
(e) Liens to secure Debt incurred to construct additions to, or to make
Capital Improvements to, properties of the Company or any Restricted Subsidiary,
provided such Debt is incurred and related Liens are created within 24 months of
completion of construction or Capital Improvements and such indebtedness does
not exceed the cost of such construction or Capital Improvements;
(f) Liens in favor of the Company or another Restricted Subsidiary;
(g) Liens to secure Debt on which interest payments are exempt from Federal
income tax under Section 103 of the Internal Revenue Code of 1986, as amended;
(h) Liens on the capital stock, partnership or other Equity Interests of the
Company or any Restricted Subsidiary in any Joint Venture or any Restricted
Subsidiary which owns an equity interest in such Joint Venture to secure Debt,
provided the amount of such Debt is contributed and/or advanced solely to such
Joint Venture;
(i) Liens securing Senior Debt and Liens on assets of a Subsidiary securing
Debt of that Subsidiary;
(j) any extension, renewal or replacement, in whole or in part, of any Liens
referred to in the foregoing clauses (a) through (i) or of any Debt secured
thereby, including premium, if any, provided that the aggregate principal amount
secured does not exceed (x) the greater of (i) the principal amount secured
thereby at the time of such extension, renewal or replacement, or, as the case
may be, repayment or extinguishment and (ii) 80% of the fair market value (in
the opinion of the Company's board of directors) of the properties subject to
such extension, renewal or replacement plus (y) any reasonable fees and expenses
associated with such extension, renewal or replacement, and provided, further,
that in the case of a replacement thereof, such Debt is incurred and related
Liens are created within 24 months of the repayment or extinguishment of the
Debt or Liens referred to in the foregoing clauses (a) through (i);
(k) purchase money liens on personal property;
(l) Liens to secure payment of workers' compensation or insurance premiums,
or relating to tenders, bids or contracts (except contracts for the payment of
money);
(m) Liens in connection with tax assessments or other governmental charges,
or as security required by law or governmental regulation as a condition to the
transaction of any business or the exercise of any privilege or right;
(n) mechanic's, materialman's, carrier's or other like Liens, arising in the
ordinary course of business; and
(o) Liens in favor of any domestic or foreign government or governmental
body in connection with contractual or statutory obligations.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. Other than as provided
below under "--Exempted Liens and Sale and Lease-Back Transactions," neither the
Company nor any Restricted Subsidiary will enter into any arrangement with any
lessor (other than the Company or a Restricted Subsidiary), providing for the
lease to the Company or a Restricted Subsidiary for a period of more than three
years (including renewals at the option of the lessee) of any Principal Property
that has been or is to be sold or transferred by the Company or any Restricted
Subsidiary to such lessor or to any other Person, and for which funds have been
or are to be advanced by such lessor or other Person on the security of the
leased property ("Sale and Lease-Back Transaction"), unless either:
(a) the Company or such Restricted Subsidiary would be entitled, pursuant to
the provisions described in clauses (a) through (o) under "--Limitation on
Liens" above, to create, assume or suffer to exist a Lien on the property to be
leased without equally and ratably securing the Exchange Notes, or
120
<PAGE>
(b) an amount equal to (i) the greater of the net cash proceeds of such sale
or the fair market value of such property (in the opinion of the Company's board
of directors) less (ii) the fair market value (in the opinion of the Company's
board of directors) of any noncash proceeds of the sale of such property
(provided such noncash proceeds constitute "Principal Property," acquired on the
date the property sold in the Sale and Lease-Back Transaction was acquired by
the Company or any of its Restricted Subsidiaries), is applied within 180 days
to the retirement or other discharge of the Exchange Notes or Debt ranking on a
parity with the Exchange Notes.
EXEMPTED LIENS AND SALE AND LEASE-BACK TRANSACTIONS. Notwithstanding the
restrictions set forth in "--Limitation on Liens" and "--Limitation on Sale and
Lease-Back Transactions," the Company or any Restricted Subsidiary may create,
assume or suffer to exist Liens or enter into Sale and Lease-Back Transactions
not otherwise permitted as described above, provided that at the time of such
event, and after giving effect thereto, the sum of outstanding Debt secured by
such Liens (not including Liens permitted under "--Limitation on Liens" above)
plus all Attributable Debt in respect of such Sale and Lease-Back Transactions
entered into (not including Sale and Lease-Back Transactions permitted under
"Limitation on Sale and Lease-Back Transactions"), measured, in each case, at
the time any such Lien is incurred or any such Sale and Lease-Back Transaction
is entered into, by the Company and its Restricted Subsidiaries does not exceed
15% of Consolidated Net Tangible Assets.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not: (1) consolidate or merge with or into another Person;
or (2) sell, assign, transfer or convey its properties and assets substantially
in their entirety (computed on a consolidated basis) to any Person, unless:
(1) either: (a) the Company is the surviving entity; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer or conveyance
shall have been made is an entity organized or existing under the laws of
the United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment,
transfer or conveyance shall have been made assumes all the obligations
of the Company under the Exchange Notes and the Indenture; and
(3) immediately after such transaction no Default or Event of Default
exists.
This "Merger, Consolidation, or Sale of Assets" covenant will not apply to a
sale, assignment, transfer, conveyance or other disposition of properties or
assets solely between or among the Company and any of its wholly-owned
Subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(a) default in the payment of any interest upon the Exchange Notes when it
becomes due and payable, and continuance of such default for a period of 30
days;
(b) default in the payment of principal of or premium, if any, on the
Exchange Notes when due;
(c) default in the performance, or breach, of any covenant or warranty of
the Company in the Indenture which default continues uncured for a period of 60
days after written notice to the Company by the applicable Trustee or to the
Company and the applicable Trustee by the holders of at least 25% in principal
amount of the outstanding Exchange Notes;
(d) the acceleration of the maturity of indebtedness of the Company (other
than Non-recourse Indebtedness), at any one time, in an aggregate amount in
excess of the greater of (i) $25 million and
121
<PAGE>
(ii) 5% of Consolidated Net Tangible Assets, if such acceleration is not
annulled within 30 days after written notice to the Company by the Trustee and
the holders of at least 25% in principal amount of the outstanding Debt
securities of that series;
(e) certain events of bankruptcy, insolvency or reorganization in respect of
the Company or any of its Significant Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency of the Company, all outstanding Exchange Notes will become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Exchange Notes may declare all the
Exchange Notes to be due and payable immediately.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Exchange Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Exchange Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Exchange Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company or any successor Corporation or any of the Company's
Affiliates under the Exchange Notes, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Exchange Notes by accepting an Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes. The waiver may not be effective to waive liabilities under
the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option, elect to have all of its obligations
discharged with respect to the outstanding Exchange Notes ("Legal Defeasance")
except for:
(1) the rights of Holders of outstanding Exchange Notes to receive payments
in respect of the principal of, premium, if any, and interest on such
Exchange Notes when such payments are due from the trust referred to
below;
(2) the Company's obligations with respect to the Exchange Notes concerning
issuing temporary Exchange Notes, registration of Exchange Notes,
mutilated, destroyed, lost or stolen Exchange Notes and the maintenance
of an office or agency for payment and money for security payments held
in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Company's obligations in connection therewith; and
122
<PAGE>
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option, elect to have the obligations
of the Company released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply with
those covenants shall not constitute a Default or Event of Default with respect
to the Exchange Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Exchange Notes, cash in U.S. dollars,
non-callable Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding Exchange Notes on the stated
maturity or on the applicable redemption date, as the case may be, and
the Company must specify whether the Exchange Notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) the Company has received from, or
there has been published by the Internal Revenue Service, a ruling or (B)
since the date of the Indenture, there has been a change in the
applicable Federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of
the outstanding Exchange Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such Legal Defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the Holders of the outstanding
Exchange Notes will not recognize income, gain or loss for Federal income
tax purposes as a result of such Covenant Defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had
not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) and
with respect to Legal Defeasance only, insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; and
(6) the Company must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of
preferring the Holders of Exchange Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
123
<PAGE>
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may amend any provisions of the Indenture or the
Notes with the consent of the holders of at least a majority in principal amount
of the Notes then outstanding. The holders of a majority in principal amount of
the Notes may waive compliance by the Company with any such provision; provided,
however that without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Exchange Notes held by a non-consenting Holder):
(1) reduce the principal amount of Exchange Notes whose Holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Exchange
Note or alter the provisions with respect to the redemption of the
Exchange Notes in a manner adverse to the Holders;
(3) reduce the rate of or extend the time for payment of interest on any
Exchange Note;
(4) make any Exchange Note payable in money other than that stated in the
Exchange Notes;
(5) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of Holders of Exchange Notes to receive
payments of principal of or premium, if any, or interest on the Exchange
Notes; or
(6) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of Exchange
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Exchange Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Exchange Notes in addition to or in place
of certificated Exchange Notes;
(3) to provide for the assumption of the Company's obligations to Holders of
Exchange Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets in accordance with the covenant
"Merger, Consolidation, or Sale of Assets";
(4) to make any change that would provide any additional rights or benefits
to the Holders of Exchange Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes sold within the United States will be issued in the form
of one or more global notes (the "Global Note"). The Global Note will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee (the "Global Note Holder"). Except as set forth
below, the Global Note may be transferred, in whole and not in part, only to the
Depository or another nominee of the Depository. Investors may hold their
beneficial interests in the Global Note directly through the Depository if they
are Participants (as defined herein) in such system or indirectly through
organizations that are Participants in such system.
DEPOSITORY PROCEDURES
The Depository Trust Company (the "Depository") has advised Park Place that
the Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in such
124
<PAGE>
securities between Participants through electronic book-entry changes in
accounts of its Participants. The Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants") that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only through the Participants or the
Indirect Participants.
Park Place expects that pursuant to procedures established by the Depository
(i) upon deposit of the Global Note, the Depository will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the Global Note and (ii) ownership of the Exchange Notes evidenced by
the Global Note will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depository (with respect to the
interests of the Participants), the Participants and the Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Exchange Notes evidenced by the
Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Exchange Notes evidenced by the Global Note. Beneficial owners
of Exchange Notes evidenced by the Global Notes will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither Park Place nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depository or
for maintaining, supervising or reviewing any records of the Depository relating
to the Exchange Notes.
Payments in respect of the principal of, premium, if any, interest and
Additional Interest (as defined herein), if any, on any Exchange Notes
registered in the name of the Global Note Holder on the applicable record date
will be payable by the Trustee to or at the direction of the Global Note Holder
in its capacity as the registered holder under the Indenture. Under the terms of
the Indenture, Park Place and the Trustee may treat the persons in whose names
Exchange Notes, including the Global Notes, are registered as the owners thereof
for the purpose of receiving such payments. Consequently, neither Park Place nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Exchange Notes. The Company believes,
however, that it is currently the policy of the Depository to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depository. Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practice and will
be the responsibility of the Participants or the Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for Exchange Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) Park Place notifies the Trustee
in writing that the Depository is not longer willing or able to act as a
depositary and Park Place is unable to locate a qualified successor within 90
days or (ii) Park Place, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Exchange Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Note Holder
of its Global Note, Exchange Notes in such form will be issued to each person
that the Global Note Holder and the Depository identify as being the beneficial
owner of the related Exchange Notes.
125
<PAGE>
Neither Park Place nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Exchange Notes and Park Place and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Exchange Notes
represented by the Global Note (including principal, premium, if any, interest
and Additional Interest, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal premium, if any, interest and Additional Interest, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address.
METHODS OF RECEIVING PAYMENTS ON THE EXCHANGE NOTES
If a Holder has given wire transfer instructions to the Company, the Company
will make all principal, premium and interest payments on those Exchange Notes
in accordance with those instructions. All other payments on these Exchange
Notes will be made at the office or agency of the Payment Agent and Registrar
within the City and State of New York unless the Company elects to make interest
payments by check mailed to the Holders at their address set forth in the
register of Holders.
PAYING AGENT AND REGISTRAR FOR THE EXCHANGE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders of
the Exchange Notes, and the Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange its Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The register Holder of an Exchange Note will be treated as the owner of it
for all purposes.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Company, the Indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur and be continuing, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any
126
<PAGE>
Holder of Exchange Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the term "controlling," "controlled by"
and "under common control with") as used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by agreement or
otherwise.
"ATTRIBUTABLE DEBT" with respect to any Sale and Lease-Back Transaction that
is subject to the restrictions described under "--Limitation on Sale and
Lease-Back Transactions" means the present value of the minimum rental payments
called for during the terms of the lease (including any period for which such
lease has been extended), determined in accordance with generally accepted
accounting principles, discounted at a rate that, at the inception of the lease,
the lessee would have incurred to borrow over a similar term the funds necessary
to purchase the leased assets.
"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States of America is pledged in support thereof) in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-1 or the
equivalent thereof by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within one year after the date of acquisition and (iii) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) and (ii) above.
"CAPITAL IMPROVEMENTS" means additions to properties or renovations or
refurbishing of properties which are designed to substantially upgrade such
properties or significantly modernize the operation thereof.
"CAPITAL STOCK" means with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total amount of assets
(including investments in Joint Ventures) of the Company and its Subsidiaries
(less applicable depreciation, amortization and other valuation reserves) after
deducting therefrom (a) all current liabilities of the Company and its
Subsidiaries (excluding (i) the current portion of long-term indebtedness, (ii)
intercompany liabilities and (iii) any liabilities which are by their terms
renewable or extendible at the option of the obligor thereon to a time more than
12 months from the time as of which the amount thereof is being computed) and
(b) all goodwill, trade names, trademarks, patents, unamortized debt discount
and any other like intangibles, all as set forth on the most recent consolidated
balance sheet of the Company and computed in accordance with generally accepted
accounting principles.
"CREDIT FACILITIES" means, with respect to the Company, one or more debt
facilities or commercial paper facilities, in each case with banks or other
institutional lenders providing for revolving credit loans,
127
<PAGE>
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"DEBT" means notes, bonds, debentures, letters of credit or other similar
evidences of Debt for borrowed money or any guarantee of any of the foregoing.
"DEFAULT" means any event that after notice or lapse of time, or both, would
become an Event of Default.
"DESIGNATED SENIOR DEBT" means any Senior Debt permitted under the Indenture
the principal amount of which is $100.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"EQUITY INTERESTS" means with respect to any person, any and all shares,
interests, participation, rights in or other equivalents (however designated) of
such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"JOINT VENTURE" means any partnership, corporation or other entity, in which
up to and including 50% of the partnership interests, outstanding vote stock or
other equity interest is owned, directly or indirectly, by the Company and/or
one or more Subsidiaries.
"LIEN" means, with respect to any asset, any mortgage, pledge, lien,
encumbrance or other security interest to secure payment of Debt.
"MAKE-WHOLE PREMIUM" means, with respect to any Exchange Note at any
redemption date, the excess, if any, of (a) the aggregate present value of the
sum of the principal amount and premium that would be payable on such Note on
December 15, 2005 and all remaining interest payments to and including December
15, 2005, discounted on a semi-annual bond equivalent basis from December 15,
2005 to the redemption date at a per annum interest rate equal to the sum of the
Treasury Yield (determined on the Business Day immediately preceding the date of
such redemption), plus 50 basis points, over (b) the aggregate principal amount
of the Exchange Note being redeemed.
"NON-RECOURSE INDEBTEDNESS" means indebtedness the terms of which provide
that the lender's claim for repayment of such indebtedness is limited solely to
a claim against the property which secures such indebtedness.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
128
<PAGE>
"PRINCIPAL PROPERTY" means any real estate or other physical facility or
depreciable asset, the net book value of which on the date of determination
exceeds the greater of $25 million or 2% of Consolidated Net Tangible Assets of
the Company.
"REDEEMABLE CAPITAL STOCK" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the stated
maturity of the Exchange Notes or is redeemable at the option of the holder
thereof at any time prior to the stated maturity of the Exchange Notes, or is
convertible into or exchangeable for debt securities at any time prior to the
stated maturity of the Exchange Notes.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company organized and
existing under the laws of the United States of America and the principal
business of which is carried on within the United States of America (x) which
owns, or is a lessee pursuant to a capital lease of, any Principal Property or
(y) in which the investment of the Company and all its Subsidiaries exceeds 5%
of Consolidated Net Tangible Assets as of the date of such determination other
than, in the case of either clause (x) or (y), (i) each Subsidiary whose
business primarily consists of finance, banking, credit, leasing, insurance,
financial services or other similar operations, or any combination thereof, and
(ii) each Subsidiary formed or acquired after the date hereof for the purpose of
developing new assets or acquiring the business or assets of another Person and
which does not acquire any part of the business or assets of the Company or any
Restricted Subsidiary.
"SENIOR DEBT" means:
(1) all Debt outstanding under Credit Facilities and all Hedging Obligations
with respect thereto;
(2) any other Debt, unless the instrument under which such Debt is incurred
expressly provides that it is on a parity with or subordinated in right
of payment to the Exchange Notes or to other Debt which ranks equally
with, or is subordinated to, the Exchange Notes; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing by
the Company;
(2) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates; or
(3) any trade payables.
"SIGNIFICANT SUBSIDIARY" of the Company means any Restricted Subsidiary of
the Company that is a "significant subsidiary" as defined in Rule 1.02(v) of
Regulation S-X under the Securities Act.
"SUBSIDIARY" means any corporation of which at least a majority of the
outstanding Capital Stock having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation is, at the time directly
or indirectly, owned by the Company or by one or more Subsidiaries thereof, or
by the Company and one or more Subsidiaries.
"SUBORDINATED DEBT" means any Debt of the Company (whether outstanding on
the date of the Indenture or thereafter incurred) which is subordinate or junior
in right of payment to the Exchange Notes.
"TREASURY SECURITIES" mean any investment in obligations issued or
guaranteed by the United States government or any agency thereof.
"TREASURY YIELD" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption (or, if such Statistical Release is no longer published,
any publicly available
129
<PAGE>
source of similar data)) most nearly equal to the then remaining average life of
the Exchange Notes, provided that if the average life of the Exchange Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury yield shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the average life of the Exchange Notes is less than
one year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"WHOLLY OWNED" with respect to any Subsidiary, means any Subsidiary of any
Person of which at least 99% of the outstanding Capital Stock is owned by such
Person or another wholly-owned Subsidiary of such Person. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.
130
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following discussion, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, is the opinion of Latham &
Watkins, counsel to the Company, as to the material federal income tax
consequences expected to result to holders whose Old Notes are exchanged for
Exchange Notes in the Exchange Offer. Such opinion is based upon the facts set
forth in the registration statement of which this prospectus is a part, current
provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be sought
with respect to the Exchange Offer. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to holders.
Certain holders of Old Notes (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations, and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. EACH HOLDER OF OLD NOTES SHOULD CONSULT
ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING OLD NOTES
FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL
OR FOREIGN LAWS.
The exchange of Old Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes (that is, the exchange will not be
treated as an exchange for federal income tax purposes because the Exchange
Notes will not be considered to differ materially in kind or extent from the Old
Notes). As a result, no material federal income tax consequences will result to
holders exchanging Old Notes for Exchange Notes.
131
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. To the extent any such broker-dealer participates in
the Exchange Offer and so notifies the Company, the Company has agreed that it
will make this prospectus, as amended or supplemented, available to such
broker-dealer for use in connection with any such resale, and will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers or any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act, and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealer), subject to
certain prescribed limitations, and will provide indemnification against certain
liabilities, including certain liabilities that may arise under the Securities
Act, to broker-dealers that make a market in the Old Notes and exchange Old
Notes in the Exchange Offer for Exchange Notes.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and agrees that, upon receipt of notice from
the Company of the happening of any event which makes any statement in this
prospectus untrue in any material respect or which requires the making of any
changes in this prospectus in order to make the statements therein not
misleading or which may impose upon the Company disclosure obligations that may
have a material adverse effect on the Company (which notice the Company agrees
to deliver promptly to such broker-dealer), such broker-dealer will suspend use
of this prospectus until the Company has notified such broker-dealer that
delivery of this prospectus may resume and has furnished copies of any amendment
or supplement to this prospectus to such broker-dealer.
132
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for Park Place by its counsel Latham & Watkins, Los Angeles,
California.
EXPERTS
The audited financial statements of Park Place included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report in this prospectus with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The audited financial statements of Grand incorporated herein by reference
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
133
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PARK PLACE ENTERTAINMENT CORPORATION
Report of Independent Public Accountants.............................. F-2
Consolidated Statements of Income for the Years Ended December 31,
1997, 1996 and 1995................................................. F-3
Consolidated Statements of Income for the Nine Months Ended September
30, 1998 and 1997 (unaudited)....................................... F-4
Consolidated Balance Sheets as of September 30, 1998 (unaudited),
December 31, 1997 and 1996.......................................... F-5
Consolidated Statements of Cash Flow for the Years Ended December 31,
1997, 1996 and 1995................................................. F-6
Consolidated Statements of Cash Flow for the Nine Months Ended
September 30, 1998 and 1997 (unaudited)............................. F-7
Notes to Consolidated Financial Statements............................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Hilton Hotels Corporation:
We have audited the accompanying consolidated balance sheets of Park Place
Entertainment Corporation (Park Place) and subsidiaries (presented on the basis
as described in Notes to Consolidated Financial Statements) as of December 31,
1997 and 1996, and the related consolidated statements of income and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of Park Place's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in
all material respects, the financial position of Park Place and subsidiaries as
of December 31, 1997 and 1996 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
August 7, 1998
F-2
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue
Casino............................................................................. $ 1,832 $ 857 $ 791
Rooms.............................................................................. 325 261 238
Food and beverage.................................................................. 267 196 170
Other products and services........................................................ 148 101 85
--------- --------- ---------
2,572 1,415 1,284
--------- --------- ---------
Expenses
Casino............................................................................. 1,000 466 400
Rooms.............................................................................. 115 88 83
Food and beverage.................................................................. 231 167 150
Other expenses..................................................................... 1,010 593 478
Corporate, net..................................................................... 15 9 8
--------- --------- ---------
2,371 1,323 1,119
--------- --------- ---------
Operating Income..................................................................... 201 92 165
Interest and dividend income....................................................... 25 12 7
Interest expense................................................................... (82) (36) (39)
Interest expense, net, from equity investments..................................... (10) (5) (2)
--------- --------- ---------
Income Before Income Taxes and Minority Interest..................................... 134 63 131
Provision for income taxes......................................................... (63) (27) (46)
Minority interest, net............................................................. (4) -- --
--------- --------- ---------
Income Before Extraordinary Item..................................................... 67 36 85
Extraordinary loss on extinguishment of debt
net of tax benefit of $52.......................................................... -- (74) --
--------- --------- ---------
Net Income (Loss).................................................................... $ 67 $ (38) $ 85
--------- --------- ---------
--------- --------- ---------
Basic Earnings Per Share--Pro Forma
Income before extraordinary item................................................... $ .25 $ .18 $ .44
Extraordinary loss................................................................. -- (.37) --
--------- --------- ---------
Net income (loss) per share........................................................ $ .25 (.19) $ .44
--------- --------- ---------
--------- --------- ---------
Diluted Earnings Per Share--Pro Forma
Income before extraordinary item................................................... $ .25 $ .18 $ .44
Extraordinary loss................................................................. -- (.37) --
--------- --------- ---------
Net income (loss) per share........................................................ $ .25 $ (.19) $ .44
--------- --------- ---------
--------- --------- ---------
Weighted Average Common and Equivalent Shares--Pro Forma
Basic.............................................................................. 263 198 193
--------- --------- ---------
--------- --------- ---------
Diluted............................................................................ 266 199 195
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenue
Casino....................................................................................... $ 1,468 $ 1,369
Rooms........................................................................................ 239 243
Food and beverage............................................................................ 203 195
Other products and services.................................................................. 113 118
--------- ---------
2,023 1,925
--------- ---------
Expenses
Casino....................................................................................... 785 743
Rooms........................................................................................ 86 86
Food and beverage............................................................................ 182 168
Other expenses............................................................................... 685 668
Corporate, net............................................................................... 6 14
--------- ---------
1,744 1,679
--------- ---------
Operating Income............................................................................... 279 246
Interest and dividend income................................................................. 17 22
Interest expense............................................................................. (66) (59)
Interest expense, net, from equity investments............................................... (9) (6)
--------- ---------
Income Before Income Taxes and Minority Interest............................................... 221 203
Provision for income taxes................................................................... (101) (84)
Minority interest, net....................................................................... (2) (3)
--------- ---------
Net Income..................................................................................... $ 118 $ 116
--------- ---------
--------- ---------
Basic Earnings Per Share--Pro Forma............................................................ $ .45 $ .44
--------- ---------
--------- ---------
Diluted Earnings Per Share--Pro Forma.......................................................... $ .45 $ .44
--------- ---------
--------- ---------
Weighted Average Common and Equivalent Shares--Pro Forma
Basic........................................................................................ 261 263
--------- ---------
--------- ---------
Diluted...................................................................................... 263 265
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Cash and equivalents.................. $ 119 $ 224 $ 252
Temporary investments................. 2 40 8
Accounts receivable, net.............. 130 159 152
Other current assets.................. 104 86 149
----------- ------ ------
Total current assets................ 355 509 561
Investments........................... 187 176 150
Property and equipment, net........... 3,990 3,621 3,405
Goodwill.............................. 1,309 1,303 1,295
Other assets.......................... 60 80 36
----------- ------ ------
Total investments, property and
other assets...................... 5,546 5,180 4,886
----------- ------ ------
Total Assets.......................... $5,901 $5,689 $5,447
----------- ------ ------
----------- ------ ------
Liabilities and Division Equity
Accounts payable and accrued
expenses............................ $ 321 $ 357 $ 371
Current maturities of long-term
debt................................ 46 34 53
Income taxes payable.................. 2 2 --
----------- ------ ------
Total current liabilities........... 369 393 424
Long-term debt........................ 1,564 1,272 1,225
Deferred income taxes and other
liabilities......................... 637 643 641
Division equity....................... 3,331 3,381 3,157
----------- ------ ------
Total Liabilities and Division
Equity.............................. $5,901 $5,689 $5,447
----------- ------ ------
----------- ------ ------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income (loss)..................................................................... $ 67 $ (38) $ 85
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary loss on extinguishment of debt........................................ -- 74 --
Depreciation and amortization....................................................... 207 111 78
Non-cash items...................................................................... 96 1 --
Amortization of loan costs.......................................................... 2 -- --
Change in working capital components................................................ 38 (32) (10)
Change in deferred income taxes..................................................... 39 (11) 6
Change in other liabilities......................................................... (36) 30 2
Other............................................................................... (37) 6 6
--------- --------- ---------
Net cash provided by operating activities............................................. 376 141 167
--------- --------- ---------
Investing Activities
Capital expenditures.................................................................. (438) (193) (128)
Additional investments................................................................ (57) (51) (45)
Payments on notes and other........................................................... (14) 37 12
Acquisitions, net of cash acquired.................................................... (70) 144 --
--------- --------- ---------
Net cash used in investing activities................................................. (579) (63) (161)
--------- --------- ---------
Financing Activities
Payments on debt...................................................................... (16) -- --
Advances from Parent.................................................................. 191 110 14
--------- --------- ---------
Net cash provided by financing activities............................................. 175 110 14
--------- --------- ---------
(Decrease) Increase in Cash and Equivalents............................................. (28) 188 20
Cash and Equivalents at Beginning of Year............................................... 252 64 44
--------- --------- ---------
Cash and Equivalents at End of Period................................................... $ 224 $ 252 $ 64
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities
Net income..................................................................................... $ 118 $ 116
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................ 161 149
Amortization of loan costs................................................................... 1 1
Change in working capital components......................................................... (26) 36
Change in deferred income taxes.............................................................. 14 12
Change in other liabilities.................................................................. (26) (71)
Other........................................................................................ 15 (42)
--------- ---------
Net cash provided by operating activities...................................................... 257 201
--------- ---------
Investing Activities
Capital expenditures........................................................................... (469) (304)
Additional investments......................................................................... (8) (51)
Payments on notes and other.................................................................... 11 9
Acquisitions, net of cash acquired............................................................. (58) (55)
--------- ---------
Net cash used in investing activities.......................................................... (524) (401)
--------- ---------
Financing Activities
Payments on debt............................................................................... (7) (7)
Advances from Parent........................................................................... 169 169
--------- ---------
Net cash provided by financing activities...................................................... 162 162
--------- ---------
Decrease in Cash and Equivalents................................................................. (105) (38)
Cash and Equivalents at Beginning of Year........................................................ 224 252
--------- ---------
Cash and Equivalents at End of Period............................................................ $ 119 $ 214
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
DECEMBER 31, 1997
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
On June 30, 1998, Hilton Hotels Corporation (Parent) announced that it will
separate its gaming and lodging operations (the Spin-Off), thereby creating a
new publicly held gaming company which will be renamed Park Place Entertainment
Corporation (Park Place). As part of the Spin-Off, Parent will contribute to
Park Place, at book value, substantially all of its gaming assets and
operations. During the period covered by these financial statements, these
businesses were under common control operating as a division of Parent. These
financial statements have been prepared from Parent's historical accounting
records and present substantially all of the operations of businesses that will
be owned and operated by Park Place as if Park Place had been a separate entity
for all periods presented. The separation will be accomplished through a tax
free distribution (the Hilton Distribution) to Parent shareholders of the shares
of Park Place. Following completion of the Hilton Distribution, the Company will
merge with the Mississippi gaming operations of Grand Casinos, Inc. (Grand) in a
transaction comprised entirely of Park Place stock.
Both transactions are subject to shareholder and regulatory approvals and
are expected to be completed by year-end 1998. Parent plans to obtain a ruling
from the Internal Revenue Service that the distribution will not be taxable to
Park Place or its shareholders. The Boards of Directors of both Parent and Grand
have approved the transactions.
In anticipation of the Spin-Off, a pro-rata portion of Parent's historical
public and corporate bank debt balance and related interest expense has been
allocated to Park Place for all periods presented. The amounts of these balances
allocated to Park Place were based on the estimate that approximately 50 percent
of Parent's public and corporate bank debt will be assumed by Park Place at the
time of the Hilton Distribution.
The Spin-Off will result in the division of certain of Parent's existing
corporate support functions between the two resulting entities. Corporate
expense included in Park Place's financial results represents an allocation of
Parent's consolidated corporate expense to the entities comprising Park Place.
The allocation of corporate expense is based on a specific review to identify
costs incurred for the benefit of the lodging business, the gaming business or
both, and in management's judgment results in a reasonable allocation of such
costs. Incremental costs, estimated to be approximately $10 million annually,
will be incurred by Park Place to support its operations as a stand-alone entity
after the Hilton Distribution.
Park Place is primarily engaged in the ownership and management of casinos
and casino hotel properties. Park Place operates in select markets throughout
the world, predominately in the United States.
F-8
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Park Place,
its majority owned and controlled subsidiaries and the gaming division
contributed as described above. Park Place also consolidates the operating
results and working capital of affiliates operated under long-term management
agreements, including such affiliates in which Park Place has investments of 50%
or less. These agreements effectively convey to Park Place the right to use the
properties in exchange for payments to the property owners, which are based
primarily on the properties' profitability. The consolidated financial
statements include the following amounts related to managed casinos:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ 323 $ 355 $ 459 $ 476 $ 364
Operating expenses, including remittances to
owners........................................ 290 332 427 457 348
Current assets and current liabilities(1)....... 31 59 84
</TABLE>
- ------------------------
(1) Including cash and equivalents of $9 million, $25 million and $20 million,
respectively.
All material intercompany transactions are eliminated and net earnings are
reduced by the portion of the earnings of affiliates applicable to other
ownership interests. There are no significant restrictions on the transfer of
funds from Park Place's wholly owned subsidiaries to Park Place.
On November 20, 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus in EITF 97-2 "Application of FASB
Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
Upon adoption of EITF 97-2, which is expected to be in the fourth quarter of
1998, Park Place will no longer include in its financial statements the
revenues, operating expenses and working capital of its managed properties.
Application of EITF 97-2 will have no impact on reported operating income, net
income, earnings per share or stockholders' equity.
CASH AND EQUIVALENTS
Cash and equivalents include investments with initial maturities of three
months or less.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue is the aggregate of gaming wins and losses. The revenue
components presented in the consolidated financial statements and the notes
thereto exclude the retail value of rooms, food and beverage provided to
customers on a complimentary basis. The estimated cost of providing these
F-9
<PAGE>
promotional allowances, primarily classified as casino expenses through
interdepartmental allocations, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Rooms................................................................... $ 33 $ 14 $ 11
Food and beverage....................................................... 119 40 37
--------- --- ---
Total cost of promotional allowances.................................... $ 152 $ 54 $ 48
--------- --- ---
--------- --- ---
</TABLE>
CURRENCY TRANSLATION
Gains and losses from foreign currency transactions and translation of
balance sheets in highly inflationary economies are included in earnings.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Interest incurred during
construction of facilities is capitalized and amortized over the life of the
asset. Costs of improvements are capitalized. Costs of normal repairs and
maintenance are charged to expense as incurred. Upon the sale or retirement of
property and equipment, the cost and related accumulated depreciation are
removed from the respective accounts, and the resulting gain or loss, if any, is
included in income.
Depreciation is provided on a straight-line basis over the estimated useful
life of the assets. Leasehold improvements are amortized over the shorter of the
asset life or lease term. The service lives of assets are generally 40 years for
buildings, 30 years for riverboats and eight years for building improvements and
furniture and equipment.
The carrying value of Park Place's assets are reviewed when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an impairment loss has occurred based
on expected future cash flows, then a loss is recognized in the income statement
using a fair-value based model.
GOODWILL
The excess of purchase price over the fair value of net assets of businesses
acquired (goodwill) is amortized using the straight-line method over 40 years.
Park Place periodically evaluates the carrying value of goodwill and measures
the amount of impairment, if any, by assessing current and future levels of
income and cash flows as well as other factors.
PRE-OPENING COSTS
Costs associated with the opening of new properties or major additions to
properties are deferred and amortized over the shorter of the period benefited
or one year.
UNAMORTIZED LOAN COSTS
Debt discount and issuance costs incurred in connection with the placement
of long-term debt are capitalized and amortized to interest expense, principally
on the bonds outstanding method.
SELF-INSURANCE
Park Place is self-insured for various levels of general liability, workers'
compensation and employee medical and life insurance coverage. Insurance
reserves include the present values of projected settlements for claims.
F-10
<PAGE>
PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share (EPS) is calculated for all periods presented
based on the expected Hilton Distribution. Basic EPS is calculated by dividing
net income by the weighted average number of common shares outstanding. Diluted
EPS reflects the effect of assumed stock option exercises.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTING CHANGES
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." This SOP requires that all nongovernmental
entities expense costs of start-up activities (pre-opening, pre-operating and
organizational costs) as those costs are incurred and requires the write-off of
any unamoritized balances upon implementation. SOP 98-5 is effective for
financial statements issued for periods beginning after December 15, 1998.
Adoption of the SOP is not expected to have a material impact on 1999 results of
operations.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications to conform with classifications adopted in 1997. These
reclassifications have no effect on net income.
INTERIM PERIOD FINANCIAL STATEMENTS
The consolidated interim financial statements have been prepared without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principals have been condensed or omitted. Park Place believes the disclosures
made are adequate to make the interim financial information presented not
misleading.
In the opinion of management, the accompanying consolidated interim
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
Park Place as of September 30, 1998, and the results of operations and cash
flows for the nine months ended September 30, 1998 and September 30, 1997.
ACQUISITIONS
In December 18, 1996, the Parent completed the merger of Bally Entertainment
Corporation (Bally) with and into the Parent pursuant to an agreement dated June
6, 1996. Aggregate consideration consisted of approximately 53 million shares of
the Parent's common stock and approximately 15 million shares of the Parent's
newly authorized Preferred Redeemable Increased Dividend Equity Securities, 8%
PRIDES, Convertible Preferred Stock (PRIDES) for a combined equity value of $1.9
billion and assumption of Bally subsidiary debt totaling $1.2 billion.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the acquisition cost of $3.1 billion has been
allocated to the assets acquired and liabilities assumed based on estimates of
their fair value. A total of $1.3 billion, representing the excess of
acquisition cost over the fair value of Bally's tangible net assets, has been
allocated to goodwill and is being amortized over 40 years.
Park Place's consolidated results of operations have incorporated Bally's
activity from the effective date of the merger. The following unaudited pro
forma information has been prepared assuming that this acquisition had taken
place at the beginning of the respective periods. This pro forma information
does not
F-11
<PAGE>
purport to be indicative of future results or what would have occurred had the
acquisition been made as of those dates.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Revenue.................................................................... $ 2,516 $ 2,294
Operating income........................................................... 288 360
Income before extraordinary item........................................... 123 190
Net income................................................................. 49 190
</TABLE>
EXTRAORDINARY ITEM
In December 1996, the Parent completed cash tender offers and consent
solicitations for substantially all of the outstanding notes of certain wholly
owned subsidiaries including the 9 1/4% Bally's Park Place Funding, Inc. First
Mortgage Notes due 2004; 10 5/8% GNF, Corp. First Mortgage Notes due 2003 and
Bally's Casino Holdings, Inc. Senior Discount Notes. The remaining untendered
notes were defeased. The Parent also purchased 99.1% of the outstanding 10 3/8%
First Mortgage Notes due 2003 of Bally Grand, Inc. Cash consideration for the
repurchase and defeasance, including premiums, totaled $1.2 billion, which
resulted in an after tax extraordinary loss of $74 million, net of a tax benefit
of $52 million.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Casino accounts receivable.................................................... $ 129 $ 106
Less allowance for doubtful accounts.......................................... 24 30
--------- ---------
105 76
Other accounts receivable..................................................... 54 76
--------- ---------
$ 159 $ 152
--------- ---------
--------- ---------
</TABLE>
The allowance provided for estimated uncollectible casino receivables, net
of recoveries, is included in casino expenses in the amount of $29 million, $25
million and $19 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
INVESTMENTS
Investments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Equity investments
Hotel casinos (three in 1997 and four in 1996).............................. $ 76 $ 86
Notes receivable............................................................ 94 55
Other......................................................................... 6 9
--------- ---------
$ 176 $ 150
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Land....................................................................... $ 597 $ 549
Buildings and leasehold improvements....................................... 2,616 2,358
Riverboats................................................................. 53 128
Furniture and equipment.................................................... 558 550
Construction in progress................................................... 178 101
--------- ---------
4,002 3,686
Less accumulated depreciation.............................................. 381 281
--------- ---------
$ 3,621 $ 3,405
--------- ---------
--------- ---------
</TABLE>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Accounts and notes payable................................................. $ 77 $ 83
Accrued salaries and wages................................................. 47 44
Remittances to owners...................................................... -- 28
Other accrued expenses..................................................... 233 216
--------- ---------
$ 357 $ 371
--------- ---------
--------- ---------
</TABLE>
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Debt allocated by Parent................................................... $ 1,284 $ 1,241
Other...................................................................... 22 37
--------- ---------
1,306 1,278
Less current maturities.................................................... 34 53
--------- ---------
Net long-term debt......................................................... $ 1,272 $ 1,225
--------- ---------
--------- ---------
</TABLE>
Interest paid, net of amounts capitalized, was $81 million, $33 million and
$41 million in 1997, 1996 and 1995, respectively. Capitalized interest amounted
to $9 million, $6 million and $2 million, respectively.
Debt maturities during the next five years are as follows:
<TABLE>
<CAPTION>
(IN
MILLIONS)
<S> <C>
1998............................................................................. $ 34
1999............................................................................. 175
2000............................................................................. 5
2001............................................................................. 5
2002............................................................................. 283
</TABLE>
F-13
<PAGE>
A pro-rata portion of Parent's historical corporate debt balance and
interest expense has been allocated to Park Place and included in these
consolidated financial statements for all periods presented based on an estimate
of Parent's corporate debt that will be assumed by Park Place at the time of the
Hilton Distribution. The amounts of Parent's corporate interest expense
allocated to Park Place for fiscal 1997, 1996, 1995 were $78 million, $35
million and $39 million, respectively.
FINANCIAL INSTRUMENTS
CASH EQUIVALENTS, TEMPORARY INVESTMENTS AND LONG-TERM MARKETABLE SECURITIES
The fair value of cash equivalents and temporary investments is estimated
based on the quoted market price of the investments.
LONG-TERM DEBT
The estimated fair value of long-term debt is based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Parent for debt of the same remaining maturities.
The estimated fair values of Park Place's financial instruments at December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
(IN MILLIONS)
Cash and equivalents and temporary investments....... $ 264 $ 264 $ 260 $ 260
Long-term debt (including current maturities)........ 1,306 1,353 1,278 1,291
</TABLE>
INCOME TAXES
The provisions for income taxes for the three years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal............................... $ 23 $42 $50
State, foreign and local.............. 1 4 2
---- ---- ----
24 46 52
Deferred................................ 39 (19) (6)
---- ---- ----
$ 63 $27 $46
---- ---- ----
---- ---- ----
</TABLE>
No income taxes were paid by Park Place as these payments were the
responsibility of the Parent.
F-14
<PAGE>
The income tax effects of temporary differences between financial and income
tax reporting that gave rise to deferred income tax assets and liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Accrued expenses........................................................... $ 21 $ 17
Bad debt reserves.......................................................... 6 13
Investments................................................................ 16 --
Benefit plans.............................................................. 2 1
Net operating losses....................................................... 8 29
AMT credits................................................................ 12 10
Other asset reserves....................................................... 30 37
Foreign tax credit carryovers (expire beginning in 2000)................... 11 5
Equity Investments......................................................... 30 27
--------- ---------
136 139
Valuation allowance.......................................................... (35) (12)
--------- ---------
101 127
--------- ---------
Deferred tax liabilities
Fixed assets, primarily depreciation....................................... (621) (600)
Unrealized losses.......................................................... (15) --
Other...................................................................... (5) (28)
--------- ---------
(641) (628)
--------- ---------
Net deferred tax liability................................................... $ (540) $ (501)
--------- ---------
--------- ---------
</TABLE>
Reconciliation of the Federal income tax rate to Park Place's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate................. 35.0% 35.0% 35.0%
Increase (reduction) in taxes:
State and local income taxes, net of
Federal tax benefits................ 1.0 .5 --
Foreign taxes, net.................... .6 3.0 (.4)
Goodwill amortization................. 8.6 -- --
Other................................. 1.8 4.4 .5
---- ---- ----
Effective tax rate...................... 47.0% 42.9% 35.1%
---- ---- ----
---- ---- ----
</TABLE>
As part of the Spin-Off, Parent will enter into a tax sharing agreement
which reflects each party's rights and obligations with respect to deficiencies
and refunds, if any, of Federal, state or other taxes relating to the business
for Park Place and Parent prior to the Spin-Off. The tax sharing agreement also
will express each party's intention with respect to certain tax attributes of
Park Place after the Spin-Off.
Park Place has been included in the consolidated Federal income tax return
of Parent. The income tax provision reflect the portion of Parent's historical
income tax provision attributable to the operations of Park Place. Management
believes the income tax provision, as reflected, is comparable to what the
income tax provision would have been if Park Place had filed a separate return
during the periods presented.
F-15
<PAGE>
DIVISION EQUITY
Changes in division equity consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER
ENDED 31,
SEPTEMBER 30, --------------------
1998 1997 1996 1995
---------------- ------ ------ ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Beginning balance.................. $3,381 $3,157 $ 592 $510
Net income (loss).................. 118 67 (38) 85
Intercompany activity with
Parent........................... (168) 157 2,603 (3)
------ ------ ------ ----
Ending balance..................... $3,331 $3,381 $3,157 $592
------ ------ ------ ----
------ ------ ------ ----
</TABLE>
STOCK OPTION PLANS
Parent has stock-based compensation plans (SBCP) under which options may be
granted to directors, salaried officers and other key employees of Park Place to
purchase common stock of Parent at not less than the fair market value at the
date of grant. Two of Parent's SBCP's permit the granting of Stock Appreciation
Rights (SARs). No SARs have been granted as of December 31, 1997.
Park Place applied APB Opinion 25 and related interpretations in accounting
for its stock-based compensation plans. Accordingly, compensation expense
recognized was different than what would have otherwise been recognized under
the fair value based method defined in SFAS No. 123, "Accounting for Stock-Based
Compensation." Had compensation cost for Park Place's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, Park Place's net
income (loss) would have been reduced from $67 million in 1997 to $61 million
and from $(38) million in 1996 to $(41) million.
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumption used for grants in 1997, 1996 and 1995, respectively: dividend yield
of one percent for each of the three years; expected volatility of 32, 27 and 18
percent; risk-free interest rates of 6.49, 6.33 and 7.58 percent and expected
lives of 6 years for each of the three years.
Effective January 1, 1997, Parent adopted the 1997 Employee Stock Purchase
Plan by which the Parent is authorized to issue up to two million shares of
common stock to its full-time employees. Under the terms of the Plan, employees
can elect to have a percentage of the earnings withheld to purchase Parent's
common stock.
Under provisions of Nevada, New Jersey and other gaming laws, and Parent's
restated certificate of incorporation as amended, certain securities of Parent
are subject to restrictions on ownership which may be imposed by specified
governmental authorities. Such restrictions may require the holder to dispose of
the securities or, if the holder refuses to make such disposition, Parent may be
obligated to repurchase the securities.
EMPLOYEE BENEFIT PLANS
Parent has a noncontributory retirement plan (Basic Plan) in which
substantially all regular full-time, nonunion employees of Park Place may
participate. Parent also has plans covering qualifying employees and non-officer
directors (Supplemental Plans). Benefits for all plans are based upon years of
service and compensation, as defined.
Parent's funding policy is to contribute not less than the minimum amount
required under Federal law but not more than the maximum deductible for Federal
income tax purposes. After December 31, 1996, employees will not accrue
additional benefits for future service under either the Basic or Supplemental
Plans. Plan assets will be used to pay benefits due employees for service
through that date.
F-16
<PAGE>
Included in plan assets at fair value are equity securities of the Parent of
$35 million and $36 million at December 31, 1997 and 1996, respectively. The
discount rate used in determining the actuarial present values of the projected
benefit obligations were seven percent in 1997 and 1996, with the rate of
increase in future compensation projected at five percent in 1996. The expected
long-term rate of return on assets is eight percent.
A significant number of Park Place's employees are covered by union
sponsored, collectively bargained multi-employer pension plans. Park Place
contributed and charged to expense $12 million, $7 million and $6 million in
1997, 1996 and 1995, respectively, for such plans. Information from the plans'
administrators is not sufficient to permit Park Place to determine its share, if
any, of unfunded vested benefits.
The Parent also has an employee investment plan whereby the Parent
contributes certain percentages of employee contributions. The cost of the plan
is not significant.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Park Place provides life insurance benefits to certain retired employees.
Under terms of the plan covering such life insurance benefits, Park Place
reserves the right to change, modify or discontinue these benefits. Park Place
does not provide postretirement health care benefits to its employees. The cost
of these benefits is not significant.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company has adopted SFAS No. 130 beginning
January 1, 1998. The statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements or in the footnotes to the interim financial
statements. Comprehensive income for the nine months ended September 30, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
30,
----------
<S> <C> <C>
1998 1997
---- ----
Net income.............................. $118 $116
Change in unrealized holding gains on
securities............................ (3) 4
---- ----
Comprehensive income.................... $115 $120
---- ----
---- ----
</TABLE>
LEASES
Minimum lease commitments under noncancelable operating leases approximate
$5 million annually through 2002 with an aggregate commitment of $41 million
through 2033.
COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1997, Park Place had contractual commitments for major
expansion and rehabilitation projects of approximately $420 million.
Various lawsuits are pending against Park Place. In management's opinion,
disposition of these lawsuits is not expected to have a material effect on Park
Place's financial position or results of operations.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARK PLACE ENTERTAINMENT CORPORATION
OFFER TO EXCHANGE UP TO $400,000,000 OF ITS
7 7/8% SENIOR SUBORDINATED NOTES DUE 2005,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR UP TO $400,000,000 OF ITS OUTSTANDING
7 7/8% SENIOR SUBORDINATED NOTES DUE 2005
---------------------------
PROSPECTUS
---------------------------
FEBRUARY 11, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
