<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PARK PLACE ENTERTAINMENT CORPORATION
(exact name of registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7011 88-0400631
(State or other jurisdiction of (Primary standard industrial (IRS Employer Identification Number)
incorporation or organization) classification code number)
</TABLE>
3930 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
(702) 699-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
CLIVE S. CUMMIS
EXECUTIVE VICE PRESIDENT--
LAW & CORPORATE AFFAIRS AND SECRETARY
PARK PLACE ENTERTAINMENT CORPORATION
3930 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
(702) 699-5000
(Name, address, including zip code, and telephone number,
including area code, of Agent for service)
COPIES OF ALL COMMUNICATIONS TO:
CYNTHIA A. ROTELL
LATHAM & WATKINS
633 WEST FIFTH STREET,
SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration number for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier, effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE PROPOSED OFFERING PROPOSED AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER NOTE (1) OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
7.95% Senior Notes due 2003................. $300,000,000 100% $300,000,000 $83,400
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 30, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL OR OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE
ITS 7.95% SENIOR NOTES DUE 2003,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING 7.95% SENIOR NOTES DUE 2003
------------------
THE EXCHANGE NOTES
- The terms of the notes Park Place Entertainment Corporation is issuing
will be substantially identical to the outstanding notes that we issued on
August 2, 1999, except for the elimination of some transfer restrictions,
registration rights and liquidated damages provisions relating to the
outstanding notes.
- Interest on the notes will accrue at the rate of 7.95% per year, payable
semi-annually on each February 1 and August 1, beginning February 1, 2000,
and the notes will mature on August 1, 2003.
- The notes will be unsecured and will rank senior to our subordinated debt
and equally with our other 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
, 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 taxable
exchange for U.S. Federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN
THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROSPECTUS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY, INCLUDING ANY GAMING REGULATORY AUTHORITY,
HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 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>
Summary.................................................................................................... 1
Risk Factors............................................................................................... 13
Forward-Looking Statements................................................................................. 19
The Acquisition............................................................................................ 20
Use of Proceeds............................................................................................ 23
Capitalization............................................................................................. 24
Unaudited Pro Forma Condensed Financial Statements......................................................... 25
Selected Financial Data.................................................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 34
Business and Properties of Park Place...................................................................... 45
Properties of Caesars...................................................................................... 54
Regulation and Licensing................................................................................... 57
Management................................................................................................. 76
Principal Stockholders..................................................................................... 78
Certain Relationships and Related Transactions............................................................. 80
Description of Other Indebtedness.......................................................................... 81
The Exchange Offer......................................................................................... 82
Description of the Exchange Notes.......................................................................... 94
Material Federal Income Tax Consequences of the Exchange................................................... 106
Plan of Distribution....................................................................................... 107
Legal Matters.............................................................................................. 108
Experts.................................................................................................... 108
Available Information...................................................................................... 108
Incorporation of Documents by Reference.................................................................... 108
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
MARKET DATA
Market data used throughout this prospectus including information relating
to our relative position in the casino and gaming industry is based on our good
faith estimates, which estimates we based upon our review of internal surveys,
independent industry publications and other publicly available information.
Although we believe these sources are reliable, we have not independently
verified the information and cannot guarantee its accuracy and completeness.
i
<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 "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 THE TERMS MEAN
ONLY PARK PLACE ENTERTAINMENT CORPORATION. THE TERM "OLD NOTES" REFERS TO OUR
OUTSTANDING 7.95% SENIOR NOTES DUE 2003 THAT WE ISSUED ON AUGUST 2, 1999 AND
THAT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT. THE TERM "EXCHANGE
NOTES" REFERS TO THE 7.95% SENIOR NOTES DUE 2003 OFFERED PURSUANT TO THIS
PROSPECTUS. THE TERM "NOTES" REFERS TO THE OLD NOTES AND EXCHANGE NOTES
COLLECTIVELY.
PARK PLACE ENTERTAINMENT CORPORATION
We are the largest gaming company in the world, as measured by casino square
footage and revenues. We are currently the only gaming company with a
significant presence in Nevada, New Jersey and Mississippi, the three largest
U.S. gaming markets. When our Paris Casino Resort opens, which we expect to
occur on September 1, 1999, we will have approximately 1.4 million square feet
of gaming space and approximately 23,000 rooms. We operate our properties as a
collection of premier brand names that includes Bally's, Flamingo, Grand, Hilton
and Conrad. We believe our casino hotels are leading establishments with respect
to location, size, facilities, physical condition, quality and variety of
services offered in the areas in which they are located. We currently own or
operate:
- eight U.S. land-based casinos;
- four U.S. dockside casinos;
- one U.S. riverboat casino;
- two land-based casinos in Australia; and
- one land-based casino in Uruguay.
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, eight
restaurants, 130,000 square feet of convention space and a retail shopping
complex with a French influence. The property's signature will be a 50-story
replica of the Eiffel Tower in front of the hotel. We expect to open this
property on September 1, 1999.
On a pro forma basis after giving effect to our merger on December 31, 1998
with Grand Casinos, Inc., we had revenues and EBITDA, as defined in "--Summary
Pro Forma and Historical Financial Data," of $3.0 billion and $695 million,
respectively, for the latest twelve months ended June 30, 1999.
Our properties are listed below.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
NUMBER OF YEAR CASINO SQUARE
NAME AND LOCATION ROOMS/SUITES ACQUIRED FOOTAGE(1)
- ------------------------------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
DOMESTIC CASINOS
NEW JERSEY
Bally's Park Place Casino Resort..................................... 1,240 1996 155,000
The Atlantic City Hilton Casino Resort............................... 804 1996 60,000
(FOOTNOTES ON FOLLOWING
PAGE)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
NUMBER OF YEAR CASINO SQUARE
NAME AND LOCATION ROOMS/SUITES ACQUIRED FOOTAGE(1)
- ------------------------------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
NEVADA
Flamingo Hilton Las Vegas............................................ 3,638 1971 93,000
Las Vegas Hilton..................................................... 2,956 1971 100,000
Paris Casino Resort(2)............................................... 2,900 1999 85,000
Bally's Las Vegas.................................................... 2,814 1996 68,000
Reno Hilton.......................................................... 2,003 1992 114,000
Flamingo Hilton Laughlin............................................. 1,912 1990 58,000
Flamingo Hilton Reno................................................. 604 1981 46,000
MISSISSIPPI
Grand Casino Tunica.................................................. 1,356 1998 140,000
Grand Casino Biloxi.................................................. 985 1998 110,000
Grand Casino Gulfport................................................ 1,007 1998 110,000
Bally's Saloon-Gambling Hall-Hotel................................... 235 1996 40,000
LOUISIANA
Bally's Casino Lakeshore Resort(3)................................... -- 1996 30,000
INTERNATIONAL CASINOS
AUSTRALIA
Conrad Jupiters, Gold Coast(4)....................................... 609 1985 70,000
Conrad International Treasury Casino, Brisbane(4).................... 136 1995 65,000
URUGUAY
Conrad International Punta del Este Resort and Casino(5)............. 302 1997 38,000
------ -------------
Total............................................................ 23,501 1,382,000
------ -------------
------ -------------
</TABLE>
- ------------------------
(1) Includes square footage attributable to our race and sports books.
(2) This property is currently under construction and we expect it to open on
September 1, 1999.
(3) We have a 49.9% ownership interest in this property.
(4) We have a 19.9% ownership interest in this property.
(5) We have a 46.4% ownership interest in this property.
Our principal executive offices are located at 3930 Howard Hughes Parkway,
Las Vegas, Nevada 89109, and our telephone number is (702) 699-5000.
THE ACQUISITION
On April 27, 1999, we entered into a definitive agreement with Starwood
Hotels & Resorts Worldwide, Inc. and several of its subsidiaries to acquire all
of the outstanding stock of Caesars World, Inc., a wholly owned subsidiary of
Starwood, and all of their interests in several other gaming entities for $3.0
billion in cash. We refer in this offering memorandum to all of the interests we
are acquiring collectively as "Caesars." The closing of the acquisition is
conditioned upon the receipt of regulatory and gaming approvals, as more fully
described in the sections entitled "The Acquisition" and "Regulation and
Licensing." We expect to close the acquisition in the fourth quarter of 1999.
Caesars owns and/or operates major gaming resorts in Las Vegas, Nevada,
Atlantic City, New Jersey and Harrison County, Indiana, as well as three other
domestic and five international properties. Caesars also owns strategic parcels
of land in Atlantic City and behind Caesars Palace in Las Vegas. We believe this
acquisition is strategic and provides built-in opportunities for growth. We also
expect the acquisition to be accretive to earnings and free cash flow in the
first full year of operations.
2
<PAGE>
On a pro forma basis following the Caesars acquisition and the opening of
our Paris Casino Resort, our combined casino square footage and number of rooms
will be approximately 2 million and 28,000, respectively. On a pro forma basis
after giving effect to the acquisition and our merger with Grand, without taking
into account any projected revenue or EBITDA from the Paris Casino Resort, we
had revenues and EBITDA, as defined, of $4.3 billion and $1.0 billion,
respectively, for the latest twelve months ended June 30, 1999.
The following table sets forth information available to us at August, 1999
about the Caesars properties in which we will have interests upon consummation
of the acquisition:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
NUMBER OF CASINO
NAME LOCATION ROOMS/SUITES SQUARE FOOTAGE
- --------------------------------------- ----------------------------------------- --------------- --------------
<S> <C> <C> <C>
DOMESTIC CASINOS
Caesars Palace Las Vegas, Nevada 2,454 125,000
Caesars Atlantic City Atlantic City, New Jersey 1,149 120,000
Caesars Indiana(1) Harrison County, Indiana --(2) 90,000
Caesars Tahoe(3) Stateline, Nevada 440 40,000
Sheraton Casino & Hotel Robinsonville, Mississippi 134 33,000
Dover Downs(4) Dover, Delaware -- 25,000
INTERNATIONAL CASINOS
Windsor Casino(5) Windsor, Canada 389 100,000
Caesars Gauteng(6) Kempton Park, South Africa -- 65,000
Sheraton Casino Sydney Cape Breton, Nova Scotia, Canada -- 15,000
Sheraton Halifax Hotel & Casino Halifax, Nova Scotia, Canada 350 20,000(7)
Caesars Manila(8) Manila, Philippines -- 4,000
Caesars Palace at Sea S.S. Crystal Harmony -- 3,850(9)
S.S. Crystal Symphony -- 5,000(9)
----- -------
Total 4,916 645,850
----- -------
----- -------
</TABLE>
- ------------------------
(1) Caesars Indiana is managed by Caesars and owned by a joint venture in which
Caesars owns in excess of 90% of the economic interests.
(2) A 500-room hotel tower is currently planned to be under construction in
2000.
(3) Caesars leases the building that houses the hotel and casino and leases the
underlying land under a long-term ground and structure lease.
(4) Caesars provides management services to the casino at the Dover Downs
racetrack in Delaware.
(5) Caesars has a 50% interest in Windsor Casino Limited, which operates this
hotel/casino complex. The Province of Ontario owns the complex.
(6) Caesars has an approximately 25% interest in a joint venture that owns
Caesars Gauteng and has an approximately 50% interest in a joint venture
that manages Caesars Gauteng.
(7) A permanent casino featuring approximately 33,000 square feet is currently
under construction.
(8) Caesars has a 50% interest in a joint venture which owns Caesars Manila and
receives a marketing services fee.
(9) Caesars operates the Caesars Palace at Sea casinos only while the cruise
ships on which they are located are in international waters.
For a more detailed description of the above properties, see "Properties of
Caesars."
3
<PAGE>
OTHER RECENT DEVELOPMENTS
HILTON SPINOFF AND GRAND MERGER
We were incorporated in June 1998, and on December 31, 1998, Hilton Hotels
Corporation completed the transfer of the operations, assets and liabilities of
substantially all of its gaming business to us. Hilton distributed our common
stock to Hilton's shareholders tax-free on a one-for-one basis. Also on December
31, 1998, immediately following our spin-off from Hilton, we acquired, by means
of a merger, the Mississippi gaming business of Grand Casinos, Inc., which
includes the Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino Tunica
properties, in exchange for the assumption of debt and the issuance of our
common stock to Grand shareholders on a one-for-one basis. Immediately prior to
the Grand merger, Grand completed the transfer of the operations, assets and
liabilities of its non-Mississippi business to Lakes Gaming, Inc. and then
distributed Lakes' common stock to Grand shareholders. The non-Mississippi
business consisted of the management of two Indian-owned casinos and other
assets and liabilities.
OVERVIEW OF OUR CORPORATE STRUCTURE FOLLOWING THE ACQUISITION
The following chart shows a simplified version of our corporate structure
immediately following the proposed acquisition:
[LOGO]
4
<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. As of the date of this prospectus, $300
million 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 some
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, which was on
August 2, 1999. 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 principal amount of old notes.
Expiration Date................... The exchange offer will expire at 5:00 p.m., New York
City time, on , 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. For
additional information, 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 of the letter of
transmittal, and mail or otherwise deliver the letter
of transmittal, 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 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>
5
<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 the 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 described 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. For
additional information, 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 for
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. For additional information, see
"Material Federal Income Tax Consequences of the
Exchange."
</TABLE>
6
<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 dated as of August 2, 1999 among Park
Place Entertainment Corporation and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and each of the
other initial purchasers named in the agreement 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 restrictions on transfer. Accordingly, the
trading market for untendered old notes could be
adversely affected.
Exchange Agent.................... Norwest Bank Minnesota, N.A., is serving as exchange
agent in connection with the exchange offer.
</TABLE>
7
<PAGE>
SUMMARY OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Issuer............................ Park Place Entertainment Corporation.
Total Amount of Exchange Notes
Offered......................... Up to $300 million in principal amount of 7.95% Senior
Notes due 2003.
Maturity.......................... August 1, 2003.
Interest.......................... 7.95% per year.
Interest Payment Dates............ February 1 and August 1, beginning February 1, 2000.
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 our unsecured obligations.
The exchange notes will rank senior to our subordinated
indebtedness and equally with our other senior
indebtedness. The exchange notes will effectively rank
junior to all liabilities of our subsidiaries.
Covenants......................... The indenture governing the notes will, among other
things, limit our and our subsidiaries' ability 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 in the
"Description of the Exchange Notes" section under the
heading "Additional Covenants" of Park Place in this
prospectus.
Use of Proceeds................... We will not receive any cash proceeds from the exchange
offer.
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of the factors you should carefully
consider before deciding to invest in the exchange notes, including factors
affecting forward-looking statements.
8
<PAGE>
SUMMARY PRO FORMA AND HISTORICAL FINANCIAL DATA
In the following tables, we are providing summary financial information to
aid you in your analysis of the financial aspects of the Grand merger, which
occurred on December 31, 1998, the offering of the old notes and the
acquisition.
The information presented below is a summary and you should read it together
with our historical financial statements and those of Grand and Caesars and the
related notes contained in this prospectus, the other financial information
incorporated by reference in this prospectus and the information in "Unaudited
Pro Forma Condensed Financial Statements."
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Park Place Pro Forma column in the table below is an illustration of the
financial results that might have occurred if:
- We had completed the Grand merger on January 1, 1998 with respect to the
Results of Operations, Other Operating Data and Pro Forma Credit
Statistics;
- We had completed the offering of the old notes and applied the net
proceeds from that offering as provided in "Use of Proceeds"; and
- We had completed the acquisition on January 1, 1998 with respect to the
Results of Operations, and Other Operating Data and Pro Forma Credit
Statistics and as of June 30, 1999 with respect to the Balance Sheet data.
It is important to remember that this information is hypothetical, and does
not necessarily reflect the financial performance that would have actually
resulted if any of these transactions had been completed on these dates. It is
also important to remember that this information does not necessarily reflect
our future financial performance.
<TABLE>
<CAPTION>
PARK PLACE
(INCLUDING PARK PLACE
GRAND)(1) CAESARS(2) PRO FORMA
----------- ----------- -----------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C>
TWELVE MONTHS ENDED OR AS OF JUNE 30, 1999
RESULTS OF OPERATIONS:
Total revenue.............................................................. $ 2,951 $ 1,368 $ 4,319
Total operating income..................................................... 382 115 480
OTHER OPERATING DATA:
EBITDA(3).................................................................. 695 341 1,036
Adjusted EBITDA(4)......................................................... 1,107
BALANCE SHEET:
Cash and equivalents and restricted cash................................... 158 75 233
Total assets............................................................... 7,223 3,333 10,848
Total debt................................................................. 2,493 196 5,518
Total stockholders' equity................................................. 3,686 1,752 3,686
PRO FORMA CREDIT STATISTICS:
Adjusted EBITDA/Net interest expense(4)(5)................................. 3.0x
Adjusted net debt/Adjusted EBITDA(4)(5).................................... 4.2x
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PARK PLACE
(INCLUDING PARK PLACE
GRAND)(1) CAESARS(2) PRO FORMA
----------- ----------- -----------
(IN MILLIONS, EXCEPT RATIOS)
YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenue.............................................................. 2,900 1,256 4,156
Total operating income..................................................... 383 96 462
OTHER OPERATING DATA:
EBITDA(3).................................................................. 683 320 1,003
(FOOTNOTES ON FOLLOWING PAGE)
SIX MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS:
Total revenue.............................................................. $ 1,487 $ 699 $ 2,186
Total operating income..................................................... 220 78 290
OTHER OPERATING DATA:
EBITDA(3).................................................................. 372 167 539
</TABLE>
- --------------------------
(1) Pro forma for the Grand merger, assuming it occurred on January 1, 1998,
with respect to the Results of Operations, Other Operating Data and Pro
Forma Credit Statistics.
(2) Pro forma after giving effect to the acquisition of Caesars assuming it
occurred on January 1, 1998 with respect to the Results of Operations, Other
Operating Data and Pro Forma Credit Statistics and as of June 30, 1999 with
respect to the Balance Sheet data. Operating income for Caesars historical
is before the Starwood management fee which will terminate upon completion
of the acquisition.
(3) EBITDA is earnings before interest, taxes, depreciation, amortization,
pre-opening costs, spin-off costs in 1998 and non-cash items, which can be
computed by adding depreciation, amortization, pre-opening costs, spin-off
costs and non-cash items to operating income. We have presented EBITDA
supplementally because we believe it provides a more complete analysis of
results of operations. We have excluded non-cash items, such as asset write-
downs and impairment losses, from EBITDA as these items do not impact
operating results on a recurring basis. Pre-tax non-cash charges totaled $55
million for the twelve months ended June 30, 1999 and the year ended
December 31, 1998 and relate to the recognition of an impairment loss
related to riverboat assets and special charges at Caesars. You should not
consider EBITDA 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 you
consider it to be an indicator of our overall financial performance. Our
calculations of EBITDA may be different from the calculations used by other
companies and therefore comparability may be limited. After giving effect to
the acquisition of Caesars, our pro forma depreciation and amortization was
$475 million, $444 million and $238 million for the twelve months ended June
30, 1999, the year ended December 31, 1998 and the six months ended June 30,
1999, respectively. Other non-cash items, including pre-opening costs,
spin-off costs, impairment losses and special charges, totaled $81 million,
$97 million and $11 million for the twelve months ended June 30, 1999, the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively.
(4) EBITDA, as defined in footnote 3, has been adjusted for a full year of the
Caesars Indiana and Caesars South African properties, which became
operational in November 1998 and December 1998, respectively. Both property
EBITDA numbers were calculated by annualizing the first six months of 1999.
Identifiable synergies anticipated for the Caesars acquisition in the amount
of $50 million have also been added to EBITDA. The adjusted EBITDA
calculation does not take into account any projected EBITDA from the Paris
Casino Resort which is expected to open on September 1, 1999.
(5) Interest expense is reduced by interest income of $15 million and
capitalized interest of $36 million associated with the construction of the
Paris Casino Resort to arrive at net interest expense. Adjusted net debt
excludes $684 million of debt incurred to finance capital expenditures
associated with the construction of the Paris Casino Resort and reflects
$233 million of cash and equivalents.
10
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
We derived the following historical information under the heading
"Historical" from our audited financial statements for 1995 through 1998 and
from our unaudited financial statements for 1994 and the six months ended June
30, 1998 and 1999.
In the table below under the heading "Pro Forma," we illustrate the
financial results that might have occurred if the Grand merger had been
completed as of January 1, 1998. 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 merger had been completed
on the date assumed. It is also important to remember that this information does
not necessarily reflect our future financial performance.
<TABLE>
<CAPTION>
SIX MONTHS ENDED OR
AS OF JUNE 30, FISCAL YEARS ENDED OR AS OF DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL
RESULTS OF OPERATIONS(1):
Total revenue.............................. $ 1,487 $ 1,149 $ 2,305 $ 2,153 $ 970 $ 942 $ 899
Total operating income..................... 220 187 302 201 92 165 162
Income from continuing operations.......... 87 80 109 67(2) 36(3) 85 79
Income from continuing operations per
share--diluted........................... $ .28 $ .30 $ .42 $ .25 $ .18 $ .44 $ .41
OTHER OPERATING DATA(1):
EBITDA(4).................................. $ 372 $ 299 $ 556 $ 512 $ 216 $ 253 $ 240
BALANCE SHEET(5):
Cash and equivalents, restricted cash and
temporary investments.................... $ 158 $ 382 $ 234 $ 232 $ 38 $ 26
Total assets............................... 7,223 7,174 5,630 5,364 1,350 1,248
Total debt................................. 2,493 2,472 1,306 1,278 549 549
Total stockholders' equity................. 3,686 3,608 3,381 3,157 592 510
PRO FORMA
RESULTS OF OPERATIONS:
Total revenue.............................. $ 1,436 $ 2,900
Total operating income..................... 221 383
Income from continuing operations.......... 89 139
Income from continuing operations per
share--diluted........................... $ .29 $ .45
OTHER OPERATING DATA:
EBITDA(4).................................. $ 360 $ 683
</TABLE>
- ------------------------
(1) Except for the six months ended June 30, 1999, does not give effect to the
Grand merger, which occurred on December 31, 1998.
(2) Includes after-tax non-recurring charges totaling $59 million related to the
recognition of impairment losses related to a riverboat casino and an
impairment loss and other costs associated with the closure of another
riverboat casino.
(3) Includes after-tax non-recurring charges totaling $23 million, primarily
related to the write-off of pre-opening expenses for a riverboat casino and
losses associated with a planned relocation of another riverboat casino.
11
<PAGE>
(4) EBITDA is earnings before interest, taxes, depreciation, amortization,
pre-opening costs, non-cash items and spin-off costs in 1998, which can be
computed by adding depreciation, amortization, pre-opening costs, spin-off
costs and non-cash items to operating income. We have presented EBITDA
supplementally because we believe it provides a more complete analysis of
results of operations. We have excluded non-cash items, such as asset
write-downs and impairment losses and pre-opening costs from EBITDA as these
items do not impact operating results on a recurring basis. Pre-tax non-cash
charges totaled $16 million for the year ended December 31, 1998 and $96
million for the year ended December 31, 1997 and relate to the recognition
of impairment losses on a riverboat casino and an impairment loss and other
costs associated with the closure of another riverboat casino. Our pre-tax
non-cash charges totaled $1 million for the year ended December 31, 1996 and
relate to the write-down of an asset to estimated fair market value. You
should not consider EBITDA 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 you
consider it to be an indicator of our overall financial performance. Our
calculations of EBITDA may be different from the calculations used by other
companies and therefore comparability may be limited. Our historical
depreciation, amortization, pre-opening costs, non-cash items and spin-off
costs for the six months ended June 30, 1999 and 1998 and the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 totaled $152 million, $112
million, $254 million, $311 million, $124 million, $88 million and $78
million, respectively. Our pro forma depreciation, amortization, non-cash
items and spin-off costs for the six months ended June 30, 1998 and the year
ended December 31, 1998 totaled $139 million, and $300 million,
respectively.
(5) Gives effect to the Grand merger as of December 31, 1998 and June 30, 1999.
12
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT IN THESE
NOTES.
OUR SUBSTANTIAL INDEBTEDNESS FOLLOWING THE ACQUISITION COULD ADVERSELY AFFECT
OUR FINANCIAL RESULTS AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NOTES.
Following the acquisition, we will have a significant amount of
indebtedness. At June 30, 1999, pro forma for the acquisition and the incurrence
of indebtedness to fund the purchase of Caesars, we would have had total
consolidated indebtedness of approximately $5.5 billion and stockholders' equity
of approximately $3.7 billion.
The notes will not restrict our ability to borrow substantial additional
funds in the future nor do they provide holders any protection should we be
involved in a highly leveraged transaction. If we add new indebtedness to our
anticipated debt levels following or prior to the acquisition, it could increase
the related risks that we face.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- limit our ability to satisfy our obligations with respect to the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate activities;
- limit our flexibility in planning for, or reacting to, changes in our
business and industry;
- place us at a competitive disadvantage compared to other less leveraged
competitors; and
- limit our ability to borrow additional funds.
SERVICING OUR INDEBTEDNESS WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH AND OUR
ABILITY TO GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including
the notes, and to fund planned capital expenditures depends on our ability to
generate cash flow in the future. This, to some extent, is subject to general
economic, financial, competitive, legislative and regulatory factors and other
factors that are beyond our control. In addition, our ability to borrow funds
under our revolving credit facilities in the future will depend on our meeting
the financial covenants in the agreements, including an interest coverage test
and a leverage ratio test. We cannot assure you that our business will generate
cash flow from operations or that future borrowings will be available to us
under our revolving credit facilities in an amount sufficient to enable us to
pay our indebtedness, including the notes, or to fund our other liquidity needs.
As a result, we may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness on commercially reasonable terms or at
all. Our inability to generate sufficient cash flow or refinance our
indebtedness on commercially reasonable terms would have a material adverse
effect on our financial condition, results of operations and ability to satisfy
our obligations under the notes.
OUR ABILITY TO CONSUMMATE THE ACQUISITION DEPENDS ON OUR ABILITY TO RAISE OR
INCUR ADDITIONAL FINANCING AND OTHER FACTORS.
We are currently negotiating with a syndicate of financial institutions to
enter into a new $2.0 billion revolving credit facility which will replace our
existing $650 million 364-day facility. We have received commitments for the
entire $2.0 billion, which are subject to the negotiation of final
documentation.
13
<PAGE>
In addition to the new $2.0 billion 364-day facility, we are currently
negotiating with a syndicate of financial institutions to enter into a $1.0
billion 364-day facility which would only be drawn to provide funding for the
Caesars acquisition. We have received commitments for the entire $1.0 billion,
which are subject to the negotiation of final documentation.
If we are unable to renegotiate our 364-day revolving credit facility,
borrow funds under credit facilities or issue additional notes, we would be
required to raise financing from other sources to consummate the acquisition. If
other sources of financing are not at the time available to us, it would
adversely affect our ability to consummate the acquisition. If we are unable to
consummate the acquisition because we do not have sufficient financing, we would
be in breach of the acquisition agreement.
Consummation of the acquisition is subject to the receipt of regulatory
approval, including gaming approvals in various jurisdictions. If the required
regulatory approvals have not been obtained by November 1, 1999, but have been
obtained for the gaming facilities located in Nevada, New Jersey, Indiana and
Windsor, Ontario, then the condition relating to regulatory approvals in the
acquisition agreement will be deemed satisfied and we will be obligated to
purchase, at the full $3.0 billion purchase price, those properties for which
approvals have been obtained and any other properties the acquisition of which
would not result in a material liability or impairment of a material contract.
In the event of a closing on less than all of the properties, Starwood would
be required to conduct the retained properties in the ordinary course consistent
with the agreement and for our economic benefit. In addition, Starwood would be
required to use reasonable best efforts to help us obtain the necessary consents
and approvals to convey the retained properties, and to convey the retained
properties to us as soon as those consents and approvals are obtained. If the
required consents and approvals are not obtained within six months, Starwood
must, at our election, either:
- convey the retained properties to us notwithstanding our inability to
obtain the required consents and approvals; or
- sell the retained properties to a third party or parties and remit the net
proceeds of the sale to us.
If we were to close on less than all of the properties, we would bear the
following risks with respect to the retained properties, including:
- We would be required to pay all taxes, losses and reasonable costs
relating to the retained properties, and to reimburse Starwood for any net
cash shortfalls of the retained properties;
- We may not be able obtain the consents and approvals needed to acquire the
retained properties, and if we are unable to obtain such consents and
approvals and Starwood is required to sell the retained properties on our
behalf, Starwood may not obtain a price which reflects the fair value of
those properties; and
- Starwood may not operate the retained properties in a manner consistent
with the manner in which we would operate those properties, which could
reduce the value of those properties to us or a third party purchaser.
WE ARE A HOLDING COMPANY AND DEPEND ON THE BUSINESS OF OUR SUBSIDIARIES TO
SATISFY OUR OBLIGATIONS UNDER THE NOTES.
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 pay our debts depends upon our
subsidiaries' cash flow and their payment of funds to us. Our subsidiaries are
not obligated to make funds available to us for payment on the notes or
otherwise. In addition, our subsidiaries' ability to make any payments to us
will depend on their earnings, the terms of their indebtedness, business and tax
considerations, legal and regulatory restrictions and economic conditions. These
payments may not be adequate to pay interest and principal on the notes when
due. In addition,
14
<PAGE>
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 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 so that we can meet our obligations as the holding company,
including our obligations to you under the notes. Assuming completion of the
offering of the old notes, as of June 30, 1999, our subsidiaries would have had
approximately $16 million of debt. The indenture governing the notes will not
limit the ability of our subsidiaries to incur substantial additional debt.
WE MAY REQUIRE YOU TO DISPOSE OF YOUR NOTES OR REDEEM YOUR NOTES IF ANY GAMING
AUTHORITY FINDS YOU UNSUITABLE TO HOLD THEM.
We may require you to dispose of your notes or redeem your notes if any
gaming authority finds you unsuitable to hold them or in order to otherwise
comply with gaming laws to which we are subject, as more fully described in the
sections entitled "Regulation and Licensing" and "Description of the Notes--
Mandatory Disposition Pursuant to Gaming Laws."
LAKES GAMING, INC. MAY NOT BE ABLE TO SATISFY ITS INDEMNIFICATION OBLIGATIONS TO
GRAND AND THIS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
In connection with Grand's spin-off of Lakes, Lakes and Grand agreed to
indemnify each other for liabilities retained by them. Among other things, Lakes
agreed to indemnify Grand for:
- liabilities related to Stratosphere Corporation, in which Grand formerly
had an ownership interest, including various lawsuits related to the
bankruptcy of Stratosphere Corporation to which Grand and some of its
current and former directors and officers are parties;
- other liabilities relating to the non-Mississippi business of Lakes, such
as tribal loan guarantees and real property lease guarantees; and
- Grand's ongoing indemnification obligations to current and former
directors and officers of Grand with respect to the foregoing.
As security to support Lakes' indemnification obligations to Grand, Lakes
agreed to irrevocably deposit, in trust for the benefit of Grand, as our
wholly-owned subsidiary, an aggregate of $30 million, consisting of four annual
installments of $7.5 million, during the four year period subsequent to December
31, 1998. The first installment is due on December 31, 1999. 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 casino
management contracts, including the assignment of these contracts to Lakes
in the spin-off; and
- the general risks inherent in the Lakes business.
If Lakes fails to fund the trust, or otherwise satisfy its indemnification
obligations to Grand, Grand would be required to satisfy any liabilities, which
could, either individually or in the aggregate, have a material adverse effect
on our business and results of operations.
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 of or judgment in the Stratosphere litigation.
Although the Stratosphere lawsuits are in their early stages and Lakes plans to
defend itself vigorously, the costs of defense and any settlement or judgment
may have a material adverse effect on
15
<PAGE>
Grand if Lakes is unable to satisfy any of its obligations to Grand. In the
Lakes Form 10-Q for the period ended July 4, 1999, Lakes reported that it had
total assets of $173 million (including cash of $49 million) and total
liabilities of $25 million at July 4, 1999.
For additional information concerning legal proceedings related to
Stratosphere, see "Business and Properties of Park Place--Legal Proceedings" and
Note 16 to our audited financial statements included in this prospectus.
THE GAMING INDUSTRY IS HIGHLY COMPETITIVE.
To the extent that casino hotel room 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 3.8% increase in hotel capacity in Las Vegas in 1998 compared to
1997, thereby increasing competition in all segments of the Las Vegas market. In
addition, two new mega-resorts opened, one in March and one in June, 1999. We
expect projects completed or under development to increase hotel room capacity
by nearly 10% in 1999 compared to 1998. Our competitors have announced other
projects in Las Vegas which, if completed, will add significant casino space and
hotel rooms to this market. The new capacity additions to the Las Vegas market
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. In addition, the supply in the Gulf
Coast region has recently increased with the opening of a new resort by a
competitor. This increase in supply could have an adverse effect on our Gulf
Coast properties. The expansion in any locale 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 adversely affect us.
GAMING REFERENDA HAVE BEEN VOTED ON OR ARE BEING PROPOSED IN MISSISSIPPI AND
CALIFORNIA AND ADOPTION OF THESE REFERENDA COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS.
Voters in California approved Proposition Five, which was proposed by
California Indian tribes in the November 3, 1998 election. This referendum
sought to legalize games which several tribes operated in contravention of
California and Federal law, which could lead to the expansion of gaming
operations by California Indian tribes and could have a material adverse effect
on our Nevada operations. A legal action was filed in California State court
challenging the validity of Proposition Five under the California constitution.
On December 2, 1998, the California Supreme Court issued an order staying
implementation of Proposition Five. On August 23, 1999, the California Supreme
Court issued its decision on Proposition Five, concluding that Proposition Five
is invalid because it violates a state constitutional ban on Nevada-style casino
gambling. California tribes are circulating petitions to put a measure on the
March 7, 2000 ballot which would allow tribes to conduct specified card games,
lotteries, slot machines and other games and make future restrictions on tribal
gaming subject to voter approval. Supporters of the measure must submit the
signatures of 670,000 registered voters to the Secretary of State of California
by the second week of September 1999 to qualify the measure for the ballot.
In Mississippi, in three separate instances, referenda were proposed which,
if approved, would have amended the Mississippi Constitution to ban gaming in
Mississippi and would have required all currently legal gaming entities to cease
operations within two years of the ban. All three of the proposed referenda have
been ruled illegal by Mississippi state trial court judges because, among other
reasons, each of the proposed referenda failed to include required information
regarding the anticipated effect of such a ban on government revenues. The
proponents of the most recent referendum recently filed a notice of appeal of
the trial court ruling with the Mississippi Supreme Court, requesting expedited
action on the matter. The Mississippi Supreme Court, however, has not scheduled
any hearings with respect to the matter or
16
<PAGE>
established any briefing or other schedules. Any such referendum must be
approved by the Mississippi Secretary of State and signatures of approximately
98,000 registered voters must be gathered and certified in order for such a
proposal to be included on a statewide ballot for consideration by the voters.
The next election for which the proponents could attempt to place such a
proposal on the ballot would be in November 2000. It is likely at some point
that a revised initiative will be filed which will adequately address the issues
regarding the effect on government revenues of a prohibition of gaming in
Mississippi. However, while it is too early in the process for us to make any
predictions with respect to whether such a referendum will appear on a ballot or
the likelihood of such a referendum being approved by the voters, if such a
referendum were passed and gaming were prohibited in Mississippi, it would have
a material adverse effect on us and our Mississippi gaming operations.
THE GAMING INDUSTRY IS HIGHLY REGULATED AND WE MUST ADHERE TO VARIOUS
REGULATIONS AND MAINTAIN OUR LICENSES TO CONTINUE OUR OPERATIONS.
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. For a summary of gaming regulations that affect our business, see
"Regulation and Licensing." The regulatory environment in any particular
jurisdiction may change in the future and any such change could have a material
adverse effect on our results of operations.
WE ARE CURRENTLY INVOLVED IN A MAJOR CONSTRUCTION PROJECT AND A SUBSTANTIAL
INCREASE IN CONSTRUCTION COSTS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
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, including current and planned construction projects
associated with the Caesars properties. 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 on September 1, 1999, but it may
not. We expect the construction costs for this hotel-casino to be approximately
$785 million. As of June 30, 1999, we had spent $684 million on its
construction. The budget and construction plans developed for any of our
projects may change for competitive or other reasons or may increase due to any
of the factors set forth above. A substantial increase in construction costs
could adversely affect our results of operations.
17
<PAGE>
THE NATIONAL GAMBLING IMPACT STUDY COMMISSION'S RECOMMENDATIONS MAY ADVERSELY
AFFECT THE GAMING INDUSTRY AND OUR OPERATIONS.
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. On April 28, 1999, the National
Commission voted to recommend that the expansion of gambling be curtailed. In
June 1999, the National Commission issued a final report of its findings and
conclusions, together with recommendations for legislative and administrative
actions. Below are highlights of some of those recommendations:
- Legal gaming should be restricted to those at least 21 years of age;
- Betting on college and amateur sports should be banned;
- The introduction of casino-style gambling at pari-mutuel racing facilities
for the primary purpose of saving the pari-mutuel facility financially
should be prohibited;
- Internet gaming should be banned within the United States;
- The types of gaming activities allowed by Indian tribes within a given
state should not be inconsistent with the gaming activities allowed to
other persons in that state; and
- State, local and tribal governments should recognize that casino gaming
provides economic development, particularly for economically depressed
areas. The National Commission differentiated casino gaming from
stand-alone slot machines, Internet gaming and lotteries which the
commission stated do not provide the same economic development.
Any additional regulation of the gaming industry which may result from the
National Commission's report may have an adverse effect on the gaming industry,
including us.
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES.
Prior to this offering, there was no public market for the exchange notes.
We have been informed by the initial purchasers that they intend to make a
market in the exchange notes. However, the initial purchasers may cease their
market-making activity at any time. In addition, this 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 the trading
market in the exchange notes, and the market price quoted for the exchange
notes, may be adversely affected by changes in the overall market for these
types of 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.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus include forward-looking statements. We intend for the words
"believes," "anticipates," "expects," "intends," "interested in," "plans,"
"continues," "projects" and similar expressions to identify forward-looking
statements. Forward-looking statements include, among other things, statements
relating to our plans, strategies, properties and adequacy of resources under
the headings "Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business and Properties of Park Place"
and "Properties of Caesars." 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 and the following:
- the effect of economic, credit and capital market conditions in general
and on gaming companies in particular;
- construction and development issues, including environmental restrictions,
weather, soil conditions, building permits and zoning approvals;
- our ability to consummate the acquisition and successfully integrate
Caesars' operations into ours;
- 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;
- litigation outcomes and judicial action; and
- changes in customer demand.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
19
<PAGE>
THE ACQUISITION
GENERAL
On April 27, 1999, we entered into a stock purchase agreement with Starwood
Hotels & Resorts Worldwide, Inc., a Maryland corporation, and several of its
subsidiaries, which we refer to collectively as "Starwood." Under this agreement
we have agreed to pay $3.0 billion in cash for:
(a) 100% of the stock of Caesars World Inc., a Florida corporation;
(b) 100% of the stock of Sheraton Tunica Corporation, a Delaware
corporation; and
(c) partnership interests, the acquisition of which will result in the
ownership of 95% of the total economic interests in Metropolitan
Entertainment Group, a Canadian partnership.
We refer to the gaming entities in (a), (b) and (c) above collectively in
this offering memorandum as "Caesars."
The parties have agreed to adjust the purchase price upward (or downward) to
account for preclosing capital expenditures in excess of (or below) $5 million
per month. In addition, the parties have agreed to make similar adjustments for
net working capital in excess of (or below) $25 million as of the closing date.
If any financing obligations, including existing slot machine capital
leases, remain in existence at the closing of the acquisition, then at our sole
and exclusive option:
- the purchase price will be reduced by the amount of the financing
obligations; or
- the financing obligations will be discharged by paying out of the purchase
price the amount required to discharge.
Starwood has agreed to transfer to third parties, prior to the closing date,
and we will acquire no interest in, the following properties and assets that are
owned by Caesars: Cove Haven, Inc., Pocono Palace, Inc., Paradise Stream, Inc.,
Brookdale Resorts, Inc., Romantic Tours, Inc., Romantic Advertising, Inc., and
the Atlantic City Convention Center-Sheraton Hotel. Starwood will cause its
interest in the Sheraton Halifax Hotel to be transferred to Caesars, and we will
own this interest after the acquisition's closing date.
COVENANTS
Until the closing of the acquisition, Starwood has agreed, among other
things, to:
- operate Caesars in the ordinary course and consistent with past practices;
- provide us with access to the facilities and employees of Caesars;
- refrain from soliciting other potential purchasers of Caesars;
- eliminate all intercompany indebtedness and other intercompany accounts
between Caesars and Starwood, other than a note for approximately $23
million relating to a facility associated with Caesars Palace, Las Vegas,
Nevada;
- eliminate any indebtedness to third parties, other than capitalized
leases, which will be our obligation after the transaction's closing;
- terminate all intercompany agreements between Caesars and Starwood other
than certain agreements ancillary to the stock purchase agreement
described in more detail below under "Ancillary Agreements;" and
- cooperate with us in taking actions required to close the acquisition.
20
<PAGE>
We have agreed, among other things, to:
- cooperate with Starwood in taking actions required to close the
acquisition;
- provide the employees of Caesars with employee welfare and retirement
plans and programs that provide benefits substantially similar to those
provided to our other similarly situated employees, subject to any
contracts or other agreements with labor organizations and applicable law;
and
- pay specified severance, change of control and similar benefits that may
become payable as a result of the acquisition or as the result of the
termination of any employees of Caesars after the closing of the
acquisition, except that we and Starwood will each pay for one-half of all
severance benefits and change of control payments owing to an executive
officer of Caesars World, Inc.
REPRESENTATIONS AND WARRANTIES
Starwood has made representations to us regarding its ability to sell us its
interests in Caesars. We have made representations regarding our ability to
purchase Caesars.
TAX MATTERS
We have agreed with Starwood not to make an election under Section 338 of
the Internal Revenue Code with respect to this transaction except that we have
agreed to join in making a Section 338(h)(10) election with respect to the
acquisition of Sheraton Tunica Corporation and some of its subsidiaries so long
as the election does not require a corresponding election regarding Caesars
World and its subsidiaries.
CONDITIONS
The closing of the transaction is conditioned upon:
- the continued accuracy of the representations and warranties;
- the material performance of covenants;
- the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
- the receipt of other regulatory approvals; and
- the absence of any order, statute, regulation or similar restraint
enjoining or prohibiting the consummation of the transaction or any
material suit or proceeding by a governmental authority restraining the
transaction or rendering the stock purchase agreement ineffective.
On June 16, 1999, we received notification of the early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
If the required regulatory approvals have not been obtained by November 1,
1999, but have been obtained for the gaming facilities located in Nevada, New
Jersey, Indiana and Windsor, Ontario, Canada, then the condition relating to
regulatory approvals will be deemed satisfied and we will be obligated to
purchase, at the full $3.0 billion purchase price, those properties for which
approvals have been obtained and any other properties that we can acquire
without causing a material liability or impairment of a material contract. If we
are unable to purchase any one or more properties on the closing date, then the
parties will use their reasonable best efforts to obtain the required consents
and approvals. If after six months following the closing date the parties are
unable to obtain the required approval with respect to any one or more retained
operations, Starwood will:
(1) convey the retained operation to us if no material liability or
impairment of a material contract would result; or
21
<PAGE>
(2) help us to arrange the sale of the retained operation to a third party,
from which we will receive the net after-tax proceeds.
During any period in which Starwood continues to hold retained operations
after the closing date, Starwood will be obligated to use its reasonable best
efforts to operate the retained operations in the ordinary course consistent
with the stock purchase agreement and to remit the net profits of the retained
operations to us (or, if it is not permitted by law to remit the net profits to
us, Starwood must set aside the net profits for our benefit pending conveyance
of the retained operations to us). We will be responsible for all costs
(including transfer taxes) incurred by Starwood in connection with any transfers
required to effectuate the foregoing.
TERMINATION
The stock purchase agreement may be terminated:
(1) by mutual consent of the parties; or
(2) by either party if:
(A) the other party materially breaches a representation, warranty or
covenant such that, after giving effect to a 30-day cure period, a
condition to the non-breaching party's obligation to close would not
be satisfied; or
(B) the closing has not occurred by January 31, 2000, other than as a
result of a breach of a representation, warranty or covenant of such
party; or
(C) the transaction has been permanently enjoined.
ANCILLARY AGREEMENTS
We intend to enter into agreements with Starwood, including a license
agreement to allow us to use the "Sheraton" name and related marks and to allow
Starwood to continue to use the "Caesars" name and related marks with respect to
properties that used these names prior to the transaction. In addition, we
intend to enter into an agreement with Starwood under which we will each provide
certain transitional services to each other at our respective costs. This
transitional services agreement's term will be for a period not to exceed one
year.
22
<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 proceeds from the offering of the old notes, which were
approximately $296 million after deducting fees and expenses associated with the
offering, to reduce our borrowings under our existing credit facility.
23
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization at June 30, 1999:
(a) on a historical basis;
(b) as adjusted after giving effect to the offering of the old notes and the
application of the estimated net proceeds as described under "Use of
Proceeds;" and
(c) pro forma for the acquisition.
You should read this information together with "The Acquisition," "Use of
Proceeds," "Unaudited Pro Forma Condensed Financial Statements" "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and related notes appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
ACTUAL AS ADJUSTED PRO FORMA
---------- ----------- ----------
($ IN MILLIONS)
<S> <C> <C> <C>
CASH AND EQUIVALENTS AND RESTRICTED CASH................................... $ 158 $ 158 $ 233
---------- ----------- ----------
---------- ----------- ----------
TOTAL CURRENT PORTION OF LONG-TERM DEBT.................................... $ 7 $ 7 $ 18
---------- ----------- ----------
---------- ----------- ----------
LONG-TERM DEBT:
Revolving credit facilities(1)........................................... $ 1,430 $ 1,134 $ 2,911
7 3/8% senior notes due 2002(2).......................................... 299 299 299
7% senior notes due 2002(2).............................................. 324 324 324
7 7/8% senior subordinated notes due 2005................................ 400 400 400
7.95% senior notes due 2003.............................................. -- 298 298
Commercial paper program................................................. 24 24 24
Other debt to fund acquisition(1)........................................ -- -- 1,200
Other.................................................................... 16 16 62
Less current portion of long-term debt................................. (7) (7) (18)
---------- ----------- ----------
Total long-term debt, net of current portion........................... $ 2,486 $ 2,488 $ 5,500
---------- ----------- ----------
TOTAL STOCKHOLDERS' EQUITY................................................. 3,686 3,686 3,686
---------- ----------- ----------
TOTAL CAPITALIZATION....................................................... $ 6,179 $ 6,181 $ 9,204
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
- ------------------------
(1) As of August 15, 1999, we had $1.2 billion outstanding under our revolving
credit facilities. Our revolving credit facilities consist of a $650 million
364-day revolving credit facility and a $1.5 billion five-year revolving
credit facility. We are currently negotiating with a syndicate of financial
institutions to enter into a new $2.0 billion revolving credit facility
which will replace our existing $650 million 364-day facility. In addition
to the new $2.0 billion 364-day facility, we are currently negotiating with
a syndicate of financial institutions to enter into a $1.0 billion 364-day
facility which would only be drawn to provide funding for the Caesars
acquisition. The pro forma figure in the table assumes that we issue $1.5
billion in notes, inclusive of the $300 million offering of old notes, and
use the proceeds to repay outstanding debt under our revolving credit
facilities. In order to fund the acquisition, we plan to borrow under our
existing $1.5 billion five-year revolving credit facility and our new $2.0
billion 364-day revolving credit facility. For additional information, see
"Description of Other Indebtedness."
(2) In connection with our spin-off from Hilton, we assumed the payment
obligations with respect to these outstanding Hilton notes which are net of
unamortized discount.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
upon our historical consolidated financial statements and those of Grand and
Caesars. You should read this pro forma financial information together with
those historical consolidated financial statements and related notes, which are
included or incorporated by reference into this prospectus.
With respect to our merger with Grand and as further described in the
accompanying footnotes, the unaudited pro forma condensed statement of income
for the year ended December 31, 1998, gives effect to:
- our merger with Grand applying the purchase method of accounting; and
- adjustments that are directly attributable to the Grand merger and are
anticipated to have a continuing impact.
The pro forma condensed statement of income reflecting our merger with Grand
assumes the merger was consummated on January 1, 1998.
With respect to the proposed acquisition of Caesars, the unaudited pro forma
condensed statements of income for the six months ended June 30, 1999 and the
year ended December 31, 1998 give effect to:
- our acquisition of Caesars applying the purchase method of accounting; and
- adjustments that are directly attributable to the acquisition and
anticipated to have a continuing impact.
The pro forma condensed statements of income reflecting the acquisition
assume we completed the Caesars' acquisition on January 1, 1998.
The unaudited pro forma condensed balance sheet presents our combined
financial position with Grand and Caesars as of June 30, 1999. The unaudited pro
forma condensed balance sheet reflects the acquisition of Caesars applying the
purchase method of accounting and adjustments that are directly attributable to
the acquisition and anticipated to have a continuing impact. The pro forma
condensed balance sheet assumes we completed the Caesars' acquisition as of June
30, 1999.
We have prepared the unaudited pro forma condensed financial statements
based upon currently available information and assumptions that we have deemed
appropriate. This pro forma information may not be indicative of what actual
results would have been, nor does the data purport to represent our and Caesars'
combined financial results for future periods.
For the purpose of preparing these pro forma financial statements, we will
undertake a study to establish the fair value of the acquired assets and
liabilities of Caesars. 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.
The following table sets forth the calculation of the purchase price of
Caesars and the preliminary allocation as of June 30, 1999.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Purchase Price................................................................... $ 3,000
Other adjustments, net........................................................... (51)
Transaction costs and expenses................................................... 25
------
$ 2,974
------
------
</TABLE>
25
<PAGE>
The preliminary allocation of the pro forma purchase price is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Property and equipment........................................................... $ 2,500
Goodwill......................................................................... 722
Other, net....................................................................... (248)
------
$ 2,974
------
------
</TABLE>
We are currently in the process of allocating the purchase price among the
assets to be acquired and the liabilities assumed. The final purchase price and
its allocation will be based on independent appraisals, discounted cash flows,
quoted market prices and estimates by management and is expected to be completed
within one year following the Caesars acquisition.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
PARK PLACE
HISTORICAL CAESARS PRO FORMA PARK PLACE
(INCLUDING GRAND) HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 152 $ 75 $ -- $ 227
Restricted cash......................................... 6 -- -- 6
Accounts receivable, net................................ 132 104 -- 236
Other current assets.................................... 142 36 -- 178
------ ----------- ----------- -----------
Total current assets.................................. 432 215 -- 647
Investments............................................. 181 56 -- 237
Property and equipment, net............................. 5,250 1,990 $ 510(a) 7,750
Goodwill................................................ 1,278 -- 722(b) 2,000
Goodwill--Caesars....................................... -- 970 (970)(c) --
Other assets............................................ 82 102 30(d) 214
------ ----------- ----------- -----------
Total assets.............................................. $ 7,223 $ 3,333 $ 292 $ 10,848
------ ----------- ----------- -----------
------ ----------- ----------- -----------
LIABILITIES AND EQUITY
Accounts payable and accrued expenses................... $ 345 $ 195 $ 25(e) $ 565
Current maturities of long-term debt.................... 7 11 -- 18
Income taxes payable.................................... 4 32 -- 36
------ ----------- ----------- -----------
Total current liabilities............................. 356 238 25 619
Bank financing.......................................... 1,430 1,532(f) 2,911
(51)(g)
Notes and other......................................... 1,056 185 1,498(f)
(150)(h) 2,589
Deferred income taxes, net.............................. 644 82 229(i) 955
Due to parent and affiliates............................ -- 1,039 (1,039)(j) --
Other non-current liabilities........................... 51 37 -- 88
------ ----------- ----------- -----------
Total liabilities..................................... 3,537 1,581 2,044 7,162
------ ----------- ----------- -----------
EQUITY
Common stock, 303 million shares outstanding............ 3 -- -- 3
Additional paid-in capital.............................. 3,618 -- -- 3,618
Other................................................... (8) -- -- (8)
Retained earnings....................................... 85 -- -- 85
Common stock in treasury at cost, 0.4 million shares.... (12) -- -- (12)
Division equity......................................... -- 1,752 (1,752)(k) --
------ ----------- ----------- -----------
Total equity.......................................... 3,686 1,752 (1,752) 3,686
------ ----------- ----------- -----------
Total liabilities and equity.............................. $ 7,223 $ 3,333 $ 292 $ 10,848
------ ----------- ----------- -----------
------ ----------- ----------- -----------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The following pro forma adjustments have been made to the unaudited pro
forma balance sheet as of June 30, 1999:
(a) Reflects the net increase in the carrying value of Caesars' property and
equipment to adjust those assets to their estimated fair market value.
(b) Reflects as goodwill the excess purchase price over fair value of net
tangible assets acquired and liabilities assumed.
(c) Reflects the elimination of Caesars' historical goodwill.
(d) Reflects deferred financing charges related to the notes and increased bank
facility financings.
(e) Reflects the accrual of direct merger costs related to the acquisition.
(f) Reflects the increase in long-term debt of $1.5 billion to be drawn under
our revolving credit facilities and the issuance of long-term notes in the
aggregate amount of $1.5 billion.
(g) Reflects the adjustment to the purchase price for the net working capital
adjustment and the slot machine capital lease obligations pursuant to the
purchase agreement.
(h) Reflects the elimination of Caesars' 8 7/8% senior subordinated notes which
Caesars redeemed in August 1999.
(i) Reflects the deferred tax liability due to the carryover tax basis of the
assets acquired and the fair value of such assets as recorded by Park Place.
(j) Reflects the elimination of Caesars' loans due to parent and affiliates.
(k) Reflects the elimination of Caesars' equity accounts.
28
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PARK PLACE
HISTORICAL CAESARS PRO FORMA PARK PLACE
(INCLUDING GRAND) HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues
Casino.................................................. $ 1,070 $ 522 $ -- $ 1,592
Rooms................................................... 181 59 -- 240
Food and beverage....................................... 132 54 -- 186
Other revenue........................................... 104 64 -- 168
------ ----- ----- -----------
1,487 699 -- 2,186
------ ----- ----- -----------
Expenses
Casino.................................................. 558 307 -- 865
Rooms................................................... 65 16 -- 81
Food and beverage....................................... 122 47 -- 169
Other expenses.......................................... 353 162 -- 515
Depreciation and amortization........................... 142 88 22(c)
(14)(d) 238
Pre-opening expense..................................... 10 1 -- 11
Corporate expense....................................... 17 -- -- 17
------ ----- ----- -----------
1,267 621 8 1,896
------ ----- ----- -----------
Operating income.......................................... 220 78 (8) 290
Starwood management fee................................. -- (16) 16(e) --
Interest and dividend income............................ 6 -- -- 6
Interest expense and other, net......................... (58) (20) (119)(f)
17(g) (180)
Interest expense, net from unconsolidated affiliates.... (6) -- -- (6)
------ ----- ----- -----------
Income before income taxes and minority interest........ 162 42 (94) 110
Provision for income taxes.............................. 73 21 (30)(h) 64
Minority interest, net.................................. 2 (2) -- --
------ ----- ----- -----------
Income from continuing operations......................... $ 87 $ 23 $ (64) $ 46
------ ----- ----- -----------
------ ----- ----- -----------
Basic earnings per share.................................. $ 0.29 $ 0.15
------ -----------
------ -----------
Diluted earnings per share................................ $ 0.28 $ 0.15
------ -----------
------ -----------
Basic weighted average shares outstanding................. 303 303
------ -----------
------ -----------
Diluted weighted average shares outstanding............... 306 306
------ -----------
------ -----------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGES)
29
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PARK PLACE,
PARK PLACE GRAND AND
PARK PLACE GRAND PRO FORMA AND GRAND CAESARS PRO FORMA CAESARS
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Casino....................... $ 1,587 $ 513 $ -- $ 2,100 $ 937 $ -- $ 3,037
Rooms........................ 306 34 -- 340 105 -- 445
Food and beverage............ 230 35 -- 265 101 -- 366
Management fee income........ -- 92 (92)(a) -- -- -- --
Other revenue................ 182 13 -- 195 113 -- 308
----------- ----------- ------------- ------ ----------- ------------- ------
2,305 687 (92) 2,900 1,256 -- 4,156
----------- ----------- ------------- ------ ----------- ------------- ------
Expenses
Casino....................... 845 169 -- 1,014 558 -- 1,572
Rooms........................ 112 16 -- 128 33 -- 161
Food and beverage............ 230 37 -- 267 88 -- 355
Other expenses............... 555 216 4(a) 775 257 -- 1,032
Depreciation and
amortization............... 225 59 -- 284 143 44(c)
(27)(d) 444
Impairment losses and
other...................... 29 -- (13)(b) 16 39 -- 55
Pre-opening expense.......... -- -- -- -- 42 -- 42
Corporate expense............ 7 57 (31)(a) 33 -- -- 33
----------- ----------- ------------- ------ ----------- ------------- ------
2,003 554 (40) 2,517 1,160 17 3,694
----------- ----------- ------------- ------ ----------- ------------- ------
Operating income............... 302 133 (52) 383 96 (17) 462
Starwood Management Fee........ -- -- -- -- (33) 33(e) --
Interest and dividend
income..................... 21 10 (5)(a) 26 -- -- 26
Interest expense and other,
net........................ (87) (45) -- (132) (26) (239)(f)
23(g) (374)
Interest expense, net from
unconsolidated
affiliates................. (13) -- -- (13) -- -- (13)
----------- ----------- ------------- ------ ----------- ------------- ------
Income before income taxes
and minority interest...... 223 98 (57) 264 37 (200) 101
Provision for income taxes... 111 27 (16)(a) 122 22 (64)(h) 80
Minority interest, net....... 3 -- -- 3 (5) -- (2)
----------- ----------- ------------- ------ ----------- ------------- ------
Income from continuing
operations................... $ 109 $ 71 $ (41) $ 139 $ 20 $ (136) $ 23
----------- ----------- ------------- ------ ----------- ------------- ------
----------- ----------- ------------- ------ ----------- ------------- ------
Basic earnings per share....... $ 0.42 $ 0.46 $ 0.08
----------- ------ ------
----------- ------ ------
Diluted earnings per share..... $ 0.42 $ 0.45 $ 0.08
----------- ------ ------
----------- ------ ------
Basic weighted average shares
outstanding.................. 261 303 303
----------- ------ ------
----------- ------ ------
Diluted weighted average shares
outstanding.................. 263 306 306
----------- ------ ------
----------- ------ ------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
The following pro forma adjustments have been made to the unaudited pro
forma statements of income for the six months ended June 30, 1999 and the year
ended December 31, 1998:
(a) Reflects the elimination of Lakes Gaming, Inc.
(b) Reflects the elimination of the transaction costs associated with our
spin-off from Hilton and our merger with Grand.
(c) Reflects the adjustment to depreciation expense due to the revaluation of
the acquired property and equipment resulting from the allocation of the
purchase price of Caesars. This adjustment also reflects the increase in
expense due to amortization of goodwill arising from our purchase of
Caesars. Goodwill is to be amortized over 40 years.
(d) Reflects the elimination of the amortization of Caesars' historical
goodwill.
(e) Reflects the elimination of the intercompany management fee charged by
Starwood.
(f) Reflects additional interest expense, including amortization of related
deferred finance charges, arising from expected borrowings incurred by us to
fund the purchase of Caesars. We expect to fund the acquisition with
borrowings under our revolving credit facilities. The pro forma effects of
borrowings under the revolving credit facilities, future note offerings and
the old notes have been computed at a rate of 7.5%. Each 1/8% change in the
rate on the borrowings would result in a change in interest expense of $4
million for the year.
(g) Reflects the elimination of the interest expense on the Caesars World, Inc.
8 7/8% senior subordinated notes, which Caesars redeemed in August 1999, and
loans due to parent and affiliates.
(h) Reflects the tax effect of the pro forma adjustments using the statutory
rate of 35%, with the exception of the amortization of goodwill, which is
assumed to be non-deductible for tax purposes.
31
<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
acquisition.
PARK PLACE SELECTED HISTORICAL FINANCIAL INFORMATION
We derived the following historical information from our audited financial
statements for 1995 through 1998 and unaudited financial statements for 1994 and
the six months ended June 30, 1998 and 1999 before giving effect to the
acquisition. The information is only a summary and you should read it together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and historical financial statements and related notes beginning on
page F-1 and the other information we have filed with the Commission. See
"Available Information" for information about the reports we file with the
Commission.
<TABLE>
<CAPTION>
SIX MONTHS ENDED OR
AS OF JUNE 30, FISCAL YEARS ENDED OR AS OF DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenue.............................. $ 1,487 $ 1,149 $ 2,305 $ 2,153 $ 970 $ 942 $ 899
Total operating income..................... 220 187 302 201 92 165 162
Income from continuing operations.......... 87 80 109 67(1) 36(2) 85 79
Income from continuing operations per
share--diluted........................... $ .28 $ .30 $ .42 $ .25 $ .18 $ .44 $ .41
OTHER OPERATING DATA:
EBITDA(3).................................. $ 372 $ 299 $ 556 $ 512 $ 216 $ 253 $ 240
Ratio of earnings to fixed charges(4)...... 2.6x 3.6x 2.7x 2.4x 2.1x 4.0x 3.8x
BALANCE SHEET(5):
Cash and equivalents, restricted cash and
temporary investments.................... $ 158 $ 382 $ 234 $ 232 $ 38 $ 26
Total assets............................... 7,223 7,174 5,630 5,364 1,350 1,248
Total debt................................. 2,493 2,472 1,306 1,278 549 549
Total stockholders' equity................. 3,686 3,608 3,381 3,157 592 510
</TABLE>
- ------------------------
(1) Includes after-tax non-recurring charges totaling $59 million related to the
recognition of impairment losses related to a riverboat casino and an
impairment loss and other costs associated with the closure of another
riverboat casino.
(2) Includes after-tax non-recurring charges totaling $23 million, primarily
related to the write-off of pre-opening expenses for a riverboat casino and
losses associated with a planned relocation of another riverboat casino.
(3) EBITDA is earnings before interest, taxes, depreciation, amortization,
pre-opening costs, non-cash items and spin-off costs in 1998, which can be
computed by adding depreciation, amortization, pre-opening costs, spin-off
costs and non-cash items to operating income. We have presented EBITDA
supplementally because we believe it provides a more complete analysis of
results of operations. We have excluded non-cash items, such as asset
write-downs and impairment losses and pre-opening costs from EBITDA as these
items do not impact operating results on a recurring basis. Pre-tax non-cash
charges totaled $16 million for the year ended December 31, 1998 and $96
million for the year ended December 31, 1997 and relate to the recognition
of impairment losses on a riverboat casino and an impairment loss and other
costs associated with the closure of another riverboat casino. Our pre-tax
non-cash charges totaled $1 million for the year ended December 31, 1996 and
relate to the write-
32
<PAGE>
down of an asset to estimated fair market value. You should not consider
EBITDA 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 you consider it to be an indicator of
our overall financial performance. Our calculations of EBITDA may be
different from the calculations used by other companies and therefore
comparability may be limited. Our historical depreciation, amortization,
pre-opening costs, non-cash items and spin-off costs for the six months
ended June 30, 1999 and 1998 and the years ended December 31 1998, 1997,
1996, 1995 and 1994 totaled $152 million, $112 million, $254 million, $311
million, $124 million, $88 million and $78 million, respectively.
(4) We determined the ratio of earnings to fixed charges by dividing (a)
earnings before income taxes and minority interests plus fixed charges
(excluding capitalized interest) by (b) fixed charges. Fixed charges consist
of interest on indebtedness, including capitalized interest, the portion of
rental expense that is considered to be interest, and amortization of loan
expense related to long-term debt.
(5) Gives effect to the Grand merger as of December 31, 1998 and June 30, 1999.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE FINANCIAL
STATEMENTS, INCLUDING THE RELATED NOTES, THE OTHER FINANCIAL INFORMATION IN THIS
PROSPECTUS, AND THE RISKS INVOLVED IN INVESTING IN THE NOTES DESCRIBED IN
THE "RISK FACTORS" SECTION.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, we had cash and equivalents and restricted cash of $158
million. Cash provided by operating activities for the six months ended June 30,
1999 was $239 million. In addition, we had borrowings available under our
revolving credit facilities of $696 million at June 30, 1999. We expect to
finance our current operations and capital expenditures through cash flow from
operations, existing cash balances, commercial paper borrowings, and borrowings
under our revolving credit facilities.
In the first quarter of 1999, we borrowed approximately $600 million on our
five-year revolving credit facility in order to settle the cash tender offer for
the Grand 10.125% first mortgage notes and to redeem the Grand 9.0% senior
unsecured notes. See "Revolving Credit Facility" and "Grand's Debt" below for a
more detailed description of the transactions.
Capital expenditures for the six months ended June 30, 1999 were $385
million and include normal maintenance capital expenditures as well as major
construction projects. Major construction projects primarily consist of the
Paris Casino Resort, which began in April 1997, the Terrace Hotel at Grand
Casino Tunica and the Oasis Resort and Spa at Grand Casino Gulfport. The Paris
Casino 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, eight restaurants, five lounges, 130,000 square feet of
convention space and a retail shopping complex with a French influence.
Construction on this project began in April 1997 and the property is expected to
open on September 1, 1999.
In addition to an estimated $375 million in 1999 expenditures related to new
construction, we anticipate spending approximately $160 million in 1999 on
normal capital replacements and technology upgrades and $60 million on
improvement projects that are evaluated on a return on investment basis.
In April 1999, we announced that we had entered into an agreement to
purchase Caesars for $3 billion in cash. The acquisition is subject to
regulatory approvals and we expect to complete it in the fourth quarter of 1999.
We anticipate financing the $3 billion purchase price through additional bank
borrowings and the issuance of long-term debt.
In January 1999, we filed a shelf registration statement with the Commission
registering up to $1 billion in debt or equity securities. The terms of any
securities offered pursuant to the shelf registration statement will be
determined by market conditions at the time of issuance.
In March 1999, our board of directors approved a common stock repurchase
program to acquire up to 8 million shares of our common stock. During the six
months ended June 30, 1999, we repurchased approximately 1.7 million shares.
On August 2, 1999, we issued the old notes in a private placement offering
to institutional investors. We used the proceeds from the offering of the old
notes, which were approximately $296 million after deducting fees and expenses
associated with the offering, to reduce our borrowings under our existing credit
facility.
REVOLVING CREDIT FACILITY. In December 1998, we entered into a revolving
credit facility with a syndicate of financial institutions. The revolving credit
facility provides for borrowings of up to $2.15 billion, consisting of:
- a 364-day senior unsecured revolving credit facility of up to $650
million; and
- a five-year senior unsecured revolving credit facility of up to $1.5
billion.
34
<PAGE>
At June 30, 1999, $1,430 million of the aggregate commitment was
outstanding, leaving approximately $696 million of the revolving credit facility
available to us at that date.
The 364-day revolving credit facility matures December 1999 and the
five-year revolving credit facility matures December 2003. Both the 364-day
revolving credit facility and the five-year revolving credit facility may be
extended in one year increments at our request with the prior written consent of
the lenders.
The borrowings under the revolving credit facility bear interest at a
floating rate and may be obtained at our option as LIBOR advances for one week
or one, two, three, or six months, or as base rate advances, each adjusted for
an applicable margin (as further described in the revolving credit facility), or
as competitive bid loans. LIBOR advances bear interest at LIBOR plus 112.5 basis
points. Base rate advances bear interest at the base rate, defined as the higher
of:
- the federal funds rate plus 0.50%; or
- 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 will bear interest either on an
absolute rate bid basis or on the basis of a spread above or below LIBOR. The
maximum applicable margin for LIBOR loans is 1.75% under the 364-day revolving
credit facility and the five-year revolving credit facility plus or minus
pre-determined discounts based on our leverage ratios. The five-year revolving
credit facility provides for a $250 million commitment for the issuance of
letters of credit.
The revolving credit facility contains customary affirmative and negative
covenants, including covenants that restrict, with specified exceptions:
- the incurrence of additional liens;
- consolidations, mergers and sales of assets; and
- hostile tender offers for securities of other companies.
In addition, the revolving credit facility requires that we maintain certain
specified financial ratios, including a maximum total debt to ebitda ratio
(calculated using pro forma ebitda figures) of 4.75x reducing to 4.5x two years
from closing of the revolving credit facility and a minimum consolidated
interest coverage ratio of not less than 3.0x. The revolving credit facility
contains customary events of default, including:
- payment defaults;
- breaches of representations and warranties;
- covenant defaults;
- certain events of bankruptcy and insolvency; and
- cross defaults to other material indebtedness.
AMENDMENT TO REVOLVING CREDIT FACILITY. In connection with the acquisition,
we currently anticipate that we will amend the five-year revolving credit
facility to increase the maximum total debt to ebitda ratio (calculated using
pro forma ebitda figures) to 5.25x for the quarters ending December 31, 1999,
March 31, 2000, and June 30, 2000. These ratios are reduced to 4.75x after June
30, 2000 and 4.50x after December 31, 2000. Our banks have consented to this
amendment, subject to final documentation.
NEW 364-DAY FACILITIES. In connection with the acquisition, we currently
anticipate that we will terminate the current $650 million 364-day facility and
replace it with a new $2.0 billion 364-day facility. The terms of the new
facility will mirror the existing five-year facility, including the amended
maximum
35
<PAGE>
total debt to ebitda ratio. Borrowings under the new $2.0 billion 364-day
facility will be limited to $650 million until the closing of the acquisition,
at which point the entire $2.0 billion will be available.
Also in connection with the acquisition, we currently anticipate that we
will enter into a new $1.0 billion 364-day facility which will be available to
provide funds for the acquisition only. This $1.0 billion facility is required
to be repaid, if drawn, and terminated with the proceeds of future note
offerings.
We cannot assure you that the terms of the new 364-day facilities will be as
we have described.
SENIOR SUBORDINATED NOTES. In December 1998, we issued $400 million of
7 7/8% senior subordinated notes due December 2005 through a private placement
offering. The 7 7/8% notes are redeemable at any time prior to their maturity at
the redemption prices described in the indenture governing the 7 7/8% notes. The
7 7/8% notes are unsecured senior subordinated obligations and are subordinated
to all of our senior debt.
GRAND'S DEBT. As part of the Grand merger, we assumed certain Grand
indebtedness as of December 31, 1998. This indebtedness included 10 1/8% first
mortgage notes due 2003 and 9% senior unsecured notes due 2004, both of which
were marked to fair market value as of the date of acquisition. In January 1999,
we settled a cash tender offer and consent solicitation for substantially all of
the Grand 10 1/8% first mortgage notes due 2003. We defeased the remaining
untendered notes of $5.5 million. We completed the covenant defeasance in
January 1999 by depositing $6.1 million in an irrevocable trust. The $6.1
million has been invested in United States Treasury Securities in a sufficient
amount to pay and discharge all principal and interest on the outstanding
10 1/8% notes. Cash consideration for the repurchase and defeasance, including
premiums, totaled approximately $490 million.
On December 31, 1998, we completed a covenant defeasance of the Grand 9%
senior unsecured notes. We completed this defeasance by depositing $135 million
in an irrevocable trust. The $135 million was invested in United States Treasury
Securities in a sufficient amount to pay and discharge all principal and
interest on the outstanding 9% notes. In accordance with SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," we have reflected the obligation as well as the amount
deposited in trust in the accompanying consolidated balance sheet in restricted
cash and long-term debt, respectively. On February 1, 1999 we exercised our
right to redeem the Grand 9% notes and all amounts were retired as of that date.
We have established a $1 billion commercial paper program as of December 31,
1998. To the extent that we incur debt under this program, we must maintain an
equivalent amount of credit available under our revolving credit facility. We
have borrowed under the program for various periods during 1999. At June 30,
1999, we had outstanding borrowings of $24 million under the commercial paper
program bearing an average interest rate of 5.5 percent.
RESULTS OF OPERATIONS
Results of operations include our wholly-owned subsidiaries and investments
accounted for under the equity method of accounting. Prior to our merger with
Grand, we operated under the Hilton, Flamingo, Bally and Conrad brand names
with:
- six wholly-owned Nevada casino hotels;
- two wholly-owned casino hotels in Atlantic City, New Jersey;
- a wholly-owned riverboat casino in Robinsonville, Mississippi;
- a 49.9% owned and managed riverboat casino in New Orleans;
- two partially-owned and managed casino hotels in Australia; and
- a partially-owned and managed casino hotel in Punta del Este, Uruguay.
36
<PAGE>
On December 31, 1998, we completed our acquisition of the Mississippi gaming
operations of Grand. As a result of the Grand merger, we now own Grand Casino
Tunica, Grand Casino Gulfport and Grand Casino Biloxi. We have not included the
results of operations for the Grand properties in our condensed consolidated
statement of income for the year ended December 31, 1998, as we completed the
merger on December 31, 1998.
The following discussion presents an analysis of our results of operations
for the three and six months ended June 30, 1999 and 1998. We have presented
EBITDA (earnings before interest, taxes, depreciation, amortization, pre-opening
and non-cash items) supplementally in the tables below and in the discussion of
operating results because we believe 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 net income, nor
should it be considered as an indicator of our overall financial performance.
Our calculation of EBITDA may be different from the calculation used by other
companies and therefore comparability may be limited. Our depreciation,
amortization and pre-opening costs for the three months ended June 30, 1999 and
1998 and the six months ended June 30, 1999 and 1998 totaled $78 million, $56
million, $152 million and $112 million, respectively. We had no non-cash items
for the periods presented.
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
A summary of our consolidated revenue and earnings for the three and six
months ended June 30, 1999 and 1998 is as follows (in millions, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue.................................................... $ 739 $ 574 $ 1,487 $ 1,149
Operating income........................................... 101 95 220 187
Net income................................................. 40 41 85 80
Basic earnings per share................................... 0.13 0.16 0.28 0.31
Diluted earnings per share................................. 0.13 0.16 0.28 0.30
Other operating data:
EBITDA $ 179 $ 151 $ 372 $ 299
</TABLE>
We recorded net income of $40 million or diluted earnings per share of $0.13
for the three months ended June 30, 1999, compared with net income of $41
million or pro forma diluted earnings per share of $0.16 for the three months
ended June 30, 1998. Impacting results in the current year was the Grand merger,
which was effective December 31, 1998 and the adoption of Statement of Position
(SOP) 98-5 "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires
that start-up costs or pre-opening costs be expensed as incurred. We expensed $7
million of pre-opening costs incurred during the three months ended June 30,
1999, related primarily to the development of Paris. For the six months ended
June 30, 1999, we recorded net income of $85 million or diluted earnings per
share of $0.28 compared with net income of $80 million or pro forma diluted
earnings per share of $0.30 in the prior year. The Grand merger and SOP 98-5
also impacted the year to date results. As required by SOP 98-5, we recorded a
cumulative effect of accounting change net of tax of $2 million for pre-opening
costs incurred and capitalized prior to January 1, 1999, and expensed $10
million of pre-opening costs incurred during the six months ended June 30, 1999.
Consolidated revenues increased 29 percent to $739 million for the three
months ended June 30, 1999, from $574 million in 1998. For the six months ended
June 30, 1999, consolidated revenues were $1.5 billion, an increase of 29
percent when compared to the six months ended June 30, 1998. This increase
37
<PAGE>
in revenues for the three and six months ended June 30, 1999, was primarily a
result of the Grand merger. EBITDA increased 19 percent to $179 million for the
three months ended June 30, 1999, from $151 million in 1998. The Grand
properties contributed $42 million of the increase in EBITDA. The eastern region
contributed $8 million to the increase, which was offset by a decrease in the
western region of $18 million. For the six months ended June 30, 1999, EBITDA
was $372 million an increase of 24 percent when compared to EBITDA of $299
million in the prior year. The Grand properties contributed $83 million of the
increase. The eastern region contributed $6 million to the increase, which was
offset by decreases in the western region of $3 million and the international
properties of $8 million. See below for an analysis by region.
WESTERN REGION
EBITDA for the western region was $72 million for the three months ended
June 30, 1999, a decrease of 20 percent compared to $90 million for the three
months ended June 30, 1998. The decrease in EBITDA was primarily attributable to
results at the Las Vegas Hilton. Occupancy for the western region was 88 percent
for the three months ended June 30, 1999, compared to 91 percent in the prior
year period. The average room rate was $77 compared to $76 in the prior year
period. For the six months ended June 30, 1999, the western region EBITDA
decreased $3 million to $167 million when compared to the six months ended June
30, 1998. Occupancy percentage remained flat at 88 percent, and average room
rate was $79 for the six months ended June 30, 1999 compared to $78 in the prior
year.
EBITDA at the Las Vegas Hilton decreased 68 percent to $7 million for the
three months ended June 30, 1999. The decrease in the results at the Las Vegas
Hilton was attributable to added supply in the Las Vegas market, concentration
of play in the first quarter of 1999, general softness in the baccarat market
and unusually high drop and hold in the comparable quarter of 1998. For the six
months ended June 30, 1999, EBITDA decreased $5 million to $34 million.
Results at the Las Vegas Hilton are more volatile than our 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 of the results at this property. However, we believe that our
implementation of new casino marketing and entertainment strategies has
broadened the Las Vegas Hilton's domestic customer base and increased
non-premium play volume.
EBITDA at the Flamingo Hilton Las Vegas decreased $1 million to $29 million
for the three months ended June 30, 1999. For the six months ended June 30,
1999, the Flamingo Hilton Las Vegas generated $61 million of EBITDA compared to
$55 million in 1998. Casino revenue was the primary contributor to the increase.
The increase in casino revenue was mainly attributable to an eight percent
increase in slot win and a three percent increase in table game win.
Bally's Las Vegas generated EBITDA of $21 million in the second quarter of
1999, a decrease of $1 million from the second quarter in the prior year. A
reduction in table game drop and hold percentage contributed to the decrease.
For the six months ended June 30, 1999, EBITDA was $45 million, a decrease of $2
million from the prior year. A decrease in table game drop was the main
contributor.
Combined EBITDA from the Reno Hilton, the Flamingo Hilton Reno and the
Flamingo Hilton Laughlin was $15 million for the three months ended June 30,
1999, a decrease of $1 million from the comparable 1998 quarter. For the six
months ended June 30, 1999, the Reno Hilton, the Flamingo Hilton Reno and the
Flamingo Hilton Laughlin recorded EBITDA of $27 million, a seven percent
decrease when compared to the prior year.
In Las Vegas we continue to expand our gaming operations with the
development of the 2900-room Paris Casino Resort on the Las Vegas Strip. This
property, which is located adjacent to Bally's Las Vegas on the Strip, will
feature an 85,000 square foot casino, a 50-story replica of the Eiffel Tower,
eight
38
<PAGE>
restaurants, five lounges, 130,000 square feet of convention space and a retail
shopping complex with a French influence. We expect to open the Paris Casino
Resort on September 1, 1999.
The completion of a number of room expansion projects coupled with the
opening of new casino hotels has increased competition in all segments of the
Las Vegas market. Three new mega-resorts have opened since October 1998. Our
competitors have announced other projects in Las Vegas which, if completed, will
add significant casino space and hotel rooms to this market. The new capacity
additions to the Las Vegas market could adversely impact our future operating
results.
EASTERN REGION
EBITDA for the eastern region was $57 million for the three months ended
June 30, 1999, an increase of 16 percent when compared to $49 million for the
three months ended June 30, 1998. Marketing programs that primarily boosted
table game play drove the increase. In addition, slot handle increased 12
percent, the average room rate increased to $87 from $84 and the occupancy
percentage increased six percentage points to 99 percent for the three months
ended June 30, 1999. For the six months ended June 30, 1999, the eastern region
recorded EBITDA of $96 million, an increase of $6 million over the prior year.
Bally's Park Place generated EBITDA of $43 million for the three months
ended June 30, 1999, an increase of five percent from last year's quarter of $41
million. The increase was a result of increases in slot handle and table game
drop, offset by a decrease in hold percentages. For the six months ended June
30, 1999, EBITDA decreased $2 million. The decrease was primarily attributable
to lower hold percentage and increased costs in the first quarter of 1999,
associated with competitive market conditions.
For the three months ended June 30, 1999, the Atlantic City Hilton reported
EBITDA of $14 million, $6 million or 75 percent higher than the second quarter
of last year. The improvement was due to a 29 percent increase in table game win
and an increase in rooms revenue attributable to an increase in occupancy
percentage. For the six months ended June 30, 1999, EBITDA at the Atlantic City
Hilton was $20 million, an increase of $8 million over the prior year. The
increase was a result of the marketing programs, which are having a positive
impact on occupancy and play at the property.
Several competitors have announced projects in the Atlantic City market,
including new properties and renovation projects. Such new development could
adversely impact our market share and future operating results in the Atlantic
City market.
MID-SOUTH REGION
EBITDA for the mid-south region increased $43 million to $52 million for the
three months ended June 30, 1999, up from $9 million in 1998. The Grand
properties contributed $42 million of the increase. The Grand properties'
results are not included in the 1998 results because the merger occurred on
December 31, 1998. In the mid-south region, occupancy percentage and average
room rate for the three months ended June 30, 1999, were 94 percent and $57,
respectively. Combined EBITDA from Bally's Tunica and Bally's New Orleans
increased $1 million over the prior year. For the six months ended June 30,
1999, EBITDA in the mid-south region increased $86 million. The Grand properties
contributed $83 million of the increase.
In Mississippi we continue to expand our properties with the March 1999
opening of the Terrace Hotel at Grand Casino Tunica and the June 1999 opening of
the Oasis Resort and Spa at Grand Casino Gulfport.
Supply on the Gulf Coast has recently increased with the opening of a new
resort by a competitor. Currently, the new supply into the market continues to
drive interest and visitation to our two Gulf Coast properties. This increase in
supply could ultimately have an adverse impact on the operating results of our
Gulf Coast properties.
39
<PAGE>
INTERNATIONAL
On a combined basis, second quarter 1999 EBITDA from the properties in
Uruguay and Australia decreased $1 million to $7 million. For the six months
ended June 30, 1999, the international region recorded EBITDA of $22 million, a
decrease of 27 percent over the prior year. The decrease came primarily in the
first quarter of 1999 from the casino resort in Punta del Este, Uruguay, which
was impacted by the devaluation of the Brazilian Real, resulting in lower levels
of play from Brazilian customers. On a combined basis the international
properties reported an average daily rate of $101, flat with the prior year, and
an occupancy percentage of 64 percent, an increase of two percentage points over
the prior year.
DEPRECIATION AND AMORTIZATION
Consolidated depreciation and amortization increased $15 million to $71
million for the three months ended June 30, 1999. For the six months ended June
30, 1999, depreciation and amortization increased $30 million to $142 million.
The increase in depreciation and amortization for the three and six months ended
June 30, 1999 was primarily attributable to the addition of the Grand
properties.
CORPORATE EXPENSE
Corporate expense increased $5 million to $9 million for the three months
ended June 30, 1999. For
the six months ended June 30, 1999, corporate expense increased $8 million to
$17 million. The increases are attributable to the infrastructure put in place
to operate and manage as a separate publicly traded entity.
INTEREST INCOME AND INTEREST EXPENSE
Interest and dividend income decreased $2 million in the second quarter of
1999 to $3 million. The 1998 period includes interest income from our investment
in mortgage notes that were sold in the second half of 1998. Consolidated
interest expense increased $9 million to $32 million for the three months ended
June 30, 1999. For the six months ended June 30, 1999, consolidated interest
expense increased $15 million to $64 million. The increase in interest expense
for the quarter and six months ended June 30, 1999, was primarily due to an
increase in long-term debt associated with the Grand merger, offset by an
increase in capitalized interest primarily due to the construction of the Paris
Casino Resort. Capitalized interest for the three months ended June 30, 1999 and
1998 was $14 million and $5 million, respectively. For the six months ended June
30, 1999 and 1998 capitalized interest was $27 million and $9 million,
respectively. Capitalized interest is expected to decline significantly with the
opening of the Paris Casino Resort.
INCOME TAXES
The effective income tax rate for the three and six months ended June 30,
1999 was 43 percent and 45 percent, respectively. For the three and six months
ended June 30, 1998, the effective income tax rate was 45 percent and 46
percent, respectively. Our effective income tax rate is determined by the level
and composition of pretax income subject to varying foreign, state and local
taxes and exceeds the Federal statutory rate primarily due to non-deductible
amortization of goodwill.
40
<PAGE>
FISCAL 1998 COMPARED WITH FISCAL 1997
A summary of our consolidated revenue and earnings for fiscal 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Revenue.................................................................... $ 2,305 $ 2,153
Operating income........................................................... 302 201
Net income................................................................. 109 67
Other Operating Data:
EBITDA................................................................... $ 556 $ 512
</TABLE>
OPERATIONS. Total revenue increased seven percent for fiscal 1998 to $2.3
billion. Casino revenue increased nine percent to $1.6 billion in 1998, compared
to $1.5 billion in the prior year. Total EBITDA was $556 million, a nine percent
increase from $512 million in the 1997 period, and operating income increased 50
percent to $302 million from $201 million in 1997. Our 1998 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, which is part of Bally's
Park Place, in July 1997.
EBITDA at the Las Vegas Hilton increased $13 million over the prior year to
$58 million. Our 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 42 percent
and slot revenue increased 23 percent on higher volume and comparable win
percentages. Baccarat volume decreased 21 percent from the prior year; however
baccarat win increased eight percent on a significantly increased win
percentage. Results at the Las Vegas Hilton are more volatile than our 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, we believe that
our 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 $3 million from the prior
year to $106 million due to lower table game volume and win, and a decline in
non-casino revenues. Occupancy declined one point to 90 percent, and the average
room rate fell four percent to $78. Bally's Las Vegas generated EBITDA of $84
million for the year, a decrease of $9 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. Combined EBITDA from the Reno Hilton and the
Flamingo Hilton Reno remained flat at $26 million.
Occupancy for the Nevada properties was 88 percent in 1998 compared to 86
percent last year. The average room rate for the Nevada properties was $75
compared to $77 in the prior year period.
In Atlantic City, Bally's Park Place generated EBITDA of $157 million, an
increase of one percent from last year's $155 million. The Atlantic City Hilton
reported EBITDA of $37 million, $8 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 properties was 94 percent in 1998 compared
to 91 percent last year. The average room rate for the Atlantic City properties
was $84, down seven percent from $90 last year.
Combined EBITDA from our riverboat properties increased $20 million over
last year, while EBITDA contribution from our two hotel-casinos in Australia was
flat at $25 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. Our share
41
<PAGE>
of EBITDA totaled $22 million for 1998, 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 our proportionate share of equity
investments, increased $10 million to $225 million in 1998 due primarily to the
Las Vegas and Atlantic City expansion projects completed in 1997.
Our results were adversely affected by non-recurring charges totaling $29
million ($16 million non-cash) in 1998 and $108 million ($96 million non-cash)
in 1997. The 1998 charges include an impairment loss related to certain
riverboat casino assets as well as approximately $13 million of costs associated
with the split from Hilton and merger with Grand. 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 as well as the settlement costs of outstanding litigation.
CORPORATE ACTIVITY. Corporate expense decreased by $2 million to $7
million. Interest and dividend income decreased $4 million to $21 million.
Interest expense, net of amounts capitalized, was $87 million and $82 million in
1998 and 1997, respectively. Interest expense, net, from unconsolidated
affiliates increased $3 million to $13 million. The effective tax rate was 50%
in 1998 versus 47% in 1997. Minority interest decreased due to the purchase of
the remaining interest in Bally Grand, Inc.
FISCAL 1997 COMPARED WITH FISCAL 1996
A summary of our consolidated revenue and earnings for fiscal 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Revenue...................................................................... $ 2,153 $ 970
Operating income............................................................. 201 92
Income before extraordinary item............................................. 67 36
Other Operating Data
EBITDA..................................................................... $ 512 $ 216
</TABLE>
OPERATIONS. Total revenue increased 122 percent in 1997 to $2.2 billion
from $1.0 billion in 1996. Casino revenue increased 198 percent to $1.5 billion
in 1997 compared to $486 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, we
benefited from the addition of the Bally properties in Las Vegas, Atlantic City,
Mississippi and New Orleans, the July addition of The Wild Wild West casino in
Atlantic City, improved international results, and an increased 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 several competitors' 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, the additional market capacity contributed
to a five point decline in occupancy to 83 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.
EBITDA from the Flamingo Hilton Las Vegas declined $5 million to $109
million. Additional Strip room capacity also affected this property, which
posted occupancy of 91 percent, a five 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
42
<PAGE>
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 our overall 1996 results was not significant.
Occupancy for the Nevada properties was 86 percent in 1997 compared to 91
percent in the prior period. The average room rate for the Nevada properties was
$77 compared to $74 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 us 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 properties were 91
percent and $90, respectively, in 1997. Occupancy and average room rate were 93
percent and $91, respectively, in 1996.
We 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 our proportionate share of
depreciation and amortization from our equity investments, increased $92 million
to $215 million in 1997. This increase primarily resulted from the addition of
the Bally properties.
Our results were adversely effected by non-recurring charges totaling $108
million, $96 million of which were non-cash, in 1997 and $38 million, $1 million
of which were 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 expenses for the Flamingo Casino
Kansas City and losses associated with the planned relocation of the Flamingo
Casino New Orleans.
CORPORATE ACTIVITY. Corporate expense remained flat at $9 million. Interest
and dividend income increased $13 million to $25 million due to interest earned
on 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 of our assets. Interest expense, net of amounts
capitalized, was $82 million and $36 million in 1997 and 1996, respectively.
Interest expense, net, from unconsolidated affiliates equity investments
increased $5 million over 1996. The effective income tax rate in 1997 increased
to 47% from 43% in 1996 primarily due to the amortization of non-deductible
goodwill recorded as a result of the Bally merger. Our 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.
STRATEGY
As exemplified by the acquisitions of Bally Entertainment Corporation in
1996, Grand Casinos, Inc. in 1998, the expected opening of the Paris Casino
Resort on September 1, 1999 and the expected purchase of Caesars in late 1999,
we are interested in expanding our business through the acquisition of quality
gaming assets and selective new development. We believe we are well-positioned
to, and may from time to time, pursue additional strategic acquisitions,
dispositions or alliances which we believe to be financially beneficial to us
and our long term interests.
43
<PAGE>
YEAR 2000
We are currently working to resolve the potential impact of the Year 2000 on
the processing of date-sensitive information by our 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 our
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.
We have 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. Our 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. We expect to be fully Year 2000 compliant with
respect to all significant business systems prior to December 31, 1999. We have
undertaken significant efforts which have resulted in near completion of systems
testing as well as substantial completion of remedial work identified. Our
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 us. We have assessed
these core systems, testing is substantially completed and we are implementing
changes where required. We have not identified any significant remediation. We
have contacted the appropriate vendors and suppliers regarding their Year 2000
compliance and their deliverables have been factored into our plans.
NON-IT SYSTEMS
We are nearing completion on an inventory of all property level non-IT
systems including elevators, electronic door locks, gaming devices. We have
assessed the majority of these non-IT systems, testing is substantially
completed and we are implementing changes where required. We have contacted the
appropriate vendors and suppliers regarding their Year 2000 compliance and their
deliverables have been factored into our plans.
SUPPLIERS
We are communicating with our significant suppliers to understand their Year
2000 issues and how they might prepare themselves to manage those issues as they
relate to us. To date, no significant supplier has informed us that a material
Year 2000 issue exists which will have a material effect on us.
During the remainder of 1999, we will continually review our progress
against our Year 2000 plans and determine whether any additional contingency
plans are appropriate to reduce our exposure to Year 2000 related issues. Based
on our current assessment, we expect the costs of addressing potential problems
to be less than $4 million. However, if we are unable to resolve a Year 2000
issue, we have contingency plans in place to update existing systems, which we
expect to cost an additional $2 million. If our 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,
we have been devoting substantial resources to resolve all significant Year 2000
issues in a timely manner and we intend to continue to do so.
44
<PAGE>
BUSINESS AND PROPERTIES OF PARK PLACE
GENERAL
We consider our casino hotels to be leading establishments with respect to
location, size, facilities, physical condition, quality and variety of services
offered in the areas in which they are located. We are currently the only gaming
company with a significant presence in Nevada, New Jersey and Mississippi, the
three largest gaming markets in the United States. When our Paris Casino Resort
opens, which we expect to occur on September 1, 1999, we will have approximately
1.4 million square feet of gaming space and approximately 23,000 rooms.
We currently own or operate:
- eight U.S. land-based casinos;
- four U.S. dockside casinos;
- one U.S. riverboat casino;
- two land-based casinos in Australia; and
- one land-based casino in Uruguay.
Our domestic gaming operations are conducted under the Hilton, Bally's,
Flamingo and Grand brand names.
PROPERTIES
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
NUMBER OF CASINO SQUARE
NAME AND LOCATION ROOMS/SUITES YEAR ACQUIRED FOOTAGE
- -------------------------------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C>
DOMESTIC CASINOS
NEW JERSEY
Bally's Park Place Casino Resort(1)(2).......................... 1,240 1996 155,000
The Atlantic City Hilton Casino Resort(1)(3).................... 804 1996 60,000
NEVADA
Flamingo Hilton Las Vegas(4).................................... 3,638 1971 93,000
Las Vegas Hilton(5)............................................. 2,956 1971 100,000
Paris Casino Resort(6).......................................... 2,900 1999 85,000
Bally's Las Vegas(1)(7)......................................... 2,814 1996 68,000
Reno Hilton(8).................................................. 2,003 1992 114,000
Flamingo Hilton Laughlin(9)..................................... 1,912 1990 58,000
Flamingo Hilton Reno(10)........................................ 604 1981 46,000
MISSISSIPPI
Grand Casino Tunica(11)......................................... 1,356 1998 140,000
Grand Casino Biloxi............................................. 985 1998 110,000
Grand Casino Gulfport(12)....................................... 1,007 1998 110,000
Bally's Saloon-Gambling Hall-Hotel(1)........................... 235 1996 40,000
LOUISIANA
Bally's Casino Lakeshore Resort(1)(13)(14)...................... -- 1996 30,000
AUSTRALIA
Conrad Jupiters, Gold Coast(15)................................. 609 1985 70,000
Conrad International Treasury Casino, Brisbane(15).............. 136 1995 65,000
URUGUAY
Conrad International Punta del Este Resort and Casino(14)(16)... 302 1997 38,000
------ --------------
Total....................................................... 23,501 1,382,000
------ --------------
------ --------------
</TABLE>
- --------------------------
(1) The referenced properties were acquired as a result of Hilton's merger with
Bally Entertainment Corporation in 1996.
45
<PAGE>
(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 sports book and 22,000 square feet attributable to the SpaceQuest
casino.
(6) This property is currently under construction and we expect it to open on
September 1, 1999.
(7) Casino square footage includes 5,000 square feet attributable to the race
and sports book.
(8) Casino square footage includes 12,000 square feet attributable to the race
and sports book.
(9) Casino square footage includes 3,000 square feet attributable to the race
and sports book.
(10) 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 sports book.
(11) Number of rooms/suites reflects room availability at three hotels.
(12) A new 600-room resort hotel opened at Grand Casino Gulfport in June of
1999.
(13) We currently have a 49.9% ownership interest in this property.
(14) The owners of these properties are parties to loans under which they are
obligated to make payments to us.
(15) We have a 19.9% ownership interest in this property.
(16) We have a 46.4% ownership interest in this property. The casino opened in
January 1997 and the hotel opened in stages over the latter half of 1997.
We are interested in expanding our business through the acquisition of
quality gaming assets and selective new development and may, from time to time,
pursue additional strategic acquisitions or alliances which we believe to be
financially beneficial to us and our long-term interests. We intend to
continuously evaluate our property portfolio and intend to dispose of our
interests in properties that, in our opinion, no longer yield an adequate return
on investment or conform to our long range plans. In doing so, we expect to
maintain a balanced mix of sources of revenue and a favorable return on
stockholders' equity.
NEVADA CASINOS
We currently own and operate 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. Our seventh
casino hotel, the Paris Casino Resort, is expected to open in Las Vegas on
September 1, 1999.
Our 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 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
46
<PAGE>
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 1998, we renovated 1,000 rooms and added 17 luxury suites at the Las
Vegas Hilton. We expect to complete renovation of 750 additional rooms by the
end of 1999. In 1997, we continued refurbishing and expanding our existing
Nevada facilities in order to maintain their presence as among the premier
properties in the market. The Las Vegas Hilton renovated approximately 850 guest
rooms, remodeled the lobby, rebuilt a new marquee sign, opened new retail stores
and a parking garage and upgraded its slot machines and life safety system. In
late 1997, the Las Vegas Hilton added approximately 22,000 square feet of gaming
space in connection with the January 1998 opening of Star Trek: The Experience.
This attraction was developed in collaboration with Paramount Parks, Inc. 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. The Reno
Hilton renovated the bowling center, guest room suites and restaurant areas. 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 various of 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, Bally's Las
Vegas, the Flamingo Hilton Laughlin, the Reno Hilton and the Flamingo Hilton
Reno.
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 through which we provide free air transportation on our
owned or chartered aircraft and complimentary rooms, food and beverage to
selected groups or persons. Generally, these persons either have established
casino credit limits or cash on deposit in the casino and have previously
evidenced a willingness to put substantial amounts at risk at the casino.
NEW JERSEY CASINOS
We own and operate two casino hotels in Atlantic City, New Jersey: the
1,240-room Bally's Park Place Casino Resort, which includes The Wild Wild West
casino, and the 804-room Atlantic City Hilton Casino Resort.
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 attracting destination-oriented customers
arriving by automobile or bus.
We intend to continue renovation projects at our Atlantic City, New Jersey
casino hotels in 1999, with Bally's Park Place renovating 500 guest rooms and
restaurant areas with a goal of mid to late 1999 completion.
In July 1997, our new 75,000 square foot western-themed casino, The Wild
Wild West, opened. It is located on approximately four acres of boardwalk
property adjacent and connected to Bally's Park Place. Also in July 1997, The
Atlantic City Hilton completed a new 300-room hotel tower, which includes
meeting
47
<PAGE>
rooms, restaurants and other related amenities. In January 1998, we acquired the
Atlantic City Country Club in Northfield, New Jersey, which features an 18-hole
golf course.
Our 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 our Nevada casino hotels. Atlantic City
casinos do not contain sports books; however, our Atlantic City casinos feature
simulcast horse racing. Revenue and earnings for our 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
We own and operate 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 these properties are dockside casinos.
GRAND CASINO BILOXI
Grand Casino Biloxi opened in January 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 4,300 parking spaces available for guests.
The casino area features approximately 110,000 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 approximately 500 rooms, a spa 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 2,850 parking spaces available for guests.
Grand Casino Gulfport also offers a 500-seat theater adjacent to the casino.
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 and a Grand Arcade. Grand Casino Gulfport
has a seventeen-story, 1,007-room hotel adjacent to the casino.
GRAND CASINO TUNICA
Grand Casino Tunica opened in June 1996 as the largest dockside casino in
Mississippi with one of the largest casino areas in the United States. It is
located in Tunica County, Mississippi, approximately 15 miles south of the
Memphis, Tennessee metropolitan area. It is currently the closest legal gaming
site to
48
<PAGE>
Memphis and the only casino property in Tunica County with direct frontage on
U.S. Highway 61, the most direct route from Memphis to the Tunica County gaming
properties.
Grand Casino Tunica is a 400,000 square foot, three-story, multi-themed
casino complex containing approximately 140,000 square feet of gaming space. It
features four unique themes of old Americana: the Gold Rush Era San Francisco,
an 1890's Mississippi Riverboat Town, a New Orleans Mardi Gras, and the Great
American West of the 1870's. Three hotels comprise an aggregate of 1,356 rooms,
600 of which were opened in March of 1999. The hotel casino is complemented by
six restaurants, a recently constructed 18-hole professionally designed
championship golf course and driving range, a recreational vehicle park and a
sporting clay course.
BALLY'S SALOON-GAMBLING HALL-HOTEL
We own and manage Bally's Saloon-Gambling Hall-Hotel, a casino and hotel
complex located in Robinsonville, Mississippi, near Memphis, Tennessee. The
complex features a dockside casino, a 238-room hotel, and an adjacent 40,000
square foot land-based facility with entertainment facilities and a restaurant.
LOUISIANA CASINO
We own a 49.9% interest in the Belle of Orleans, L.L.C. 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. Metro Riverboat Associates,
Inc. owns the other 50.1% of the Belle. We manage the casino under a management
agreement with Belle.
INTERNATIONAL CASINOS
Through our subsidiaries, we have interests in and manage three
international casino hotels which feature table games and slot machines similar
to those offered at our casino hotels in Nevada, New Jersey and Mississippi.
In January 1997, casino operations commenced at the 46.4% owned and managed
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.
We also manage and have a 19.9% ownership interest in each of 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
We continue to expand our 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 approximately 85,000 square foot casino, eight
restaurants, five lounges, 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. We expect to complete and open the Paris Casino
Resort on September 1, 1999.
In 1999, our Nevada casino hotels are scheduled to complete additional
expansion and renovation programs. The Las Vegas Hilton has completed a pool and
spa renovation and plans to renovate additional rooms and slot machines. The
Flamingo Hilton Las Vegas intends to renovate guest rooms and casino areas,
upgrade slot machines, and enhance the signage and information systems. Bally's
Las Vegas expects to continue its participation in a joint venture to erect
pedestrian bridges over the Strip and Flamingo Road connecting the property to
other hotel casinos, and also intends to remodel the convention center
49
<PAGE>
and approximately 800 rooms. Bally's Las Vegas also plans to erect a new marquee
sign on the strip and plans to complete a pedestrian bridge between the property
and the Paris Casino Resort which will feature retail space and restaurants. The
Flamingo Hilton Laughlin will continue its slot machine replacement program. The
Reno Hilton is planning to renovate guest room suites, upgrade slot machines,
add signage and enhance the cooling and information systems. The Flamingo Hilton
Reno expects to continue to renovate guest rooms and upgrade slot machines.
MISSISSIPPI
The Gulfport Oasis Resort and Spa, a new 600-room resort, opened in June of
1999. We are also building an 18-hole championship golf course in the Gulf Coast
area, together with a clubhouse. We expect this project to be completed in the
fall of 1999.
The 2,000 acre site for Grand Casino Tunica is conducive to significant
long-term development of the site. Additional development will, however, depend
upon Grand Casino Tunica's operating results and other future market conditions.
The additions may, therefore, not be completed. 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. We expect to fund the future
developments primarily from cash flow. We expect the future developments, if
completed, to further enhance Grand Casino Tunica's status as a premier
destination gaming resort and to encourage repeat visits.
CREDIT POLICY
We have extended credit on a discretionary basis to qualified patrons
especially at the Las Vegas Hilton and to a much lesser extent at our other
properties. We maintain strong controls over the extension of credit and perform
extensive credit checks to determine each individual patron's creditworthiness.
The ultimate collectibility of customer receivables is impacted by many factors
including changes in economic conditions in the patrons' home countries, changes
in currency exchange rates and judicial action.
CASH CONTROLS
It is impracticable for our casinos to record the total amount of wagers
placed, although we regularly determine the amount of chips issued for cash and
credit. The amount of gaming activity varies significantly from time to time
primarily due to general economic conditions, popularity of entertainment in the
hotels, and occupancy rates in the hotels and in our markets. The amount of
revenue from gaming operations varies depending upon the amount of gaming
activity as well as variations in the odds for different games and chance.
Casino activities are conducted by experienced personnel who are well-trained
and supervised. As is the case of any business that extensively involves the
handling of cash, gaming operations at our casino hotels are subject to risk of
substantial loss as a result of dishonesty. However, we believe that we have
reduced the risk to the fullest extent practicable without impeding play and
within reasonable cost limitations through supervision of employees and other
internal controls.
EMPLOYEES
At June 30, 1999, we had approximately 42,000 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. We believe that the
aggregate compensation benefits and working conditions afforded our 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
our facilities, we believe our employee relations are satisfactory.
50
<PAGE>
COMPETITION
We seek to maintain the diversity of our gaming businesses while expanding
both domestically and internationally. We intend to improve and expand our core
business by:
- leveraging our strong brand names;
- maximizing operating efficiencies;
- expanding and enhancing properties; and
- acquiring, developing or disposing of properties as appropriate.
Obsolescence arising from age and condition of facilities is a factor in the
gaming industry. Accordingly, we now expend, and intend to continue to expend,
substantial funds to maintain our facilities in first-class condition in order
to remain competitive.
To the extent that the casino hotel room capacity is expanded by others in a
city where our casino hotels are located, competition will increase. New
capacity additions or new gaming operations in our markets could adversely
impact our future operating results. Our business might also be adversely
affected if gaming operations are permitted or established in locations near our
markets. Gaming related referenda have been voted upon or are being proposed in
several states which could, if passed, materially affect us. For a more detailed
description of our competition and competitive factors, see "Risk Factors."
ARRANGEMENTS BETWEEN HILTON, PARK PLACE, GRAND AND LAKES
In connection with our spin-off from Hilton, we entered into agreements with
Hilton governing, among other things:
- tax matters;
- indemnification;
- employee benefits;
- intellectual property; and
- the provision of administrative and other services.
For further information about these agreements, see "Arrangements Between
Hilton and Park Place" in our Form 10-K for the year ended December 31, 1998,
which is incorporated by reference in this prospectus.
In addition, in connection with Lakes' spin-off from Grand, Grand entered
into agreements with Lakes governing:
- tax matters;
- indemnification;
- intellectual property;
- employee benefits; and
- administrative cooperation.
For further information about these agreements, see "Arrangements Between
Grand and Lakes" in our Form 10-K for the year ended December 31, 1998, which is
incorporated by reference in this prospectus.
LEGAL PROCEEDINGS
You should read the following information together with Note 16 to our
audited financial statements, included in this prospectus beginning on page F-2,
for additional information concerning legal proceedings to which we and/or our
subsidiaries are parties.
51
<PAGE>
GRAND DERIVATIVE ACTION
Certain of Grand's current and former officers and directors are defendants
in a legal action filed on February 6, 1997 in the Minnesota District Court,
Hennepin County. The plaintiffs, who are current or former Grand shareholders,
allege the defendants breached fiduciary duties to the shareholders of Grand as
a result of transactions involving the Stratosphere project. Grand is providing
the defense for the defendants pursuant to Grand's indemnification obligations
to the defendants. Grand's board of directors appointed an independent special
litigation committee under Minnesota law to evaluate whether Grand should pursue
claims against the officers and directors. The committee recommended to the
court that the plaintiffs' claims not be pursued. In May 1998, the Court granted
Grand's motion for summary judgment, thereby dismissing the plaintiffs' claims.
On March 9, 1999 the Minnesota Court of Appeals affirmed the summary judgment.
Plaintiffs petitioned for appellate consideration by the Minnesota Supreme
Court. On May 18, 1999, the Minnesota Supreme Court denied the plaintiffs'
petition for appellate consideration.
BELLE OF ORLEANS
Our wholly-owned subsidiary, Bally's Louisiana, Inc., owns 49.9% of the
Belle of Orleans, L.L.C., a limited liability company which owns and holds the
riverboat gaming license to operate Bally's Casino Lakeshore Resort. Metro
Riverboat Associates, Inc. owns the remaining 50.1% interest in Belle. The
parties entered into various operating and management agreements defining their
relationships and the operation and governance of the riverboat casino. The
parties are currently involved in numerous lawsuits regarding their rights and
obligations under those agreements, which lawsuits have been described in Note
16 to our audited financial statements. Current significant developments are as
follows:
On December 28, 1998, Metro filed an action in the Civil District Court for
the Parish of Orleans, State of Louisiana, seeking injunctive relief to prevent
the spin-off of Hilton's gaming operations to us. Both the Louisiana Fourth
Circuit Court of Appeal (on December 31, 1998) and the Louisiana Supreme Court
(on January 7 and 27, 1999) denied the issuance of a temporary restraining order
against Bally's Louisiana. On March 3, 1999, the trial court additionally denied
Metro's petition for a preliminary injunction. On May 5, 1999, Metro filed an
appeal to the Louisiana Fourth Circuit Court of Appeal, appealing the March 3,
1999 denial for a preliminary injunction.
From January 5, 1999 to date, Metro has filed several petitions in the
Nineteenth Judicial District Court for the Parish of East Baton Rouge, State of
Louisiana, against Bally's Louisiana and the Louisiana Gaming Control Board
seeking to: (a) compel the Louisiana Gaming Control Board to conduct a public
hearing prior to approval of the Hilton/Park Place spin-off transaction and
prior to renewal of Belle's gaming license; (b) stay or reverse the Louisiana
Gaming Control Board's December 29, 1998 conditional approval of the Hilton/Park
Place spin-off; and (c) compel Bally's Louisiana and the Louisiana Gaming
Control Board to escrow certain Belle operating funds.
On August 13, 1999, Metro filed another suit against Bally's Louisiana in
the Civil District Court for the Parish of Orleans seeking a writ of quo
warranto to require Bally's Louisiana to show by what authority it manages the
riverboat casino. Metro claims that the assignments from previous Bally's
entities to Bally's Louisiana were invalid and that Bally's Louisiana has no
management authority over the riverboat casino. A hearing is scheduled for
August 30, 1999, at which time the court may declare the assignments of the
management contract invalid. In such event, there is a possibility that an
interim manager may be appointed or that the riverboat casino may be closed
pending the outcome of the litigation.
On January 27, 1999 the court ordered the Louisiana Gaming Control Board to
conduct a public hearing to determine whether the Hilton/Park Place spin-off
transaction should be approved. Upon application by the Louisiana Gaming Control
Board, the court granted a suspensive appeal of its own order, staying its
effect.
On March 16, 1999, the Louisiana Gaming Control Board ordered that the gross
gaming revenues of Belle be placed into escrow, subject to disbursement upon
approvals by the Louisiana Gaming Control Board or the Louisiana State Police.
Upon reconsideration at its meeting of June 15, 1999, the Board
52
<PAGE>
revised its order to require that only the net profits and 12.25% management fee
paid to Bally's Louisiana, and not the gross revenues, be placed into escrow.
Bally's Louisiana has challenged in court that order of the Louisiana Gaming
Control Board and a temporary restraining order has been issued by the
Nineteenth Judicial District Court for the Parish of East Baton Rouge staying
enforcement of the Board's order. On August 19, 1999, the court granted Bally's
Louisiana's motion for a preliminary injunction. Upon motion by the Gaming
Control Board, that order was converted into a permanent injunction and judgment
on the merits.
On June 14, 1999 the Louisiana Gaming Control Board issued a Notice of
Violation and has set for hearing the issue of whether the assignments from
Bally's entities, which ultimately resulted in Bally's Louisiana, Inc. obtaining
the management agreement for the casino, were accomplished in violation of
gaming statutes or regulations. We do not believe that any violation occurred
and that if any is ultimately found to exist, it is technical in nature and will
not result in material adverse impact to Bally's Louisiana, Inc., to the Belle,
or to us. A hearing on the matter is set for August 31, 1999.
CITY OF NEW ORLEANS
In two separate actions brought in the Civil District Court for the Parish
of Orleans, Belle of Orleans, L.L.C. is contesting allegedly unpaid taxes to the
City of New Orleans in the total amount of approximately $2.72 million dollars.
The dispute arises out of a disagreement over how admission fees are to be
collected. In the first action, brought on March 26, 1998, Belle sued the city
to recover approximately $1.12 million in taxes paid under protest. Judgment was
entered on January 8, 1999 by the Court in favor of Belle, and the City has
appealed. In the second action, the City filed suit on December 29, 1998 against
Belle to recover an additional approximate $1.6 million in allegedly owed
subsequent taxes which Belle declines to pay in light of the Court's judgment in
the earlier case.
BALLY MERGER LITIGATION
An action against Bally Entertainment Corporation, its directors, and
Hilton, was commenced in September, 1996 in the Delaware Court of Chancery, in
connection with the December 1996 merger of Bally and Hilton. The allegations
include alleged breach of fiduciary duties to the plaintiff, who purports to
bring the action on behalf of a class of all Bally shareholders. Both injunctive
relief and damages were sought. The defendants filed a motion to dismiss the
complaint in its entirety, which was granted by the Court. On January 25, 1999,
the Delaware Supreme Court reversed the dismissal order and remanded the case to
the Court of Chancery for further proceedings.
ENVIRONMENTAL MATTERS
We, like others in our industry, are subject to various federal, state,
local and, in some cases, foreign laws, ordinances and regulations that:
- 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
- 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.
We endeavor to maintain compliance with environmental laws, but, from time
to time, current or historical operations at our properties may have resulted or
may result in noncompliance or liability for cleanup pursuant to environmental
laws. As a result, we may incur costs for cleaning up contamination relating to
historical uses of certain of our properties.
53
<PAGE>
PROPERTIES OF CAESARS
The following table sets forth information available to us at August, 1999
about the Caesars properties in which we will have interests upon consummation
of the acquisition:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
NUMBER OF CASINO
NAME LOCATION ROOMS/SUITES SQUARE FOOTAGE
- --------------------------------------- ----------------------------------------- --------------- --------------
<S> <C> <C> <C>
DOMESTIC CASINOS
Caesars Palace Las Vegas, Nevada 2,454 125,000
Caesars Atlantic City Atlantic City, New Jersey 1,149 120,000
Caesars Indiana(1) Harrison County, Indiana --(2) 90,000
Caesars Tahoe(3) Stateline, Nevada 440 40,000
Sheraton Casino & Hotel Robinsonville, Mississippi 134 33,000
Dover Downs(4) Dover, Delaware -- 25,000
INTERNATIONAL CASINOS
Windsor Casino(5) Windsor, Canada 389 100,000
Caesars Gauteng(6) Kempton Park, South Africa -- 65,000
Sheraton Casino Sydney Cape Breton, Nova Scotia, Canada -- 15,000
Sheraton Halifax Hotel & Casino Halifax, Nova Scotia, Canada 350 20,000(7)
Caesars Manila(8) Manila, Philippines -- 4,000
Caesars Palace at Sea S.S. Crystal Harmony -- 3,850(9)
S.S. Crystal Symphony -- 5,000(9)
----- -------
Total 4,916 645,850
----- -------
----- -------
</TABLE>
- ------------------------
(1) Caesars Indiana is managed by Caesars and owned by a joint venture in which
Caesars owns in excess of 90% of the economic interests.
(2) A 500-room hotel tower is currently planned to be under construction in
2000.
(3) Caesars leases the building that houses the hotel and casino and leases the
underlying land under a long-term ground and structure lease.
(4) Caesars provides management services to the casino at the Dover Downs
racetrack in Delaware.
(5) Caesars has a 50% interest in Windsor Casino Limited, which operates this
hotel/casino complex. The Province of Ontario owns the complex.
(6) Caesars has an approximately 25% interest in a joint venture that owns
Caesars Gauteng and has an approximately 50% interest in a joint venture
that manages Caesars Gauteng.
(7) A permanent casino featuring approximately 33,000 square feet is currently
under construction.
(8) Caesars has a 50% interest in a joint venture which owns Caesars Manila and
receives a marketing services fee.
(9) Caesars operates the Caesars Palace at Sea casinos only while the cruise
ships on which they are located are in international waters.
CAESARS PALACE
Caesars Palace, which opened in 1966, is one of the premier gaming
properties in the world, attracting patrons from all over the world to its
luxurious guest rooms and 125,000 square foot casino. Caesars Palace is located
on the corner of Las Vegas Boulevard and Flamingo Road, the "4 Corners," in the
heart of the Las Vegas Strip. Caesars Palace has approximately 2,454 rooms in
service, a 125,000 square foot casino including 99 table games and 1,919 slot
machines. It also has 14 restaurants and bars, 171,000 square feet
54
<PAGE>
of meeting and banquet space, a 1,100-seat showroom, a 23,000 square foot health
spa, an "Omnimax" theater and the "Caesars Magical Empire," which combines a
dining experience with a unique entertainment program and theme. The Caesars
Palace property stands on approximately 80 acres, including 4.3 acres of
undeveloped land behind Caesars Palace which could be used for a number of
purposes including the expansion of the hotel, casino or meeting space.
Caesars Palace also boasts one of the premier retail shopping experiences in
all of Las Vegas, known as The Forum Shops, which is home to stores such as
Gucci, Armani and FAO Schwartz. The Forum Shops also houses world class
restaurants such as Spago and The Palm. Caesars Palace has made approximately
$594 million in maintenance and improvement capital expenditures over the past
three years to create a more exciting gaming environment, to add approximately
1,100 rooms and a new hotel tower, to add gaming space for slot machines and
table games, to construct other facilities for conventions, meeting and banquets
and to construct a new health club and spa. Caesars is currently in discussions
with the Forum Shops' developer for the construction of a third phase of the
Forum Shops, expected to add an additional 300,000 square feet of retail space.
We anticipate that the developer will bear the costs of construction and
maintenance of the new retail space.
CAESARS ATLANTIC CITY
Caesars Atlantic City is a casino/hotel complex located at the center of the
boardwalk in Atlantic City, New Jersey. Caesars Atlantic City has undergone
extensive renovation since 1996, investing approximately $420 million in
maintenance and improvement capital expenditures, to add approximately 620
additional rooms and approximately 38,000 square feet of casino space and to
enhance its convention, meeting and banquet facilities, including expanded
dining facilities, a multi-function grand ballroom and a four-story atrium. The
design incorporates an elaborate Roman theme with Corinthian columns, large
statues and extensive fountains. These improvements are expected to enhance the
appeal of Caesars Atlantic City as a convention site, as well as attract more
walk-in patrons from the boardwalk.
Caesars Atlantic City has approximately 1,149 rooms in service and a 120,000
square foot casino, including 139 gaming tables and 3,589 slot machines. It also
has 12 restaurants and bars, 34,000 square feet of meeting and banquet space, a
1,150-seat showroom, a shopping arcade, a Roman-themed transportation center
which accommodates approximately 2,100 cars and 12 buses, a health club and
tennis courts. The property on which Caesars Atlantic City stands consists of
approximately ten acres.
In August 1996, Caesars Atlantic City acquired the Ocean One retail mall for
approximately $20 million. The Ocean One mall is constructed on a pier which
extends 900 feet over the Atlantic Ocean and is located directly in front of the
Boardwalk entrance to Caesars Atlantic City. Ocean One contains approximately
400,000 square feet of restaurant and retail space on three floors. Under
current applicable local and state laws, Ocean One may not be used for gaming or
lodging activities. Development of Ocean One with gaming and lodging requires
approvals from local and state authorities and the New Jersey Casino Control
Commission.
CAESARS INDIANA
Caesars Indiana's "Glory of Rome" Riverboat is the largest riverboat casino
in the U.S. with approximately 90,000 square feet of gaming space, including 141
gaming tables and 2,791 slot machines. The riverboat commenced operations in
November of 1998 and is located near the Louisville, Kentucky border. Caesars
Indiana is currently constructing a 170,000 square foot pavilion that will house
retail space and restaurants and bars. Caesars Indiana is also planning to
construct a 500-room hotel in 2000.
CAESARS TAHOE
Caesars Tahoe casino/hotel complex opened in 1979 and is located in
Stateline, Nevada, adjacent to Lake Tahoe. At that time, Caesars Tahoe entered
into a long-term ground and structure lease for the
55
<PAGE>
building that houses the casino/hotel and the 24-acre property on which the
casino/hotel stands. This lease expires in 2004, but contains two 25-year
options to renew. Caesars Tahoe has 440 hotel rooms and suites, a 40,000 square
foot casino, nine restaurants, a 1,500-seat showroom, 15,000 square feet of
convention space, a Roman-themed nightclub, bars, shops, outdoor tennis courts
and an indoor health spa containing a swimming pool and a racquetball court.
SHERATON CASINO & HOTEL
The Sheraton Casino & Hotel is located in Robinsonville, Mississippi. The
casino consists of 33,000 square feet of gaming space, including 48 gaming
tables and 1,300 slot machines. The attached hotel has approximately 134 rooms
and eight restaurants and bars.
OTHER DOMESTIC FACILITIES
Caesars is a party to a management agreement with respect to a video lottery
operation at the Dover Downs racetrack in Delaware.
INTERNATIONAL PROPERTIES
Caesars owns a 50% interest in Windsor Casino Limited, which operates the
Windsor Casino hotel/casino complex, owned by the Province of Ontario,
comprising a 100,000 square foot casino and 389 rooms, in Windsor, Ontario,
directly across the river from Detroit, Michigan. Caesars also owns a 95%
interest in Metropolitan Entertainment Group, which operates a casino at the
Sheraton Halifax Hotel & Casino in Halifax, Nova Scotia, and which also operates
the Sheraton Casino Sydney, which is a stand-alone casino, in Sydney, Cape
Breton, Nova Scotia. Metropolitan Entertainment Group funded the construction of
the Nova Scotia properties and is being repaid, with interest out of the
operating revenues generated by the properties. In addition, Caesars operates
the Caesars Gauteng in Kempton Park, Johannesburg, South Africa, Caesars Manila
in Manila, Philippines, and Caesars Palace at Sea, which it operates on two
cruise ships while they are in international waters.
56
<PAGE>
REGULATION AND LICENSING
Each of our casinos is subject to extensive regulation under laws, rules and
supervisory procedures primarily in the jurisdiction where located or docked.
Some jurisdictions, however, empower their regulators to investigate
participation by licensees in gaming outside their jurisdiction and require
access to and periodic reports respecting the gaming activities. Violations of
laws in one jurisdiction could result in disciplinary action in other
jurisdictions.
In connection with the acquisition, we and certain of our subsidiaries must
be found suitable as holding companies of subsidiaries that hold gaming
licenses. To the extent required, we are preparing and filing applications for
findings of suitability in each jurisdiction in which our subsidiaries will
conduct gaming activities. In addition, in certain jurisdictions the gaming
regulatory authorities must pre-approve the acquisition, and we have filed, or
plan to shortly file, the applications for these approvals. We cannot assure you
that we will obtain any of these approvals or that we will obtain any approval
on a timely basis. For a discussion of our obligations and Starwood's
obligations in the event regulatory approval is not received, see "The
Acquisition--Conditions" and "Risk Factors--Our ability to consummate the
acquisition depends on our ability to raise or incur additional financing and
other factors."
Under provisions of gaming laws in which we have operations and under our
Amended and Restated Certificate of Incorporation, certain of our securities are
subject to restrictions on ownership which may be imposed by specified
governmental authorities. The restrictions may require a holder of our
securities to dispose of the securities or, if the holder refuses to dispose of
the securities, we may be obligated to repurchase the securities.
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 and various local regulations. Our Nevada
gaming operations are subject to the licensing and regulatory control of the
Nevada Gaming Commission, the Nevada State Gaming Control Board and, depending
on the facility's location, the Clark County Liquor and Gaming Licensing Board
and the City of Reno, which we refer to collectively as the "Nevada Gaming
Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things:
- the prevention of unsavory or unsuitable persons from having a direct or
indirect involvement with gaming at any time or in any capacity;
- the establishment and maintenance of responsible accounting practices and
procedures;
- the maintenance of effective controls over the financial practices of
licensees, including the establishment and maintenance of effective
controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record keeping and
requiring the filing of periodic reports with the Nevada Gaming
Authorities;
- the prevention of cheating and fraudulent practices; and
- providing a source of state and local revenues through taxation and
licensing fees.
Changes in such laws, regulations and procedures could have an adverse
effect on our gaming operations.
Each of our subsidiaries that currently operates a casino in Nevada is
required to be licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not
57
<PAGE>
transferable. We are required to be registered by the Nevada Gaming Commission
as a publicly-traded corporation and as such, are required periodically to
submit detailed financial and operating reports to the Nevada Gaming Commission
and furnish any other information that the Nevada Gaming Commission may require.
No person may become a stockholder of, or receive any percentage of profits
from, a licensed casino without first obtaining licenses and approvals from the
Nevada Gaming Authorities. We and our licensed subsidiaries have obtained from
the Nevada Gaming Authorities the various registrations, findings of
suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, us or any of our
licensed subsidiaries in order to determine whether the individual is suitable
or should be licensed as a business associate of a gaming licensee. Our and the
licensed subsidiaries' officers, directors and key employees must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. An applicant for licensing or an applicant for a finding
of suitability must pay for all the costs of the investigation. Changes in
licensed positions must be reported to the Nevada Gaming Authorities and, in
addition to their authority to deny an application for a finding of suitability
or licensing, the Nevada Gaming Authorities have the jurisdiction to disapprove
a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with us or any licensed subsidiary, we and the licensed subsidiary
would have to sever all relationships with that person. In addition, the Nevada
Gaming Commission may require us or a licensed subsidiary to terminate the
employment of any person who refuses to file appropriate applications.
Determinations of suitability or questions pertaining to licensing are not
subject to judicial review in Nevada.
We and all licensed subsidiaries are required to submit detailed financial
and operating reports to the Nevada Gaming Commission. Substantially all of our
or a licensed subsidiaries' material loans, leases, sales of securities and
similar financing transactions must be reported to, or approved by, the Nevada
Gaming Commission.
If the Nevada Gaming Commission determined that we or a licensed subsidiary
violated the Nevada Gaming Control Act, it could limit, condition, suspend or
revoke our gaming licenses. In addition, we, the licensed subsidiary, and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Gaming Control Act at the discretion of the Nevada
Gaming Commission. Further, a supervisor could be appointed by the Nevada Gaming
Commission to operate a licensed subsidiary's gaming establishment and, under
specified circumstances, earnings generated during the supervisor's appointment,
except for the reasonable rental value of the premises, could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license of a licensed subsidiary and the appointment of a supervisor could, or
revocation of any gaming license would, have a material adverse effect on our
gaming operations.
Any beneficial holder of our common stock, or any of our other voting
securities, regardless of the number of shares owned, may be required to file an
application, be investigated, and have that person's suitability as a beneficial
holder of our voting securities determined if the Nevada Gaming Commission has
reason to believe that the ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
the investigation incurred by the Nevada Gaming Authorities in conducting any
such investigation.
The Nevada Gaming Control Act requires any person who acquires a beneficial
ownership of more than 5% of our voting securities to report the acquisition to
the Nevada Gaming Commission. The Nevada Gaming Control Act requires that
beneficial owners of more than 10% of our voting securities apply to the
58
<PAGE>
Nevada Gaming Commission for a finding of suitability within thirty days after
the Chairman of the Nevada Gaming Control Board mails the written notice
requiring such filing. An "institutional investor," as defined in the Nevada
Act, which acquires beneficial ownership of more than 10%, but not more than
15%, of our voting securities may apply to the Nevada Gaming Commission for a
waiver of a finding of suitability if the institutional investor holds our
voting securities for investment purposes only. An institutional investor will
be deemed to hold our voting securities for investment purposes if it acquired
and holds our voting securities in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly:
- the election of a majority of the members of the our board of directors;
- any change in our corporate charter, bylaws, management, policies or
operations, or any of its gaming affiliates; or
- any other action which the Nevada Gaming Commission finds to be
inconsistent with holding our voting securities for investment purposes
only.
Activities which are not deemed to be inconsistent with holding voting
securities for investment purposes only include:
- voting on all matters voted on by stockholders;
- making financial and other inquiries of management of the type normally
made by securities analysts for informational purposes and not to cause a
change in its management, policies or operations; and
- other activities as that the Nevada Gaming Commission may determine to be
consistent with investment intent. If the beneficial holder of our voting
securities who must be found suitable is a corporation, partnership,
limited partnership, limited liability company or trust, it must submit
detailed business and financial information including a list of beneficial
owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Gaming
Commission or by the Chairman of the Nevada Gaming Control Board may be found
unsuitable. The same restrictions apply to a record owner if the record owner,
after request, fails to identify the beneficial owner. Any stockholder found
unsuitable and who holds, directly or indirectly, any beneficial ownership of
our voting securities beyond such period of time as may be prescribed by the
Nevada Gaming Commission may be guilty of a criminal offense. We will be subject
to disciplinary action if, after we receive notice that a person is unsuitable
to be a stockholder or to have any other relationship with us or a licensed
subsidiary, we:
- pay that person any dividend or interest upon any of our voting
securities;
- allow that person to exercise, directly or indirectly, any voting right
conferred through securities held by that person;
- pay remuneration in any form to that person for services rendered or
otherwise; or
- fail to pursue all lawful efforts to require such unsuitable person to
relinquish the voting securities including, if necessary, the immediate
purchase of such voting securities for cash at fair market value.
Additionally, the Clark County Liquor and Gaming Licensing Board has the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming licensee.
The Nevada Gaming Commission may, in its discretion, require the holder of
any debt security of a registered publicly-traded corporation, such as the
notes, to file applications, be investigated and be found suitable to own the
debt security of the registered corporation. If the Nevada Gaming Commission
59
<PAGE>
determines that a person is unsuitable to own the security, then pursuant to the
Nevada Gaming Control Act, the registered publicly-traded corporation can be
sanctioned, including the loss of its approvals, if without the prior approval
of the Nevada Gaming Commission, it:
- pays to the unsuitable person any dividend, interest or any distribution
whatsoever;
- recognizes any voting right by such unsuitable person in connection with
such securities;
- pays the unsuitable person remuneration in any form; or
- makes any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar transaction.
We are required to maintain a current stock ledger in Nevada which may be
examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make the disclosure may be grounds for finding the record holder
unsuitable. We are also required to render maximum assistance in determining the
identity of the beneficial owner of any of our voting securities. The Nevada
Gaming Commission has the power to require our stock certificates to bear a
legend indicating that the securities are subject to the Nevada Gaming Control
Act. To date, the Nevada Gaming Commission has not imposed that requirement on
us.
We may not make a public offering of our securities without the prior
approval of the Nevada Gaming Commission if we intend to use the securities or
the proceeds therefrom to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for those purposes. On
December 17, 1998, the Nevada Gaming Commission granted us prior approval to
make public offerings for a period of two years, subject to specified
conditions, which we refer to as the "shelf approval." The shelf approval also
applies to any company we wholly own which is a publicly-traded corporation or
would become a publicly-traded corporation pursuant to a public offering. The
shelf approval also includes approval for the licensed subsidiaries to guarantee
any security issued by, and to hypothecate their assets to secure the payment or
performance of any obligations issued by, us or an affiliate in a public
offering under the shelf registration. The shelf approval also includes approval
to place restrictions upon the transfer of and enter into agreements not to
encumber the equity securities of the licensed subsidiaries, which we refer to
as, the "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 Gaming Control Board. The shelf approval does not
constitute a finding, recommendation or approval of the Nevada Gaming
Authorities as to the accuracy or adequacy of the offering memorandum or the
investment merits of the securities offered by the offering memorandum. Any
representation to the contrary is unlawful. The exchange offer will qualify as a
public offering and will be made pursuant to the shelf approval. The stock
restrictions in respect of the exchange notes also will be covered by the shelf
approval. The stock restrictions in respect of the old notes are not covered by
the shelf approval and require the prior approval of the Nevada Gaming
Commission, upon the recommendation of the Nevada Gaming Control Board, in order
to be effective. We have filed an application requesting such approval.
We must obtain prior approval of the Nevada Gaming Commission with respect
to a change in control through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby the person obtains control of us. Entities seeking to acquire
control of a registered publicly-traded corporation must satisfy the Nevada
Gaming Control Board and Nevada Gaming Commission in a variety of stringent
standards before assuming control of the registered corporation. The Nevada
Gaming Commission may also require controlling stockholders, officers, directors
and other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction. The acquisition of Caesars World
Inc. and its registered and licensed Nevada subsidiaries requires the prior
approval of the Nevada Gaming Commission upon the recommendation of the Nevada
Gaming Control
60
<PAGE>
Board. We have filed an application for such approval. However, we cannot assure
you that such approval will be obtained, or that if such approval is obtained,
it will be obtained on a timely basis.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licenses, and registered publicly-traded corporations
that are affiliated with those operations, may be injurious to stable and
productive corporate gaming. The Nevada Gaming Commission has established a
regulatory scheme to ameliorate the potentially adverse effects of these
business practices upon Nevada's gaming industry and to further Nevada's policy
to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
Approvals may be required from the Nevada Gaming Commission before we can
make exceptional repurchases of voting securities above their current market
price and before a corporate acquisition opposed by management can be
consummated. The Nevada Act also requires prior approval of a plan of
recapitalization proposed by our board of directors in response to a tender
offer made directly to its stockholders for the purpose of acquiring control of
us.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the licensed subsidiaries respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either:
- a percentage of the gross revenues received;
- the number of gaming devices operated; or
- the number of table games operated.
A casino entertainment tax is also paid by casino operations where
entertainment is furnished in connection with the selling or serving of food or
refreshments or the selling of merchandise. Nevada corporate licensees that hold
a license as an operator of a slot machine route, or a manufacturer's or
distributor's license, also pay fees and taxes to the State of Nevada. The
licensed subsidiaries currently pay monthly fees to the Nevada Gaming Commission
equal to a maximum of 6.25% of gross revenues.
Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with those persons (collectively,
"licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Gaming Control Board, and
thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Gaming Control Board of the licensee's
participation in such foreign gaming. The revolving fund is subject to increase
or decrease in the discretion of the Nevada Gaming Commission. Thereafter,
licensees are required to comply with the reporting requirements imposed by the
Nevada Gaming Control Act. A licensee is also subject to disciplinary action by
the Nevada Gaming Commission if it:
- knowingly violates any laws of the foreign jurisdiction pertaining to the
foreign gaming operation;
- fails to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations;
- engages in activities or enters into associations that are harmful to the
State of Nevada or its ability to collect gaming taxes and fees; or
- 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.
61
<PAGE>
The sale of alcoholic beverages at establishments operated by a licensed
subsidiary is subject to licensing, control and regulation by applicable local
regulatory agencies. All licenses are revocable and are not transferable. The
agencies involved have full power to limit, condition, suspend or revoke any
such license, and any such disciplinary action could, and revocation would, have
a material adverse effect upon the operations of the licensed subsidiary.
NEW JERSEY GAMING LAWS
The ownership and operation of casino gaming facilities in Atlantic City are
subject to the New Jersey Casino Control Act, regulations of the New Jersey
Casino Control Commission and other applicable laws. No casino may operate
unless it obtains the required permits or licenses and approvals from the New
Jersey Commission. The New Jersey Commission is authorized under the New Jersey
Act to adopt regulations covering a broad spectrum of gaming and gaming related
activities and to prescribe the methods and forms of applications from all
classes of licensees. These laws and regulations concern primarily:
- the financial stability, integrity, responsibility, good character,
honesty and business ability of casino service suppliers and casino
operators, their directors, officers and employees, their security holders
and others financially interested in casino operations;
- the nature of casino hotel facilities; and
- the operating methods and financial and accounting practices used in
connection with the casino operations.
The State of New Jersey imposes taxes on gaming operations at the rate of 8%
of gross gaming revenues. In addition, the New Jersey Act provides for an
investment alternative tax of 2.5% of gross gaming revenues. This investment
alternative tax may be offset by investment tax credits equal to 1.25% of gross
gaming revenues, which are obtained by purchasing bonds issued by, or investing
in housing or other development projects approved by, the Casino Reinvestment
Development Authority.
The New Jersey Commission has broad discretion with regard to the issuance,
renewal and revocation or suspension of casino licenses. A casino license is not
transferable, is issued for a term of up to one year for the first two renewals
and thereafter for a term of up to four years, subject to discretionary
reopening of the licensing hearing by the New Jersey Commission at any time. A
casino license must be renewed by filing an application which must be acted on
by the New Jersey Commission before the license in force expires. At any time,
upon a finding of disqualification or noncompliance, the New Jersey Commission
may revoke or suspend a license or impose fines or other penalties.
The New Jersey Act imposes certain restrictions on the ownership and
transfer of securities issued by a corporation that holds a casino license or is
deemed a holding company, intermediary company, subsidiary or entity qualifier
of a casino licensee. "Security" is defined by the New Jersey Act to include
instruments that evidence either a beneficial ownership in an entity, such as
common stock or preferred stock, or a creditor interest in an entity, such as a
bond, note or mortgage. The New Jersey Act requires that the corporate charter
of a publicly-traded affiliate of a casino licensee must require that a holder
of the company's securities who is disqualified by the New Jersey Commission
dispose of the securities. The corporate charter of a casino licensee or any
privately-held affiliate of the licensee must:
- establish the right of prior approval by the New Jersey Commission with
regard to a transfer of any security in the company; and
- create the absolute right of the company to repurchase at the market price
or purchase price, whichever is less, any security in the company if the
New Jersey Commission disapproves a transfer of the security under the New
Jersey Act.
62
<PAGE>
The New Jersey Commission has approved our corporate charter. The corporate
charters of our subsidiaries that operate Bally's Park Place and The Atlantic
City Hilton and their privately-held affiliates likewise conform to the New
Jersey Act's requirements described above for privately-held companies.
If the New Jersey Commission finds that an individual owner or holder of
securities of a corporate licensee or an affiliate of the corporate licensee is
not qualified under the New Jersey Act, the New Jersey Commission may propose
remedial action, including divestiture of the securities held. If disqualified
persons fail to divest themselves of the securities, the New Jersey Commission
may revoke or suspend the license. However, if an affiliate of a casino licensee
is a publicly-traded company, and the New Jersey Commission makes a finding of
disqualification with respect to any owner or holder of any security thereof,
and the New Jersey Commission also finds that:
- the company has adopted the charter provisions;
- the company has made a good faith effort, including the prosecution of all
legal remedies, to comply with any order of the New Jersey Commission
requiring the divestiture of the security interest held by the
disqualified owner or holder; and
- the disqualified owner or holder does not have the ability to control the
corporate licensee or the affiliate, or to elect one or more members of
the board of directors of the affiliate, the New Jersey Commission will
not take action against the casino licensee or its affiliate with respect
to the continued ownership of the security interest by the disqualified
owner or holder.
For purposes of the New Jersey Act, a security holder is presumed to have
the ability to control a publicly-traded corporation, or to elect one or more
members of its board of directors, and thus require qualification, if the holder
owns or beneficially holds 5% or more of any class of the equity securities of
the corporation, unless the security holder rebuts the presumption of control or
ability to elect by clear and convincing evidence. An "institutional investor,"
as that term is defined under the New Jersey Act, is entitled to a waiver of
qualification if it holds less than 10% of any class of the equity securities of
a publicly-traded holding or intermediary company of a casino licensee and:
- the holdings were purchased for investment purposes only;
- there is no cause to believe the institutional investor may be found
unqualified; and
- upon request by the New Jersey Commission, the institutional investor
files a certified statement to the effect that it has no intention of
influencing or affecting the affairs of the issuer, the casino licensee or
its other affiliates. The New Jersey Commission may grant a waiver of
qualification to an institutional investor holding 10% or more of the
securities upon a showing of good cause and if the conditions specified
above are met.
With respect to debt securities, the New Jersey Commission generally
requires a person holding 15% or more of a debt issue of a publicly-traded
affiliate of a casino licensee to qualify under the New Jersey Act. We cannot
assure you that the New Jersey Commission will continue to apply the 15%
threshold, and the New Jersey Commission could at any time establish a lower
threshold for qualification. The New Jersey Commission may make an exception to
the qualification requirement for institutional investors, in which case the
institutional holder is entitled to a waiver of qualification if the holder's
position in the aggregate is less than 20% of the total outstanding debt of the
affiliate and less than 50% of any outstanding publicly-traded issue of the
debt, and if the institutional investor meets the conditions specified in the
above paragraph. As with equity securities, the New Jersey Commission may grant
a waiver of qualification to institutional investors holding larger positions
upon a showing of good cause and if the institutional investor meets all of the
conditions specified in the above paragraph.
63
<PAGE>
Generally, the New Jersey Commission would require each institutional holder
seeking a waiver of qualification to execute a certificate stating that:
- the holder has reviewed the definition of institutional investor under the
New Jersey Act and believes that it meets the definition of institutional
investor;
- the holder purchased the securities for investment purposes only and holds
them in the ordinary course of business;
- the holder has no involvement in the business activities of, and no
intention of influencing or affecting the affairs of, the issuer, the
casino licensee or any affiliate; and
- if the holder subsequently determines to influence or affect the affairs
of the issuer, the casino licensee or any affiliate, it will provide not
less than 30 days' notice of its intent and will file with the New Jersey
Commission an application for qualification before taking the action.
Beginning on the date the New Jersey Commission serves notice on a corporate
licensee or an affiliate of the corporate licensee that a security holder of the
corporation has been disqualified, it will be unlawful for the security holder
to:
- receive any dividends or interest upon the securities;
- exercise, directly or through any trustee or nominee, any right conferred
by the securities; or
- receive any remuneration in any form from the corporate licensee for
services rendered or otherwise.
Persons who are required to qualify under the New Jersey Act because they
hold debt or equity securities, and are not already qualified, are required to
place the securities into an interim casino authorization trust pending
qualification. Unless and until the New Jersey Commission has reason to believe
that the investor may not qualify, the investor will retain the ability to
direct the trustee how to vote, or whether to dispose of, the securities. If at
any time the New Jersey Commission finds reasonable cause to believe that the
investor may be found unqualified, it can order the trust to become "operative,"
in which case the investor will lose voting power, if any, over the securities
but will retain the right to petition the New Jersey Commission to order the
trustee to dispose of the securities.
Once an interim casino authorization trust is created and funded, and
regardless of whether it becomes operative, the investor has no right to receive
a return on the investment until the investor becomes qualified. Should an
investor ultimately be found unqualified, the trustee would dispose of the trust
property, and the proceeds would be distributed to the unqualified applicant
only in an amount not exceeding the actual cost of the trust property. Any
excess proceeds would be paid to the State of New Jersey. If the securities were
sold by the trustee pending qualification, the investor would receive only
actual cost, with disposition of the remainder of the proceeds, if any, to await
the investor's qualification hearing.
If the New Jersey Commission determines that a licensee has violated the New
Jersey Act or its regulations, then under certain circumstances, the licensee
could be subject to fines or have its license suspended or revoked. In addition,
if a person who is required to qualify under the New Jersey Act fails to
qualify, including a security holder who fails to qualify and does not dispose
of securities as may be required by the New Jersey Act, with the exception
discussed above for publicly-traded affiliates, the licensee could have its
license suspended or revoked.
If a casino license is not renewed, is suspended for more than 120 days or
is revoked, the New Jersey Commission can appoint a conservator. The conservator
would be charged with the duty of conserving and preserving the assets so
acquired and continuing the operation of the casino hotel of a suspended
licensee or with operating and disposing of the casino hotel of a former
licensee. The suspended licensee or former licensee would be entitled only to a
fair return on its investment, to be determined under New Jersey law,
64
<PAGE>
with any excess to go to the State of New Jersey, if so directed by the New
Jersey Commission. Suspension or revocation of any licenses or the appointment
of a conservator by the New Jersey Commission would have a material adverse
effect on the businesses of our Atlantic City casino hotels.
MISSISSIPPI GAMING LAWS
The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation, but primarily the licensing and
regulatory control of the Mississippi Gaming Commission and the Mississippi
State Tax Commission.
The Mississippi Gaming Control Act, which legalized dockside casino gaming
in Mississippi, was enacted on June 29, 1990. Although not identical, the
Mississippi Act is similar to the Nevada Gaming Control Act. The Mississippi
Gaming Commission has adopted regulations which are also similar in many
respects to the Nevada gaming regulations.
The laws, regulations and supervisory procedures of Mississippi and the
Mississippi Gaming Commission seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- establish and maintain responsible accounting practices and procedures;
- maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and
safeguarding of assets and revenues, providing reliable record keeping and
making periodic reports to the Mississippi Gaming Commission;
- prevent cheating and fraudulent practices;
- provide a source of state and local revenues through taxation and
licensing fees; and
- ensure that gaming licensees, to the extent practicable, employ
Mississippi residents.
The regulations are subject to amendment and interpretation by the
Mississippi Gaming Commission. We believe that our compliance with the licensing
procedures and regulatory requirements of the Mississippi Gaming Commission will
not affect the marketability of our securities. Changes in Mississippi law or
regulations may limit or otherwise materially affect the types of gaming that
may be conducted and could have an adverse effect on us and our Mississippi
gaming operations.
The Mississippi Act provides for legalized dockside gaming at the discretion
of the 14 counties that either border the Gulf Coast or the Mississippi River,
but only if the voters in such counties have not voted to prohibit gaming in
that county. As of June 1, 1999, dockside gaming was permissible in nine of the
14 eligible counties in the state and gaming operations had commenced in Adams,
Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. Under
Mississippi law, gaming vessels must be located on the Mississippi River or on
navigable waters in eligible counties along the Mississippi River, or in the
waters of the State of Mississippi lying south of the state in eligible counties
along the Mississippi Gulf Coast. The law permits unlimited stakes gaming on
permanently moored vessels on a 24-hour basis and does not restrict the
percentage of space which may be utilized for gaming. There are no limitations
on the number of gaming licenses which may be issued in Mississippi.
We and each of our Mississippi licensee affiliates are subject to the
licensing and regulatory control of the Mississippi Gaming Commission. We are
registered under the Mississippi Act as a publicly-traded holding company of our
Mississippi licensee affiliates and will be required periodically to submit
detailed financial and operating reports to the Mississippi Gaming Commission
and furnish any other information which the Mississippi Gaming Commission may
require. If we are unable to satisfy the registration requirements of the
Mississippi Act, we and our affiliates cannot own or operate gaming facilities
in Mississippi. Each of our Mississippi licensee affiliates must maintain a
gaming license from the Mississippi
65
<PAGE>
Gaming Commission to operate a casino in Mississippi. The Mississippi Gaming
Commission issues the licenses.
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
Gaming Commission.
Certain of our officers and employees and the officers, directors and key
employees of our licensed Mississippi subsidiaries must be found suitable or be
licensed by the Mississippi Gaming Commission. We believe we have applied for
all necessary findings of suitability with respect to these persons, although
the Mississippi Gaming Commission, in its discretion, may require additional
persons to file applications for findings of suitability. In addition, any
person having a material relationship or involvement with us may be required to
be found suitable, in which case those persons must pay the costs and fees
associated with the investigation. The Mississippi Gaming Commission may deny an
application for a finding of suitability for any cause that it deems reasonable.
Changes in certain licensed positions must be reported to the Mississippi Gaming
Commission. In addition to its authority to deny an application for a finding of
suitability, the Mississippi Gaming Commission has jurisdiction to disapprove a
change in a licensed position. The Mississippi Gaming Commission has the power
to require us and our registered or licensed subsidiaries to suspend or dismiss
officers, directors and other key employees or sever relationships with other
persons who refuse to file appropriate applications or whom the authorities find
unsuitable to act in their capacities.
Employees associated with gaming must obtain work permits that are subject
to immediate suspension. The Mississippi Gaming Commission will refuse to issue
a work permit to a person convicted of a felony and it may refuse to issue a
work permit to a gaming employee if the employee has committed various
misdemeanors or knowingly violated the Mississippi Act or for any other
reasonable cause.
At any time, the Mississippi Gaming Commission has the power to investigate
and require a finding of suitability of any of our record or beneficial
stockholders. Mississippi law requires any person who acquires more than 5% of
the common stock of a publicly-traded corporation registered with the
Mississippi Gaming Commission to report the acquisition to the Mississippi
Gaming Commission, and that person may be required to be found suitable. Also,
any person who becomes a beneficial owner of more than 10% of the common stock
of such a company, as reported to the SEC, must apply for a finding of
suitability by the Mississippi Gaming Commission and must pay the costs and fees
that the Mississippi Gaming Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
registered public company's common stock. However, the Mississippi Gaming
Commission has adopted a policy that may permit institutional investors to own
beneficially up to 10% of a registered public company's common stock without a
finding of suitability. If a stockholder who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Mississippi Gaming
Commission may be found unsuitable. Any person found unsuitable and who holds,
directly or indirectly, any beneficial ownership of our securities beyond the
time that the Mississippi Gaming Commission prescribes, may be guilty of a
misdemeanor. We are subject to disciplinary action if, after receiving notice
that a person is unsuitable to be a stockholder or to have any other
relationship with us or our licensed subsidiaries, we:
- pay the unsuitable person any dividend or other distribution upon our
voting securities;
- recognize the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person;
66
<PAGE>
- pay the unsuitable person any remuneration in any form for services
rendered or otherwise, except in limited and specific circumstances; or
- fail to pursue all lawful efforts to require the unsuitable person to
divest himself of the securities, including, if necessary, the immediate
purchase of the securities for cash at a fair market value.
We may be required to disclose to the Mississippi Gaming Commission upon
request the identities of the holders of any debt or other securities. In
addition, under the Mississippi Act the Mississippi Gaming Commission may, in
its discretion:
- require holders of debt securities of registered corporations to file
applications;
- investigate the holders; and
- require the holders to be found suitable to own the debt securities.
Although the Mississippi Gaming Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Gaming Commission retains the discretion to do so for
any reason, including but not limited to a default, or where the holder of the
debt instrument exercises a material influence over the gaming operations of the
entity in question. Any holder of debt or equity securities required to apply
for a finding of suitability must pay all investigative fees and costs of the
Mississippi Gaming Commission in connection with the investigation.
Each of our Mississippi licensed subsidiaries must maintain in Mississippi a
current ledger with respect to the ownership of its equity securities and we
must maintain in Mississippi a current list of our stockholders which must
reflect the record ownership of each outstanding share of any equity security
issued by us. The ledger and stockholder lists must be available for inspection
by the Mississippi Gaming Commission at any time. If any of our securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Mississippi Gaming
Commission. A failure to make that disclosure may be grounds for finding the
record holder unsuitable. We must also render maximum assistance in determining
the identity of the beneficial owner.
The Mississippi Act requires that the certificates representing securities
of a registered publicly-traded corporation bear a legend to the general effect
that the securities are subject to the Mississippi Act and the regulations of
the Mississippi Gaming Commission. The Mississippi Gaming Commission has granted
us an exemption from this legend requirement. The Mississippi Gaming Commission
has the power to impose additional restrictions on the holders of our securities
at any time.
Substantially all loans, leases, sales of securities and similar financing
transactions by a licensed gaming subsidiary must be reported to or approved by
the Mississippi Gaming Commission. A licensed gaming subsidiary may not make a
public offering of its securities, but may pledge or mortgage casino facilities
if it obtains the prior approval of the Mississippi Gaming Commission. We may
not make a public offering of our securities without the prior approval of the
Mississippi Gaming Commission if any part of the proceeds of the offering is to
be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi or to retire or extend obligations incurred for those
purposes. The approval, if given, does not constitute a recommendation or
approval of the investment merits of the securities subject to the offering.
Under the regulations of the Mississippi Gaming Commission, none of our
gaming licensees may guarantee a security issued by us pursuant to a public
offering, or pledge its assets to secure payment or performance of the
obligations evidenced by the security issued by us, without the prior approval
of the Mississippi Gaming Commission. Similarly, we may not pledge the stock or
other ownership interests of any of our gaming licensees, nor may the pledgee of
such ownership interests foreclose on such a pledge, without the prior approval
of the Mississippi Gaming Commission. Moreover, restrictions on the transfer of
an equity security issued by our Mississippi licensees and agreements not to
encumber such securities are ineffective without the prior approval of the
Mississippi Gaming Commission. We have received all such approvals from the
Mississippi Gaming Commission.
67
<PAGE>
We cannot change our control through merger, consolidation, acquisition of
assets, management or consulting agreements or any form of takeover without the
prior approval of the Mississippi Gaming Commission. The Mississippi Gaming
Commission may also require controlling stockholders, officers, directors, and
other persons having a material relationship or involvement with the entity
proposing to acquire control, to be investigated and licensed as part of the
approval process relating to the transaction. The acquisition of Sheraton Tunica
Corporation as part of the Caesars acquisition requires the prior approval of
the Mississippi Gaming Commission upon the recommendation of the Executive
Director of the Commission. We have filed an application for this approval.
However, we cannot assure you that this approval will be obtained, or that if
this approval is obtained, it will be obtained on a timely basis.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi and
corporations whose stock is publicly-traded that are affiliated with those
licensees, may be injurious to stable and productive corporate gaming. The
Mississippi Gaming Commission has established a regulatory scheme to ameliorate
the potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi's policy to:
- assure the financial stability of corporate gaming operators and their
affiliates;
- preserve the beneficial aspects of conducting business in the corporate
form; and
- promote a neutral environment for the orderly governance of corporate
affairs.
We may be required to obtain approval from the Mississippi Gaming Commission
before we may make exceptional repurchases of voting securities in excess of the
current market price of our common stock (commonly called "greenmail") or before
we may consummate a corporate acquisition opposed by management. Mississippi's
gaming regulations will also require prior approval by the Mississippi Gaming
Commission if we adopt a plan of recapitalization proposed by our board of
directors opposing a tender offer made directly to the stockholders for the
purpose of acquiring control of us.
Neither we nor any subsidiary may engage in gaming activities in Mississippi
while also conducting gaming operations outside of Mississippi without approval
of the Mississippi Gaming Commission. The Mississippi Gaming Commission may
require determinations that there are means for the Mississippi Gaming
Commission to have access to information concerning our and our affiliates
out-of-state gaming operations. We received a waiver of foreign gaming approval
from the Mississippi Gaming Commission for operations in other states, but may
be required to obtain the approval or a waiver of such approval from the
Mississippi Gaming Commission before engaging in any additional future gaming
operations outside of Mississippi.
If the Mississippi Gaming Commission decides that a licensed gaming
subsidiary violated a gaming law or regulation, the Mississippi Gaming
Commission could limit, condition, suspend or revoke the license of the
subsidiary. In addition, we, the licensed subsidiary and the persons involved
could be subject to substantial fines for each separate violation. Because of a
violation, the Mississippi Gaming Commission could attempt to appoint a
supervisor to operate the casino facilities. Limitation, conditioning or
suspension of any gaming license or the appointment of a supervisor could, and
revocation of any gaming license would, materially adversely affect our
Mississippi gaming operations.
A licensed gaming subsidiary must pay license fees and taxes, computed in
various ways depending on the type of gaming involved, to the State of
Mississippi and to the county or city in which the licensed gaming subsidiary
conducts operations. Depending upon the particular fee or tax involved, these
fees and taxes are payable either monthly, quarterly or annually and are based
upon:
- a percentage of the gross gaming revenues received by the casino
operation;
- the number of slot machines operated by the casino; or
68
<PAGE>
- the number of table games operated by the casino.
The license fee payable to the State of Mississippi is based upon "gaming
receipts", generally defined as gross receipts less payouts to customers as
winnings, and equals:
- 4% of gaming receipts of $50,000 or less per month;
- 6% of gaming receipts over $50,000 and less than $134,000 per month; and
- 8% of gaming receipts over $134,000.
These license fees are allowed as a credit against our Mississippi income
tax liability for the year paid. The gross revenue fee imposed by the
Mississippi cities and counties in which our casino operations are located,
equals approximately 4% of the gaming receipts.
The Mississippi Gaming Commission has adopted a regulation requiring as a
condition of licensure or license renewal that a gaming establishment's plan
include a 500-car parking facility in close proximity to the casino complex and
infrastructure facilities which will amount to at least 25% of the casino cost.
We believe we are in compliance with this requirement. Recently, the Mississippi
Gaming Commission adopted a regulation which increased the infrastructure
requirement to 100% from the existing 25%; however, the regulation grandfathers
existing licensees and applies only to new casino projects and casinos that are
not operating at the time of acquisition or purchase.
Both the local jurisdiction and the Alcoholic Beverage Control Division of
the Mississippi State Tax Commission license, control and regulate the sale of
alcoholic beverages by our subsidiaries. All of our Mississippi casinos are in
areas designated as special resort areas, which allows the casinos to serve
alcoholic beverages on a 24-hour basis. The Alcohol Beverage Control Division
has the full power to limit, condition, suspend or revoke any license for the
serving of alcoholic beverages or to place a licensee on probation with or
without conditions. Any disciplinary action could, and revocation would, have a
material adverse effect upon the casino's operations. Our and our Mississippi
casinos' key officers and managers must be investigated by the Alcohol Beverage
Control Division in connection with its liquor permits and changes in key
positions must be approved by the Alcohol Beverage Control Division.
LOUISIANA GAMING LAWS
The ownership and operation of a riverboat gaming vessel in the State of
Louisiana is subject to the Louisiana Riverboat Economic Development and Gaming
Control Act. The Louisiana Gaming Control Board regulates gaming activities. The
Louisiana Board is responsible for investigating the background of all
applicants seeking a riverboat gaming license, issuing the license and enforcing
the laws, rules and regulations relating to riverboat gaming activities.
The Louisiana Board must find suitable the applicant, its officers,
directors, key personnel, partners and persons holding a 5% or greater interest
in the holder of a gaming license. The Louisiana Board may, in its discretion,
also review the suitability of other security holders of, or persons affiliated
with, a licensee. This finding of suitability requires the filing of an
extensive application to the Louisiana Board disclosing personal, financial,
criminal, business and other information. Our Louisiana affiliate, Bally's
Louisiana, Inc., has filed the required forms with the Louisiana regulatory
authorities with respect to a finding of suitability.
On March 24, 1994, the Louisiana Board's predecessor issued a riverboat
gaming license to Belle of Orleans, L.L.C., a limited liability company in which
we have a 49.9% interest. Belle of Orleans, L.L.C. commenced riverboat gaming
operations in New Orleans on July 9, 1995. We are engaged in litigation with our
50.1% partner in the Belle of Orleans, L.L.C. See "Business and Properties of
Park Place--Legal Proceedings" and Note 16 to our audited financial statements
for a description of this litigation.
69
<PAGE>
The Louisiana Act prohibits the transfer of a Louisiana gaming license. The
Louisiana Board must approve the sale, assignment, transfer, pledge or
disposition of securities which represent 5% or more of the total outstanding
shares issued by a holder of a license and the Louisiana Board must find the
transferee suitable. In addition, the Louisiana Board must approve certain
contracts and leases entered into by a licensee and enterprises which transact
business with the licensee must be licensed.
If a security holder of a licensee is found unsuitable, it will be unlawful
for the security holder to:
- receive any dividend or interest with regard to the securities;
- exercise, directly or indirectly, any rights conferred by the securities;
or
- receive any remuneration from the licensee for services rendered or
otherwise.
The Louisiana Board may impose similar approval requirements on holders of
securities of any intermediary or holding company of the licensee. The State of
Louisiana taxes gaming operations at the rate of 18.5% of net gaming proceeds.
On April 19, 1996, the Louisiana legislature approved legislation mandating
statewide local elections on a parish-by-parish basis to determine whether to
prohibit or continue to permit three individual types of gaming. On November 5,
1996, Louisiana voters determined whether each of the following types of gaming
would be prohibited or permitted in the following described Louisiana parishes:
- the operation of video draw poker devices in each parish;
- the conduct of riverboat gaming in each parish that is contiguous to a
statutorily designated river or waterway; or
- the conduct of land-based casino gaming operations in Orleans Parish.
In Orleans Parish, where our riverboat casino currently operates, a majority
of the voters elected to continue to permit the three types of gaming described
above. The current legislation does not provide for any moratorium on future
local elections on gaming. Further, the current legislation does not provide for
any moratorium that must expire before future local elections on gaming could be
mandated or allowed. In addition, a change of berth by a licensee would require
voter approval in the parish in which the new berth is located.
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 us,
our subsidiary that manages the Conrad Jupiters, Gold Coast and the Conrad
International Treasury Casino, Brisbane and their principal stockholders,
directors and officers, must be found suitable and/or licensed. A casino license
once issued remains in force until surrendered or canceled. Queensland law
defines the grounds for cancellation and, in that event, an administrator may be
appointed to assume control of the casino hotel complex. The Queensland
authorities have also conducted an investigation of, and have found suitable, us
and our subsidiary BI Gaming Corporation, which holds our Australian gaming
assets.
Queensland imposes taxes 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
70
<PAGE>
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. The Executive Power of the
Oriental Republic of Uruguay has authorized 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 to conduct
casino operations. The 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 Punta del Este Resort & Casino. 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 ours, as manager of the Punta del
Este Resort & Casino, subject to the fulfillment of formal requirements set
forth in the resolution. Documents to comply with the referred formal
requirements were submitted in due time. The Internal Auditors Bureau has
reviewed the documents and recommended to the Executive Power of the Oriental
Republic of Uruguay to declare that requirements made by resolution dated
December 29, 1998 have been complied with.
Uruguay imposes a casino concession fee on gaming operations conducted by
the Punta del Este Resort & 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.
CAESARS PROPERTIES
In addition to the foregoing jurisdictions, following our acquisition of
Caesars we will also own and/ or operate properties, and be subject to the
gaming regulations, in the following jurisdictions.
DELAWARE GAMING LAWS
Video lottery operations in the State of Delaware are regulated by the
Delaware State Lottery Office through the powers delegated to the Director of
the lottery pursuant to Title 29 of the Delaware code. Under Delaware's video
lottery program, video lottery machines are permitted at Delaware's licensed
horse racing tracks.
Any person seeking to contract with the Delaware State Lottery Office for
the provision of goods or services related to video lottery operations,
including management services such as those provided by Caesars with respect to
video lottery operation at the Dover Downs race track in Delaware, must be
licensed by the Delaware State Lottery Office as a "technology provider." It is
the ongoing duty of each technology provider licensee to notify the Director of
the lottery of any change in officers, partners, directors, key employees, video
lottery operations employees or owners, collectively the "key individuals." An
owner is a person who owns, directly or indirectly, ten percent or more of an
applicant or licensee. Key individuals are subject to a background
investigation, and the failure of a key individual to satisfy a background
investigation may constitute "cause" for the suspension or revocation of the
technology provider's license.
INDIANA GAMING LAWS
Caesars' Indiana casino riverboat operations are subject to the Indiana
Riverboat Gambling Act and the licensing and regulatory control of the Indiana
Gaming Commission, as well as various local, county and state regulatory
agencies. The Indiana gaming regulations are similar to the gaming regulations
in Nevada and New Jersey.
Indiana's casino gaming laws, regulations and supervisory procedures are
extensive and reflect certain public policy considerations as to:
- the integrity of casino gaming operations and their participants;
71
<PAGE>
- the need for strict governmental and regulatory control of casino gaming
operations;
- the creation of economic development, tourism, taxes and employment; and
- the maintenance and development of public confidence and trust in casino
gaming regulation and control.
In addition, the riverboat must comply with U.S. Coast Guard requirements as
to boat design, on-board facilities, equipment, personnel and safety and must
hold a certificate of seaworthiness or must be approved by the American Bureau
of Shipping for stabilization and flotation. The U.S. Coast Guard requirements
establish design standards, set limits on the operation of the vessel and
require individual licensing of all personnel involved with the operation of the
vessel. Loss of the vessel's certificate of seaworthiness or the American Bureau
of Shipping approval would preclude its use as a floating casino. The land-based
facilities developed and used in connection with the riverboat are subject to
local zoning and building codes.
Changes to these laws, regulations and supervisory procedures could have an
adverse effect on Caesars' casino gaming operations.
ONTARIO, CANADA, GAMING LAWS
Caesars' Ontario casino gaming operations are subject to the regulatory
control of the Ontario Alcohol and Gaming Commission pursuant to the Ontario
Gaming Control Act and certain contractual obligations to the Ontario Casino
Corporation, a provincial crown corporation owned by the Province of Ontario.
Caesars owns 50% of Windsor Casino Limited, which operates the casino in
Windsor, Ontario, Canada, on behalf of the Ontario Casino Corporation, pursuant
to an operating agreement with the Ontario Casino Corporation. The operating
agreement imposes certain obligations on Windsor Casino Limited relating to the
operation of the Windsor Casino. Pursuant to a support agreement between the
shareholders of Windsor Casino Limited and the Ontario Casino Corporation, the
shareholders, including Caesars, have certain obligations relating to the
operation of Windsor Casino Limited.
Windsor Casino Limited is required under the Ontario Gaming Control Act to
be registered as a casino operator with the Ontario Alcohol and Gaming
Commission and must operate in accordance with the terms and conditions of its
registration.
Pursuant to the Ontario Gaming Control Act and the terms of Windsor Casino
Limited's registration, the Registrar of the Ontario Commission must approve any
change in the directors or officers of Windsor Casino Limited. The Ontario
Gaming Control Act also provides that the Ontario Commission may require the
submission of disclosures and informational material from any person who has an
interest in Windsor Casino Limited. This includes parent companies and their
directors and officers.
The Registrar of the Ontario Commission has the power, subject to the
Ontario Gaming Control Act, to grant, renew, suspend or revoke registrations.
The Registrar is entitled to make such inquiries and conduct such investigations
as are necessary to determine that applicants for registration meet the
requirements of the Ontario Gaming Control Act and to require information or
material from any person who has an interest in an applicant for registration.
The criteria to be considered in connection with registration under the Ontario
Gaming Control Act include the financial responsibility, integrity and honesty
of the applicant and the public interest. The Registrar may, at any time,
revoke, suspend or refuse to renew Windsor Casino Limited's registration for any
reason that would have disentitled it to registration.
Changes to these laws and regulations could have an adverse effect on
Caesars' casino gaming operations.
72
<PAGE>
NOVA SCOTIA, CANADA, GAMING LAWS
Caesars' Nova Scotia casino gaming operations are subject to the regulatory
control of the Nova Scotia Gaming Control Commission pursuant to the Nova Scotia
Gaming Control Act and certain contractual obligations to the Nova Scotia Gaming
Corporation, a provincial crown corporation owned by the Province of Nova
Scotia.
Caesars owns a 95% partnership interest in Metropolitan Entertainment Group,
which operates the Sheraton Casino Nova Scotia in Sydney and Halifax on behalf
of the Nova Scotia Gaming Corporation pursuant to an operating contract with the
Nova Scotia Gaming Corporation. The operating contract imposes certain
obligations on Metropolitan relating to the operation of the Sydney and Halifax
casinos. Caesars is also a party to the operating contract as a guarantor of
Metropolitan's obligations.
Metropolitan is required under the Nova Scotia Act to be registered as a
casino operator with the Nova Scotia Commission.
Under the Nova Scotia Act, the director of registration of the Nova Scotia
Commission must be notified, within 15 days, of any change in the officers or
directors of Sheraton Casino Nova Scotia. Sheraton Casino Nova Scotia is also
required to file a disclosure form with the director of registration within 15
days of:
- a person acquiring a beneficial interest in the business of the casino;
- a person exercising control, either directly or indirectly, over the
business of the casino; or
- a person providing financing, either directly or indirectly, to the
business of the casino.
The Nova Scotia Act also provides that the Director of Registration may
require information or material from Metropolitan or any person who has an
interest in the casino. This includes parent companies and their directors and
officers.
The Nova Scotia Commission has the power to suspend or to revoke
Metropolitan's registration, at any time, for any reason that would have
disentitled Metropolitan to obtain the registration. Grounds for suspension or
revocation include the financial responsibility, integrity and honesty of the
casino operator and its officers and directors and the public interest.
Changes to these laws and regulations could have an adverse effect on
Caesars' casino gaming operations.
PHILIPPINES GAMING LAWS
Gaming at the Caesars Club of Manila is conducted by the Philippine
Amusement and Gaming Corporation in accordance with its established rules and
regulations and pursuant to an agreement granting Caesars the exclusive right to
operate a casino out of one of the VIP rooms on the entry level of the Heritage
Hotel in Manila, referred to herein as the "exclusive agreement." The Philippine
Amusement and Gaming Corporation restricts the use of said gaming proceeds to
players provided by Caesars. In turn, Caesars agrees not to solicit the business
of any other entities to which the Philippine Amusement and Gaming Corporation
has granted the right to bring patrons to play in the Philippine Amusement and
Gaming Corporation's other casinos. For its services at the Caesars Club of
Manila, the Philippine Amusement and Gaming Corporation is paid 12.50% of gross
gaming revenues up to $10 million, 11.00% of gross gaming revenues between $10
million and $15 million, and 10.00% of gross gaming revenues in excess of $15
million. Caesars is subject to background checks and must provide the Philippine
Amusement and Gaming Corporation with documents necessary for this purpose.
Under the exclusive agreement, the Philippine Amusement and Gaming
Corporation is required to provide, at its own expense, security and
surveillance personnel and facilities for the premises, including the
installation of two fixed cameras on each gaming table. If the Philippine
Amusement and Gaming
73
<PAGE>
Corporation is unable to comply with this obligation, and if Caesars thereafter
is unable or declines to continue providing players to play at the premises,
then the Philippine Amusement and Gaming Corporation shall immediately cease all
gaming at the premises.
Under the exclusive agreement, Caesars is obliged to pay necessary expenses
incurred by players to enable them to play at the premises, including airfare,
hotel accommodations, food and beverages, transportation services and other
hotel expenses, whereas the Philippine Amusement and Gaming Corporation is
obliged to extend to players the same assistance given to other persons playing
under the Philippine Amusement and Gaming Corporation's Foreign High Roller
Marketing Program, including airport facilitation/visa issuance and negotiating
agreements with the hotel to provide satisfactory accommodations services on a
"best efforts" basis.
Caesars has agreed to hold the Philippine Amusement and Gaming Corporation
absolutely free and harmless from any damage, claim or liability that may arise
in connection with any agreement, dealing or transaction which Caesars may have
with the players. Caesars warrants to save the Philippine Amusement and Gaming
Corporation free and harmless from any claim and/or liability from any tax
obligations imposed upon Caesars by any taxing authority, including income
derived from performance under the agreement with the Philippine Amusement and
Gaming Corporation.
The Philippine Amusement and Gaming Corporation in turn has agreed to hold
Caesars absolutely free and harmless from any damage, claim or liability in
connection with any agreement, dealing or transaction that the Philippine
Amusement and Gaming Corporation may have with third parties for the provision
of goods and services as required under the agreement with Caesars.
The Philippine Amusement and Gaming Corporation has the right to terminate
the arrangement with Caesars at any time subject to fifteen days prior written
notice to Caesars in the event Caesars violates any term or condition of the
arrangement, including Caesars' failure to bring in qualified players. Caesars
has the right to terminate the arrangement by giving a 90-day notice to the
Philippine Amusement and Gaming Corporation at any time. Caesars shall terminate
the arrangement upon written notice to the Philippine Amusement and Gaming
Corporation at any time, effective upon receipt, if required to do so by any
government gaming authority with jurisdiction over any privileged license held
by Caesars or its affiliates.
SOUTH AFRICA GAMING LAWS
Caesars South African operations are subject to the Gauteng Gambling and
Betting Act No. 4 of 1995 and the regulations issued thereunder. Under Section
38(1) of the Gauteng Gambling and Betting Act and regulation 20 of the
regulations issued thereunder, if an entity has directly or indirectly procured
a controlling or financial interest of 1% or more in a casino license holder in
Gauteng, then the provisions of Section 38(1) apply and the acquiring entity
will have to apply for the consent of the Gauteng Gambling Board for the holding
of such an interest.
Under Regulation 88(2) of the Gauteng Gambling and Betting Act, the
acquiring entity must apply to the Gauteng Gambling Board for consent to hold
such an interest within 14 days after the transaction closes and the interest is
procured.
The application for the consent of the Gauteng Gambling Board must be made
within a period and in a manner prescribed by the Gauteng Gambling Board. To
this end, the Gauteng Gambling Board has issued a standard application form.
In making such an application, all the relevant provisions of the Gauteng
Gambling and Betting Act relating to an application for a casino license apply.
These include:
- the application itself;
- representations by interested persons;
74
<PAGE>
- response by the applicant to such representations;
- further information and oral representations;
- public inspection of the application and representations;
- obtaining of a police report;
- the holding of a hearing in respect of the application which is open to
members of the public and where witnesses are called; and
- a decision being given on the application and conditions being applied in
the event of the application being granted.
A non-refundable license fee of R5,700.00 (approximately $913) is payable
with the application. Under Section 23 of the Gauteng Gambling and Betting Act,
the Gauteng Gambling Board may recover from the applicant all reasonable
expenses incurred by the Gauteng Gambling Board in conducting the necessary
investigation in respect of the application.
Section 38(3) of the Gauteng Gambling and Betting Act provides that where
consent is not granted, the acquiring entity shall, within the prescribed period
and in the manner prescribed or determined by the Gauteng Gambling Board,
dispose of the interest in question.
In addition, Regulation 88(1) provides that the casino license holder must
notify the Gauteng Gambling Board of the acquiring entity's identity and address
as soon as practicable after it becomes aware of the procurement of an interest
in it.
IRS REGULATIONS
The Internal Revenue Service 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 some keno, bingo
and slot machine winnings of nonresident aliens. We are unable to predict the
extent, to which these requirements, if extended, might impede or otherwise
adversely affect operations of, and/or income from, the other games.
Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, or in which we have 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 began 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 these regulations.
OTHER LAWS AND REGULATIONS
Each of the casino hotels and riverboat casinos described in this prospectus
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. We believe that we have obtained all required licenses and
permits and our businesses are conducted in substantial compliance with
applicable laws except for regulatory approvals in connection with the
acquisition described above, which is currently in progress.
HEADQUARTERS
Our principal executive offices are located at 3930 Howard Hughes Parkway,
Las Vegas, Nevada 89109. Our telephone number is (702) 699-5000.
75
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth our executive officers and directors. Our
board is divided into three classes. All directors hold their positions until
their terms expire and until their respective successors are elected and
qualified. Executive Officers are elected by and serve at the discretion of our
board of directors until their successors are duly chosen and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -----------------------------------------------------------
<S> <C> <C>
Stephen F. Bollenbach............... 57 Chairman of the Board of Directors
Arthur M. Goldberg.................. 57 President and Chief Executive Officer and Director
Wallace R. Barr..................... 53 Executive Vice President
Clive S. Cummis..................... 70 Executive Vice President--Law & Corporate Affairs,
Secretary and Director
Mark R. Dodson...................... 37 Executive Vice President
Scott A. LaPorta.................... 36 Executive Vice President and Chief Financial Officer
Lyle Berman......................... 58 Director
Barbara Bell Coleman................ 49 Director
A. Steven Crown..................... 47 Director
Barron Hilton....................... 71 Director
Eric M. Hilton...................... 66 Director
J. Kenneth Looloian................. 77 Director
Rocco J. Marano..................... 71 Director
Gilbert L. Shelton.................. 63 Director
</TABLE>
STEPHEN F. BOLLENBACH, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Bollenbach
has served as Chairman of our board of directors since 1998. Mr. Bollenbach
served as Chief Financial Officer, Marriott Corporation until October 1993,
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.
ARTHUR M. GOLDBERG, PRESIDENT AND CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr.
Goldberg has served as our President and Chief Executive Officer and as a
Director since 1998. Mr. Goldberg served as Chairman and Chief Executive Officer
of Bally Entertainment Corporation until December 1996 and, thereafter,
Executive Vice President and President--Gaming Operations of Hilton Hotels
Corporation. Mr. Goldberg is a director of Hilton Hotels Corporation, Bally
Total Fitness Holding Corporation and First Union Corporation.
WALLACE R. BARR, EXECUTIVE VICE PRESIDENT. Mr. Barr has served as our
Executive Vice President since 1998. Prior to joining us, Mr. Barr had served as
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 from 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.
CLIVE S. CUMMIS, EXECUTIVE VICE PRESIDENT--LAW & CORPORATE AFFAIRS,
SECRETARY AND DIRECTOR. Mr. Cummis has served as our Executive Vice
President--Law & Corporate Affairs, Secretary and as a
76
<PAGE>
Director since 1998. Prior to joining us, Mr. Cummis served as the Chairman of
the law firm of Sills Cummis Radin Tischman Epstein & Gross, which provided
legal services to Hilton and continues to provide legal services to us.
MARK R. DODSON, EXECUTIVE VICE PRESIDENT. Mr. Dodson has served as our
Executive Vice President since 1998. Prior to joining us, Mr. Dodson had served
as 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.
SCOTT A. LAPORTA, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. Mr.
LaPorta has served as our Executive Vice President and Chief Financial Officer
since 1998. Prior to joining us, Mr. LaPorta had served as Senior Vice President
and Treasurer, Hilton Hotels Corporation since May 1996, and prior thereto,
Senior Vice President and Treasurer, Host Marriott Corporation.
LYLE BERMAN, DIRECTOR. Mr. Berman has served as a director since 1998. Mr.
Berman is currently the Chairman of the board of directors and CEO of Lakes
Gaming, Inc. Mr. Berman previously served as the Chairman of the board of
directors of Grand Casinos, Inc. from October 1991 until December 1998. 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.
BARBARA BELL COLEMAN, DIRECTOR. Ms. Bell Coleman has served as a director
since 1999. Ms. Bell Coleman is the President of BBC Associates LLC, an
executive consulting firm serving businesses and non-profit organizations.
A. STEVEN CROWN, DIRECTOR. Mr. Crown has served as a director since 1998.
Mr. Crown is the General Partner of 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.
BARRON HILTON, DIRECTOR. Mr. Barron Hilton has served as a director since
1998. Mr. Barron Hilton served as the 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, DIRECTOR. Mr. Eric Hilton has served as a director since
1998. Mr. Eric Hilton served as a director of Hilton Hotels Corporation, and
Vice Chairman of the Board, Hilton Hotels Corporation until March 1997. Messrs.
Barron Hilton and Eric Hilton are brothers.
J. KENNETH LOOLOIAN, DIRECTOR. Mr. Looloian has served as a director since
1998. Mr. Looloian is the Executive Vice President of DiGiorgio Corporation and
a consultant. Mr. Looloian is also a director of Bally Total Fitness Holdings
and ContinuCare.
ROCCO J. MARANO, DIRECTOR. Mr. Marano has served as a director since 1998.
Mr. Marano is a retired executive. Mr. Marano is a director of Computer Horizons
Corporation.
GILBERT L. SHELTON, DIRECTOR. Mr. Shelton has served as a director since
1998. Mr. Shelton is a private investor.
77
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 1999, the ownership of our
common stock by each of our individual directors and executive officers, our
directors and executive officers as a group, and each person known to be the
beneficial owner of more than 5% of our outstanding common stock. As of June 30,
1999 we had 302,308,453 shares of common stock outstanding. Except as otherwise
noted, each stockholder has sole voting and investment power with respect to the
shares beneficially owned.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK PERCENT OF CLASS
- ----------------------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Barron Hilton................................................................ 22,935,330(1)(2) 7.6%
9336 Civic Center Drive
Beverly Hills, California 90210
Conrad N. Hilton Fund........................................................ 16,498,736(1) 5.5%
100 West Liberty Street
Reno, Nevada 89501
Southeastern Asset Management, Inc........................................... 16,854,000(3) 5.6%
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 39119
Highfields Capital Management LP............................................. 15,489,620(4) 5.1%
200 Clarendon Street
Boston, Massachusetts 02117
Stephen F. Bollenbach........................................................ 4,540,000(2) 1.5%
A. Steven Crown.............................................................. 3,675,500(2)(5) 1.2%
Arthur M. Goldberg........................................................... 7,254,738(2) 2.4%
Eric M. Hilton............................................................... 11,400(1)(2) *
Lyle M. Berman............................................................... 5,297,844(2)(6) 1.7%
J. Kenneth Looloian.......................................................... 12,500(2) *
Clive S. Cummis.............................................................. 12,600 *
Gilbert L. Shelton........................................................... 22,000(2)(7) *
Rocco J. Marano.............................................................. 17,000(2) *
Barbara Bell Coleman......................................................... 2,000(2) *
Wallace R. Barr.............................................................. 55,401(2) *
Mark R. Dodson............................................................... 32,911(2) *
Scott A. LaPorta............................................................. 98,500(2) *
All Directors and Executive Officers as a Group (14 persons)................. 43,967,724(8) 14.5%
</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) Includes options to acquire 4,500,000, 6,000, 4,950,000, 2,000, 2,000,
1,000,000, 2,000, 2,000, 2,000, 26,000, 18,750, 97,500 and 2,000 shares of
our common stock, exercisable within the next 60 days, held by Messrs.
Bollenbach, Crown, Goldberg, B. Hilton, E. Hilton, Berman, Looloian,
Shelton, Marano, Barr, Dodson, LaPorta and Ms. Coleman, respectively. See
"Arrangements Between Hilton and Park Place--Stock Option Plans" in our Form
10-K for the year ended December 31, 1998.
78
<PAGE>
(3) The amount of common stock owned by Southeastern Asset Management, Inc. is
based upon their filing of a Schedule 13F with the Securities and Exchange
Commission in June, 1999.
(4) The amount of common stock owned by Highfields Capital Management LP is
based upon their filing of a Schedule 13G with the Securities and Exchange
Commission in May, 1999.
(5) Mr. Crown is a partner of the Crown Fund, which owns 239,888 shares of our
common stock. He is a director of the Arie and Ida Crown Memorial, a
not-for-profit corporation which owns 894,272 shares of our common stock.
Pines Trailer Limited Partnership owns 600,000 shares of Park Place Common
Stock; Mr. Crown is a director, officer and shareholder of a corporation
which is a partner in Pines Trailer Limited Partnership, and Mr. Crown is a
partner in a partnership which is a partner in Pines Trailer Limited
Partnership. Areljay, L.P. owns 1,935,340 shares of Park Place Common Stock;
Mr. Crown is a director, officer, and shareholder of a corporation which is
a partner in Areljay, L.P., and Mr. Crown is a beneficiary under a trust
which is a partner in Areljay, L.P. Mr. Crown disclaims beneficial ownership
of the shares held by The Crown Fund, The Arie and Ida Crown Memorial, Pines
Trailer Limited Partnership and Areljay, L.P., except to the extent of his
beneficial interest therein.
(6) Includes 82,500 shares of our common stock beneficially owned by Mr.
Berman's spouse. Includes 45,615 shares of our common stock held by Berman
Consulting Corporation, a corporation wholly owned by Mr. Berman. Also
includes 15,000 shares of our common stock beneficially owned by a general
partnership whose general partners include trusts for the benefit of the
reporting person's children. The reporting person is not a trustee of the
trusts. Mr. Berman disclaims beneficial ownership of the shares held by his
spouse and by the general partnership.
(7) Includes 20,000 shares owned jointly by Mr. Shelton and his spouse, Dr. Judy
Shelton, a director of Hilton Hotels Corporation, over which shares Mr.
Shelton shares voting and investment powers.
(8) Includes 10,610,250 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).
79
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEGAL SERVICE
Clive Cummis, Executive Vice President, Secretary and Director, is Chairman
of the law firm Sills Cummis Radin Tischman Epstein & Gross, which law firm has
and continues to provide legal services to us. We believe that the rates paid
are comparable to those which we would have paid to unaffiliated parties
providing similar services.
CHANGE IN CONTROL AND EMPLOYMENT ARRANGEMENTS
Lyle Berman, a director of Park Place and the former Chairman of the Board
of Grand, was a party to an employment agreement with Grand which contained
"change of control" provisions which were triggered as a result of the Grand
merger. Under Mr. Berman's agreement, if he is terminated not for "cause" or if
he resigns following a "change of control," Grand was required:
- to pay him up to three years of his then current base salary
- to pay him any outstanding incentive compensation to which he would
otherwise be entitled in the absence of the termination or resignation;
and
- to continue to provide various employee benefits to which he would
otherwise be entitled for an additional year.
The "change of control" provisions also provided for a two year period in
which Mr. Berman could 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 we paid Mr. Berman $1,895,833 on January 4, 1999.
OTHER INTERESTS
Our casinos in Las Vegas and Reno, Nevada, regularly send and pay for their
guests to visit conference facilities in Yerington, Nevada, which are owned by
Barron Hilton. In this regard, Mr. Hilton received payments in excess of
$100,000 in 1998. We believe that the rates paid are comparable to those which
we would have paid to unaffiliated parties providing similar services.
80
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a brief summary of important terms of our material
indebtedness:
REVOLVING CREDIT FACILITY. In December 1998, we entered into a revolving
credit facility with a syndicate of financial institutions. The revolving credit
facility currently provides for borrowings of up to $2.15 billion, consisting
of:
- a 364-day senior unsecured revolving credit facility of up to $650
million; and
- a five-year senior unsecured revolving credit facility of up to $1.5
billion.
At June 30, 1999, approximately $1.4 billion of the aggregate commitment was
outstanding, leaving approximately $696 million of the revolving credit facility
available to us at that date.
The 364-day revolving credit facility matures December 1999 and the
five-year revolving credit facility matures December 2003. Both the 364-day
revolving credit facility and the five-year revolving credit facility may be
extended in one year increments at our request with the prior written consent of
the lenders. For additional details on the terms of our revolving credit
facility, including the terms of various covenants to which we are currently
subject, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
In connection with the acquisition, we are currently negotiating with a
syndicate of financial institutions to enter into a new $2.0 billion revolving
credit facility which will replace our existing $650 million 364-day facility.
This would afford us borrowings of up to an aggregate of $3.5 billion under the
new 364-day revolving credit facility and the five-year revolving credit
facility. In addition to the new $2.0 billion 364-day facility, we are currently
negotiating with a syndicate of financial institutions to enter into a $1.0
billion 364-day facility which would only be drawn to provide funding for the
Caesars acquisition. Availability under this facility will be reduced by the
proceeds of any future notes issued. We expect to close on these new 364-day
facilities in late August 1999.
SUBSEQUENT NOTES OFFERINGS. In connection with the acquisition, we may
issue approximately $1.5 billion in notes, inclusive of the old notes, however,
we cannot assure you that we will issue any additional notes. The terms of any
such notes have not been determined.
HILTON DEBT. Concurrently with our spin-off from Hilton, we 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. We entered into
supplemental indentures with the trustee under these notes providing for our
assumption of the payment obligations under the existing indentures.
7 7/8% SENIOR SUBORDINATED NOTES DUE 2005. In December 1998, we issued $400
million of 7 7/8% senior subordinated notes due December 2005 through a private
placement offering. The 7 7/8% notes are redeemable at any time prior to their
maturity at the redemption prices described in the indenture governing the
7 7/8% notes. The 7 7/8% notes are unsecured senior subordinated obligations and
are subordinated to all of our senior debt.
COMMERCIAL PAPER PROGRAM. We established a $1 billion commercial paper
program as of December 31, 1998. To the extent that we incur debt under this
program, we must maintain an equivalent amount of credit available under our
revolving credit facility. We have borrowed under the program for various
periods during 1999. At June 30, 1999, we had outstanding borrowings of $24
million under the commercial paper program bearing an average interest rate of
5.5%.
81
<PAGE>
THE EXCHANGE OFFER
GENERAL
As of the date of this prospectus, $300 million in principal amount of the
old notes is outstanding. This prospectus, together with the letter of
transmittal, is first being sent to holders on , 1999.
PURPOSE OF THE EXCHANGE OFFER
We issued the old notes on August 2, 1999 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, we entered into the
registration rights agreement, which requires us 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 our 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 our 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 our best efforts to cause the shelf
registration statement to be declared effective by the 150th day after the
original issuance of the old notes. We have filed a copy of the
registration rights agreement as an exhibit to the registration statement
of which this prospectus is a part.
We are making the exchange offer to satisfy our obligations under the
registration rights agreement. Other than pursuant to the registration rights
agreement, we are 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.
We are 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, we have not sought our own interpretive letter
and we can provide 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, we
believe 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 ours 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:
- the exchange notes are acquired in the ordinary course of the 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.
For additional information, 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
82
<PAGE>
deliver a prospectus in connection with any resale of the exchange notes. For
additional information, see "Plan of Distribution."
TERMS OF THE EXCHANGE
We are offering to exchange, subject to the conditions described 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 of the exchange notes 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. For additional information, see "Description of the
Exchange Notes."
The exchange offer is not conditioned upon the tender of any minimum
principal amount of old notes.
We have not requested, and do 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, we believe 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 ours 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 the 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, we can provide 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 ours or who tenders old notes in the exchange
offer for the purpose of participating in a distribution of the exchange notes
cannot rely on the 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
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. For additional information,
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, which was on August 2,
1999. 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 will not be required to pay brokerage
commissions or fees or, transfer taxes, except as specified in the instructions
in the letter of transmittal, with respect to the exchange of the old notes in
the exchange offer.
83
<PAGE>
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, have extended the period of
time for which the exchange offer is open. The time and date, as it may be
extended, is referred to herein as the "expiration date". The expiration 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. We expressly reserve
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. We will extend the expiration date by giving oral or written
notice of the extension 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 the extension, all old notes
previously tendered will remain subject to the exchange offer unless properly
withdrawn.
We expressly reserve 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 "--Conditions to the exchange offer"
which have not been waived by us; and
- amend the terms of the exchange offer in any manner which, in our good
faith judgment, is advantageous to the holders of the old notes, whether
before or after any tender of the old notes.
If any termination or amendment occurs, we 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 we terminate
the exchange offer prior to 5:00 p.m., New York City time, on the expiration
date, we will exchange the exchange notes for the old notes promptly following
the expiration date.
PROCEDURES FOR TENDERING OLD NOTES
Our acceptance of old notes tendered by a holder will constitute a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions described in this prospectus and in the accompanying letter of
transmittal. All references in this prospectus to the letter of transmittal are
deemed to include a facsimile of the letter of transmittal.
A holder of old notes may tender the old notes by:
- properly completing and signing the letter of transmittal;
- properly completing any required signature guarantees;
- properly completing any other documents required by the letter of
transmittal; and
- delivering all of the above, together with the certificate or certificates
representing the old notes being tendered, 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 the 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
ensure timely delivery. Holders should not send old notes or letters of
transmittal to us.
84
<PAGE>
The signature on the letter of transmittal need not be guaranteed 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 for the old notes are to be
issued in the name of the holder; and
- any untendered old notes are to be reissued in the name of the holder.
In any other case, the tendered old notes must be:
- endorsed or accompanied by written instruments of transfer in form
satisfactory to us;
- 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,
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 The Depository Trust Company, the "book-entry transfer facility," for
the purpose of facilitating the exchange offer. We refer to the Depository Trust
Company in this prospectus as "DTC." 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 the
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. We refer to the Automated
Tender Offer Program in this prospectus as "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 DTCs ATOP procedures for transfer. DTC will then send an agent's
message.
The term "agent's message" means a message which:
- is transmitted by DTC;
- received by the exchange agent and forming part of the book-entry
transfer;
- states that DTC has received an express acknowledgment from a participant
in DTC that is tendering old notes which are the subject of the book-entry
transfer;
- states that the participant has received and agrees to be bound by all of
the terms of the letter of transmittal; and
- states that we may enforce the agreement against the participant.
85
<PAGE>
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 transfer of the 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 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 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
us in our sole discretion, which determination will be final and binding. We
reserve 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 our
judgment or the judgment of our counsel, be unlawful. We also reserve 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
contained in the letter of transmittal, by us will 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
we determine. Neither we, the exchange agent nor any other person has any duty
to give notification of any defect or irregularity with respect to any tender of
old notes for exchange, nor will any of us 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, the 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
us, such persons must submit proper evidence satisfactory to us of their
authority to so act.
86
<PAGE>
By tendering, each holder represents to us 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;
- the holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the exchange notes; and
- the holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of ours.
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. For additional information, 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.
The party tendering old notes for exchange exchanges, assigns and transfers
the old notes to us and irrevocably constitutes and appoints the exchange agent
as his agent and attorney-in-fact to cause the old notes to be assigned,
transferred and exchanged. We refer to the party tendering notes herein as the
"transferor." 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 the tendered old notes, and that,
when the same are accepted for exchange, we 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 us 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 us and the issuance of exchange notes in exchange for old notes
will constitute performance in full by us of various of our 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 will be binding upon the heirs, legal representatives,
successors, assigns, executors and administrators of the transferor.
The transferor certifies that it is not an "affiliate" of ours 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 the transferor's
business and that the transferor has no arrangement with any person to
participate in the distribution of the 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 the 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.
87
<PAGE>
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission, with receipt confirmed by telephone, or letter
must be received by the exchange agent at the address set forth in this
prospectus prior to the expiration date. Any notice of withdrawal must:
- specify the name of the person having tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes;
- specify the principal amount of old notes to be withdrawn;
- include a statement that the holder is withdrawing his election to have
the old notes exchanged;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the 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 the old notes into the name
of the person withdrawing the tender; and
- specify the name in which any such old notes are to be registered, if
different from that of the person who tendered the old notes.
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 us and
our 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 without cost to the holder. 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, the old notes will be credited to an account with the
book-entry transfer facility specified by the holder. In either case, the old
notes will be returned 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,
we will accept, on the expiration date, all old notes properly tendered and will
issue the exchange notes promptly after such acceptance. See "--Conditions to
the Exchange Offer" below for more detailed information. For purposes of the
exchange offer, we will be deemed to have accepted properly tendered old notes
for exchange when, and if, we have given oral or written notice of our
acceptance to the exchange agent.
For each old note accepted for exchange, the holder of the 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 the old notes or
a timely book-entry confirmation of the old notes into the exchange
agent's account at the book-entry transfer facility;
88
<PAGE>
- a properly completed and duly executed letter of transmittal, or a
properly transmitted agent's message; and
- timely receipt by the exchange agent of all other required documents.
If any tendered old notes are not accepted for any reason described 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, the unaccepted or
nonexchanged old notes will be returned without expense to the tendering holder
of the old notes. 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, the non-exchanged old notes will
be credited to an account maintained with the book-entry transfer facility. In
either case, the old notes will be returned as promptly as practicable after the
expiration of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will 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 the old notes for
exchange or the exchange of the exchange notes for such old notes, any of the
following conditions exist:
- 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 our judgment would reasonably be expected to impair our ability to
proceed with the exchange offer; or
- 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 the conditions has occurred, we may amend the
exchange offer in any manner which, in our good faith judgment, is advantageous
to holders of the old notes.
The conditions described above are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to the condition or we may
waive any condition in whole or in part at any time and from time to time in our
sole discretion. Our failure at any time to exercise any of the rights described
above will not be deemed a waiver of the right and each right will be deemed an
ongoing right which we may assert at any time and from time to time.
If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date that
we first give notice, by public announcement or otherwise, of the waiver or
amendment, if the exchange offer would otherwise expire within the five
business-day period. Any determination by us 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.
89
<PAGE>
EXCHANGE AGENT
Norwest Bank Minnesota, N.A., 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:
BY REGISTERED OR
CERTIFIED MAIL:
Norwest Bank Minnesota, N.A. Corporate Trust Operations
P.O. Box 1517
Minneapolis, MN 55479-1517
BY FACSIMILE:
(612) 667-4297
CONFIRM BY
TELEPHONE:
(612) 667-9764
Bondholder Communications
BY HAND OR OVERNIGHT
COURIER:
Norwest Bank Minnesota, N.A.
Corporate Trust Operations
Norwest Center
Sixth & Marquette
MAC N9303-121
Minneapolis, MN 55479
You should direct 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 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 NUMBER OTHER THAN THE ONE SET
FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
We have 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. We, 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. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses 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.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer. We estimate the expenses 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 us. Neither the delivery of this
prospectus nor any exchange made pursuant to this prospectus, under any
circumstances, create any implication that there has been no change in our
affairs since the respective dates as of which information is given in this
prospectus. 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 of the exchange offer would
not be in compliance with the laws of the jurisdiction. However, we may, at our
discretion, take such action as we may deem necessary to make the exchange offer
in the jurisdiction and extend the exchange offer to holders of old notes in the
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 our behalf by one or more registered brokers
or dealers which are licensed under the laws of the jurisdiction.
90
<PAGE>
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. However, the transfer taxes will be
payable by the tendering holder if:
- 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
- tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of old
notes pursuant to the exchange offer.
We will bill the amount of the transfer taxes directly to the tendering
holder if satisfactory evidence of payment of the taxes or exemption therefrom
is not submitted with the letter of transmittal.
ACCOUNTING TREATMENT
For accounting purposes, we will not recognize gain or loss upon the
exchange of the exchange notes for old notes. We will amortize expenses incurred
in connection with the issuance of the exchange notes 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 the old notes as described in the legend on the old notes. 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. We do not currently anticipate that we will
register the old notes under the Securities Act.
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, we
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 the old notes and will be entitled to all the rights and
limitations applicable to the old notes under the indenture, except for any
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 described 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.
We 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. We have no present plan to
acquire any old notes which are not tendered in the exchange offer.
RESALE OF EXCHANGE NOTES
We are 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, we have not sought
91
<PAGE>
our own interpretive letter and we can provide 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, we believe 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 ours 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:
- the exchange notes are acquired in the ordinary course of the holder's
business; and
- the holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution of the exchange notes.
However, any holder who is:
- an "affiliate" of ours;
- 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 us to resell pursuant to
Rule 144A or any other available exemption under the Securities Act,
could not rely on the applicable interpretations of the staff and 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 the
broker-dealer acquired the old notes 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. For more detailed information, see "Plan of Distribution."
In addition, to comply with the securities laws of various jurisdictions, if
applicable, the exchange notes may not be offered or sold unless they have been
registered or qualified for sale in the jurisdiction or an exemption from
registration or qualification is available and is complied with. We have agreed,
pursuant to the registration rights agreement and subject to specified
limitations therein, to register or qualify the exchange notes for offer or sale
under the securities or blue sky laws of the jurisdictions as any holder of the
exchange notes reasonably requests. The 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
If:
- any changes in law or the applicable interpretations of the staff of the
Commission do not permit us to effect the exchange offer; or
- for any reason the exchange offer is not consummated within 150 days
following the date of original issuance of the old notes; or
- 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 specified circumstances,
92
<PAGE>
we will, at, our cost:
- as promptly as practicable, file the shelf registration statement covering
resales of the old notes,
- use our 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
- use our best efforts to keep the shelf registration statement effective
until two years after its effective date or until one year after the
effective date if the shelf registration statement is filed at the request
of any initial purchaser.
We 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 holder when the shelf
registration statement for the old notes has become effective and take other
actions as are required to permit unrestricted resales of the old notes. A
holder of old notes that sells the 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 some of the civil liability provisions under the
Securities Act in connection with the sales; and
- will be bound by the provisions of the registration rights agreement which
are applicable to the holder, including specified 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
specified 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 described below.
LIQUIDATED DAMAGES
If:
(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,
the interest rate borne by the old notes will increase by .25% per year upon the
occurrence of any of the events described in (a) through (c) above, each of
which will constitute a registration default. The interest rate will increase by
.25% each 90-day period that a registration default continues, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per year. Following the cure of all registration defaults the
accrual of this additional interest will cease and the interest rate will revert
to the original rate.
93
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of some of the terms used in this description
under the subheading "Definitions." In this description, the words "Park Place"
refer only to Park Place Entertainment Corporation and not to any of its
subsidiaries.
Park Place will issue the exchange notes under an indenture between itself
and Norwest Bank Minnesota, N.A., as 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 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 the indenture, and not this description, defines your
rights as holders of the exchange notes. A copy of the indenture is filed as an
exhibit to the registration statement of which this prospectus is a part.
RANKING
The exchange notes:
- are unsecured general obligations of Park Place;
- are equal in right of payment with all existing and future unsecured
senior Debt of Park Place; and
- are senior in right of payment to all existing and future subordinated
Debt of Park Place.
The exchange notes will effectively rank junior to secured indebtedness of
Park Place, if any, and to all liabilities of Park Place's subsidiaries,
including trade payables. Assuming completion of the offering of the old notes
as of June 30, 1999, Park Place's subsidiaries would have had approximately $16
million of indebtedness outstanding. The indenture will permit Park Place and
its subsidiaries to incur additional debt.
PRINCIPAL, MATURITY AND INTEREST
Park Place will issue exchange notes in a maximum aggregate principal amount
of $300 million. Park Place will issue the exchange notes in denominations of
$1,000 and integral multiples of $1,000. The exchange notes will mature on
August 1, 2003.
Interest on the exchange notes will accrue at the rate of 7.95% per annum.
Interest will be payable semi-annually in arrears on February 1 and August 1,
commencing on February 1, 2000. Park Place will make each interest payment to
the holders of record of the exchange notes on the immediately preceding January
15 and July 15.
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, which was August 2,
1999. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
OPTIONAL REDEMPTION
Upon not less than 30 nor more than 60 days' notice, Park Place 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 plus the Make-Whole Premium, together with
accrued and unpaid interest, if any, to the applicable redemption date.
SELECTION AND NOTICE
Notices of redemption will be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of exchange notes to
be redeemed at its registered address.
94
<PAGE>
Notes called for redemption become due on the date fixed for redemption. On
and after the redemption date, interest ceases to accrue on exchange notes
called for redemption.
MANDATORY REDEMPTION
Park Place 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, will be deemed to have agreed
that if the gaming authority of any jurisdiction in which Park Place 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, will apply for a license, qualification or a finding of
suitability within the required time period. If the person fails to apply or
become licensed or qualified or is found unsuitable, Park Place has the right,
at its option:
(a) to require the person to dispose of its exchange notes or beneficial
interest therein within 30 days of receipt of notice of Park Place's
election or such earlier date as may be requested or prescribed by the
gaming authority; or
(b) to redeem the exchange notes at a redemption price equal to the lesser
of (1) the person's cost or (2) 100% of the principal amount, plus
accrued and unpaid interest, if any, to the earlier of the redemption
date or the date of the finding of unsuitability, which redemption may be
less than 30 days following the notice of redemption if so requested or
prescribed by the applicable gaming authority.
Park Place will notify the trustee in writing of any redemption as soon as
practicable. Park Place will not be responsible for any costs or expenses any
holder may incur in connection with its application for a license, qualification
or a finding of suitability.
ADDITIONAL COVENANTS OF PARK PLACE
LIMITATION ON LIENS
Other than as provided below under "--Exempted Liens and Sale and Lease-Back
Transactions," neither Park Place nor any Restricted Subsidiary will create,
assume or suffer to exist any Lien:
- upon any Principal Property;
- upon any shares of capital stock of any Restricted Subsidiary owned by
Park Place or any Restricted Subsidiary; or
- securing debt of any Restricted Subsidiary, without equally and ratably
securing the exchange notes with, or prior to, the debt secured by the
Lien, for so long as such Debt is so secured, provided, however, that this
limitation will not apply to:
(a) Liens existing on the date of issuance of the old notes;
(b) Liens existing (1) on property at the time of acquisition by Park
Place or a Restricted Subsidiary, whether the property is acquired through a
merger, a consolidation or otherwise, or (2) on property or securing Debt
of, or Capital Stock of, 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
95
<PAGE>
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
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 Park Place 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 Park Place 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 equity interests of Park Place 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) any extension, renewal or replacement, in whole or in part, of any
Liens referred to in the foregoing clauses (a) through (h) or of any Debt
secured thereby, including premium, if any, provided that the aggregate
principal amount secured does not exceed:
(x) the greater of (1) the principal amount secured thereby at the
time of such extension, renewal or replacement, or, as the case may be,
repayment or extinguishment and (2) 80% of the fair market value, in the
opinion of Park Place's board of directors, of the properties subject to
such extension, renewal or replacement, plus
(y) any reasonable fees and expenses associated with the 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 (h);
(j) purchase money liens on personal property;
(k) Liens to secure payment of workers' compensation or insurance
premiums, or relating to tenders, bids or contracts, except contracts for
the payment of money;
(l) 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;
(m) mechanic's, materialman's, carrier's or other like Liens, arising in
the ordinary course of business; and
(n) 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 Park Place nor any Restricted Subsidiary will enter into
any arrangement with any lessor, other than Park Place or a Restricted
Subsidiary, providing for the lease to Park Place 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 Park Place or any Restricted Subsidiary to such
96
<PAGE>
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,
with each such transaction being referred to in this prospectus as a "Sale and
Lease-Back Transaction", unless either:
(a) Park Place or such Restricted Subsidiary would be entitled, pursuant
to the provisions described in clauses (a) through (n) 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
(b) an amount equal to:
(1) the greater of the net cash proceeds of such sale or the fair
market value of such property, in the opinion of Park Place's board of
directors, less
(2) the fair market value, in the opinion of Park Place'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 Park Place 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" above, Park Place 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" above, measured, in each case, at the time any such Lien is
incurred or any such Sale and Lease-Back Transaction is entered into, by Park
Place and its Restricted Subsidiaries does not exceed 15% of Consolidated Net
Tangible Assets.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Park Place 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:
- either: (a) Park Place is the surviving entity; or (b) the Person formed
by or surviving any such consolidation or merger, if other than Park
Place, or to which such sale, assignment, transfer or conveyance has been
made is an entity organized or existing under the laws of the United
States, any state thereof or the District of Columbia;
- the Person formed by or surviving any such consolidation or merger, if
other than Park Place, or the Person to which such sale, assignment,
transfer or conveyance has been made assumes all the obligations of Park
Place under the exchange notes and the indenture; and
- 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 Park Place and any of its wholly-owned
Subsidiaries.
97
<PAGE>
GAMING APPROVALS
Restrictions on the transfer of the equity securities of Park Place's
licensed Nevada subsidiaries, and agreements not to encumber such equity
securities, in each case in respect of the old notes, will require the prior
approval of the Nevada Gaming Commission in order to become effective. This
approval is required only in respect of such restrictions and agreements
contained in indentures for notes that have not been registered under the
Securities Act. We have filed an application requesting such approval. Similar
approvals must be obtained from the Mississippi Gaming Commission with respect
to these restrictions, whether securities are issued in a private placement or a
public offering, and we have received such approvals. For more information, see
"Regulation and Licensing--Nevada Gaming Laws"; "--Mississippi Gaming Laws."
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(a) default in the payment of any interest upon the 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
notes when due;
(c) default in the performance, or breach, of any covenant or warranty
of Park Place in the indenture which default continues uncured for a period
of 60 days after written notice to Park Place by the trustee or to Park
Place and the trustee by the holders of at least 25% in principal amount of
the outstanding notes;
(d) the acceleration of the maturity of indebtedness of Park Place,
other than Non-recourse Indebtedness, at any one time, in an aggregate
amount in excess of the greater of (1) $25 million and (2) 5% of
Consolidated Net Tangible Assets, if such acceleration is not annulled
within 30 days after written notice to Park Place by the trustee and the
holders of at least 25% in principal amount of the outstanding notes;
(e) specified events of bankruptcy, insolvency or reorganization in
respect of Park Place or any of its Significant Subsidiaries.
In the case of an Event of Default arising from specified events of
bankruptcy or insolvency of Park Place, all outstanding 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 notes may declare all the 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 various limitations,
holders of a majority in aggregate principal amount of the then outstanding
notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from holders of the 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 notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
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 notes.
Park Place 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, Park Place is required to deliver to the trustee a statement
specifying such Default or Event of Default.
98
<PAGE>
AMENDMENT, SUPPLEMENT AND WAIVER
Park Place and the trustee may amend any provisions of the indenture or the
exchange 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 Park Place with any such
provision; provided, however that without the consent of each holder affected,
an amendment or waiver may not, with respect to any notes held by a
non-consenting holder:
(1) reduce the principal amount of the notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes in a
manner adverse to the holders;
(3) reduce the rate of or extend the time for payment of interest on any
note;
(4) make any note payable in money other than that stated in the notes;
(5) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments of
principal of or premium, if any, or interest on the notes; or
(6) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Park Place and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Park Place's obligations to holders of
notes in the case of a merger or consolidation or sale of 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 notes or that does not adversely affect the legal
rights under the indenture of any such holder;
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act; or
(6) to provide for a successor trustee.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of Park Place, as such, will have any liability for any obligations
of Park Place or any successor entity or any of Park Place's Affiliates under
the exchange notes or 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.
REPORTS
Whether or not required by the Commission, so long as any notes are
outstanding, Park Place will file with the trustee such of the supplementary and
periodic information, documents and reports which may be required pursuant to
Section 13 or Section 15(d) of the Exchange Act in respect of a security listed
and registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations.
99
<PAGE>
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Park Place may elect to have all of its obligations discharged with respect
to the outstanding notes, which is referred to as "Legal Defeasance," except
for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below;
(2) Park Place's obligations with respect to the notes concerning issuing
temporary notes, registration of exchange notes, mutilated, destroyed,
lost or stolen 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
Park Place's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Park Place may, at its option, elect to have the obligations of
Park Place released with respect to some of the covenants that are described in
the indenture, which is referred to as "Covenant Defeasance," and thereafter any
omission to comply with those covenants will not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
some 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 notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Park Place must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the 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 or a nationally recognized investment
banking firm, to pay the principal of, premium, if any, and interest on
the outstanding notes on the stated maturity or on the applicable
redemption date, as the case may be, and Park Place must specify whether
the notes are being defeased to maturity or to a particular redemption
date;
(2) in the case of Legal Defeasance, Park Place will have delivered to the
trustee an opinion of counsel in the United States reasonably acceptable
to the trustee confirming that (a) Park Place 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 will 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, Park Place will 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
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 will 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;
100
<PAGE>
(5) the 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 Park Place or any of its
Restricted Subsidiaries is a party or by which Park Place or any of its
Restricted Subsidiaries is bound; and
(6) Park Place must deliver to the trustee an Officers' Certificate stating
that the deposit was not made by Park Place with the intent of preferring
the holders of exchange notes over the other creditors of Park Place with
the intent of defeating, hindering, delaying or defrauding creditors of
Park Place or others.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be issued in the form of one or more global notes.
The global notes will be deposited with, or on behalf of, the Depository Trust
Company and registered in the name of DTC or its nominee, who will be the global
notes holder. Except as set forth below, the global notes may be transferred, in
whole and not in part, only to DTC or another nominee of DTC. Investors may hold
their beneficial interests in the global notes directly through DTC if they are
participating organizations or participants in such system or indirectly through
organizations that are participants in such system.
DEPOSITORY PROCEDURES
DTC has advised Park Place that DTC is a limited-purpose trust company that
was created to hold securities for its participants and to facilitate the
clearance and settlement of transactions in such 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 various other
organizations. Access to DTC's system is also available to indirect participants
such as banks, brokers, dealers and trust companies 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 DTC only through the participants or the indirect
participants.
Park Place expects that pursuant to procedures established by DTC:
- upon deposit of the global notes, DTC will credit the accounts of
participants designated by the exchange agent with portions of the
principal amount of the global notes; and
- ownership of the exchange notes evidenced by the global notes will be
shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC 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 specified
persons take physical delivery in definitive form of securities that they
own. Consequently, the ability to transfer exchange notes evidenced by the
global notes will be limited to such extent.
So long as the global notes holder is the registered owner of any exchange
notes, the global notes holder will be considered the sole holder under the
indenture of any exchange notes evidenced by the global notes. 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 DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
exchange notes.
Payments in respect of the principal, premium, if any, and interest, on any
exchange notes registered in the name of the global notes holder on the
applicable record date will be payable by the trustee to or at the direction of
the global notes 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
101
<PAGE>
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. Park Place believes, however, that it is currently the policy
of DTC 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 DTC. 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 specified conditions, any person having a beneficial interest in
a global note may, upon request to the trustee, exchange the 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
their nominee. In addition, if:
(1) Park Place notifies the trustee in writing that DTC 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
(2) 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 notes holder of its global notes, exchange
notes in such form will be issued to each person that the global notes holder
and DTC identify as being the beneficial owner of the related exchange notes.
Neither Park Place nor the trustee will be liable for any delay by the
global notes holder or DTC 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 notes holder or DTC for
all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the exchange notes
represented by the global notes be made by wire transfer of immediately
available funds to the accounts specified by the global notes holder. With
respect to certificated securities, Park Place 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 Park Place, Park Place
will make all principal, premium and interest payments on those exchange notes
in accordance with those instructions. All other payments on the 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 Park Place 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 for the
exchange notes. Park Place may change the paying agent or registrar without
prior notice to the holders of the exchange notes, and Park Place 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
102
<PAGE>
transfer documents and Park Place may require a holder to pay any taxes and fees
required by law or permitted by the indenture. Park Place is not required to
transfer or exchange any exchange note selected for redemption. Also, Park Place
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 registered 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 Park Place, the indenture limits its
right to obtain payment of claims in specified cases, or to realize on some
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 specified 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 holder of exchange notes, unless such holder has offered to the
trustee security and indemnity satisfactory to it against any loss, liability or
expense.
DEFINITIONS
Set forth below are some of the 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 "Additional Covenants of Park
Place--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.
"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 Park Place and its Subsidiaries
(less applicable depreciation, amortization and other valuation reserves) after
deducting therefrom (a) all current liabilities of Park Place and its
Subsidiaries (excluding
103
<PAGE>
(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
Park Place and computed in accordance with generally accepted accounting
principles.
"CREDIT FACILITIES" means, with respect to Park Place, one or more debt
facilities or commercial paper facilities, in each case with banks or other
institutional lenders providing for revolving credit loans, 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.
"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 voting stock
or other equity interest is owned, directly or indirectly, by Park Place 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 present value of the sum of the
principal amount and premium, if any, that would be payable on such exchange
note on its maturity date and all remaining interest payments (not including any
portion of such payments of interest accrued as of the redemption date) to and
including such maturity date, discounted on a semi-annual bond equivalent basis
from such maturity date 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 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.
104
<PAGE>
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity.
"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
Park Place.
"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 notes or is redeemable at the option of the holder thereof at
any time prior to the stated maturity of the notes, or is convertible into or
exchangeable for debt securities at any time prior to the stated maturity of the
notes.
"RESTRICTED SUBSIDIARY" means any Subsidiary of Park Place 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 Park Place 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 Park Place or any
Restricted Subsidiary.
"SIGNIFICANT SUBSIDIARY" of Park Place means any Restricted Subsidiary of
Park Place 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 Park Place or by one or more Subsidiaries thereof, or by
Park Place and one or more Subsidiaries.
"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 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.
105
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following discussion is the opinion of Latham & Watkins, our counsel, as
to the material federal income tax consequences expected to result to you if you
exchange your old notes for exchange notes in the exchange offer. This opinion
is based on:
- the facts described in the registration statement of which this prospectus
is a part;
- Internal Revenue Code of 1986, as amended;
- current, temporary and proposed treasury regulations promulgated under the
Internal Revenue Code;
- the legislative history of the Internal Revenue Code;
- Current administrative interpretations and practices of the Internal
Revenue Service; and
- court decisions,
all as of the date of this prospectus. In addition, the administrative
interpretations and practices of the Internal Revenue Service include its
practices and policies as expressed in private letter rulings that are not
binding on the Internal Revenue Service, except with respect to the particular
taxpayers who requested and received those rulings. Future legislation, treasury
regulations, administrative interpretations and practices and/or court decisions
may adversely affect, perhaps retroactively, the tax considerations contained in
this discussion. Any change could apply retroactively to transactions preceding
the date of the change. The tax considerations contained in this discussion may
be challenged by the Internal Revenue Service and may not be sustained by a
court if challenged by the Internal Revenue Service, and we have not requested,
and don not plan to request, any rulings form the Internal Revenue Service
concerning the tax treatment of the exchange of old notes for the exchange
notes.
Some holders may be subject to special rules not discussed below, including,
without limitation:
- insurance companies;
- financial institutions or broker-dealers;
- tax-exempt organizations;
- stockholders holding securities as part of a conversion transaction, or a
hedge or hedging transaction or as a position in a straddle for tax
purposes;
- foreign corporations or partnerships; and
- persons who are not citizens or residents of the United States.
YOU SHOULD CONSULT YOUR 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, because the exchange notes will not
be considered to differ materially in kind or extent from the old notes.
Therefore, no material federal income tax consequences will result to you from
exchanging old notes for exchange notes.
106
<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 the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for old notes
where the broker-dealer acquired the old notes as a result of market-making
activities or other trading activities. To the extent a broker-dealer
participates in the exchange offer and so notifies us, we have agreed to make
this prospectus, as amended or supplemented, available to the broker-dealer for
use in connection with any such resale. We will promptly send additional copies
of this prospectus and any amendment or supplement to any broker-dealer that
requests the documents in the letter of transmittal.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. Broker-dealers may sell exchange notes
received by them for their own account pursuant to the exchange offer 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
- through a combination of the above methods of resale,
at market prices prevailing at the time of resale, at prices related to the
prevailing market prices or negotiated prices. Broker-dealers may resell
exchange notes directly to purchasers or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any
broker-dealer and/or the purchasers of the 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 the exchange notes may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on any 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.
We have agreed to pay all expenses incident to the exchange offer, other
than commissions and concessions of any broker-dealer. We also will provide
indemnification against specified liabilities, including 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 agrees to notify us before using
the prospectus in connection with the sale or transfer of exchange notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which:
- makes any statement in the prospectus untrue in any material respect;
- requires the making of any changes in the prospectus to make the
statements in the prospectus not misleading; or
- may impose upon us disclosure obligations that my have a material adverse
effect on us,
which notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
107
<PAGE>
LEGAL MATTERS
Latham & Watkins, Los Angeles, California, will pass upon various legal
matters for us in connection with the exchange notes offered hereby.
EXPERTS
The audited consolidated financial statements and schedules of Park Place
included in and/or incorporated by reference in this prospectus, and elsewhere
in the registration statement of which this prospectus is a part, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The audited consolidated financial statements of Grand included in this
prospectus, and elsewhere in the registration statement of which this prospectus
is a part, 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
report.
The audited combined consolidated financial statements of Starwood Hotels
and Resorts Worldwide, Inc. Gaming Operations To Be Sold To Park Place
Entertainment Corporation included in this prospectus, and elsewhere in the
registration statement of which this prospectus is a part, 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 report. In that report, that
firm states that, with respect to Sheraton Halifax and Sheraton Sydney, their
opinion is based on the report of Ernst & Young LLP.
AVAILABLE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we have
filed with the Commission under 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, 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, NW,
Washington, D.C. 20549, as well as 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 us. 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.
INCORPORATION OF 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. Any statement contained in the documents
filed with the Commission prior to the date of this prospectus will be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus
108
<PAGE>
modifies or supersedes the statement. Information that we file later with the
Commission will automatically update the information incorporated by reference
and the information in this prospectus. We incorporate by reference the
following documents we filed with the Commission:
1. Annual Report on Form 10-K for the year ended December 31, 1998;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and
June 30, 1999;
3. Current Reports on Form 8-K filed with the Commission on May 10, 1999,
July 20, 1999 and July 29, 1999; and
4. 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.
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, 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 DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, YOU MUST REQUEST THE INFORMATION NO LATER THAN FIVE BUSINESS DAYS
PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER. THE EXPIRATION IS ,
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.
109
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PARK PLACE ENTERTAINMENT CORPORATION
Report of Independent Public Accountants................................................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and June 30, 1999 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 and for the
six months ended June 30, 1999 and 1998 (unaudited)................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 and
for the six months ended June 30, 1999 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 and for the
six months ended June 30, 1999 and 1998 (unaudited)................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
STARWOOD HOTELS & RESORTS WORLDWIDE, INC. GAMING OPERATIONS TO BE SOLD TO PARK PLACE ENTERTAINMENT
CORPORATION
Report of Independent Public Accountants................................................................ F-25
Auditors' Report........................................................................................ F-26
Combined Consolidated Balance Sheets at June 30, 1999 (unaudited) and December 31, 1998 and 1997........ F-27
Combined Consolidated Statements of Income for the six months ended June 30, 1999 and 1998 (unaudited)
and the years ended December 31, 1998 and 1997........................................................ F-28
Combined Consolidated Statement of Comprehensive Income for the six months ended June 30, 1999 and 1998
(unaudited) and the years ended December 31, 1998 and 1997............................................ F-29
Combined Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998
(unaudited) and the years ended December 31, 1998 and 1997............................................ F-30
Notes to Combined Consolidated Financial Statements..................................................... F-31
GRAND CASINOS, INC.
Report of Independent Public Accountants................................................................ F-44
Consolidated Balance Sheets as of December 31, 1998 and December 28, 1997 and June 30, 1999
(unaudited)........................................................................................... F-45
Consolidated Statements of Operations for the years ended December 31, 1998, December 28, 1997 and
December 29, 1996 and for the six months ended June 30, 1999 and June 28, 1998 (unaudited)............ F-46
Consolidated Statements of Comprehensive Income for the years ended December 31, 1998, December 28, 1997
and December 29, 1996 and for the six months ended June 30, 1999 and June 28, 1998 (unaudited)........ F-47
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, December 28, 1997
and December 29, 1996................................................................................. F-48
Consolidated Statements of Cash Flows for the years ended December 31, 1998, December 28, 1997 and
December 29, 1996 and for the six months ended June 30, 1999 and June 28, 1998 (unaudited)............ F-49
Notes to Consolidated Financial Statements.............................................................. F-50
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Park Place Entertainment
Corporation:
We have audited the accompanying consolidated balance sheets of Park Place
Entertainment Corporation (a Delaware corporation) and subsidiaries (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Park Place Entertainment
Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 5, 1999
F-2
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Cash and equivalents.................................................. $ 247 $ 199 $ 152
Restricted cash....................................................... 135 -- 6
Temporary investments................................................. -- 35 --
Accounts receivable, net.............................................. 119 143 132
Inventory, prepaids and other......................................... 133 73 142
------ ------ -----------
Total current assets................................................ 634 450 432
Investments........................................................... 169 176 181
Property and equipment, net........................................... 4,991 3,621 5,250
Goodwill.............................................................. 1,295 1,303 1,278
Other assets.......................................................... 85 80 82
------ ------ -----------
Total assets.......................................................... $ 7,174 $ 5,630 $ 7,223
------ ------ -----------
------ ------ -----------
Liabilities and stockholders' equity
Accounts payable and accrued expenses................................. $ 434 $ 298 $ 345
Current maturities of long-term debt.................................. 6 34 7
Income taxes payable.................................................. -- 2 4
------ ------ -----------
Total current liabilities........................................... 440 334 356
Long-term debt, net of current maturities............................. 2,466 1,272 2,486
Deferred income taxes, net............................................ 609 567 644
Other liabilities..................................................... 51 76 51
------ ------ -----------
Total liabilities................................................... 3,566 2,249 3,537
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 400.0 million shares authorized, 304.0
and 303.1 million shares issued and 302.3 and 303.1 million shares
outstanding at June 30, 1999 and December 31, 1998, respectively.... 3 -- 3
Additional paid-in capital............................................ 3,613 -- 3,618
Other................................................................. (8) -- (8)
Retained earnings..................................................... -- -- 85
Common stock in treasury at cost, 1.7 million shares at June 30,
1999................................................................ -- -- (12)
Hilton investment..................................................... -- 3,381 --
------ ------ -----------
Total stockholders' equity.......................................... 3,608 3,381 3,686
------ ------ -----------
Total liabilities and stockholders' equity............................ $ 7,174 $ 5,630 $ 7,223
------ ------ -----------
------ ------ -----------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1998 1997 1996 1999 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Casino........................................................... $ 1,587 $ 1,450 $ 486 $ 1,070 $ 777
Rooms............................................................ 306 312 232 181 156
Food and beverage................................................ 230 216 138 132 115
Other revenue.................................................... 182 175 114 104 101
--------- --------- --------- --------- ---------
2,305 2,153 970 1,487 1,149
--------- --------- --------- --------- ---------
Expenses
Casino........................................................... 845 770 259 558 413
Rooms............................................................ 112 110 81 65 54
Food and beverage................................................ 230 191 123 122 103
Other............................................................ 555 549 273 353 271
Depreciation and amortization.................................... 225 215 123 142 112
Impairment losses and other...................................... 29 108 10 -- --
Pre-opening expense.............................................. -- -- -- 10 --
Corporate expense................................................ 7 9 9 17 9
--------- --------- --------- --------- ---------
2,003 1,952 878 1,267 962
--------- --------- --------- --------- ---------
Operating income................................................... 302 201 92 220 187
Interest and dividend income..................................... 21 25 12 6 14
Interest expense................................................. (87) (82) (36) (58) (43)
Interest expense, net from unconsolidated affiliates............. (13) (10) (5) (6) (6)
--------- --------- --------- --------- ---------
Income before income taxes, minority interest, extraordinary item
and cumulative effect of accounting change....................... 223 134 63 162 152
Provision for income taxes....................................... 111 63 27 73 70
Minority interest, net........................................... 3 4 -- 2 2
--------- --------- --------- --------- ---------
Income before extraordinary item and cumulative effect of
accounting change................................................ 109 67 36 87 80
Extraordinary item--loss on extinguishment of debt, net of tax
benefit of $52................................................... -- -- (74) -- --
Cumulative effect of accounting change, net of tax................. -- -- -- (2) --
--------- --------- --------- --------- ---------
Net income (loss).................................................. $ 109 $ 67 $ (38) $ 85 $ 80
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic earnings (loss) per share--pro forma
Income before extraordinary item and cumulative effect of
accounting change.............................................. $ .42 $ .25 $ .18 $ .29 $ .31
Extraordinary loss............................................... -- -- (.37) -- --
Cumulative effect of accounting change........................... -- -- -- (.01) --
--------- --------- --------- --------- ---------
Net income (loss) per share...................................... $ .42 $ .25 $ (.19) $ .28 $ .31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share--pro forma
Income before extraordinary item and cumulative effect of
accounting change.............................................. $ .42 $ .25 $ .18 $ .28 $ .30
Extraordinary loss............................................... -- -- (.37) -- --
Cumulative effect of accounting change........................... -- -- -- (.01) --
--------- --------- --------- --------- ---------
Net income (loss) per share...................................... $ .42 $ .25 $ (.19) $ .28 $ .30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
HILTON COMMON PAID-IN RETAINED TREASURY
INVESTMENT STOCK CAPITAL EARNINGS OTHER STOCK TOTAL
---------- ------ ---------- ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................... $ 592 $-- $-- $-- $-- $-- $ 592
Net loss...................................... (38) -- -- -- -- -- (38)
Intercompany activity with Hilton............. 2,603 -- -- -- -- -- 2,603
---------- ------ ---------- ---------- ----- ---------- ------
Balance, December 31, 1996.................... 3,157 -- -- -- -- -- 3,157
Net income.................................... 67 -- -- -- -- -- 67
Intercompany activity with Hilton............. 157 -- -- -- -- -- 157
---------- ------ ---------- ---------- ----- ---------- ------
Balance, December 31, 1997.................... 3,381 -- -- -- -- -- 3,381
Net income.................................... 109 -- -- -- -- -- 109
Intercompany activity with Hilton............. (152) -- -- -- -- -- (152)
Spin-off of the Company....................... (3,338) 3 3,343 -- (8) -- --
Acquisition of Grand Casinos, Inc. ........... -- -- 270 -- -- -- 270
---------- ------ ---------- ---------- ----- ---------- ------
Balance, December 31, 1998.................... -- 3 3,613 -- (8) -- 3,608
Net income (unaudited)........................ -- -- -- 85 -- -- 85
Options exercised (unaudited)................. -- -- 5 -- -- -- 5
Treasury Stock acquired (unaudited)........... -- -- -- -- -- (12) (12)
---------- ------ ---------- ---------- ----- ---------- ------
Balance, June 30, 1999 (unaudited)............ $ -- $ 3 $3,618 $ 85 $ (8) $ (12) $3,686
---------- ------ ---------- ---------- ----- ---------- ------
---------- ------ ---------- ---------- ----- ---------- ------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1998 1997 1996 1999 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss).................................................... $ 109 $ 67 $ (38) $ 85 $ 80
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary loss on extinguishment............................... -- -- 74 -- --
Depreciation and amortization...................................... 225 215 123 142 112
Non-cash items..................................................... 16 96 1 -- --
Amortization of loan costs......................................... 2 2 -- 1 1
Change in working capital components:
Inventories...................................................... -- (3) 2 (2) --
Accounts receivable.............................................. 36 (21) 15 (13) 29
Other current assets............................................. (30) 48 (15) (1) (27)
Accounts payable and accrued expenses............................ (18) 12 (87) (16) (19)
Income taxes payable............................................. (1) 1 51 4 2
Change in deferred income taxes.................................... 35 39 (11) 29 (9)
Change in other liabilities........................................ (24) (36) 30 -- (23)
Distributions from equity investments less than earnings........... (12) (1) (16) 2 (4)
Other.............................................................. (20) (44) 10 8 14
--------- --------- --------- --------- ---------
Net cash provided by operating activities............................ 318 375 139 239 156
--------- --------- --------- --------- ---------
Investing activities
Capital expenditures................................................. (608) (438) (193) (385) (311)
Change in other investments.......................................... -- (57) (51) (14) (2)
Change in temporary investments...................................... 36 (25) 25 -- 6
Payments on notes and other.......................................... 3 7 20 -- 1
Acquisitions, net of cash acquired................................... (15) (70) 144 -- (58)
Other................................................................ -- -- -- (4) --
--------- --------- --------- --------- ---------
Net cash used in investing activities................................ (584) (583) (55) (403) (364)
--------- --------- --------- --------- ---------
Financing activities
Net borrowings on Senior Credit Facility............................. 810 -- -- 620 --
Net borrowings on commercial paper program........................... -- -- -- 24 --
Payments on debt..................................................... (9) (16) -- (623) (6)
Advances (to) from Hilton............................................ (352) 191 110 (73) 147
Purchases of Treasury Stock.......................................... -- -- -- (12) --
Other................................................................ -- -- -- 4 --
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities.................. 449 175 110 (60) 141
--------- --------- --------- --------- ---------
Increase (decrease) in cash and equivalents............................ 183 (33) 194 (224) (67)
Cash and equivalents at beginning of period............................ 199 232 38 382 199
--------- --------- --------- --------- ---------
Cash and equivalents at end of period.................................. $ 382 $ 199 $ 232 $ 158 $ 132
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to consolidated financials statements
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION
On December 31, 1998, Hilton Hotels Corporation ("Hilton") completed the
distribution of the operations, assets and liabilities of its gaming business to
a new publicly traded corporation, Park Place Entertainment Corporation ("Park
Place" or "the Company"), a Delaware corporation. The stock of Park Place was
distributed to Hilton's shareholders tax free on a one-for-one basis. Also on
December 31, 1998, immediately following the Hilton distribution, Park Place
acquired, by means of a merger, the Mississippi gaming business of Grand
Casinos, Inc. ("Grand") which includes the Grand Casino Biloxi, Grand Casino
Gulfport and Grand Casino Tunica properties, in exchange for the assumption of
debt and the issuance of Park Place common stock on a one-for-one basis.
NATURE OF OPERATIONS
Park Place is primarily engaged in the ownership, operation and development
of gaming facilities. The operations of Park Place currently include twelve U.S.
land-based casinos, an interest in one U.S. riverboat casino, two land-based
casinos in Australia and one land-based casino in Uruguay.
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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the assets,
liabilities, stockholders' equity, revenues, expenses and cash flows of Hilton's
gaming business on a stand-alone basis including an allocation of corporate
expenses relating to the Park Place entities as of December 31, 1997 and for
each of the three years ending December 31, 1998. The balance sheet as of
December 31, 1998 reflects the distribution by Hilton and the merger with Grand.
The consolidated financial statements include the accounts of Park Place and
its majority owned and controlled subsidiaries. Park Place adopted 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" in the fourth quarter of 1998, and, as a result, no
longer consolidates the operating results and working capital of affiliates
operated under long-term management agreements. Application of EITF 97-2 reduced
each of revenues and operating expenses by $427 million and $457 million for the
years ended December 31, 1997 and 1996, respectively. Application of the
standard reduced each of current assets and current liabilities by $59 million
at December 31, 1997. Application of EITF 97-2 had no impact on reported
operating income, net income, earnings per share or stockholders' equity.
Investments in unconsolidated affiliates which are 50% or less owned are
accounted for under the equity method.
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 the Company's wholly owned subsidiaries to Park Place Entertainment
Corporation.
The condensed consolidated financial statements for the six months ended
June 30, 1999 and 1998 included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations
F-7
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. In
the opinion of management, all adjustments (which include normal recurring
adjustments) necessary for a fair statement of results for the interim periods
have been made. The results for the six-month periods are not necessarily
indicative of results to be expected for the full fiscal year.
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 the
customer on a complimentary basis. The estimated cost of providing these
promotional allowances, primarily classified as casino expenses through
interdepartmental allocations, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Rooms................................................... $ 32 $ 30 $ 11
Food and beverage....................................... 108 106 32
--------- --------- ---------
Total cost of promotional allowances.................... $ 140 $ 136 $ 43
--------- --------- ---------
--------- --------- ---------
</TABLE>
CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at year-end exchange rates and related gains and losses, net of
applicable deferred income taxes, are reflected in stockholders' equity. Gains
and losses from foreign currency transactions and translation of balance sheets
in highly inflationary economies are included in earnings.
INVENTORIES
Included in other current assets at December 31, 1998 and 1997, are
inventories of $25 million and $17 million, respectively. Inventories are stated
at the lower of cost or market. Cost is determined by the first-in first-out
method.
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 30 to 40
years for buildings and riverboats and eight years for building improvements and
furniture and equipment.
F-8
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The carrying value of the Company'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.
The Company 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. 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. The Company adopted SOP 98-5 in the first quarter of 1999. The
adoption of the SOP resulted in an expense of approximately $2 million, net of
tax, accounted for as a cumulative effect of a change in accounting principle.
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 based on the
related debt agreements using the effective interest method or a method which
approximates the effective interest method.
SELF-INSURANCE
The Company 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.
EARNINGS PER SHARE ("EPS")
Pro forma earning per share (EPS) is calculated for all periods presented
based on the Hilton distribution date. Basic EPS is calculated by dividing net
income by the weighted average number of common shares outstanding for the
period. The pro forma weighted average number of shares outstanding for 1998,
1997 and 1996 were 261 million, 263 million and 198 million, respectively.
Diluted EPS reflects the effect of assumed stock option exercises. The dilutive
effect of the assumed exercise of stock options increased the weighted average
number of common shares by 2 million, 3 million and 1 million for 1998, 1997 and
1996, respectively.
The weighted average number of common shares outstanding for the six months
ended June 30, 1999 was 303 million. The dilutive effect of the assumed exercise
of stock options increased the weighted average number of common shares by 3
million for the six months ended June 30, 1999. For the six months ended June
30, 1998, pro forma earnings per share is calculated using weighted average
number of common shares outstanding of 261 million. The dilutive effect of the
assumed exercise of stock options
F-9
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
increased the weighted average number of common shares by 3 million for the six
months ended June 30, 1998.
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.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications to conform with classifications adopted in 1998. These
classifications have no effect on net income.
NOTE 3. ACQUISITIONS
BALLY ACQUISITION
Effective December 18, 1996, Hilton completed a merger of Bally
Entertainment Corporation (Bally) with and into Hilton pursuant to an agreement
dated June 6, 1996. Aggregate consideration consisted of approximately 53
million shares of Hilton's common stock and approximately 15 million shares of
Hilton'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 and Bally subsidiary debt
totaling $1.2 billion.
The acquisition was accounted for using the purchase method of accounting,
and accordingly, the acquisition cost of $3.1 billion was 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, was allocated to goodwill and is
being amortized over 40 years. Accumulated amortization as of December 31, 1998
is $68 million.
GRAND ACQUISITION
Effective December 31, 1998, the Company completed the acquisition of Grand
pursuant to an agreement dated June 30, 1998. Aggregate consideration consisted
of approximately 42 million shares of the Company's common stock with an equity
value of $270 million and assumption of Grand's debt at fair market value
totaling $625 million at December 31, 1998.
The acquisition has been accounted for using the purchase method of
accounting. The purchase price has been preliminarily allocated based on
estimated fair values at the date of acquisition, pending final determination of
certain acquired balances. A total of $244 million, representing the excess of
the fair value of Grand's tangible net assets over the acquisition cost, has
reduced, by a proportionate share, the book value of non-current assets
acquired.
F-10
<PAGE>
NOTE 3. ACQUISITIONS (CONTINUED)
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 purport to be indicative of future
results or what would have occurred had this acquisition been made as of those
dates.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(UNAUDITED)
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue.................................................................... $ 2,900 $ 2,682
Operating income........................................................... 383 262
Net income................................................................. 139 82
Basic EPS.................................................................. .46 .27
Diluted EPS................................................................ .45 .26
</TABLE>
CAESARS WORLD, INC. ACQUISITION (UNAUDITED)
On April 27, 1999, the Company entered into a definitive agreement with
Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") and several of its
subsidiaries to acquire all of the outstanding stock of Caesars World, Inc.
("Caesars"), a wholly owned subsidiary of Starwood, and all of Starwood's
interests in several other gaming entities for $3.0 billion in cash. The
acquisition will be accounted for as a purchase and accordingly, the purchase
price will be allocated to the assets and liabilities based on their estimated
fair market values at the date of acquisition. The acquisition is subject to
regulatory approvals and is expected to be completed in the fourth quarter of
1999.
NOTE 4. IMPAIRMENT LOSSES AND OTHER
In 1998, impairment losses and other expenses include an impairment loss
related to certain riverboat assets as well as transaction costs associated with
the distribution from Hilton and the merger with Grand. The 1997 charges
included 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
expenses for the Flamingo Casino-Kansas City and losses associated with the
planned relocation of the Flamingo Casino-New Orleans.
NOTE 5. EXTRAORDINARY ITEM
In December 1996, the Company 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 Casino Holdings, Inc. Senior Discount Notes. The remaining untendered
notes were defeased. The Company also purchased 99.1% of the outstanding 10 3/8%
First Mortgage Notes due 2003 of Bally's 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.
F-11
<PAGE>
NOTE 6. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Casino accounts receivable..................................... $ 127 $ 117
Less allowance for doubtful accounts........................... (34) (21)
--------- ---------
93 96
Other accounts receivable...................................... 26 47
--------- ---------
Total.......................................................... $ 119 $ 143
--------- ---------
--------- ---------
</TABLE>
The allowance provided for estimated uncollectible receivables, net of
recoveries, is included in casino expenses in the amount of $37 million, $26
million and $20 million in 1998, 1997 and 1996, respectively.
NOTE 7. INVESTMENTS
Investments in and notes from affiliates at December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Equity investments
Casino hotels (three in 1998 and 1997)....................... $ 63 $ 76
Notes receivable............................................. 97 94
Other.......................................................... 9 6
--------- ---------
Total.......................................................... $ 169 $ 176
--------- ---------
--------- ---------
</TABLE>
NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Land........................................................ $ 756 $ 597
Buildings, riverboats and leasehold improvements............ 3,232 2,669
Furniture and equipment..................................... 697 558
Property held for sale or development....................... 6 --
Construction in progress.................................... 767 178
--------- ---------
5,458 4,002
Less accumulated depreciation............................. (467) (381)
--------- ---------
Total....................................................... $ 4,991 $ 3,621
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
NOTE 9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Accounts and notes payable..................................... $ 34 $ 60
Payable to Hilton.............................................. 73 --
Compensation and benefits...................................... 95 65
Accrued expenses............................................... 232 173
--------- ---------
Total.......................................................... $ 434 $ 298
--------- ---------
--------- ---------
</TABLE>
NOTE 10. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ---------
JUNE 30,
1999
-----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C>
Senior notes, with an average rate of 7.5%, due
2002 to 2005................................... $ 1,023 $ -- $ 1,023
10 1/8% First Mortgage Notes due 2003............ 490 -- 6
9% Senior Unsecured Notes due 2004............... 135 -- --
Senior Credit Facility........................... 810 -- 1,430
Commercial paper program......................... -- -- 24
Capital leases and other......................... 14 -- 10
Debt allocated by Hilton......................... -- 1,306 --
--------- --------- -----------
2,472 1,306 2,493
Less current maturities........................ (6) (34) (7)
--------- --------- -----------
Net long-term debt............................... $ 2,466 $ 1,272 $ 2,486
--------- --------- -----------
--------- --------- -----------
</TABLE>
Interest paid, net of amounts capitalized, was $81 million, $74 million and
$33 million in 1998, 1997 and 1996, respectively. Capitalized interest amounted
to $25 million, $16 million and $6 million, respectively.
Debt maturities during the next five years are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1999............................................................................. $ 6
2000............................................................................. 4
2001............................................................................. --
2002............................................................................. 300
2003............................................................................. 810
Thereafter....................................................................... 1,352
------
$ 2,472
------
------
</TABLE>
In order to equalize the indebtedness between Park Place and Hilton at the
time of the distribution, Park Place and Hilton agreed to an allocation of
pre-distribution debt balances and entered into a debt assumption agreement.
Pursuant to the debt assumption agreement, 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
F-13
<PAGE>
NOTE 10. LONG-TERM DEBT (CONTINUED)
governing Hilton's $300 million aggregate principal amount of 7.375% Notes due
2002 and its $325 million aggregate principal amount of 7% 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 will be 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.
In order to facilitate the transfer of debt balances in connection with the
distribution, in December 1998 Park Place entered into a $2.15 billion long-term
credit facility and completed a $400 million senior subordinated note offering.
Park Place used the proceeds from the new facility and the offering to repay
$1,066 million of Hilton's commercial paper borrowings representing an estimate
of Park Place's share of the obligation. The distribution agreement entered into
between Park Place and Hilton calls for a final reconciliation and allocation of
certain debt and cash balances, as defined. The reconciliation resulted in an
additional amount due Hilton from Park Place of $73 million. This balance is
reflected in current liabilities in the accompanying consolidated balance
sheets.
The long-term credit facility has an aggregate commitment of $2.15 billion
consisting of a 364-day $650 million facility and a five year $1.5 billion
facility. At December 31, 1998, $810 million was outstanding, leaving
approximately $1.3 billion of the revolving bank debt facility available to the
Company at such date. In January 1999, the Company borrowed approximately $490
million under this facility in connection with the tender offer of the debt
assumed from the Grand merger (see below). The $400 million 7 7/8% Senior
Subordinated Notes due 2005 may be redeemed in whole but not in part, by the
Company at any time at a make whole premium.
As part of the acquisition of Grand, the Company assumed certain Grand
indebtedness as of December 31, 1998. This indebtedness included 10 1/8% First
Mortgage Notes due 2003 and 9% Senior Unsecured Notes due 2004, both of which
were marked to fair market value as of the date of acquisition. In January 1999,
the Company settled a cash tender offer and consent solicitation for
substantially all of the Grand 10 1/8% First Mortgage Notes due 2003. The
remaining untendered notes of $5.5 million were defeased. The defeasance was
completed by depositing $6.1 million in an irrevocable trust. The $6.1 million
has been invested in United States Treasury Securities in a sufficient amount to
pay and discharge all principal and interest on the outstanding 10 1/8% Notes.
Cash consideration for the repurchase and defeasance, including premiums,
totaled approximately $490 million.
On December 31, 1998, the Company completed a covenant defeasance of the
Grand 9% Senior Unsecured Notes. This defeasance was completed by depositing
$135 million in an irrevocable trust. The $135 million was invested in United
States Treasury Securities in a sufficient amount to pay and discharge all
principal and interest on the outstanding 9% Notes. In accordance with SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" the obligation as well as the amount deposited
in trust have been reflected in the accompanying consolidated balance sheet in
restricted cash and long-term debt, respectively. On February 1, 1999 the
Company exercised its rights to redeem the Grand 9% Notes and all amounts were
retired as of that date.
The Company has established a $1 billion commercial paper program as of
December 31, 1998. No amounts were outstanding at year end. Interest under the
program will be at a market rate for varying periods.
Provisions under various loan agreements require the Company to comply with
certain financial covenants which include limiting the amount of outstanding
indebtedness.
F-14
<PAGE>
NOTE 10. LONG-TERM DEBT (CONTINUED)
ADDITIONAL FINANCINGS (UNAUDITED)
In July 1999, the Company received commitments from a syndicate of financial
institutions to enter into a new $2.0 billion revolving credit facility which
will replace the existing $650 million 364-day credit facility. Borrowings under
the proposed $2.0 billion facility would be limited to $650 million until the
closing of the Caesars acquisition (See Note 3). The commitments are subject to
the negotiation of final documentation.
In addition to the proposed $2.0 billion 364-day facility, the Company
received commitments from a syndicate of financial institutions to enter into a
$1.0 billion 364-day facility which would only be drawn to provide funding for
the Caesars acquisition. The commitments are subject to the negotiation of final
documentation.
On August 2, 1999, the Company issued $300 million of Senior Notes due 2003
(the "Notes") in a private placement offering to institutional investors. The
Notes were issued with a coupon rate of 7.95%. The Notes are unsecured and will
rank senior to the Company's subordinated indebtedness and equally with the
Company's other senior indebtedness. Proceeds from this offering were used to
reduce the Company's borrowings under the existing credit facility.
NOTE 11. FINANCIAL INSTRUMENTS
CASH AND EQUIVALENTS AND TEMPORARY INVESTMENTS
The fair value of cash and 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
Company for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and equivalents and temporary
investments.............................. $ 247 $ 247 $ 234 $ 234
Long-term debt (including current
maturities).............................. 2,472 2,466 1,306 1,353
</TABLE>
F-15
<PAGE>
NOTE 12. INCOME TAXES
The provision (benefit) for income taxes for the three years ended December
31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Current
Federal................................................. $ 74 $ 23 $ 42
State, foreign and local................................ 20 1 4
--------- --- ---
94 24 46
Deferred.................................................. 17 39 (19)
--------- --- ---
Total..................................................... $ 111 $ 63 $ 27
--------- --- ---
--------- --- ---
</TABLE>
No income taxes were paid by the Company as these payments were the
responsibility of Hilton.
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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Accrued expenses........................................... $ 37 $ 15
Insurance and other reserves............................... 7 11
Benefit plans.............................................. 6 14
Pre-opening costs.......................................... 13 8
Foreign tax credit carryovers (expire beginning in 2000)... 5 11
Equity investments......................................... 3 46
Capital loss carryover (expires in 2002)................... 23 --
Other...................................................... 64 25
--------- ---------
158 130
Valuation allowance.......................................... (31) (7)
--------- ---------
127 123
--------- ---------
Deferred tax liabilities
Fixed assets, primarily depreciation....................... (633) (621)
Other...................................................... (69) (42)
--------- ---------
(702) (663)
--------- ---------
Net deferred tax liability................................... $ (575) $ (540)
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
NOTE 12. INCOME TAXES (CONTINUED)
Reconciliation of the Federal income tax rate to the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate..................................... 35.0% 35.0% 35.0%
Increase in taxes:
State and local income taxes, net of Federal tax
benefits................................................ 3.4 1.0 .5
Foreign taxes, net........................................ .4 .6 3.0
Goodwill amortization..................................... 5.2 8.6 --
Distribution costs........................................ 1.2 -- --
Other..................................................... 4.6 1.8 4.4
---- ---- ----
Effective tax rate.......................................... 49.8% 47.0% 42.9%
---- ---- ----
---- ---- ----
</TABLE>
NOTE 13. STOCKHOLDERS' EQUITY
Four hundred million shares of common stock with a par value of $0.01 per
share are authorized, of which 303 million were issued at December 31, 1998. One
hundred million shares of preferred stock with a par value of $0.01 per share
are authorized, of which no amounts have been issued.
The Company has a Share Purchase Rights Plan under which a right is attached
to each share of the Company's common stock. The rights may only become
exercisable under certain circumstances involving actual or potential
acquisitions of the Company's common stock by a specified person or affiliated
group. Depending on the circumstances, if the rights become exercisable, the
holder may be entitled to purchase units of the Company's junior participating
preferred stock, shares of the Company's common stock or shares of common stock
of the acquiror. The rights remain in existence until 2008 unless they are
terminated, exercised or redeemed.
The Company applies 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 the Company'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 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net income (loss)
As reported............................................ $ 109 $ 67 $ (38)
Pro forma.............................................. 92 61 (41)
Pro forma basic EPS
As reported............................................ $ .42 $ .25 $ (.19)
Pro forma.............................................. .35 .23 (.21)
Pro forma diluted EPS
As reported............................................ $ .42 $ .25 $ (.19)
Pro forma.............................................. .35 .23 (.21)
</TABLE>
F-17
<PAGE>
NOTE 13. STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1998, 45 million shares of common stock were reserved for
the exercise of options under the Company's Stock Incentive Plans. Options may
be granted to salaried officers, directors and other key employees of the
Company to purchase common stock at not less than the fair market value at the
date of grant. Generally, options may be exercised in installments commencing
one year after the date of grant. The Stock Incentive Plans also permit the
granting of Stock Appreciation Rights (SARs). No SARs have been granted as of
December 31, 1998.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of one percent for each of the three years; expected volatility of 34, 32 and 27
percent; risk-free interest rates of 5.51, 6.49 and 6.33 percent and expected
lives of six years for each of the three years. As a result of the distribution,
the fair values of the Hilton options were adjusted and prior periods were
restated based on the relative values of Hilton and Park Place common stock at
December 31, 1998.
As a result of the Hilton distribution, effective December 31, 1998, a total
of 14.6 million Park Place stock options were issued, representing the
adjustment of existing Hilton stock options to represent options in both Park
Place and Hilton. The exercise price for options to purchase Park Place common
stock were adjusted based on the relative values of Park Place and Hilton common
stock on the date the Company's stock began trading on a "when issued" basis.
Also on December 31, 1998, 18.2 million options were granted representing the
conversion of existing options to purchase Grand common stock in connection with
the Grand merger and the grant of additional Park Place stock options.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
RANGE OF WEIGHTED-AVE WEIGHTED-AVE WEIGHTED-AVE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ----------- --------- ----------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
$2.25-6.62 8,759,470 8.28 $ 6.13 2,627,620 $ 5.59
6.79-8.37 12,372,792 4.36 7.28 8,623,692 7.36
9.11-23.85 11,698,477 7.42 10.82 4,478,687 9.79
--------- ---------
2.25-23.85 32,830,739 6.50 8.24 15,729,999 7.76
--------- ---------
--------- ---------
</TABLE>
The Company adopted an Employee Stock Purchase Plan by which the Company is
authorized to issue up to five million shares of common stock to its full-time
employees. Under the terms of the Plan, employees can elect to have a percentage
of their earnings withheld to purchase the Company's common stock.
NOTE 14. EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT BENEFITS
A significant number of the Company's employees are covered by union
sponsored, collectively bargained multi-employer pension plans. The Company
contributed and charged to expense $12 million, $12 million and $7 million in
1998, 1997 and 1996, respectively, for such plans. Information from the plans'
administrators is not sufficient to permit the Company to determine its share,
if any, of unfunded vested benefits.
The Company also has other employee investment plans including a 401K plan
and a deferred compensation plan whereby the Company contributes certain
percentages of employee contributions. The cost of these plans is not
significant.
F-18
<PAGE>
NOTE 14. EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT BENEFITS (CONTINUED)
The Company provides life insurance benefits to certain retired employees.
Under terms of the plan covering such life insurance benefits, the Company
reserves the right to change, modify or discontinue these benefits. The cost of
these benefits is not significant.
NOTE 15. LEASES
The Company has entered into various operating leases for land adjacent to
its dockside casinos in Mississippi. The lease for land adjacent to the
Company's Gulfport Casino is for the period from July 1, 1997, through June 30,
2002, and contains renewal options totaling 40 years. The Company is required to
make annual rental payments of $1,200,000, subject to adjustment as defined,
plus 5% of gross annual gaming revenues in excess of $25 million and 3% of all
non-gaming revenues. The lessor of the Gulfport Casino site has the right to
cancel the lease at any time for reason of port expansion, in which case the
lessor will be liable to the Company for the depreciated value of improvements
and other structures placed on the leased premises, as defined.
The lease for land adjacent to the Company's Biloxi Casino has an initial
term of 99 years, and the Company is required to make annual rental payments of
$2.5 million, subject to adjustment as defined. The Company also entered into a
15-year lease for submerged land adjacent to the Biloxi Casino with an option to
extend the lease for five years after the expiration of the initial 15-year
term. The lease provides for annual rental payments of $900,000 for the next
five years, and subsequent increases as defined in the agreement.
The land lease in connection with the operation of Grand Casino Tunica
provides for annual rental payments of $2.5 million, subject to adjustment as
defined. The term of the lease is, initially, for six years with nine six-year
renewal options, for a total of 60 years.
Minimum lease commitments under noncancelable operating leases approximate
$10 million annually through 2003 with an aggregate commitment of $453 million
through 2042.
NOTE 16. COMMITMENTS AND CONTINGENCIES
At December 31, 1998 the Company had contractual commitments at its wholly
owned or leased properties for major expansion and rehabilitation projects of
approximately $146 million.
LITIGATION
Park Place and its subsidiaries are parties to legal proceedings relating to
the Hilton gaming business that were assumed 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 is 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 below for a discussion of certain litigation to which Grand is a
party.
BELLE OF ORLEANS
The subsidiary which holds the Belle of Orleans, L.L.C. (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
F-19
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
for the Louisiana Subsidiary to manage the riverboat casino. On March 27, 1997,
Metro filed suit in the Civil District Court for the Parish of Orleans, State of
Louisiana 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 Hilton's merger
with Bally in 1996. 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 while on appeal.
On June 16, 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, but,
pursuant to a writ application subsequently filed, the Court of Appeals reversed
and remanded for determination of which disputes are arbitrable. On November 23,
1998, Metro filed a third suit in the Civil District Court for the Parish of
Orleans, State of Louisiana 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. On December 23,
1998, judgment was rendered in favor of the Louisiana Subsidiary dismissing the
suit in its entirety. Metro has appealed. An affiliate of the Louisiana
Subsidiary, Bally's Intermediate Holdings, Inc., which due to a merger
subsequently became Bally's Midwest Casinos, Inc., filed an action on September
23, 1998, in the Circuit Court of Cook County, Illinois, which action has since
been removed to the U.S. District Court for the Northern District of Illinois,
Eastern Division, seeking judgment against Metro based upon Metro's default
under certain agreements between the parties relating to a $4 million loan to a
shareholder of Metro. Plaintiff filed a motion for summary judgment which is
currently under advisement by the court. Metro filed a fourth suit on December
28, 1998 in the Civil District Court for the Parish of Orleans, State of
Louisiana seeking a temporary restraining order and permanent injunctive relief
to prevent the spinoff of Hilton's gaming operations to Park Place. A temporary
restraining order was issued by the trial court, dissolved by the Court of
Appeals and affirmed by the Supreme Court. The motion for preliminary injunction
was denied.
(UNAUDITED)
On August 13, 1999, Metro filed another suit against Bally's Louisiana in
the Civil District Court for the Parish of Orleans seeking a writ of quo
warranto to require Bally's Louisiana to show by what authority it manages the
riverboat casino. Metro claims that the assignments from previous Bally's
entities to Bally's Louisiana were invalid and that Bally's Louisiana has no
management authority over the riverboat casino. A hearing is scheduled for
August 30, 1999, at which time the court may declare the assignments of the
management contract invalid. In such event, there is a possibility that an
interim manager may be appointed or that the riverboat casino may be closed
pending the outcome of the litigation.
Park Place will vigorously defend all claims under such suits and vigorously
pursue its claim against Metro.
BALLY MERGER LITIGATION
A purported class action against Bally Entertainment Corporation ("Bally"),
its directors and Hilton was commenced on September 4, 1996, under the caption
PARNES V. BALLY ENTERTAINMENT CORPORATION, ET AL. in the Court of Chancery of
the State of Delaware, New Castle County. The plaintiff alleges breaches of
fiduciary duty in connection with the merger of Bally with and into Hilton in
December 1996 (the "Bally Merger"), including allegedly illegal payments to
Arthur M. Goldberg that purportedly denied Bally shareholders other than Mr.
Goldberg an opportunity to sell their shares to Hilton or any other bidder at
the best possible price. In the complaint, the plaintiff seeks, among other
things:
(i) an order enjoining the Bally Merger;
F-20
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(ii) an award of damages in an unspecified amount;
(iii) an order requiring Mr. Goldberg to disgorge his profits; and
(iv) an award of attorneys' fees and expenses.
In orders dated May 13, 1997 and February 3, 1998, the Court dismissed this
litigation. Plaintiff appealed this dismissal and, on January 25, 1999, the
Delaware Supreme Court reversed the dismissal order and remanded the case to the
Court of Chancery.
ATLANTIC CITY LITIGATION
On September 9, 1997, an action was commenced in the United States District
Court for the Southern District of New York by Mirage Resorts, Inc. ("Mirage").
Named as defendants are the Company, Trump Hotel & Casino Resorts ("THCR"), and
the allegedly controlling shareholder of THCR. The complaint alleges, among
other things, that the defendants violated the Sherman Antitrust Act, committed
tortious interference with prospective economic advantage, and induced a breach
of fiduciary duty, in connection with Mirage's efforts to develop a casino
resort in Atlantic City, New Jersey. Injunctive relief and compensatory and
punitive damages in unspecified amounts are sought.
The Company has denied all allegations of wrongdoing asserted against it in
this litigation and believes that it has substantial defenses to these claims.
SLOT MACHINE LITIGATION
On April 26, 1994, William H. Poulos brought an action in the U.S. District
Court for the Middle District of Florida, Orlando Division--WILLIAM H. POULOS,
ET AL V. CAESARS WORLD, INC. ET AL--Case No. 39-478-CIV-ORL-22--in which various
parties (including Park Place and Grand) alleged to operate casinos or be slot
machine manufacturers were named as defendants. The plaintiff sought to have the
action certified as a class action.
An action subsequently filed on May 10, 1994 in the United States District
Court for the Middle District of Florida--WILLIAM AHEARN, ET AL V. CAESARS
WORLD, INC. ET AL--Case No. 94-532-CIV-ORL-22-- made similar allegations and was
consolidated with the Poulos action.
Both actions included claims under the federal Racketeering-Influenced and
Corrupt Organizations Act and under state law, and sought compensatory and
punitive damages. The plaintiffs claimed that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play.
In December 1994, the consolidated actions were transferred to the U.S.
District Court for the District of Nevada.
On September 26, 1995, Larry Schreier brought an action in the U.S. District
Court for the District of Nevada--LARRY SCHREIER, ET AL V. CAESARS WORLD, INC.
ET AL--Case No. CV-95-00923-DWH (RJJ).
The plaintiffs' allegations in the Schreier action were similar to those
made by the plaintiffs in the Poulos and Ahearn actions, except that Schreier
claimed to represent a more precisely defined class of plaintiffs than Poulos or
Ahearn.
In December 1996, the court ordered the Poulos, Ahearn and Schreier actions
consolidated under the title WILLIAM H. POULOS, ET AL. V. CAESARS WORLD, INC.,
ET AL--Case No. CV-S-94-11236-DAE (RJJ)--(Base
F-21
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
File), and required the plaintiffs to file a consolidated and amended complaint.
On February 14, 1997, the plaintiffs filed a consolidated and amended complaint.
In March 1997, various defendants filed motions to dismiss or stay the
consolidated action until the plaintiffs submitted their claims to gaming
authorities and those authorities considered the claims submitted by the
plaintiffs.
On or about December 19, 1997, the court denied all of the motions submitted
by the defendants, and ordered the plaintiffs to file a new consolidated and
amended complaint. That complaint was filed on or about February 13, 1998.
The plaintiffs have filed a motion seeking an order certifying the action as
a class action. Certain of the defendants have opposed the motion. The Court has
not ruled on the motion.
LEGAL PROCEEDINGS--GRAND
STRATOSPHERE CORPORATION
Grand previously owned approximately 41% of the common stock issued by
Stratosphere Corporation ("Stratosphere"). Stratosphere and its wholly owned
operating subsidiary developed and operated the Stratosphere Tower, Hotel and
Casino in Las Vegas, Nevada. On January 27, 1997, in the United States
Bankruptcy Court in and for the District of Nevada, Stratosphere and its wholly
owned operating subsidiary filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code.
On November 7, 1997, Stratosphere filed its Second Amended Plan, which was
approved by the Bankruptcy Court and declared effective on October 14, 1998.
Pursuant to the Second Amended Plan, Stratosphere common stock that was
outstanding prior to the effective date of the Second Amended Plan was
cancelled.
In March 1995, in connection with Stratosphere's issuance of its First
Mortgage Notes, Grand entered into a Standby Equity Commitment Agreement (the
"Standby Equity Commitment") between Stratosphere and Grand. Grand agreed in the
Standby Equity Commitment, subject to the terms and conditions stated in the
Standby Equity Commitment, to purchase up to $20 million of additional equity in
Stratosphere during each of the first three years Stratosphere is operating (as
defined in the Standby Equity Commitment) to the extent Stratosphere's
consolidated cash flow (as defined in the Standby Equity Commitment) during each
of such years does not exceed $50 million.
The enforceability of the Standby Equity Commitment is the subject of
litigation to which Grand is a party in (i) the Stratosphere Bankruptcy case (as
a result of a motion brought by the Official Committee), and (ii) the U.S.
District Court for the District of Nevada (as a result of an action brought by
the Trustee). On February 19, 1998, the Bankruptcy Court ruled that the Standby
Equity Commitment is not enforceable in the Stratosphere bankruptcy proceeding
as a matter of law. The Official Committee has stated that it intends to appeal
the Bankruptcy Court's decision.
The Second Amended Plan contemplates the formation of a new limited
liability company which will own and pursue certain alleged claims and causes of
action that Stratosphere and other persons may have against numerous third
parties, including Grand and/or officers and/or directors of Grand. The Second
Amended Plan contemplates capitalizing this new limited liability company with
an investment of $5 million. Currently, Grand has not been served with any such
litigation.
F-22
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
STRATOSPHERE SECURITIES LITIGATION
Grand and certain persons who have been indemnified by Grand (including
certain former and current Grand officers and directors) are defendants in legal
actions filed on August 16, 1996, in the District Court, Clark County, Nevada
and on August 5, 1996 in the United States District Court, District of Nevada.
These actions arise out of Grand's involvement in the Stratosphere Tower, Casino
and Hotel project (the "Stratosphere Project") in Las Vegas, Nevada.
The plaintiffs in the actions, who are current and/or former Stratosphere
Corporation shareholders, seek to pursue the actions as class actions, and make
various claims against Grand and the Grand-related defendants, including
securities fraud. In September 1997, Grand and the Grand-related defendants
submitted a motion to dismiss the federal action. In April 1998, this motion was
granted, in part, and denied, in part. The plaintiffs are pursuing the claims
that survived the motion to dismiss. Grand and the Grand-related defendants have
also submitted a motion for summary judgment seeking an order that such
defendants are entitled to judgment as a matter of law. Currently, the
plaintiffs are engaged in discovery related to the issues raised by the summary
judgment motion. The court will not decide the motion until after such discovery
is completed and the parties have submitted their respective arguments. The
state court action has been stayed pending resolution of the federal court
action.
Grand intends to vigorously defend itself and the other Grand-related
defendants against the claims made in both the state and the federal action.
GRAND SECURITIES LITIGATION
Grand and certain of Grand's current and former officers and directors are
defendants in a legal action filed on September 9, 1996 in the United States
District Court in Minnesota. This action arises out of Grand's involvement in
the Stratosphere Project.
The plaintiffs in the action who are current and/or former Grand
shareholders, seek to pursue the action as a class action, and make various
claims against Grand and the other defendants, including securities fraud. Grand
and the Grand-related defendants submitted a motion to dismiss the plaintiffs'
claims. In December 1997, that motion was granted, in part and denied, in part.
Grand and the Grand-related defendants have also submitted a motion for summary
judgment. Currently, the plaintiffs and Grand and the other defendants are
engaged in discovery in the action. On March 10, 1999, plaintiffs were granted
leave to amend their complaint to include Park Place and Lakes.
Grand intends to vigorously defend itself and the other defendants against
the claims that survived Grand's motion to dismiss.
DERIVATIVE ACTION
Certain of Grand's current and former officers and directors are defendants
in a legal action originally filed on February 6, 1997 in the District Court,
Hennepin County, state of Minnesota. This action arises out of Grand's
investment in Stratosphere.
The plaintiffs in the action who are current and/or former Grand
shareholders, seek to pursue the action against the defendants on behalf of
Grand, and make various claims that the defendants failed to fulfill claimed
duties to Grand. Grand is providing the defense for the defendants pursuant to
Grand's indemnification obligations to the defendants.
Grand's board of directors appointed an independent special litigation
committee under Minnesota law to evaluate whether Grand should pursue the claims
made by the plaintiffs. The committee has completed its evaluation and has
recommended to the court that the plaintiffs' claims not be pursued.
F-23
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In May 1998, the Court granted a motion for summary judgment submitted by
Grand, thereby dismissing the plaintiffs' claims. On March 9, 1999 the court of
appeals affirmed the summary judgement. It is uncertain whether plaintiffs will
seek further review.
STRATOSPHERE PREFERENCE ACTION
On February 12, 1998, Stratosphere filed a complaint in the United States
Bankruptcy Court in and for the District of Nevada against Grand and Grand Media
& Electronics Distributing, Inc., a wholly owned subsidiary of Grand (Grand
Media), a complaint in the Stratosphere bankruptcy case seeking recovery of
certain amounts paid by Stratosphere to Grand as management fees and for costs
and expenses under a management agreement between Stratosphere and Grand, and to
Grand Media for electronic equipment purchased by Stratosphere from Grand Media.
Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law.
In May 1998, Grand responded to Stratosphere's complaint. That response
denies that Stratosphere is entitled to recover the amounts described in the
complaint. Discovery remains in process.
INDEMNIFICATION AGREEMENT
As part of the merger and the Lakes distribution, Lakes Gaming, Inc. (Lakes)
agreed to indemnify Grand against all costs, expenses and liabilities incurred
or suffered by Grand and certain of its subsidiaries and their respective
current and former directors and officers in connection with or arising out of
the Stratosphere litigation and the Tulalip Tribes litigation described above.
Lakes' indemnification obligations include the obligation to provide the defense
of all claims made in such proceedings against Grand and to pay all related
settlements and judgments.
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 consummation of the merger, Lakes has 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 December 31, 1998.
OTHER LITIGATION
The Company is involved in various other inquiries, administrative
proceedings, and litigation relating to contracts and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management currently believes that the final outcome of these
matters are not likely to have a material adverse effect upon the Company's
consolidated financial position or its results of operations.
F-24
<PAGE>
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
1(ST) 2(ND) 3(RD) 4(TH)
1998 QUARTER QUARTER QUARTER QUARTER TOTAL
- ----------------------------------------------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 575 $ 574 $ 591 $ 565 $ 2,305
Operating income..................................... 92 95 92 23 302
Net income (loss).................................... 39 41 38 (9) 109
Basic EPS (1)........................................ .15 .16 .15 (.03) .42
Diluted EPS (1)...................................... .15 .16 .15 (.03) .42
1997
- -----------------------------------------------------
Revenues............................................. $ 524 $ 520 $ 554 $ 555 $ 2,153
Operating income..................................... 81 72 93 (45) 201
Net income (loss).................................... 37 26 50 (46) 67
Basic EPS (1)........................................ .14 .10 .19 (.17) .25
Diluted EPS (1)...................................... .14 .10 .19 (.17) .25
</TABLE>
- ------------------------
(1) The sum of Basic and Diluted EPS for the four quarters may differ from the
annual EPS due to the required method of computing weighted average number
of shares in the respective periods.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Starwood Hotels & Resorts Worldwide, Inc.:
We have audited the accompanying combined consolidated balance sheets of
Starwood Hotels & Resorts Worldwide, Inc. Gaming Operations To Be Sold to Park
Place Entertainment Corporation (the "Company") as described in Note 1 to the
Financial Statements as of December 31, 1998 and 1997, and the related combined
consolidated statements of operations, comprehensive income and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Sheraton Casinos Nova Scotia, which includes: the Sheraton Halifax
and Sheraton Sydney, which statements reflect total assets, total revenues and
operating income of 2.0%, 3.3% and 16.0% in 1998, and 1.6%, 3.9% and 18.2% in
1997, respectively of the consolidated totals. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for those entities, is based solely on the
report of the other auditors.
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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of the Company as described in Note 1 to the Financial
Statements as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the years then ended, in conformity with
generally accepted accounting principles.
As explained in the Note 2 to the Financial Statements, effective January 1,
1997, the Company changed its method of accounting for start-up costs.
ARTHUR ANDERSEN LLP
New York, New York
May 21, 1999
F-25
<PAGE>
AUDITORS' REPORT
To the Partners of METROPOLITAN
ENTERTAINMENT GROUP, OPERATING
AS SHERATON CASINOS NOVA SCOTIA
We have audited the balance sheets of METROPOLITAN ENTERTAINMENT GROUP
OPERATING AS SHERATON CASINOS NOVA SCOTIA (the "Partnership") as at December 31,
1998 and 1997, and the statements of income, partners' equity and cash flow for
the years then ended (not included herein). These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on 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 evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the partnership as at December 31, 1998 and
1997, and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in Canada.
Ernst & Young, LLP
Chartered Accountants
Halifax, Canada
January 29, 1999
F-26
<PAGE>
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
GAMING OPERATIONS TO BE SOLD TO PARK PLACE ENTERTAINMENT CORPORATION
COMBINED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------- AS OF
1998 1997 JUNE 30, 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 102,664 $ 63,488 $ 75,020
Receivables, net..................................................... 122,860 136,933 104,233
Inventories.......................................................... 15,341 16,226 15,415
Prepaid expenses and other........................................... 31,884 39,892 20,481
------------ ------------ -------------
Total current assets................................................... 272,749 256,539 215,149
------------ ------------ -------------
Property and equipment, net............................................ 1,992,590 1,767,408 1,989,862
Goodwill, net.......................................................... 983,748 1,010,389 970,085
Investments............................................................ 47,898 17,684 55,963
Other assets........................................................... 92,729 90,933 101,561
------------ ------------ -------------
$ 3,389,714 $ 3,142,953 $ 3,332,620
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses................................ $ 216,620 $ 234,098 $ 195,156
Current maturities of long-term debt and capital leases.............. 10,212 4,033 10,615
Accrued taxes payable................................................ 28,469 34,533 32,075
------------ ------------ -------------
Total current liabilities.............................................. 255,301 272,664 237,846
Due to parent and affiliates........................................... 1,134,157 886,811 1,038,487
Long-term debt and capital leases, net of current maturities........... 165,815 166,444 185,362
Deferred income taxes, net............................................. 79,717 63,037 82,482
Other non-current liabilities.......................................... 31,156 38,296 27,489
Commitments and Contingencies
Minority interest...................................................... 11,167 3,641 9,002
Shareholder's equity:
Starwood/ITT investment.............................................. 1,227,264 1,227,264 1,227,264
Retained earnings.................................................... 489,014 483,303 526,304
Cumulative translation adjustment.................................... (3,877) 1,493 (1,616)
------------ ------------ -------------
Total shareholder's equity............................................. 1,712,401 1,712,060 1,751,952
------------ ------------ -------------
Total liabilities and shareholder's equity............................. $ 3,389,714 $ 3,142,953 $ 3,332,620
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes to the combined consolidated
financial statements are an integral part of these statements.
F-27
<PAGE>
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
GAMING OPERATIONS TO BE SOLD TO PARK PLACE ENTERTAINMENT CORPORATION
COMBINED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ----------------------
1998 1997 1999 1998
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Casino..................................................... $ 936,649 $ 898,244 $ 521,706 $ 435,199
Hotel...................................................... 104,968 57,302 59,031 50,963
Food and beverage.......................................... 101,190 68,416 54,347 49,155
Earnings of unconsolidated affiliate....................... 16,151 14,040 18,051 7,647
Other...................................................... 97,622 85,165 45,787 44,572
------------ ------------ ---------- ----------
Total revenues............................................... 1,256,580 1,123,167 698,922 587,536
Costs and expenses:
Casino..................................................... 527,597 537,064 293,125 247,747
Hotel...................................................... 32,570 18,724 16,226 15,243
Food and beverage.......................................... 87,998 60,177 46,606 42,592
Other operating expenses................................... 50,094 51,387 32,171 25,761
Selling, general and administrative........................ 207,886 167,735 129,413 95,774
Pre-opening expenses....................................... 41,661 20,878 934 26,469
Depreciation and amortization.............................. 143,291 73,854 87,646 60,153
Provision for doubtful accounts............................ 29,903 39,065 14,242 13,618
Special charges............................................ 39,000 62,481 -- --
------------ ------------ ---------- ----------
Total costs and expenses..................................... 1,160,000 1,031,365 620,363 527,357
Operating income before management service fees............ 96,580 91,802 78,559 60,179
------------ ------------ ---------- ----------
Management service fees.................................... 32,705 28,711 15,719 15,748
Operating income............................................. 63,875 63,091 62,840 44,431
Other (income) expense:
Interest expense, net...................................... 26,143 11,053 20,239 10,728
Minority interest.......................................... (10,675) 632 (2,165) (2,146)
------------ ------------ ---------- ----------
Income before income taxes and cumulative effect of
accounting change.......................................... 48,407 51,406 44,766 35,849
Provision for income taxes................................. 28,507 30,335 21,396 17,979
------------ ------------ ---------- ----------
Income before cumulative effect of accounting change......... 19,900 21,071 23,370 17,870
Cumulative effect of accounting change....................... -- 5,180 -- --
------------ ------------ ---------- ----------
Net income................................................... $ 19,900 $ 15,891 $ 23,370 $ 17,870
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
The accompanying notes to the combined consolidated
financial statements are an integral part of these statements.
F-28
<PAGE>
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
GAMING OPERATIONS TO BE SOLD TO PARK PLACE ENTERTAINMENT CORPORATION
COMBINED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1998 1997 1999 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income............................................................ $ 19,900 $ 15,891 $ 23,370 $ 17,870
Other comprehensive income (loss)
Foreign currency translation arising during the period.............. (5,370) (458) 2,261 (1,381)
--------- --------- --------- ---------
Comprehensive income.................................................. $ 14,530 $ 15,433 $ 25,631 $ 16,489
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes to the combined consolidated
financial statements are an integral part of these statements.
F-29
<PAGE>
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
GAMING OPERATIONS TO BE SOLD TO PARK PLACE ENTERTAINMENT CORPORATION
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- -----------------------
1998 1997 1999 1998
---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 19,900 $ 15,891 $ 23,370 $ 17,870
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 143,291 73,854 87,646 60,153
Provision for doubtful accounts............................ 29,903 39,065 14,242 13,618
Special charges............................................ 39,000 35,472 -- --
Earnings in excess of distributions from unconsolidated
affiliates............................................... (8,104) (7,277) (7,381) (3,828)
Changes in assets and liabilities due to operating
activities:
Receivables, net......................................... (30,030) (49,476) 4,385 13,542
Inventories.............................................. 885 (2,207) (74) (260)
Prepaid expenses and other............................... (16,792) (29,998) 11,403 6,291
Accounts payable and accrued expenses.................... (17,478) 53,559 (26,183) (54,089)
Accrued and deferred income taxes........................ 10,616 31,641 25,011 19,985
Other, net................................................. (7,993) (34,453) (15,718) (28,499)
---------- ----------- ---------- -----------
Net cash provided by operating activities............ 163,198 126,071 116,701 44,783
Cash flows from investing activities:
Purchases of property and equipment........................ (329,946) (672,414) (65,776) (200,064)
Investments in joint ventures.............................. (22,110) -- (684) --
---------- ----------- ---------- -----------
Net cash used in investing activities................ (352,056) (672,414) (66,460) (200,064)
Cash flows from financing activities:
Proceeds from long-term borrowings......................... 6,831 26,022 19,950 --
Payments of long-term borrowings........................... (1,281) (27,721) -- (2,844)
Net (payments) borrowings from affiliates.................. 247,346 574,956 (95,670) 190,737
Payment of dividends and equity transactions with
affiliates............................................... (14,188) (36,829) -- (2,145)
Minority interest.......................................... (10,674) 2,237 (2,165) (15,117)
---------- ----------- ---------- -----------
Net cash (used in) provided by financing
activities......................................... 228,034 538,665 (77,885) 170,631
Increase (decrease) in cash and cash equivalents............. 39,176 (7,678) (27,644) 15,350
Cash and cash equivalents at the beginning of year........... 63,488 71,166 102,664 63,488
---------- ----------- ---------- -----------
Cash and cash equivalents at the end of year................. $ 102,664 $ 63,488 $ 75,020 $ 78,838
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Supplemental cash flow disclosures:
Interest paid to third parties, net of amounts
capitalized.............................................. $ 1,932 $ -- $ 5,447 $ 747
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Income taxes paid.......................................... $ 17,077 $ 10,335 $ 19,442 $ 6,282
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The accompanying notes to the combined consolidated
financial statements are an integral part of these statements.
F-30
<PAGE>
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
GAMING OPERATIONS TO BE SOLD TO PARK PLACE ENTERTAINMENT CORPORATION
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include certain gaming operations of Starwood
Hotels & Resorts Worldwide, Inc. ("Starwood") to be sold to Park Place
Entertainment Corporation ("PPE") pursuant to a definitive agreement entered
into between Starwood and PPE on April 27, 1999. The gaming operations include
Caesars World, Inc., comprised primarily of Caesars Palace, Caesars Atlantic
City, Caesars Tahoe, Caesars Indiana, and its equity investments in casinos in
South Africa, Manila and Canada, and the Sheraton Tunica, Sheraton Halifax and
Sheraton Sydney (collectively the "Company"). All significant intercompany
balances and transactions within the Company have been eliminated. Investments
in unconsolidated affiliates are stated at cost adjusted by equity in
undistributed earnings.
Prior to February 23, 1998, the Company was owned by ITT Corporation ("ITT")
upon which date ITT was acquired by Starwood ("ITT Merger"). The acquisition was
treated as a reverse purchase for financial accounting purposes, whereupon, ITT
continued as the surviving corporation for accounting purposes. Accordingly, no
adjustments have been made to the carrying amounts of assets and liabilities as
a result of the Starwood acquisition.
INTERIM FINANCIAL INFORMATION
The combined consolidated financial statements for the six months ended June
30, 1999 and 1998 included herein have been prepared by the Company, without
audit. Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted, although the Company believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary for a fair statement of results for the interim periods have been
made. The results for the six-month periods are not necessarily indicative of
results to be expected for the full fiscal year.
NATURE OF OPERATIONS
The Company is primarily engaged in the ownership, operation and development
of gaming facilities. The Company's gaming operations are located in several key
domestic jurisdictions and in certain countries outside the United States.
CASINO REVENUE AND PROMOTIONAL ALLOWANCES
Casino revenue represents the net win from gaming wins and losses. Revenue
excludes the retail value of rooms, food, beverage, entertainment and other
promotional allowances provided on a complimentary basis to customers. The
estimated retail value of these promotional allowances was $174,267 and $139,979
F-31
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for the years ended December 31, 1998 and 1997, respectively. The estimated
costs of providing such promotional allowances have been classified primarily as
casino costs and expenses as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Rooms................................................................. $ 27,391 $ 21,789
Food and beverage..................................................... 86,271 77,702
Other operating expenses.............................................. 10,807 11,173
---------- ----------
$ 124,469 $ 110,664
---------- ----------
---------- ----------
</TABLE>
CURRENCY TRANSLATION ADJUSTMENT
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the year-end exchange rates and the related translation gains
and losses are reflected in shareholder's equity.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
GOODWILL
Goodwill arose in connection with the acquisition of Caesars World, Inc. by
ITT in 1995 and is amortized using the straight-line method over 40 years.
Accumulated amortization was $108,248 and $80,542 at December 31, 1998 and 1997,
respectively.
The Company periodically reviews the carrying value of goodwill to assess
recoverability from future operations using undiscounted cash flows. Impairments
would be recognized in operating results if a permanent diminution in value is
deemed to have occurred.
INVENTORIES
Inventories are stated at the lower of cost or market, determined
principally on the first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and includes interest on funds
borrowed to finance construction. Capitalized interest was $11,381 and $24,878
in 1998 and 1997, respectively. Depreciation and amortization are provided for
on the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements............................... 5 to 40 years
Leasehold improvements................................... 3 to 40 years
Furniture, fixtures and equipment........................ 2 to 10 years
</TABLE>
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to assets
retired are removed from the accounts and the gain or loss on disposition is
recognized in income.
F-32
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews the carrying value of its assets 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 upon
expected undiscounted cash flows, then a loss is recognized in the income
statement reducing the carrying amount of the asset to fair value.
AMORTIZATION OF LOAN COSTS
Debt discount and loan issuance costs in connection with long-term debt are
capitalized and amortized to interest expense during the period the debt is
outstanding using the effective interest method.
INCOME TAXES
The Company's domestic operations are in Starwood's consolidated Federal
income tax return. The Company records income taxes based upon the amount that
would have been incurred had each company filed a separate return. The Company
accounts for income taxes according to Statement of Financial Accounting
Standards No. 109. Deferred income taxes are provided for temporary differences
between book and tax recognition of revenues and expenses.
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.
CONCENTRATION OF CREDIT RISK
The Company extends credit to certain casino patrons, a substantial portion
of whom reside in countries other than the United States, following background
investigations and evaluation of credit worthiness. The Company maintains an
allowance for doubtful casino accounts receivable which is based on management's
estimate of the amount expected to be uncollectible considering historical
experience and the information management obtains regarding the credit
worthiness of the customer. The collectibility of these receivables could be
affected by future business or economic trends or other significant events in
the countries in which such customers reside. Although management believes the
allowance is adequate, the estimated amount of cash collections with respect to
the casino accounts receivable could change.
NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1997, the Company changed its method of accounting for
start-up costs on major gaming projects to expense these costs as incurred.
Prior to 1997, the Company capitalized these costs and amortized them over a
three-year period. The Company's 1997 results include a charge of $7,970 before
income taxes of $2,790 as the cumulative effect of this accounting change.
NOTE 3. SPECIAL CHARGES
In 1998, the Company abandoned plans to develop a shared services group
within the gaming business and wrote-off its investment relating to information
systems under development which aggregated approximately $24.8 million.
Additionally, reserves related to certain casino accounts receivables have been
recorded as special charges (See Note 5).
F-33
<PAGE>
NOTE 3. SPECIAL CHARGES (CONTINUED)
In November 1997, ITT entered into a definitive agreement to be acquired by
Starwood. As a result, the Company recorded a special charge of approximately
$27 million relating to the conversion of the accounting for stock options
issued to employees of the Company under the ITT Stock Option Plan to variable
accounting due to limited stock appreciation rights subject to exercise.
In 1997, the Company also deferred or abandoned a number of potential
development projects and wrote-off costs associated with such projects which
aggregated approximately $35.5 million. The decision to defer or abandon such
projects resulted from the uncertainties caused by the potential change in
control of ITT following Hilton Hotels Corporation unsolicited takeover offer in
February 1997.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"("SFAS 130"). SFAS
130 establishes new rules for the reporting and displaying of comprehensive
income and its components. The Company has included the required statements of
comprehensive income in the accompanying financial statements.
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information". The
Statement requires the Company to report segment financial information
consistent with the presentation made to the Company's management for decision
making purposes. The Company is managed as one segment and all revenues are
derived solely from casino operations and related activities.
For the years ended December 31, 1998 and 1997, approximately 6% of total
revenues and approximately 46% and 48%, respectively, of operating income was
derived from the Company's foreign operations.
NOTE 5. RECEIVABLES
Components of receivables were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Accounts and notes receivable
Casino.............................................................. $ 135,992 $ 181,137
Hotel............................................................... 13,092 8,067
Other............................................................... 22,989 15,218
---------- ----------
172,073 204,422
Less allowance for doubtful accounts.................................. (49,213) (67,489)
---------- ----------
$ 122,860 $ 136,933
---------- ----------
---------- ----------
</TABLE>
In the third quarter of 1998, due to the economic deterioration in Asia, the
Company recorded an additional marker reserve of approximately $14 million.
At December 31, 1998 and 1997, approximately 58% and 61%, respectively, of
the Company's casino receivables were from customers whose primary residence is
outside the United States with one country making up approximately 22% of the
total gross casino receivables.
F-34
<PAGE>
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land.............................................................. $ 423,757 $ 368,101
Buildings and improvements........................................ 1,247,054 705,699
Leasehold improvements............................................ 72,261 64,446
Furniture, fixtures and equipment................................. 434,048 222,507
Construction in progress.......................................... 58,346 549,832
------------ ------------
2,235,466 1,910,585
Less accumulated depreciation and amortization.................... (242,876) (143,177)
------------ ------------
$ 1,992,590 $ 1,767,408
------------ ------------
------------ ------------
</TABLE>
NOTE 7. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
In 1998, Caesars World, Inc. entered into a joint venture agreement with
Global Resorts, Inc., and the Black Empowerment Group to operate Caesars
Gauteng, a temporary casino, located in Johannesburg, South Africa. The
permanent casino, being built on the same site, is expected to be completed in
2000. The Company is to receive 50% of the management fee, based on 5% of net
revenues. During 1998, the Company contributed $22,111, representing its 25%
ownership interest in the joint venture. The temporary facility opened in the
middle of December 1998, therefore, the joint venture had no significant income
or losses from operations for the year.
In 1993, Caesars World, Inc. entered into a 50/50 joint venture agreement
with Hilton Hotels Corporation to operate Windsor Casino, Limited located in
Windsor, Canada. As of December 31, 1998 and 1997, Caesars World, Inc.'s
investment in this joint venture was $25,787 and $17,684, respectively. For the
years ended December 31, 1998 and 1997, Caesars World, Inc. earned income of
$16,151 and $14,040, respectively, in relation to this joint venture. No cash
advances have been made by Caesars World, Inc. to this joint venture during 1998
and 1997.
NOTE 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Accounts payable...................................................... $ 20,775 $ 15,165
Chip float............................................................ 23,848 23,895
Construction payable.................................................. 24,693 75,095
Accrued salaries, wages and employee benefits......................... 40,779 27,607
Other accrued expenses................................................ 106,525 92,336
---------- ----------
$ 216,620 $ 234,098
---------- ----------
---------- ----------
</TABLE>
F-35
<PAGE>
NOTE 9. LONG-TERM DEBT
Long-term debt including capital leases consisted of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Senior subordinated notes, due August 15, 2002, at 8 7/8 percent payable semi-annually in
February and August..................................................................... $ 150,000 $ 150,000
Note payable to vendor due November 1999, in monthly installments of $158, including
interest at 10% per annum............................................................... 1,655 1,655
Mortgage note, due September 2011, in monthly installments of $100, including interest at
10% per annum; with a balloon payment of $500 at September 25, 2011..................... 807 842
Harrison County Facility Loan, due ratably over three-year period beginning 1999,
including interest at 8% per annum...................................................... 1,798 --
Capital lease obligations (See Note 11)................................................... 21,767 17,980
---------- ----------
176,027 170,477
Less current maturities................................................................... (10,212) (4,033)
---------- ----------
$ 165,815 $ 166,444
---------- ----------
---------- ----------
</TABLE>
On August 15, 1992, Caesars World, Inc. issued $150,000 of 8 7/8 percent
Senior Subordinated Notes (the "Notes") that mature in 2002. The Notes are
subordinated to all senior indebtedness (as defined in the Indenture) and the
Notes are effectively subordinated to liabilities of the Company's subsidiaries
and are senior in the right of payment to other subordinated indebtedness. The
Notes are redeemable at the Company's option, in whole or in part, beginning
August 15, 1997, at a premium price of 103.27 percent, declining annually to par
at August 15, 2000, and thereafter. The original issue discount and costs are
being amortized over the term of the Notes.
The Notes contain covenants, among others, that require the maintenance of
certain financial ratios and include restrictions on the Company and its
subsidiaries with respect to additional debt, dividends, stock repurchases,
sales of certain assets, investments and capital expenditures, mergers,
consolidations and similar transactions, liens, acquisitions, disposition of
property, and prepayment of other debt.
The annual maturities of long-term debt, excluding capital leases, as of
December 31, 1998, follow:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 2,870
2000.............................................................................. 619
2001.............................................................................. 21
2002.............................................................................. 150,023
2003.............................................................................. 26
Thereafter........................................................................ 701
----------
$ 154,260
----------
----------
</TABLE>
F-36
<PAGE>
NOTE 10. INCOME TAXES
The Company determines its provision for income taxes and related asset and
liability accounts on a separate entity basis. Income tax data from continuing
operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Pretax income
U.S............................................................... $ 21,000 $ 21,291
Foreign........................................................... 27,407 30,115
--------- ---------
$ 48,407 $ 51,406
--------- ---------
--------- ---------
Provision (benefit) for income tax
Current:
Federal........................................................... $ 2,784 $ 1,288
State............................................................. (2,851) 779
Foreign........................................................... 11,867 12,960
--------- ---------
Total Current....................................................... 11,800 15,027
Deferred:
Federal........................................................... 15,226 14,760
State............................................................. 1,481 548
Foreign........................................................... -- --
--------- ---------
Total Deferred...................................................... 16,707 15,308
--------- ---------
$ 28,507 $ 30,335
--------- ---------
--------- ---------
</TABLE>
The income tax effects of temporary differences between financial and income
tax reporting that gave rise to deferred income tax assets and liabilities were
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Bad debt reserves................................................. $ 17,465 $ 24,225
Deferred compensation............................................. 9,453 9,453
Accrued expenses.................................................. 22,344 19,225
Other............................................................. 39,669 46,244
----------- -----------
Total deferred tax asset............................................ 88,931 99,147
----------- -----------
Deferred tax liabilities:
Depreciation...................................................... (35,348) (28,598)
Asset basis difference............................................ (100,587) (100,587)
Other............................................................. (32,713) (32,999)
----------- -----------
Total deferred tax liability........................................ (168,648) (162,184)
----------- -----------
Net deferred tax liability.......................................... $ (79,717) $ (63,037)
----------- -----------
----------- -----------
</TABLE>
F-37
<PAGE>
NOTE 10. INCOME TAXES (CONTINUED)
The provision for income taxes differed from the amount computed at the
statutory rate of 35% as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Federal................................................................. $ 16,942 $ 17,992
State income taxes, net of federal benefit.............................. (891) 863
Foreign income taxes in excess of the statutory rate.................... 2,275 2,420
Non-deductible goodwill................................................. 9,495 9,506
Other, net.............................................................. 686 (446)
--------- ---------
$ 28,507 $ 30,335
--------- ---------
--------- ---------
</TABLE>
NOTE 11. LEASES
The Caesars Tahoe land and building are leased pursuant to an operating
lease which expires in 2004 and is renewable for two additional 25-year periods.
The lease provides for a minimum rent of $2,831 for the period from August 1,
1997 to July 1, 1998, increasing by $75 per year on August 1, 1998 and in each
subsequent year, and for percentage rent of 20 percent of the casino/hotel's net
profit (as therein defined). Percentage rent expense included in selling,
general and administrative expenses was $1,614 and $949 for the years ended
December 31, 1998 and 1997, respectively. The aggregate fixed lease payments,
including amounts paid on a mortgage note retired in prior years, are amortized
on a straight-line basis over the remaining initial lease term. At December 31,
1998 and 1997, there was $5,318 and $6,516, respectively, of prepaid rent
included in "Other Assets" related to this lease.
At December 31, 1998, the Company was obligated under non-cancelable
operating leases and capital leases to make future minimum lease payments as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING CAPITAL
- ------------------------------------------------------------------------ ----------- ---------
<S> <C> <C>
1999.................................................................... $ 5,351 $ 7,342
2000.................................................................... 5,045 7,150
2001.................................................................... 4,785 7,149
2002.................................................................... 4,623 2,188
2003.................................................................... 4,250 917
Thereafter.............................................................. 9,600 --
----------- ---------
Total minimum lease payments............................................ $ 33,654 $ 24,746
----------- ---------
----------- ---------
Less amount representing interest....................................... (2,979)
Present value of minimum lease payments................................. 21,767
Less current maturities................................................. 7,342
---------
Long-term obligations................................................... $ 14,425
---------
---------
</TABLE>
F-38
<PAGE>
NOTE 11. LEASES (CONTINUED)
Rental expense was comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Minimum rentals under lease obligations.................................. $ 7,876 $ 7,868
Less sublease income..................................................... (2,158) (1,889)
Contingent rentals under operating and capital leases.................... 2,123 1,800
--------- ---------
$ 7,841 $ 7,779
--------- ---------
--------- ---------
</TABLE>
NOTE 12. STOCK OPTIONS
The Company participates in its parent's stock option plans. The Company
applies APB Opinion No. 25 and related interpretations in accounting for
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 the Company'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, the Company's net income would
have been reduced to the pro forma amount of $13,312 for the year ended December
31, 1998. The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998: dividend yield of 3.0%; expected volatility
of 47.6%; risk-free interest rate of 4.5%; and expected lives of three to four
years for all options.
At the date of the ITT Merger, each ITT stock option and related stock
appreciation right that was outstanding became fully exercisable. In November
1997, due to the election of the holder of each ITT stock option to receive
cash, Starwood Units or a combination, variable accounting required an expense
to be recognized for the difference between the option price and the formula
market price. There is no pro forma effect to income in 1997 as a result of this
variable accounting.
At December 31, 1998, Starwood had 564,000 and 606,914 options outstanding
relating to Company employees at exercise prices of $49.19 and $54.85,
respectively. There are 246,811 stock options exercisable with an exercise price
of $54.85. During 1998, Starwood issued all of its stock options at market value
and the weighted average fair value of these options was $18.54.
NOTE 13. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering any officer or other
employee designated as a key executive of the Company and its subsidiaries. The
benefits are based on years of service (not to exceed 30) and the employee's
highest five years of compensation during the last 10 years of employment. The
Company has funded the vested benefits of certain current employees by making
contributions to revocable trusts. Income earned by the trusts accrues to the
benefit of the Company. At December 31, 1998, the amount in these revocable
trusts was $14,854 and is recorded in "Other Assets." Such trusts shall become
irrevocable in the event of a change of control (as defined).
F-39
<PAGE>
NOTE 13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plans' status and amounts recognized in
the Company's financial statements:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Net benefit obligation at beginning of year............................................... $ 18,102 $ 18,261
Service cost.............................................................................. 1,659 1,287
Interest cost............................................................................. 1,150 1,221
Actuarial (gain) loss..................................................................... 2,206 (1,535)
Curtailments.............................................................................. (4,100) --
Gross benefits paid....................................................................... (1,156) (1,132)
---------- ----------
Net benefit obligation end of year........................................................ $ 17,861 $ 18,102
---------- ----------
---------- ----------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year............................................ $ -- $ --
Employer contributions.................................................................... 1,156 1,132
Gross benefits paid....................................................................... (1,156) (1,132)
---------- ----------
Fair value of plan assets at end of year.................................................. $ -- $ --
---------- ----------
---------- ----------
RECONCILIATION OF FUNDED STATUS:
Funded status at end of year.............................................................. $ (17,861) $ (18,102)
Unrecognized net actuarial (gain) loss.................................................... 44 (1,736)
Unrecognized net transition obligation.................................................... -- 189
---------- ----------
Net amount recognized at end of year...................................................... $ (17,817) $ (19,649)
---------- ----------
---------- ----------
</TABLE>
Assumptions used in accounting for the Company's defined benefit plans were:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Discount rate for obligations.................................................................. 6.50% 7.25%
Rate of increase in compensation levels........................................................ 5.00% 5.00%
Expected long-term rate of return on plan assets............................................... N/A N/A
</TABLE>
F-40
<PAGE>
NOTE 13. EMPLOYEE BENEFIT PLANS (CONTINUED)
The periodic net pension expense included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Service cost.............................................................. $ 1,659 $ 1,287
Interest cost............................................................. 1,150 1,222
Amortization of net transition amount..................................... 31 40
Recognized net gain....................................................... (16) --
--------- ---------
SFAS 87 cost.............................................................. 2,824 2,549
Curtailment credit........................................................ (3,500) --
--------- ---------
Net periodic benefit cost................................................. $ (676) $ 2,549
--------- ---------
--------- ---------
</TABLE>
Effective February 23, 1998, Starwood adopted the Company's
401(k)-retirement plan covering substantially all of its non-union employees.
The plan provides for the Company to contribute 1 percent of certain
compensation for eligible employees who may also contribute up to 5 percent of
their base compensation to this plan and their contributions are matched by the
Company in an amount equal to 50 percent of each employee's contribution.
Employees may also contribute an additional 11 percent of base compensation to
the plan, with certain limitations, which is not matched by the Company. The
matching contributions vest to the employee ratably based on the employee's
years of service and fully vest after five years of service. The Company's one
percent contributions and all employee contributions vest immediately. The
Company's basic one percent and matching contributions for the years ended
December 31, 1998 and 1997 were $6,234 and $5,174, respectively.
In addition to the Company's plans described above, union employees are
covered by various multi-employer pension plans. The Company charged to expense
approximately $4,347 and $3,639 in 1998 and 1997, respectively, for such plans.
For the union sponsored plans, information from the plans' sponsors is not
available to permit the Company to determine its share of unfunded vested
benefits, if any.
NOTE 14. FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments at December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalent..................... $ 102,664 $ 102,664 $ 63,488 $ 63,488
Long-term debt............................... 176,027 176,777 170,477 173,852
</TABLE>
CASH AND CASH EQUIVALENTS
The estimated fair value of cash and cash equivalents is estimated based on
the quoted market price of the investments, where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable 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
Company for debt of the same remaining maturities.
F-41
<PAGE>
NOTE 15. RELATED PARTY TRANSACTIONS
Starwood charges the Company a management service fee equal to 2.75% of net
revenues. The fee represents compensation for certain support services in the
fields of management, operations, administration, finance, treasury, tax,
personnel, accounting, legal, intellectual property, information systems, real
estate and insurance applicable to the business operations of the Company. The
service charge was $32,705 and $28,711 for the years ended December 31, 1998 and
1997, respectively.
In addition, Starwood charges the Company interest associated with certain
funds advanced to the Company. For the years ended December 31, 1998 and 1997,
Starwood charged the Company $23,926 and $21,153, respectively, as interest
expense.
A subsidiary of the Company also advances to and receives funds and services
with ITT Sheraton Corporation and its wholly owned subsidiary, Sheraton Gaming
Corporation, for operating capital, construction funding, upper management
payroll and benefits, reservation fees, and other marketing programs.
NOTE 16. COMMITMENTS AND CONTINGENCIES
DEVELOPMENT OBLIGATION
The New Jersey Casino Control Act obligation provides, among other things,
for an investment obligation on licensees based upon 1.25% of their gross casino
revenues, as defined. This obligation may be satisfied by investing in qualified
eligible direct investments, by purchasing bonds issued by the Casino
Reinvestment Development Authority ("CRDA"), and/or by making qualified
contributions. At December 31, 1998, all CRDA investment obligations had been
substantially satisfied or prepaid.
CAESARS INDIANA
RDI/Caesars Riverboat Casino LLC (the "LLC") is a limited liability company
formed under the laws of the state of Indiana. The members of the LLC include
Riverboat Development, Inc. and Roman Holding Corporation of Indiana, which is
owned by the Company. Pursuant to an operating agreement between the members,
certain equity and income (loss) allocations are provided. The agreement
provides that if any member has a deficit balance in their capital account, the
profits shall be allocated in proportion to those deficit balances until the
capital accounts of all members have been increased to zero. Profits are next
allocated so that the capital accounts of the members are proportionate to their
Units (as defined in the agreement). Thereafter, profits are allocated so that
RDI receives 25% of the LLC's profits less an imputed interest expense and Roman
receives all remaining profits.
DISPUTE WITH NOVA SCOTIA GAMING CORPORATION
Metropolitan Gaming Corporation (MEG), is a partnership between ITT Sheraton
Canada Ltd. and Purdy's Wharf Developments Limited which operates the casinos in
Halifax and Sydney. MEG is in dispute with the Nova Scotia Gaming Corporation
over the expense treatment of the Goods and Services Tax and the Harmonized
Sales Tax ("GST/HST") as it relates to deductibility for the purposes of the
income guarantee as defined in the Operating Contract. The parties expect to
enter into arbitration as provided for in the Contract. The outcome of the
arbitration is binding on both parties and cannot be appealed. The maximum
contingent liability related to the GST/HST dispute, including the effect of the
income guarantee, in the event of an outcome which is unfavorable to MEG, is
estimated to be approximately $14 million.
F-42
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LICENSE RENEWAL
During 1996, the New Jersey Casino Control Commission (the "CCC") renewed
the Company's license to operate its casino hotel complex in Atlantic City. A
casino license is not transferable, and must be renewed every four years by
filing an application which must be acted upon by the CCC no later than 30 days
prior to the expiration of the license then in force.
LITIGATION
On April 26, 1994, William H. Poulos brought an action in the U.S. District
Court for the Middle District of Florida, Orlando Division-William H. Poulos, ET
AL V. CAESARS WORLD, INC. ET AL-Case No. 39-478-CIV-ORL-22--in which various
parties (including the Company) alleged to operate casinos or be slot machine
manufacturers were named as defendants. The plaintiff sought to have the action
certified as a class action suit.
An action subsequently filed on May 10, 1994 in the United States District
Court for the Middle District of Florida--WILLIAM AHEARN, ET AL V. CAESARS
WORLD, INC. ET AL--Case No. 94-532--CIV-ORL-22--made similar allegations and was
consolidated with the Poulos action.
Both actions included claims under the Federal Racketeering-Influenced and
Corrupt Organizations Act and under state law, and sought compensatory and
punitive damages. The plaintiffs claimed that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play.
In December 1994, the consolidated actions were transferred to the U.S.
District Court for the District of Nevada.
On September 26, 1995, Larry Schreier brought an action in the U.S. District
Court for the District of Nevada--LARRY SCHREIR, ET AL V. CAESARS WORLD, INC. ET
AL-Case No. CV-95-00923-DWH (RJJ).
The plaintiff's allegations in the Schreier action were similar to those
made by the plaintiffs in the Poulos and Ahearn actions, except that Schreier
claimed to represent a more precisely defined class of plaintiffs than Poulos or
Ahearn.
In December 1996, the court ordered the Poulos, Ahearn and Schreier actions
consolidated under the title WILLIAM H. POULOS, ET AL V. CAESARS WORLD, INC. ET
AL-Case No. CV-S-94-11236-DAE (RJJ)--(Base File), and required the plaintiffs to
file a consolidated and amended complaint. On February 14, 1997, the plaintiffs
filed a consolidated and amended complaint.
In March 1997, various defendants filed motions to dismiss or stay the
consolidated action until the plaintiffs submitted their claims to gaming
authorities and those authorities considered the claims submitted by the
plaintiffs.
In December 1997, the court denied all of the motions submitted by the
defendants, and ordered the plaintiffs to file a new consolidated and amended
complaint. That complaint was filed in February 1998. The plaintiffs have filed
a motion seeking an order certifying the action as a class action. Certain of
the defendants have opposed the motion. The Court has not ruled on the motion.
There are additional lawsuits currently pending against the Company arising
in the normal course of business. Management believes the final disposition of
the foregoing action will not have a material adverse effect on the Company's
financial position or its results of operations.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grand Casinos, Inc.:
We have audited the accompanying consolidated balance sheets of Grand
Casinos, Inc. (a Minnesota corporation--See Note 1) and Subsidiaries as of
December 31, 1998 and December 28, 1997, and the related consolidated statements
of earnings, comprehensive earnings, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grand
Casinos, Inc. and Subsidiaries as of December 31, 1998 and December 28, 1997 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 5, 1999
F-44
<PAGE>
GRAND CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
------------ ------------ JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................. $ 42,609 $ 238,635 $ 50,154
Cash and cash equivalents--restricted................................. 135,200 -- 6,091
Current installments of notes receivable.............................. -- 6,856 --
Accounts receivable................................................... 12,994 15,644 23,132
Deferred income taxes................................................. 7,725 13,399 6,489
Due from Park Place................................................... 18,179 -- --
Inventory, prepaids and other......................................... 13,864 15,087 15,560
------------ ------------ -----------
Total current assets............................................ 230,571 289,621 101,426
------------ ------------ -----------
PROPERTY AND EQUIPMENT, net............................................. 1,085,716 941,022 1,173,409
------------ ------------ -----------
OTHER ASSETS:
Cash and cash equivalents--restricted................................. 1,520 4,967 --
Securities available for sale......................................... -- 13,110 --
Notes receivable--less current installments........................... -- 26,979 --
Investments in and notes from unconsolidated affiliates............... -- 8,180 --
Debt issuance and deferred licensing costs--net....................... 17,505 26,000 --
Other long-term assets................................................ 450 23,858 747
------------ ------------ -----------
Total other assets.............................................. 19,475 103,094 747
------------ ------------ -----------
Total assets.................................................... $1,335,762 $1,333,737 $1,275,582
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable--trade and construction.............................. $ 12,052 $ 12,947 $ 6,655
Current installments of long-term debt................................ 55 3,509 56
Current installments of capital lease obligations..................... -- 97,376 --
Accrued interest...................................................... 28,063 5,817 --
Accrued payroll and related expenses.................................. 6,278 25,555 23,286
Other accrued expenses................................................ 39,353 22,398 37,872
------------ ------------ -----------
Total current liabilities....................................... 85,801 167,602 67,869
------------ ------------ -----------
LONG-TERM LIABILITIES:
Long-term debt--less current installments............................. 565,452 566,434 5,985
Due to Park Place..................................................... 135,200 -- 631,159
Deferred income taxes................................................. 103,097 97,085 115,432
------------ ------------ -----------
Total long-term liabilities..................................... 803,749 663,519 752,576
------------ ------------ -----------
Total liabilities............................................... 889,550 831,121 820,445
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 7, 8 and 10)
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value; 100 issued and outstanding............. -- -- --
Capital stock, $.01 par value; 41,966 issued and outstanding.......... -- 420 --
Additional paid-in capital............................................ 417,074 413,631 417,074
Accumulated other comprehensive loss.................................. -- (2,947) --
Retained earnings..................................................... 29,138 91,512 38,063
------------ ------------ -----------
Total shareholders' equity...................................... 446,212 502,616 455,137
------------ ------------ -----------
Total liabilities and shareholder's equity...................... $1,335,762 $1,333,737 $1,275,582
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE>
GRAND CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
---------------------------------------- ----------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29, JUNE 30, JUNE 28,
1998 1997 1996 1999 1998
------------ ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Casino................................... $ 513,492 $ 462,756 $ 361,844 $ 286,619 $ 247,272
Hotel.................................... 33,704 26,124 20,150 19,532 15,870
Food and beverage........................ 35,569 28,421 21,822 18,294 16,880
Management fee income.................... 92,347 78,515 77,198 -- 42,748
Retail and other income.................. 12,659 11,605 9,005 7,553 5,981
------------ ------------ ------------ ---------- ----------
Total revenues....................... 687,771 607,421 490,019 331,998 328,751
------------ ------------ ------------ ---------- ----------
COSTS AND EXPENSES:
Casino................................... 168,587 161,565 126,132 128,954 110,287
Hotel.................................... 15,954 8,764 6,203 10,207 6,136
Food and beverage........................ 37,416 33,122 26,436 18,470 14,982
Other operating expenses................. 36,869 31,467 29,684 18,977 14,668
Management fees.......................... -- -- -- 9,735 --
Depreciation and amortization............ 59,913 46,233 43,140 29,508 26,140
Selling, general, and administrative..... 171,227 160,619 122,145 68,636 61,890
Corporate expense........................ 57,047 24,735 40,374 5,076 19,433
------------ ------------ ------------ ---------- ----------
Total costs and expenses............. 547,013 466,505 394,114 289,563 253,536
------------ ------------ ------------ ---------- ----------
Earnings from operations............. 140,758 140,916 95,905 42,435 75,215
------------ ------------ ------------ ---------- ----------
OTHER INCOME (EXPENSE):
Interest income.......................... 10,336 13,430 17,055 25 6,852
Interest expense......................... (45,324) (46,104) (35,165) (28,293) (23,686)
Other.................................... (2,869) (1,227) 754 -- (888)
Loss of sale of securities............... (4,473) -- -- -- --
Stratosphere write-down.................. -- -- (161,772) -- --
------------ ------------ ------------ ---------- ----------
Total other expense, net............. (42,330) (33,901) (179,128) (28,268) (17,722)
------------ ------------ ------------ ---------- ----------
Income (loss) before income taxes and
extraordinary charge................... 98,428 107,015 (83,223) 14,167 57,493
Provision for income taxes............... 27,211 40,824 17,746 5,242 21,313
------------ ------------ ------------ ---------- ----------
Income (loss) before extraordinary
charge................................. 71,217 66,191 (100,969) 8,925 36,180
Extraordinary charge, net of income
taxes.................................. (1,560) -- -- -- (1,560)
------------ ------------ ------------ ---------- ----------
Net income (loss).................... $ 69,657 $ 66,191 $ (100,969) $ 8,925 $ 34,620
------------ ------------ ------------ ---------- ----------
------------ ------------ ------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
GRAND CASINOS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
---------------------------------------- --------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29, JUNE 30, JUNE 28,
1998 1997 1996 1999 1998
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Earnings (loss)............................. $ 69,657 $ 66,191 $ (100,969) $ 8,925 $ 34,620
Unrealized gains (losses) on securities
Unrealized holding gains (losses) during the
period...................................... 3,583 (4,305) (744) -- --
Less: reclassification adjustment for losses
included in net earnings.................... (4,473) -- -- -- --
------------ ------------ ------------ --------- ---------
Comprehensive earnings (loss)................... $ 68,767 $ 61,886 $ (101,713) $ 8,925 $ 34,620
------------ ------------ ------------ --------- ---------
------------ ------------ ------------ --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
GRAND CASINOS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
PRE-MERGER POST-MERGER COMMON OTHER
COMMON STOCK STOCK ADDITIONAL COMPREHENSIVE TOTAL
---------------- ------------------ PAID-IN RETAINED EARNINGS SHAREHOLDERS'
SHARES DOLLARS SHARES DOLLARS CAPITAL EARNINGS (LOSS) EQUITY
------- ------- -------- ------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 40,988 $ 410 -- $ -- $397,298 $ 126,290 $ 2,102 $ 526,100
Issuance of stock on options
exercised........................ 411 4 -- -- 4,568 -- -- 4,572
Issuance of stock on warrants
exercised........................ 397 4 -- -- 10,710 -- -- 10,714
Other comprehensive loss........... -- -- -- -- -- -- (744) (744)
Net loss........................... -- -- -- -- -- (100,969) -- (100,969)
------- ------- -------- ------- ---------- --------- ------------- -------------
BALANCE, December 29, 1996........... 41,796 418 -- -- 412,576 25,321 1,358 439,673
Issuance of stock on options
exercised........................ 170 2 -- -- 1,055 -- -- 1,057
Other comprehensive loss........... -- -- -- -- -- -- (4,305) (4,305)
Net income......................... -- -- -- -- -- 66,191 -- 66,191
------- ------- -------- ------- ---------- --------- ------------- -------------
BALANCE, December 28, 1997........... 41,966 420 -- -- 413,631 91,512 (2,947) 502,616
Issuance of stock on options
exercised........................ 338 3 -- -- 3,020 -- -- 3,023
Other comprehensive earnings....... -- -- -- -- -- -- 3,583 3,583
Net income......................... -- -- -- -- -- 69,657 -- 69,657
Distribution of Lakes Gaming, Inc.
to shareholders.................. -- -- -- -- -- (132,031) (636) (132,667)
Merger and exchange of shares with
Park Place Entertainment......... (42,304) (423) -- -- 423 -- -- --
------- ------- -------- ------- ---------- --------- ------------- -------------
BALANCE, December 31, 1998........... -- -- -- -- 417,074 29,138 -- 446,212
Net income (unaudited)............. -- -- -- -- -- 8,925 -- 8,925
------- ------- -------- ------- ---------- --------- ------------- -------------
BALANCE, June 30, 1999 (unaudited)... -- $-- -- $ -- $417,074 $ 38,063 $-- $ 455,137
------- ------- -------- ------- ---------- --------- ------------- -------------
------- ------- -------- ------- ---------- --------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
GRAND CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SIX MONTHS ENDED
---------------------------------------- ------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29, JUNE 30, JUNE 28,
1998 1997 1996 1999 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Earnings (loss) before extraordinary
charge.................................... $ 71,217 $ 66,191 $ (100,969) $ 8,925 $ 34,620
Adjustments to reconcile earnings (loss)
before extraordinary charge to net cash
provided by operating activities-
Depreciation and amortization............. 68,408 49,491 45,538 29,508 26,140
Loss on sale of securities................ 4,473 -- -- -- --
Stratosphere write-down................... -- -- 161,772 -- --
Deferred income taxes..................... 7,049 24,239 (6,775) 13,571 --
Changes in operating assets and
liabilities:
Current assets.......................... (30,279) (3,430) (9,113) (11,834) (6,828)
Accounts payable........................ 9,916 (7,055) 1,281 (5,397) (3,202)
Accrued expenses........................ 35,103 (6,676) 26,492 (6,258) 23,887
Other................................... -- -- -- -- 2,096
------------ ------------ ------------ ----------- -----------
Net cash provided by operating
activities.......................... 165,887 122,760 118,226 28,515 76,713
------------ ------------ ------------ ----------- -----------
Investing Activities:
Capital Expenditures........................ (205,872) (162,751) (308,537) (14,717) (117,837)
Increase in due from affilliate............. -- -- -- (21,577) --
Increase in notes receivable................ (7,115) (1,797) -- -- (2,728)
Proceeds from repayment of notes
receivable................................ 6,567 7,618 15,981 -- 3,241
Investment in and notes receivable from
unconsolidated affiliates................. (807) (339) (60,244) -- --
Sales of securities available for sale...... 4,824 4,045 (12,330) -- --
Decrease (increase) in cash and cash
equivalents--restricted................... (136,745) 5,309 (3,374) 130,629 (3,153)
Increase (decrease) in other long-term
assets.................................... (3,377) (13,865) (8,648) (297) --
Other....................................... -- -- -- (24) (6,510)
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in)
investing activities................ (342,525) (161,780) (377,152) 94,014 (126,987)
------------ ------------ ------------ ----------- -----------
Financing Activities:
Proceeds from issuance of long-term debt.... 135,248 160,088 74,912 -- --
Payments on long-term debt and capital lease
obligations............................... (100,885) (23,970) (14,369) (115,000) (100,831)
Proceeds from issuance of common stock...... 3,023 1,057 15,286 -- 2,938
Debt issuance costs and deferred financing
costs..................................... -- (6,774) (4,421) -- 2,379
Distribution to Lakes Gaming, Inc........... (56,774) -- -- -- --
Other....................................... -- -- -- 16 --
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in)
financing activities................ (19,388) 130,401 71,408 (114,984) (95,514)
------------ ------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (196,026) 91,381 (187,518) 7,545 (145,788)
CASH AND CASH EQUIVALENTS, beginning of
year........................................ 238,635 147,254 334,772 42,609 238,635
------------ ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of year........ $ 42,609 $ 238,635 $ 147,254 $ 50,154 $ 92,847
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
GRAND CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998,
DECEMBER 28, 1997 AND DECEMBER 29, 1996
1. MERGER AGREEMENT
On December 31, 1998, Grand Casinos, Inc. (Grand or the Company) separated
its Mississippi business and certain other assets and liabilities (which include
the Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino Tunica casino
and entertainment properties) from its non-Mississippi business (comprised
primarily of the management of Indian-owned casinos, certain property held for
possible development in Las Vegas, Nevada, and certain other assets and
liabilities) by transferring the above-mentioned assets and liabilities of the
non-Mississippi business to its subsidiary, Lakes Gaming, Inc. (Lakes), and
distributing the common stock of Lakes to its shareholders (the Distribution).
On December 31, 1998, Hilton Hotels Corporation (Hilton) completed a similar
separation whereby Hilton transferred its gaming business to its subsidiary,
Park Place Entertainment Corporation (Park Place), and distributed the common
stock of Park Place to its stockholders. Immediately following the Distribution,
Grand was acquired by Park Place by way of a merger (the Merger). Following the
Merger, Grand is a wholly owned subsidiary of Park Place. Each Grand shareholder
received one share of Lakes stock for every four owned shares of Grand and one
share of Park Place stock for every one owned share of Grand.
The consolidated statements of earnings, comprehensive earnings and cash
flows include the results of operations from Grand, including the Lakes results
of operations as the Distribution and Merger occurred on the last day of the
1998 fiscal year. The 1998 consolidated balance sheet does not include the Lakes
balance sheet accounts as the Distribution and Merger occurred immediately prior
to the end of fiscal 1998. No purchase accounting entries recorded at the Park
Place level have been "pushed down" to Grand.
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Grand Casinos, Inc. and Subsidiaries (the "Company") develop, construct, and
manage land-based and dockside casinos and related hotel and entertainment
facilities in emerging and established gaming jurisdictions. The Company owns
and operates two dockside casinos on the Mississippi Gulf Coast and one dockside
casino in Tunica County, Mississippi (which opened on June 24, 1996). Prior to
the Distribution, the Company also managed Indian-owned casinos.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Grand and its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
The condensed combined consolidated financial statements for the three
months ended March 31, 1999 and 1998 included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary for a fair
statement of results for the interim periods have been made. The results for the
three-month periods are not necessarily indicative of results to be expected for
the full fiscal year.
F-50
<PAGE>
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 revenues and expenses during the reported
period. Ultimate results could differ from those estimates.
YEAR-END
Effective December 31, 1998, the Company changed its year end to December
31. Prior to this change the Company had a 52- or 53-week accounting period
ending on the Sunday closest to December 31 of each year. Periods presented are
for the periods ended December 31, 1998 (1998), December 28, 1997 (1997), and
December 29, 1996 (1996).
REVENUES AND EXPENSES
The Company recognizes revenues from its owned and operated casinos in
accordance with industry practice. Casino revenue is the net win from gaming
activities (the difference between gaming wins and losses). Casino revenues are
net of accruals for anticipated payouts of progressive and certain other slot
machine jackpots. Revenues include the retail value of rooms, food and beverage,
and other items that are provided to customers on a complimentary basis. A
corresponding amount is deducted as promotional allowances. The estimated costs
of providing such complimentaries, which are classified as expenses on the
accompanying consolidated statements of earnings, are as follows (in thousands):
ESTIMATED COSTS OF PROVIDING COMPLIMENTARIES (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOOD &
BEVERAGE HOTEL OTHER
--------- --------- ---------
<S> <C> <C> <C>
1998.................................................. $ 33,039 $ 5,445 $ 1,767
1997.................................................. 31,383 3,623 1,718
1996.................................................. 22,495 2,430 1,402
</TABLE>
Revenue from the management of Indian-owned casino gaming facilities was
recognized when earned according to the terms of the management contracts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and in banks,
interest-bearing deposits, and money market funds and other instruments with
original maturities of three months or less. Restricted cash and cash
equivalents consist primarily of funds restricted for debt defeasance and
workers' compensation benefits.
INVENTORIES
Inventories consisting primarily of food and beverage, goods to be sold at
retail, and operating supplies are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
PREOPENING EXPENSES
Expenses incurred prior to opening of Company-owned facilities are
capitalized and amortized to expense using the straight-line method over the six
months following the opening of the respective
F-51
<PAGE>
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
facilities. These costs include direct payroll and other operating costs
incurred prior to commencement of operations. Amortization for 1998, 1997 and
1996, includes approximately $2.4 million, $1.3 million and $11.9 million of
preopening amortization expense, respectively.
Effective January 1, 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities," which requires all preopening
costs to be expensed as incurred. The effect of adoption was not significant as
all previously capitalized preopening expenses have been fully amortized.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, except in the case of capitalized
lease assets, which are stated at the lower of the present value of the future
minimum lease payments or fair market value at the inception of the lease.
Expenditures for additions, renewals, and improvements are capitalized. Costs of
repairs and maintenance are expensed when incurred.
Depreciation and amortization of property and equipment is computed using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
15-40
Building and leasehold improvements............................. years
Furniture and equipment......................................... 3-15 years
Land improvements............................................... 15 years
</TABLE>
The Company capitalizes interest incurred on debt during the course of
qualifying construction projects. Such costs are amortized over the related
assets' estimated useful lives. Capitalized interest totaled $19.9 million,
$12.9 million and $16.1 million during 1998, 1997 and 1996, respectively. The
Company periodically evaluates whether events and circumstances have occurred
that may affect the recoverability of the net book value of its long-lived
assets. If such events or circumstances indicate that the carrying amount of an
asset may not be recoverable, the Company estimates the future cash flows
expected to result from the use of the asset. If the sum of the expected future
undiscounted cash flows does not exceed the carrying value of the asset, the
Company will recognize an impairment loss.
DEBT ISSUANCE COSTS
The costs of issuing long-term debt, including all underwriting, legal, and
accounting fees, have been capitalized and are being amortized over the life of
the related indebtedness.
DEFERRED LICENSING COSTS
Costs incurred to obtain licensing rights from an unrelated third party for
the Company's Gulfport, Mississippi, casino are being charged to income over 30
years. The 30-year period, which commenced in May 1993, represents the
anticipated life of the related license subject to periodic suitability reviews.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company classifies
deferred tax liabilities and assets into current and noncurrent amounts based on
the classification of the related assets and liabilities.
F-52
<PAGE>
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in the 1997 and 1996 consolidated
financial statements to conform with the 1998 presentation. Such
reclassifications had no effect on previously reported results of operations or
shareholders' equity.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land and improvements............................................. $ 175,394 $ 190,216
Buildings and improvements........................................ 684,059 554,871
Furniture and equipment........................................... 207,819 171,355
Construction in progress.......................................... 174,040 129,038
------------ ------------
1,241,312 1,045,480
Less--Accumulated depreciation and amortization................... (155,596) (104,458)
------------ ------------
Property and equipment--net................................... $ 1,085,716 $ 941,022
------------ ------------
------------ ------------
</TABLE>
4. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 16,662 $ 19,278 $ 21,185
State.................................................... 3,500 2,146 3,336
--------- --------- ---------
20,162 21,424 24,521
Deferred..................................................... 7,049 19,400 (6,775)
--------- --------- ---------
$ 27,211 $ 40,824 $ 17,746
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of statutory federal income tax rate to the Company's
actual rate based on earnings (loss) before income taxes and extraordinary
charge for 1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal tax rate......................................... 35.0% 35.0% (35.0)%
State income taxes, net of federal income tax benefit.............. 1.6 1.3 2.5
Valuation allowance increases (decreases) on Stratosphere losses
and write-down................................................... (17.6) -- 49.8
Nondeductible Distribution and Merger costs........................ 4.3 -- --
Other, net......................................................... 4.3 1.8 4.0
--------- --- ---------
27.6% 38.1% 21.3%
--------- --- ---------
--------- --- ---------
</TABLE>
F-53
<PAGE>
4. INCOME TAXES (CONTINUED)
The Company's deferred income tax liabilities and assets are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Noncurrent deferred taxes:
Tax depreciation in excess of book depreciation..................... $ 60,563 $ 52,109
Book value basis in excess of tax basis of acquired land............ 40,600 40,600
Capital loss carryforwards.......................................... (12,000) (54,000)
Other temporary differences......................................... 1,934 4,376
Valuation allowance................................................. 12,000 54,000
---------- ----------
Net noncurrent deferred tax liability................................. $ 103,097 $ 97,085
---------- ----------
---------- ----------
Current deferred taxes:
Accruals, reserves, and other....................................... $ 6,011 $ 9,896
Other............................................................... 1,714 3,503
---------- ----------
Net current deferred tax asset........................................ $ 7,725 $ 13,399
---------- ----------
---------- ----------
</TABLE>
A deferred tax asset was recorded in 1996 when the Company set up a reserve
allowance due to uncertainty related to the collectibility of a note receivable
from Stratosphere. However, a full valuation allowance was created for the
deferred tax asset and no income tax benefit was recognized at that time. Upon
writing off the receivable and realizing the tax deduction in 1998, the Company
reversed that deferred tax asset valuation allowance resulting in the
recognition of a $17.3 million income tax benefit. Under the terms of its tax
sharing agreement with Lakes, any further tax benefits relating to capital
losses resulting from the write-off of the investment in Stratosphere will be
shared equally by Lakes and Grand up to a benefit of approximately $12 million
for each Company. Management determined that the deferred tax asset relative to
capital loss carryforwards did not satisfy the recognition criteria set forth in
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Accordingly, a $12.0 million valuation allowance was recorded.
5. LEASES AND CAPITAL LEASE OBLIGATIONS
The Company has entered into various operating leases for land adjacent to
its dockside casinos in Mississippi. The lease for land adjacent to the
Company's Grand Casino Gulfport is for the period from July 1, 1997, through
June 30, 2002, and contains renewal options totaling 40 years. The Company is
required to make annual rental payments of $1.2 million, subject to adjustment
as defined, plus 5% of gross annual gaming revenues in excess of $25.0 million
and 3% of all nongaming revenues.
The lessor of the Grand Casino Gulfport site has the right to cancel the
lease at any time for reason of port expansion, in which case the lessor will be
liable to the Company for the depreciated value of improvements and other
structures placed on the leased premises (as defined).
The lease for land adjacent to the Company's Biloxi Casino has an initial
term of 99 years, and the Company is required to make annual rental payments of
$2.5 million, subject to adjustment as defined. Percentage rent is also due
equal to 5% of gross gaming revenues in excess of $50.0 million per year, plus
10% of net profits from certain other nongaming-related activities.
The Company also entered into a 15-year lease for submerged land adjacent to
the Biloxi Casino, with an option to extend the lease for 5 years after the
expiration of the initial 15-year term. The lease provides for annual rental
payments of $900,000 through 2003 with annual increases thereafter, as defined.
F-54
<PAGE>
5. LEASES AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
The land lease in connection with the operation of Grand Casino Tunica
provides for annual rental payments of $2.5 million, subject to adjustment as
defined. The term of the lease is initially for 6 years with nine six-year
renewal options, for a total of 60 years.
On May 10, 1996, the Company completed a $120.0 million Capital Lease
facility. The five-year facility, with varying interest rates ranging from 1.75%
to 2.50% over the LIBOR rate, was being used for the continued development of
the Company's Grand Casino Tunica project, located in northern Mississippi, just
outside of Memphis, Tennessee. Approximately $90.0 million of the facility was
used for furniture, fixtures and equipment for the 340,000 square-foot casino
complex. The balance of approximately $30.0 million was used to construct a
600-room hotel at Grand Casino Tunica. On March 31, 1998, the Company repaid all
amounts outstanding under the facility. Additionally, concurrent with the
transactions noted in Note 1, the facility was cancelled.
In addition to the aforementioned land leases, the Company leases certain
other property and equipment under noncancelable operating leases. After giving
affect to leases that were assigned to Lakes as a part of the Distribution and
excluding contingent rentals, future minimum lease payments, due under
noncancelable operating leases as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<S> <C>
1999...................................................... $ 8,625
2000...................................................... 7,854
2001...................................................... 7,617
2002...................................................... 7,681
2003...................................................... 7,681
Thereafter................................................ 392,114
---------
Total minimum lease payments.............................. $ 431,572
---------
---------
</TABLE>
Rent expense, under noncancelable operating leases, exclusive of real estate
taxes, insurance and maintenance expense for 1998, 1997 and 1996 was
approximately $24.1 million, $19.8 million and $19.0 million, respectively.
Percentage rental expense for 1998, 1997 and 1996 was approximately $12.4
million, $14.6 million and $12.8 million, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
First Mortgage Notes due December 1, 2003............................. $ 450,000 $ 450,000
Note Payable to Park Place, interest at 10%, due January 2009......... 135,200 --
Senior Unsecured Notes due October 16, 2004........................... 115,000 115,000
Other................................................................. 507 4,943
---------- ----------
700,707 569,943
Less--Current installments............................................ (55) (3,509)
---------- ----------
Long-term debt--less current installments............................. $ 700,652 $ 566,434
---------- ----------
---------- ----------
</TABLE>
The 10.125% First Mortgage Notes are secured by substantially all the assets
of Grand Casino Biloxi, Grand Casino Gulfport and Grand Casino Tunica included
in Phase 1 development (as defined in the loan documents). The First Mortgage
Notes require semiannual payments of interest only on June 1 and December 1 of
each year, which commenced on June 1, 1996, until December 1, 2003, at which
time the entire principal plus accrued interest is due and payable. The First
Mortgage Notes may be redeemed at
F-55
<PAGE>
6. LONG-TERM DEBT (CONTINUED)
the Company's option, in whole or in part, at anytime on or after December 1,
1999, at a premium, declining ratably thereafter to par value on December 1,
2002.
In connection with the Merger, Park Place made a tender offer for the First
Mortgage Notes and purchased approximately $444.5 million of the outstanding
First Mortgage Notes, which were subsequently cancelled. In January 1999, the
Company completed a covenant defeasance for approximately $5.5 million of
remaining outstanding First Mortgage Notes by placing into trust all future
payments of principal, interest and premium on the First Mortgage Notes to the
first optional redemption date on December 1, 1999. As a result of the
defeasance, the Company is no longer required to comply with substantially all
of the restrictive covenants and security provisions of the indenture.
On October 14, 1997, the Company sold $115.0 million aggregate principal
amount of 9.0%, seven-year, Senior Unsecured Notes due 2004 (Senior Notes),
realizing net cash proceeds of approximately $111.8 million after underwriting
and other related offering costs. On December 31, 1998, Grand completed a
covenant defeasance for the Senior Notes by placing into trust approximately
$135 million representing all future payments of principal, interest and
approximately $5.2 million of early redemption premium. Amounts paid by Grand
were received from Park Place in the form of a Note Payable due 2009. The Senior
Notes were redeemed on February 1, 1999.
The terms of the Company's long-term debt contain covenants relating to
certain business, operational, and financing matters including, but not limited
to, maintenance of certain financial ratios and limitations on additional debt,
dividends, stock repurchases, disposition of assets, mergers, restricted
payments (as defined) and similar transactions. The Company was in compliance
with all such covenants as of December 31, 1998.
The future aggregate annual maturities of long-term debt at December 31,
1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999...................................................... $ 55
2000...................................................... 60
2001...................................................... 66
2002...................................................... 71
2003...................................................... 450,078
Thereafter................................................ 250,377
---------
$ 700,707
---------
---------
</TABLE>
7. STOCK OPTIONS
STOCK OPTION AND COMPENSATION PLAN
The Company has a Stock Option and Compensation Plan and a Director Stock
Option Plan whereby incentive and nonqualified stock options and other awards to
acquire up to an aggregate of 6,451,500
F-56
<PAGE>
7. STOCK OPTIONS (CONTINUED)
shares of the Company's common stock may be granted to officers, directors, and
employees. Information with respect to the stock option plans is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES
-----------------------------------------
OPTION PRICE
OPTIONS AVAILABLE RANGE PER
OUTSTANDING FOR GRANT SHARE
----------- ----------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995......................................... 2,617,678 635,465 $ (3.03-28.63)
Additional shares authorized....................................... -- 2,775,000 --
Granted............................................................ 1,997,522 (1,997,522) (14.75-32.13)
Canceled........................................................... (9,096) 9,096 (8.08-10.42)
Exercised.......................................................... (411,827) -- (3.03-15.10)
----------- ----------- ---------------
Balance at December 29, 1996......................................... 4,194,277 1,422,039 (3.03-32.13)
Granted............................................................ 1,431,050 (1,431,050) (9.25-15.63)
Canceled........................................................... (483,980) 483,980 (8.08-32.13)
Exercised.......................................................... (170,421) -- (3.03-11.00)
----------- ----------- ---------------
Balance at December 28, 1997......................................... 4,970,926 474,969 $ (3.03-32.13)
Granted............................................................ 46,500 (46,500) (8.69-17.19)
Canceled........................................................... (698,200) 698,200 (8.08-15.06)
Exercised.......................................................... (338,102) -- (3.03-11.00)
----------- ----------- ---------------
Exercisable at December 31, 1998..................................... 3,981,124 1,126,669 $ (3.03-32.13)
----------- ----------- ---------------
----------- -----------
</TABLE>
As a result of the Distribution and Merger, the outstanding stock options
became options to purchase common stock of both Park Place and Lakes. The
exercise prices of the options were adjusted to preserve their intrinsic value,
based on the estimated fair market value of each respective company based on the
trading prices of the new company stocks.
8. EMPLOYEE RETIREMENT PLAN
The Company has a section 401(k) employee savings plan for all full-time
employees. The Company's employees are not part of a bargaining unit and, as
such, all employees who are eligible can participate. The savings plan allows
participants to defer, on a pretax basis, a portion of their salary and
accumulate tax-deferred earnings as a retirement fund. Eligibility is based on
years of service and minimum age requirements. Contributions are invested, at
the direction of the employee, in one or more funds available. The Company
matches employee contributions up to a maximum of 1% of participating employees'
gross wages. Company contributions are vested over a period of five years. The
401(k) plan commenced on September 1, 1995.
As a part of the Merger, all Grand employees who continued on with Park
Place transferred their 401(k) balances into a Park Place 401(k) Plan.
F-57
<PAGE>
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash paid (refunded) during the year for--
Interest (net of capitalized interest of $19,914, $12,930, and $16,065, in
fiscal years 1998, 1997, and 1996, respectively)............................. $ 58,558 $ 55,446 $ 31,310
Income taxes................................................................... (2,580) 27,627 17,042
Noncash activities
Assets and liabilities distributed to Lakes
Accounts receivable.......................................................... $ 15,217 $ -- $ --
Other current assets......................................................... 8,126 -- --
Notes receivable............................................................. 33,679 -- --
Land held for development.................................................... 26,647 -- --
Other assets................................................................. 20,290 -- --
Accounts payable and accruals................................................ 25,990 -- --
Other liabilities............................................................ 3,708 -- --
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
STRATOSPHERE CORPORATION
The Company previously owned approximately 37% of the common stock issued by
Stratosphere Corporation (Stratosphere). Stratosphere and its wholly owned
operating subsidiary developed and operate the Stratosphere Tower, Hotel and
Casino in Las Vegas, Nevada. In 1996, the Company recorded a $161.8 million
charge related to the write-off of its investment in and certain notes
receivable from Stratosphere. In January 1997, Stratosphere and its wholly owned
operating subsidiary filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code.
On November 7, 1997, Stratosphere filed its Second Amended Plan, which was
approved by the Bankruptcy Court and declared effective on October 14, 1998.
Pursuant to the Second Amended Plan, Stratosphere common stock that was
outstanding prior to the effective date of the Second Amended Plan was
cancelled.
In March 1995, in connection with Stratosphere's issuance of its First
Mortgage Notes, the Company entered into a Standby Equity Commitment Agreement
(the Standby Equity Commitment) between Stratosphere and the Company. The
Company agreed in the Standby Equity Commitment, subject to the terms and
conditions stated in the Standby Equity Commitment, to purchase up to $20.0
million of additional equity in Stratosphere during each of the first three
years Stratosphere is operating (as defined in the Standby Equity Commitment) to
the extent Stratosphere's consolidated cash flow (as defined in the Standby
Equity Commitment) during each of such years does not exceed $50.0 million.
The enforceability of the Standby Equity Commitment is the subject of
litigation to which the Company is a party in (i) the Stratosphere bankruptcy
case (as a result of a motion brought by the Official Committee), and (ii) the
U. S. District Court for the District of Nevada (as a result of an action
brought by the Trustee). On February 19, 1998, the Bankruptcy Court ruled that
the Standby Equity Commitment is not enforceable in the Stratosphere bankruptcy
proceeding as a matter of law. The Official Committee has stated that it intends
to appeal the Bankruptcy Court's decision.
The Second Amended Plan contemplates the formation of a new limited
liability company which will own and pursue certain alleged claims and causes of
action that Stratosphere and other persons may have against numerous third
parties, including Grand and/or officers and/or directors of Grand. The Second
F-58
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Amended Plan contemplates capitalizing this new limited liability company with
an investment of $5 million. Grand has not been served with any such litigation.
STRATOSPHERE SECURITIES LITIGATION
The Company and certain persons who have been indemnified by the Company
(including certain former and current Company officers and directors) are
defendants in legal actions pending in the state court and in the federal court
in Nevada. These actions arise out of the Company's involvement in the
Stratosphere Tower, Casino and Hotel project (the Stratosphere Project) in Las
Vegas, Nevada.
The plaintiffs in the actions who are current and/or former Stratosphere
Corporation shareholders seek to pursue the actions as class actions, and make
various claims against the Company and the Company-related defendants, including
securities fraud. In September 1997, the Company and the Company-related
defendants submitted a motion to dismiss the federal action. In April 1998, this
motion was granted, in part, and denied, in part. The plaintiffs are pursuing
the claims that survived the motion to dismiss. Grand and Grand-related
defendants have also submitted a motion for summary judgment seeking an order
that such defendants are entitled to judgment as a matter of law. The plaintiffs
are engaged in discovery related to the issues raised by the summary judgment
motion. The court will not decide the motion until after such discovery is
completed and the parties have submitted their respective arguments. The state
court action has been stayed pending resolution of the federal court action.
The Company intends to vigorously defend itself and the other
Company-related defendants against the claims made in both the state and the
federal action.
GRAND SECURITIES LITIGATION
The Company and certain of the Company's current and former officers and
directors are defendants in a legal action pending in the federal court in
Minnesota. This action arises out of the Company's involvement in the
Stratosphere Project.
The plaintiffs in the action who are current and/or former Company
shareholders seek to pursue the action as a class action, and make various
claims against the Company and the other defendants, including securities fraud.
The Company and the Company-related defendants submitted a motion to dismiss the
plaintiffs' claims. In December 1997, that motion was granted, in part, and
denied, in part. Grand and Grand-related defendants have also submitted a motion
for summary judgment. Currently, the plaintiffs, the Company and the other
defendants are engaged in discovery in the action. On March 10, 1999, plaintiffs
were granted leave to amend their complaint to include Park Place and Lakes.
The Company intends to vigorously defend itself and the other defendants
against the claims that survived the Company's motion to dismiss.
DERIVATIVE ACTION
Certain of the Company's current and former officers and directors are
defendants in a legal action pending in the state court of Minnesota. This
action arises out of the Company's involvement in Stratosphere.
The plaintiffs in the action who are current and/or former Company
shareholders seek to pursue the action against the defendants on behalf of the
Company, and make various claims that the defendants failed to fulfill claimed
duties to the Company. The Company is providing the defense for the defendants
pursuant to the Company's indemnification obligations to the defendants.
F-59
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company's board of directors appointed an independent special litigation
committee under Minnesota law to evaluate whether the Company should pursue the
claims made by the plaintiffs. That committee has completed its evaluation and
has recommended to the court that the plaintiffs' claims not be pursued.
In May 1998, the court granted a motion for summary judgment submitted by
Grand, thereby dismissing the plaintiffs' claims. On March 9, 1999, the court of
appeals affirmed the summary judgment. It is uncertain whether the plaintiffs
will seek further review.
TULALIP TRIBES LITIGATION
In 1995, Grand entered into discussion with Seven Arrows LLC (Seven Arrows)
regarding possible participation by Grand in a proposed casino resort
development on land in the state of Washington held in trust by the United
States for the Tulalip Tribes. Grand and Seven Arrows entered into a letter of
intent providing for the negotiation of a revision to the Seven Arrows limited
liability company agreement by which Grand (or a subsidiary of Grand) would
become a member of Seven Arrows. Those negotiations were not completed, and no
revision to the limited liability company agreement was signed.
During the negotiations, Grand entered into an agreement (the Advance
Agreement) with Seven Arrows and the Tulalip Tribes which provided for the loan
by Grand and Seven Arrows of certain amounts to the Tulalip Tribes upon the
satisfaction of certain conditions. Grand contends that those conditions were
never satisfied. Neither Grand nor Seven Arrows advanced any amount under the
Advance Agreement.
Seven Arrows, the Tulalip Tribes and Grand are currently parties to
litigation in the U.S. District Court in Washington with respect to a lease and
sublease between the Tulalip tribes and Seven Arrows for the land on which the
casino was proposed and the Advance Agreement. Among other things, Seven Arrows
seeks damages from the Tulalip Tribes for lost profits of up to $15 million and
for recovery of sums paid to the Tulalip Tribes between $2 million and $3
million in its second amended complaint. Grand is not a party to the second
amended complaint.
The Tulalip Tribes filed a complaint against Grand on September 30, 1998.
The complaint against Grand contains several counts including (i) a request for
judgment declaring that the Tulalip Tribe's termination of the agreements was
effective and quieting title in the land; (ii) a claim that Grand is liable on
the lease, sublease and Advance Agreement; (iii) a claim for negligent
misrepresentation; (iv) a claim that Grand stands as warrantor and surety of
Seven Arrow's obligations; and (v) a claim for estoppel. Each claim for damages
seeks the sum of $856,000 for out-of-pocket expenses and for "lost profit
damages" in an amount to be proved at trial.
Grand does not oppose the Tulalip Tribe's effort to quiet title to its land.
Grand denies that it is factually or legally liable for the obligations or
liabilities of Seven Arrows under the lease and sublease. Grand contends that it
did not breach the Advance Agreement. Grand denies that it is liable for
negligent misrepresentation.
Seven Arrows has, on previous occasions, threatened unpleaded claims against
Grand. Grand does not know the nature or extent of any such additional claims
and has not received any pleading in any action stating such a claim. However,
Grand expects to receive a claim by Seven Arrows in the near future. Such a
claim, if made, could be material.
Grand's liability for damages to all parties in the aggregate cannot exceed
$15 million under the partial settlement agreement. Discovery has commenced, but
no trial date has been set.
F-60
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
STRATOSPHERE PREFERENCE ACTION
In April 1998, Stratosphere served on Grand and Grand Media & Electronics
Distributing, Inc., a wholly owned subsidiary of Grand (Grand Media), a
complaint in the Stratosphere bankruptcy case seeking recovery of certain
amounts paid by Stratosphere to Grand as management fees and for costs and
expenses under a management agreement between Stratosphere and Grand, and to
Grand Media for electronic equipment purchased by Stratosphere from Grand Media.
Stratosphere claims in its complaint that such amounts are recoverable by
Stratosphere as preferential payments under bankruptcy law.
In May 1998, Grand responded to Stratosphere's complaint. That response
denies that Stratosphere is entitled to recover the amounts described in the
complaint. Discovery remains in process.
SLOT MACHINE LITIGATION
Certain parties have commenced an action in the U.S. District Court for the
District of Nevada in which various parties (including Grand) alleged to operate
casinos or be slot machine manufacturers were named as defendants.
The action includes claims under the federal Racketeering-Influenced and
Corrupt Organizations Act and under state law, and seeks compensatory and
punitive damages. The plaintiffs claim that the defendants are involved in a
scheme to induce people to play electronic video poker and slot machines based
on false beliefs regarding how such machines operate and the extent to which a
player is likely to win on any given play.
In March 1997, various defendants (including Grand) filed motions to dismiss
or stay the consolidated action until the plaintiffs submitted their claims to
gaming authorities and those authorities considered the claims submitted by the
plaintiffs. In December 1997, the court denied all of the motions submitted by
the defendants and ordered the plaintiffs to file a new consolidated and amended
complaint. That complaint has been filed. Grand has filed its answer to the new
complaint. The plaintiffs have filed a motion seeking an order certifying the
action as a class action. Grand and certain of the defendants have opposed the
motion. The court has not ruled on the motion.
OTHER LITIGATION
The Company is involved in various other inquiries, administrative
proceedings and litigation relating to contracts and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management currently believes that the final outcomes of these
matters are not likely to have a material adverse effect upon the Company's
consolidated financial position or its results of operations.
INDEMNIFICATION AGREEMENT
As a part of the Merger and Distribution, Lakes agreed to indemnify Grand
against all costs, expenses and liabilities incurred or suffered by the Company
and certain of subsidiaries and their respective current and former directors
and officers in connection with or arising out of certain pending and threatened
claims and legal proceedings to which Grand and certain of its subsidiaries are
likely to be parties, in addition to various commitments and contingencies
related to, or arising out of, Grand's Non-Mississippi business and assets,
including tribal loan guarantees, real property lease guarantees for Lakes'
subisidiaries and director and executive officer indemnity obligations. Lake's
indemnification obligations include the
F-61
<PAGE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
obligation to provide the defense of all claims made in such proceedings against
Grand and to pay all related settlements and judgments.
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 consummation of the Merger, Lakes has 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 at the end of each year during the four-year period subsequent to
December 31, 1998.
11. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues..................................................... $ 166,464 $ 162,286 $ 182,184 $ 176,837
Earnings from operations......................................... 36,120 37,223 40,971 26,444
Net earnings..................................................... 17,439 17,180 32,914 2,124
Net revenues..................................................... $ 142,170 $ 150,837 $ 167,580 $ 146,834
Earnings from operations......................................... 30,863 38,956 44,618 26,479
Net earnings..................................................... 14,581 18,316 22,164 11,130
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
F-62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
OFFER TO EXCHANGE UP TO $300,000,000 OF
7.95% SENIOR NOTES DUE 2003,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR UP TO $300,000,000 OF OUTSTANDING
7.95% SENIOR NOTES DUE 2003
--------------
PROSPECTUS
--------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102 of the Delaware General Corporation Law (the
"DGCL"), Section 11.1 of the Amended and Restated Certificate of Incorporation
of the registrant (the "Certificate") eliminates the personal liability of its
directors to the registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director, to the fullest extent permitted by the DGCL, as
the same exists or may hereafter be amended.
Section 145 of the DGCL and Article VI of the Amended and Restated Bylaws of
the registrant authorize and empower the registrant to indemnify its directors,
officers, and employees against liabilities incurred in connection with, and
related expenses resulting from, any claim, action or suit brought against any
such person as a result of such person's relationship with the registrant,
PROVIDED that such persons acted in accordance with a stated standard of conduct
in connection with the acts or events on which such claim, action or suit is
based. The finding of either civil or criminal liability on the part of such
persons in connection with such acts or events is not necessarily determinative
of the question of whether such persons have met the required standard of
conduct and are, accordingly, entitled to be indemnified.
The registrant carries policies of insurance which cover the individual
directors and officers of the registrant for legal liability and which would pay
on behalf of the registrant for expenses of indemnification of directors and
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
(a) EXHIBITS
2.1 Stock Purchase Agreement dated as of April 29, 1999 by and among the Registrant and
Starwood Hotels & Resorts Worldwide, Inc., ITT Sheraton Corporation, Starwood Canada
Corp., Caesars World, Inc., Sheraton Desert Inn Corporation and Sheraton Tunica
Corporation (incorporated by reference from Exhibit 2.1 to the Quarterly Report on
Form 10-Q of the Registrant dated March 31, 1999, filed with the Commission on May
17, 1999)
4.1 Indenture dated as of August 2, 1999 by and among the Registrant and Norwest Bank
Minnesota, N.A., with respect to $300 million aggregate principal amount of 7.95%
Senior Notes due 2003
4.2 Registration Rights Agreement dated as of August 2, 1999 by and among the Registrant
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of
America Securities LLC, Deutsche Bank Securities Inc., SG Cowen Securities
Corporation, Scotia Capital Markets (USA) Inc., BNY Capital Markets, Inc., First
Union Capital Markets Corp., PNC Capital Markets, Inc., Bear, Stearns & Co. Inc. and
Norwest Investment Services, Inc.
4.3 Five Year Credit Agreement dated as of December 31, 1998 among the Registrant, Bank
of America National Trust Association, as Administrative Agent, and NationsBanc
Montgomery Securities, LLC, as Lead Arranger (incorporated by reference to Exhibit
99.10 to the Current Report on Form 8-K of the Registrant filed with the Commission
on January 8, 1999)
4.4 Short Term Credit Agreement dated as of December 31, 1998 among the Registrant, Bank
of America National Trust and Savings Association, as Administrative Agent, and
NationsBanc Montgomery Securities, LLC, as Lead Arranger (incorporated by reference
to Exhibit 99.9 to the Current Report on Form 8-K of the Registrant filed with the
Commission on January 8, 1999)
*5 Opinion of Latham & Watkins
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
8 Opinion of Latham & Watkins regarding certain tax matters
12 Statement regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23.1 Consent of Latham & Watkins (included as part of Exhibit 5 and Exhibit 8)
23.2 Consent of Arthur Andersen LLP (Park Place)
23.3 Consent of Arthur Andersen LLP (Grand)
23.4 Consent of Arthur Andersen LLP (Caesars)
23.5 Consent of Ernst & Young LLP
24 Power of Attorney (included on the signature page of this registration statement)
25 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank Minnesota,
N.A., as trustee of the 7.95% Senior Notes due 2003 of the Registrant
99.1 Letter of Transmittal with respect to the Exchange Offer
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
</TABLE>
- ------------------------
* To be filed by amendment
Per Regulation S-K 601(b)(4)(iii)(A), the registrant agrees to file
applicable agreements with the Commission upon request.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) of the Act if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BOND FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Las Vegas, State of
Nevada, on August 30, 1999.
<TABLE>
<S> <C> <C>
PARK PLACE ENTERTAINMENT CORPORATION
By: /s/ CLIVE S. CUMMIS
-----------------------------------------
Name: Clive S. Cummis
Title: Executive Vice President--Law &
Corporate Affairs and Secretary
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Scott A.
LaPorta and Clive S. Cummis, and each of them, with full power to act without
the other, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this registration statement, and any
and all amendments thereto (including pre- and post-effective amendments) or any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with exhibits and schedules thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing necessary to desirable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in their
capacities on August 30, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ -------------------
<C> <S>
/s/ LYLE BERMAN
- ------------------------------ Director
Lyle Berman
/s/ STEPHEN F. BOLLENBACH
- ------------------------------ Chairman of the
Stephen F. Bollenbach Board of Directors
- ------------------------------ Director
Barbara Bell Coleman
/s/ A. STEVEN CROWN
- ------------------------------ Director
A. Steven Crown
Executive Vice
/s/ CLIVE S. CUMMIS President--Law &
- ------------------------------ Corporate Affairs
Clive S. Cummis and Secretary and
Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ -------------------
<C> <S>
President and Chief
/s/ ARTHUR M. GOLDBERG Executive Officer
- ------------------------------ (Principal
Arthur M. Goldberg Executive Officer)
and Director
/s/ BARRON HILTON
- ------------------------------ Director
Barron Hilton
/s/ ERIC HILTON
- ------------------------------ Director
Eric Hilton
Executive Vice
President and Chief
/s/ SCOTT A. LAPORTA Financial Officer
- ------------------------------ (Principal
Scott A. LaPorta Financial and
Accounting Officer)
/s/ J. KENNETH LOOLOIAN
- ------------------------------ Director
J. Kenneth Looloian
/s/ ROCCO J. MARANO
- ------------------------------ Director
Rocco J. Marano
/s/ GILBERT L. SHELTON
- ------------------------------ Director
Gilbert L. Shelton
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement dated as of April 29, 1999 by and among the Registrant and Starwood Hotels &
Resorts Worldwide, Inc., ITT Sheraton Corporation, Starwood Canada Corp., Caesars World, Inc., Sheraton
Desert Inn Corporation and Sheraton Tunica Corporation (incorporated by reference from Exhibit 2.1 to
the Quarterly Report on Form 10-Q of the Registrant dated March 31, 1999, filed with the Commission on
May 17, 1999)
4.1 Indenture dated as of August 2, 1999 by and among the Registrant and Norwest Bank Minnesota, N.A., with
respect to $300 million aggregate principal amount of 7.95% Senior Notes due 2003
4.2 Registration Rights Agreement dated as of August 2, 1999 by and among the Registrant and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, Deutsche Bank
Securities Inc., SG Cowen Securities Corporation, Scotia Capital Markets (USA) Inc., BNY Capital
Markets, Inc., First Union Capital Markets Corp., PNC Capital Markets, Inc., Bear, Stearns & Co. Inc.
and Norwest Investment Services, Inc.
4.3 Five Year Credit Agreement dated as of December 31, 1998 among the Registrant, Bank of America National
Trust Association, as Administrative Agent, and NationsBanc Montgomery Securities, LLC, as Lead Arranger
(incorporated by reference to Exhibit 99.10 to the Current Report on Form 8-K of the Registrant filed
with the Commission on January 8, 1999)
4.4 Short Term Credit Agreement dated as of December 31, 1998 among the Registrant, Bank of America National
Trust and Savings Association, as Administrative Agent, and NationsBanc Montgomery Securities, LLC, as
Lead Arranger (incorporated by reference to Exhibit 99.9 to the Current Report on Form 8-K of the
Registrant filed with the Commission on January 8, 1999)
*5 Opinion of Latham & Watkins
8 Opinion of Latham & Watkins regarding certain tax matters
12 Statement regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Registrant
23.1 Consent of Latham & Watkins (included as part of Exhibit 5 and Exhibit 8)
23.2 Consent of Arthur Andersen LLP (Park Place)
23.3 Consent of Arthur Andersen LLP (Grand)
23.4 Consent of Arthur Andersen LLP (Caesars)
23.5 Consent of Ernst & Young LLP
24 Power of Attorney (included on the signature page of this registration statement)
25 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank Minnesota, N.A., as trustee of
the 7.95% Senior Notes due 2003 of the Registrant
99.1 Letter of Transmittal with respect to the Exchange Offer
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
</TABLE>
- ------------------------
* To be filed by amendment
Per Regulation S-K 601(b)(4)(iii)(A), the registrant agrees to file
applicable agreements with the Commission upon request.
<PAGE>
-----------------------------------------------------
PARK PLACE ENTERTAINMENT CORPORATION,
as Issuer
and
NORWEST BANK MINNESOTA, N.A.,
as Trustee
-----------------------------------------------------
INDENTURE
Dated as of August 2, 1999
$300,000,000
7.95% Senior Notes due 2003
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between Trust Indenture Act of 1939, as amended, and
Indenture, dated as August 2, 1999.
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- -------
<S> <C>
Section 310 (a)(1). . . . . . . . . . . . . . . . . 6.09, 6.11, 6.12
(a)(2). . . . . . . . . . . . . . . . . 6.09, 6.11, 6.12
(b) . . . . . . . . . . . . . . . . . . 6.08, 6.10
Section 311 (a) . . . . . . . . . . . . . . . . . . 6.13
Section 312 (a) . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . 7.02
(b)(2). . . . . . . . . . . . . . . . . 7.03
(c) . . . . . . . . . . . . . . . . . . 7.02
Section 313 (a) . . . . . . . . . . . . . . . . . . 7.03
(b) . . . . . . . . . . . . . . . . . . 7.03
(c) . . . . . . . . . . . . . . . . . . 6.02, 7.03, 10.11
Section 314 (a) . . . . . . . . . . . . . . . . . . 10.11
(c)(1). . . . . . . . . . . . . . . . . 1.03
(c)(2). . . . . . . . . . . . . . . . . 1.03
(e) . . . . . . . . . . . . . . . . . . 1.03
Section 315 (a) . . . . . . . . . . . . . . . . . . 6.01, 6.03, 9.03
(b) . . . . . . . . . . . . . . . . . . 6.01, 6.02, 6.03, 9.03
(c) . . . . . . . . . . . . . . . . . . 6.01, 6.03, 9.03
(d) . . . . . . . . . . . . . . . . . . 6.01, 6.03, 9.03
(e) . . . . . . . . . . . . . . . . . . 5.14
Section 316 (a)(1)(A) . . . . . . . . . . . . . . . 5.02, 5.12
(a)(1)(B) . . . . . . . . . . . . . . . 5.13
(b) . . . . . . . . . . . . . . . . . . 5.08
(c) . . . . . . . . . . . . . . . . . . 1.05
Section 317 (a)(1). . . . . . . . . . . . . . . . . 5.03
(a)(2). . . . . . . . . . . . . . . . . 5.04
(b) . . . . . . . . . . . . . . . . . . 10.03
Section 318 (a) . . . . . . . . . . . . . . . . . . 1.08
</TABLE>
- --------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.02. Other Definitions.. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.03. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . 13
Section 1.04. Form of Documents Delivered to Trustee. . . . . . . . . . . . . . . 13
Section 1.05. Acts of Holders.. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.06. Notices, etc., to the Trustee and the Company.. . . . . . . . . . . 15
Section 1.07. Notice to Holders; Waiver.. . . . . . . . . . . . . . . . . . . . . 16
Section 1.08. Conflict with Trust Indenture Act.. . . . . . . . . . . . . . . . . 16
Section 1.09. Effect of Headings and Table of Contents. . . . . . . . . . . . . . 16
Section 1.10. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 16
Section 1.11. Separability Clause.. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.12. Benefits of Indenture.. . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.13. No Personal Liability of Directors, Officers, Employee and
Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.14. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.15. Legal Holidays; Payment of Securities.. . . . . . . . . . . . . . . 17
Section 1.16. Independence of Covenants.. . . . . . . . . . . . . . . . . . . . . 17
Section 1.17. Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.18. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1.19. Communications by Holders with Other Holders. . . . . . . . . . . . 18
Section 1.20. No Adverse Interpretation of Other Agreements.. . . . . . . . . . . 18
Section 1.21. Qualification of Indenture. . . . . . . . . . . . . . . . . . . . . 18
Section 1.22. Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE II
SECURITY FORMS
Section 2.01. Forms Generally.. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.01. Forms Generally
Section 2.02. Form of Face of Security. . . . . . . . . . . . . . . . . . . . . . 19
Section 2.03. Form of Reverse of Securities.. . . . . . . . . . . . . . . . . . . 27
-i-
<PAGE>
ARTICLE III
THE SECURITIES
Section 3.01. Title and Terms.. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.02. Denominations.. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.03. Execution, Authentication, Delivery and Dating. . . . . . . . . . . 34
Section 3.04. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.05. Registration, Registration of Transfer and Exchange.. . . . . . . . 36
Section 3.06. Book Entry Provisions for Global Securities.. . . . . . . . . . . . 37
Section 3.07. Special Transfer and Exchange Provisions. . . . . . . . . . . . . . 39
Section 3.08. Mutilated, Destroyed, Lost and Stolen Securities. . . . . . . . . . 40
Section 3.09. Payment of Interest; Interest Rights Preserved. . . . . . . . . . . 41
Section 3.10. CUSIP Numbers.. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.11. Persons Deemed Owners.. . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.12. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.13. Computation of Interest.. . . . . . . . . . . . . . . . . . . . . . 43
Section 3.14. Designation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.01. Company's Option to Effect Defeasance or Covenant
Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.02. Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . 43
Section 4.03. Covenant Defeasance.. . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.04. Conditions to Defeasance or Covenant Defeasance.. . . . . . . . . . 44
Section 4.05. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions. . . . . . . . . . . . . . 46
Section 4.06. Reinstatement.. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE V
REMEDIES
Section 5.01. Events of Default.. . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.02. Acceleration of Maturity; Rescission and Annulment. . . . . . . . . 48
Section 5.03. Collection of Debt and Suits for Enforcement by Trustee.. . . . . . 49
Section 5.04. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . 50
Section 5.05. Trustee May Enforce Claims without Possession of Securities.. . . . 50
Section 5.06. Application of Money Collected. . . . . . . . . . . . . . . . . . . 50
Section 5.07. Limitation on Suits.. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.08. Unconditional Right of Holders to Receive Principal, Premium
and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-ii-
<PAGE>
Section 5.09. Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . 52
Section 5.10. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . . . 52
Section 5.11. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . 52
Section 5.12. Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.13. Waiver of Past Defaults.. . . . . . . . . . . . . . . . . . . . . . 53
Section 5.14. Undertaking for Costs.. . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.15. Waiver of Stay, Extension or Usury Laws.. . . . . . . . . . . . . . 53
Section 5.16. Remedies Subject to Applicable Law. . . . . . . . . . . . . . . . . 54
ARTICLE VI
THE TRUSTEE
Section 6.01. Duties of Trustee.. . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.02. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.03. Certain Rights of Trustee.. . . . . . . . . . . . . . . . . . . . . 56
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.. . . . . . . . . . . 57
Section 6.05. Trustee and Agents May Hold Securities; Collections; etc. . . . . . 57
Section 6.06. Money Held in Trust.. . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.07. Compensation and Indemnification of Trustee and Its Prior
Claim.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.08. Conflicting Interests.. . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.09. Trustee Eligibility.. . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.10. Resignation and Removal; Appointment of Successor Trustee.. . . . . 59
Section 6.11. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . 60
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.13. Preferential Collection of Claims Against Company.. . . . . . . . . 61
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 7.01. Company to Furnish Trustee Names and Addresses of Holders.. . . . . 61
Section 7.02. Disclosure of Names and Addresses of Holders. . . . . . . . . . . . 62
Section 7.03. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.01. Company May Consolidate, etc., Only on Certain Terms. . . . . . . . 62
Section 8.02. Successor Substituted.. . . . . . . . . . . . . . . . . . . . . . . 63
-iii-
<PAGE>
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures and Agreements without Consent of
Holders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.02. Supplemental Indentures and Agreements with Consent of
Holders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.03. Execution of Supplemental Indentures or Agreements. . . . . . . . . 65
Section 9.04. Effect of Supplemental Indentures.. . . . . . . . . . . . . . . . . 65
Section 9.05. Conformity with Trust Indenture Act.. . . . . . . . . . . . . . . . 65
Section 9.06. Reference in Securities to Supplemental Indentures. . . . . . . . . 65
Section 9.07. Notice of Supplemental Indentures.. . . . . . . . . . . . . . . . . 66
ARTICLE X
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest. . . . . . . . . . . . . 66
Section 10.02. Maintenance of Office or Agency.. . . . . . . . . . . . . . . . . . 66
Section 10.03. Money for Security Payments to Be Held in Trust.. . . . . . . . . . 67
Section 10.04. Corporate Existence.. . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.05. Payment of Taxes and Other Claims.. . . . . . . . . . . . . . . . . 68
Section 10.06. Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . 69
Section 10.07. Limitation on Liens.. . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.08. Limitation on Sale and Leaseback Transactions.. . . . . . . . . . . 69
Section 10.09. Rule 144A Information Requirements. . . . . . . . . . . . . . . . . 70
Section 10.10. Statement by Officers as to Default.. . . . . . . . . . . . . . . . 70
Section 10.11. Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 10.12. Waiver of Certain Covenants.. . . . . . . . . . . . . . . . . . . . 71
ARTICLE XI
REDEMPTION AND MANDATORY DISPOSITION OF SECURITIES
Section 11.01. Rights of Redemption. . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.02. Applicability of Article. . . . . . . . . . . . . . . . . . . . . . 72
Section 11.03. Election to Redeem; Notice to Trustee.. . . . . . . . . . . . . . . 72
Section 11.04. Securities to Be Redeemed In Part.. . . . . . . . . . . . . . . . . 72
Section 11.05. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . 72
Section 11.06. Deposit of Redemption Price.. . . . . . . . . . . . . . . . . . . . 73
Section 11.07. Securities Payable on Redemption Date.. . . . . . . . . . . . . . . 74
Section 11.08. Securities Redeemed or Purchased in Part. . . . . . . . . . . . . . 74
Section 11.09. Mandatory Disposition Pursuant to Gaming Laws.. . . . . . . . . . . 74
Section 11.10. Redemption Procedures.. . . . . . . . . . . . . . . . . . . . . . . 75
-iv-
<PAGE>
ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.01. Satisfaction and Discharge of Indenture.. . . . . . . . . . . . . . 75
Section 12.02. Application of Trust Money. . . . . . . . . . . . . . . . . . . . . 76
-v-
<PAGE>
EXHIBIT A Restricted Security Certificate . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B Unrestricted Security Certificate . . . . . . . . . . . . . . . . B-1
APPENDIX I Form of Transferee Certificate for Initial Securities . . . . . . I-1
APPENDIX II Form of Transferee Certificate for Exchange Securities. . . . . . II-1
</TABLE>
-i-
<PAGE>
INDENTURE, dated as of August 2 , 1999, between Park Place
Entertainment Corporation, a Delaware corporation (the "Company"), and Norwest
Bank Minnesota, N.A., as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 7.95%
Series A Senior Notes due 2003 and an issue of 7.95% Series B Senior Notes due
2003 to be exchanged for the 7.95% Series A Senior Notes due 2003, and to
provide therefor the Company has duly authorized the execution and delivery of
this Indenture and the Securities (as defined herein);
All acts and things necessary have been done to make the Securities,
when duly issued and executed by the Company and authenticated and delivered
hereunder, the valid obligations of the Company and to make this Indenture a
valid agreement of the Company in accordance with the terms of this Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
Each party hereto agrees for the benefit of the other parties and for
the equal and proportionate benefit of all Holders (as defined herein) of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(4) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
<PAGE>
-2-
(5) all references to $, US$, dollars or United States dollars
shall refer to the lawful currency of the United States of America; and
(6) all references herein to particular Sections or Articles
refer to this Indenture unless otherwise so indicated.
"Additional Interest" means the additional interest rate borne by
the Securities pursuant to the Registration Rights Agreement.
"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 the 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 ownership of voting securities, by
agreement or otherwise.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security to the extent
applicable to such transaction and as in effect at the time of such transfer or
transaction.
"Attributable Debt" with respect to any Sale and Lease-Back
Transaction described in Section 10.08 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 GAAP,
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.
"Bankruptcy Law" means the United States Bankruptcy Code of 1978,
codified in Title 11 of the United States Code, as amended, or any similar
United States federal or state law relating to bankruptcy, insolvency,
receivership, winding up, liquidation, reorganization or relief of debtors or
any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of the Company
or any duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Book-Entry Security" means any Global Securities bearing the
Global Legend specified in Section 2.02 evidencing all or part of a series of
Securities, authenticated and delivered to the Depositary for such series or its
nominee, and registered in the name of such Depositary or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions or trust companies
in The City of New York or the
<PAGE>
-3-
city in which the Corporate Trust Office of the Trustee is located are
authorized or obligated by law, regulation or executive order to close.
"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.
"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 S&P or at least P-1 or the equivalent thereof by Moody's
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.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act then the
body performing such duties at such time.
"Common Stock" means the common stock, par value $.01 per share,
of the Company.
"Company" means Park Place Entertainment Corporation, a
corporation incorporated under the laws of Delaware, until a successor Person
shall have become a successor to the Company pursuant to the applicable
provisions of this Indenture, and thereafter "Company" shall mean such successor
Person.
"Company Order" or "Company Request" means a written request or
order signed in the name of the Company by any one of its Chairman of the Board,
its President, its Chief Executive Officer, its Chief Financial Officer or a
Vice President (regardless of Vice Presidential designation), and by any one of
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary,
and delivered to the Trustee.
<PAGE>
-4-
"Consolidated" means, with respect to any Person, the
consolidated accounts of such Person and each of its subsidiaries if and to the
extent the accounts of such Person and each of its subsidiaries would normally
be consolidated with those of such Person, all in accordance with GAAP.
"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 (i) all current liabilities of the Company
and its Subsidiaries (excluding (A) the current portion of long-term
indebtedness, (B) intercompany liabilities and (C) 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 (ii) 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
GAAP.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at Norwest
Corporate Trust, c/o Depository Trust Company, 1st Floor, TADS Department, 55
Water Street, New York, New York 10041.
"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, 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 or time.
"Debt" means notes, bonds, debentures, letters of credit or other
similar evidence 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.
"Depositary" means, with respect to the Securities issued in the
form of one or more Book-Entry Securities, The Depositary Trust Company ("DTC"),
its nominees and successors, or another Person designated as Depositary by the
Company, which must be a clearing agency registered under the Exchange Act.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
<PAGE>
-5-
"Exchange Global Securities" means one or more permanent Global
Securities in registered form representing the aggregate principal amount of
Exchange Securities exchanged for Initial Securities pursuant to the Exchange
Offer.
"Exchange Offer" means the Company's offer to exchange the
Exchange Securities for the Initial Securities pursuant to the terms of the
Registration Rights Agreement.
"Exchange Offer Registration Statement" has the meaning specified
in the Registration Rights Agreement.
"Exchange Securities" means the 7.95% Series B Senior Notes due
2003, as supplemented from time to time in accordance with the terms hereof, to
be issued pursuant to this Indenture in connection with the Exchange Offer. The
Exchange Securities shall contain the information referred to in Sections
2.02(b) and 2.03(b) of this Indenture.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principals 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.
"Global Securities" means the Rule 144A Global Securities and the
Exchange Global Securities to be issued as Book-Entry Securities issued to the
Depositary in accordance with Section 3.06.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under: (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements; and (ii) other
arrangements or arrangements designated to protect such Person against
fluctuations in interest rates.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
"Indenture" means this instrument as originally executed
(including all exhibits and schedules thereto) and as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Initial Securities" means the 7.95% Series A Senior Notes due
2003, as supplemented from time to time in accordance with the terms hereof,
issued under this Indenture. The Initial Securities shall contain the
information referred to in Sections 2.02(a) and 2.03(a) of this Indenture.
"Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, Deutsche
Bank Securities Inc., S.G. Cowen Securities Corporation, Scotia Capital Markets
(USA) Inc., BNY Capital Markets, Inc., First Union
<PAGE>
-6-
Capital Markets Corp., PNC Capital Markets, Inc., Bear, Stearns & Co. Inc. and
Norwest Investment Services, Inc.
"Interest Payment Date" means February 1 and August 1 of each
year commencing February 1, 2000.
"Issue Date" means the date on which the Initial Securities are
originally issued under this Indenture.
"Joint Venture" means any partnership, corporation or other
entity, in which up to and including 50% of the partnership interests,
outstanding voting stock or other Capital Stock is owned, directly or
indirectly, by the Company and/or one or more Subsidiaries.
"Lien" means, with respect to any assets, any mortgage, pledge,
lien, encumbrance or other security interest to secure payment of Debt.
"Make-Whole Premium" means, with respect to any Security at any
Redemption Date, the excess, if any, of (i) the present value of the sum of the
principal amount and premium, if any, that would be payable on such Security on
August 1, 2003 and all remaining interest payments (not including any portion of
such payments of interest accrued as of the Redemption Date) to and including
August 1, 2003, discounted on a semi-annual bond equivalent basis from August 1,
2003 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 (ii) the principal amount of the
Security being redeemed.
"Maturity" means, when used with respect to the Securities, the
date on which the principal of the Securities becomes due and payable as therein
provided or as provided in this Indenture, whether at Stated Maturity, the
Redemption Date and whether by declaration of acceleration, call for redemption
or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
"Non-recourse Debt" means Debt the terms of which provide that
the lender's claim for repayment of such Debt is limited solely to a claim
against the property which secures such Debt.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President, the Chief Executive Officer, the Chief
Financial Officer or a Vice President (regardless of Vice Presidential
designation), and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company and in form and substance reasonably
satisfactory to, and delivered to, the Trustee.
<PAGE>
-7-
"Opinion of Counsel" means a written opinion of counsel, who may
be counsel for the Company or the Trustee, unless an Opinion of Independent
Counsel is required pursuant to the terms of this Indenture, and who shall be
acceptable to the Trustee, and which opinion shall be in form and substance
reasonably satisfactory to the Trustee.
"Opinion of Independent Counsel" means a written opinion of
counsel, who may be regular outside counsel for the Company, but which is issued
by a Person who is not an employee or consultant (other than non-employee legal
counsel) of the Company and who shall be reasonably acceptable to the Trustee,
and which opinion shall be in form and substance reasonably satisfactory to the
Trustee.
"Outstanding" when used with respect to Securities means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if the Company shall
act as its own Paying Agent) for the Holders of such Securities; PROVIDED
that if such Securities are to be redeemed, notice of such redemption has
been duly given pursuant to this Indenture or provision therefor
reasonably satisfactory to the Trustee has been made;
(c) Securities, except to the extent provided in Sections 4.02
and 4.03, with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article IV; and
(d) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee and the Company proof reasonably
satisfactory to each of them that such Securities are held by a bona fide
purchaser in whose hands the Securities are valid obligations of the
Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the reasonable
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor.
<PAGE>
-8-
"Pari Passu Debt" means any Debt of the Company which ranks PARI
PASSU in right of payment to the Securities.
"Paying Agent" means any Person (including the Company)
authorized by the Company to pay the principal of, premium, if any, or interest
on, any Securities on behalf of the Company.
"Permitted Lien" means:
(a) Liens existing as of the date of the original issuance of
the Initial Securities;
(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 Capital Stock of, 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 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 of 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 Debt 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 Code;
(h) Liens on the 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;
<PAGE>
-9-
(i) any extension, renewal or replacement, in whole or in part,
of any Liens referred to in the foregoing clauses (a) through (h) or any
Debt secured thereby, including premium, if any, provided that the
aggregate principal amount secured does not exceed (x) the greater of (A)
the principal amount secured thereby at the time of such extension,
renewal or replacement, or, as the case may be, repayment or
extinguishment and (B) 80% of the fair market value (in the opinion of
the 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 (h);
(j) purchase money liens on personal property;
(k) Liens to secure payments of workers' compensation or
insurance premiums, or relating to tenders, bids or contracts (except
contracts for the payment of money);
(l) 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;
(m) mechanic's, materialman's, carrier's or other like Liens,
arising in the ordinary course of business; and
(n) Liens in favor of any domestic or foreign government or
governmental body in connection with contractual or statutory
obligations.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
estate, unincorporated organization or government or any agency or political
subdivision thereof or any other entity.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.08 in exchange for a
mutilated Security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"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.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A
under the Securities Act.
<PAGE>
-10-
"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 Securities or is redeemable at the option of the
holder thereof at any time prior to any such Stated Maturity of the Securities,
or is convertible into or exchangeable for debt securities at any time prior to
any such Stated Maturity of the Securities.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the price at which it
is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of August 2 , 1999, among the Company and the Initial
Purchasers, as such agreement may be amended, modified or supplemented from time
to time in accordance with the terms thereof.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 15 or July 15 (whether or not a Business Day)
next preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means
any officer or employee assigned to the Corporate Trust Office or any agent of
the Trustee appointed hereunder, including any vice president, assistant vice
president, secretary, assistant secretary, or any other officer or assistant
officer of the Trustee or any agent of the Trustee appointed hereunder to whom
any corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Security" means Securities that are required to bear
the Private Placement Legend.
"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
(i) which owns, or is a lessee pursuant to a capital lease of, any Principal
Property or (ii) in which the investment of the Company and all of its
Subsidiaries exceeds 5% of Consolidated Net Tangible Assets as of the date of
such determination other than, in the case of either clause (i) or (ii), (A)
each Subsidiary whose business primarily consists of finance, banking, credit,
leasing, insurance, financial services or other similar operations, or any
combination thereof, and (B) 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.
"Rule 144A" means Rule 144A under the Securities Act, as amended
from time to time.
<PAGE>
-11-
"Rule 144A Global Securities" means one or more permanent Global
Securities in registered form representing the aggregate principal amount of
Initial Securities sold in reliance on Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Group, a division of McGraw
Hill, Inc. or any successor rating agency.
"Securities" means, collectively, the Initial Securities and,
when and if issued as provided in the Registration Rights Agreement, the
Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor statute.
"Series A Securities" means the Initial Securities.
"Series B Securities" means the Exchange Securities.
"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.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.09.
"Stated Maturity" means, when used with respect to any Debt or
any installment of interest thereon, the dates specified in such Debt as the
fixed date on which the principal of such Debt or such installment of interest,
as the case may be, is due and payable.
"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.
"Successor Security" of any particular Security means every
Security issued after, and evidencing all or a portion of the same debt as that
evidenced by, such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.08 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall
be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"Treasury Securities" means 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 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
<PAGE>
-12-
the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar data)) most nearly equal to
the then remaining average life of the Securities, provided that if the average
life of the Securities is not equal to the constant maturity of a 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 Treasury Securities for which such
yields are given, except that if the average life of the Securities is less than
one year, the weekly average yield on actually traded Treasury Securities
adjusted to a constant maturity of one year shall be used.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"wholly-owned," with respect to any Subsidiary, means any
Subsidiary of a Person of which at least 99% of the outstanding Capital Stock is
owned by the 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.
Section 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined
Term in Section
- ---- ----------
<S> <C>
"Act" . . . . . . . . . . . . . . . . . . . . . . . . 1.05
"Agent Members" . . . . . . . . . . . . . . . . . . . 3.06
"covenant defeasance" . . . . . . . . . . . . . . . . 4.03
"Defaulted Interest" . . . . . . . . . . . . . . . . 3.09
"defeasance" . . . . . . . . . . . . . . . . . . . . 4.02
"Defeased Securities" . . . . . . . . . . . . . . . . 4.01
"Private Placement Legend" . . . . . . . . . . . . . 2.02
"Restricted Period" . . . . . . . . . . . . . . . . . 2.01
"Sale and Leaseback Transaction" . . . . . . . . . . 10.08
"Securities" . . . . . . . . . . . . . . . . . . . . Recitals
"Security Register" . . . . . . . . . . . . . . . . . 3.05
"Security Registrar" . . . . . . . . . . . . . . . . 3.05
"Special Payment Date" . . . . . . . . . . . . . . . 3.09
"Surviving Entity" . . . . . . . . . . . . . . . . . 8.01
"U.S. Government Obligations" . . . . . . . . . . . . 4.04
</TABLE>
<PAGE>
-13-
Section 1.03. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company and any other
obligor on the Securities (if applicable) shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture (including any covenant compliance which constitutes a
condition precedent) relating to the proposed action have been complied with,
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such
certificates or opinions is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(i) a statement that each individual signing such certificate or
individual or firm signing such opinion has read and understands such
covenant or condition and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such individual or
such firm, he or it has made such examination or investigation as is
necessary to enable him or it to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 1.04. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate of an officer of the Company or other obligor on
the Securities may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or
other obligor on the Securities stating that the information with respect to
such factual matters is in
<PAGE>
-14-
the possession of the Company or other obligor on the Securities, unless such
officer or counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous. Opinions of Counsel required to be delivered to the Trustee may
have qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that various
financial covenants have been complied with.
Any certificate or opinion of an officer of the Company or other
obligor on the Securities may be based, insofar as it relates to accounting
matters, upon a certificate or opinion of, or representations by, an accountant
or firm of accountants in the employ of the Company, unless such officer knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to the accounting matters upon which his
certificate or opinion may be based are erroneous. Any certificate or opinion of
any independent firm of public accountants filed with the Trustee shall contain
a statement that such firm is independent with respect to the Company.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.05. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 1.05.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Security shall bind every
future Holder of the same Security or the Holder of every Security issued upon
the transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company or any other obligor of the Securities in reliance thereon,
whether or not notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual
<PAGE>
-15-
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for purposes of
determining whether Holders of the requisite proportion of Securities then
Outstanding have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for this
purpose the Securities then Outstanding shall be computed as of such record
date; PROVIDED that no such request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holders on such record date shall be deemed
effective unless it shall become effective pursuant to the provisions of this
Indenture not later than six months after such record date.
(f) For purposes of this Indenture, any action by the Holders
which may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 1.06. NOTICES, ETC., TO THE TRUSTEE AND THE COMPANY.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(i) the Trustee by any Holder or by the Company or any other
obligor on the Securities shall be sufficient for every purpose (except as
provided in Section 5.01(c)) hereunder if in writing and mailed,
first-class postage prepaid, or delivered by recognized overnight courier,
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Administration, or at any other address previously furnished in
writing to the Holders or the Company or any other obligor on the
Securities by the Trustee, in any event, with a copy to the Trustee at
Norwest Corporate Trust, c/o Depository Trust Company, 1st Floor, TADS
Department, 55 Water Street, New York, New York 10041, Attention: Corporate
Trust Administration; or
(ii) the Company by the Trustee or any Holder shall be sufficient
for every purpose (except as provided in Section 5.01(c)) hereunder if in
writing and mailed, first-class postage
<PAGE>
-16-
prepaid, or delivered by recognized overnight courier, to the Company at
3930 Howard Hughes Parkway, Las Vegas, Nevada 89109, Attention: Chief
Financial Officer, or at any other address previously furnished in writing
to the Trustee by the Company.
Section 1.07. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 1.08. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 1.09. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 1.10. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
shall bind their respective successors and assigns, whether so expressed or not.
<PAGE>
-17-
Section 1.11. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.12. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person (other than the parties hereto and their
successors hereunder, any Paying Agent and the Holders) any benefit or any legal
or equitable right, remedy or claim under this Indenture.
Section 1.13. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEE 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 Person or any of the
Company's Affiliates under the Securities, the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Securities by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration issuance of the
Securities. The waiver may not be effective to waive liabilities under the
Federal securities laws.
Section 1.14. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
Section 1.15. LEGAL HOLIDAYS; PAYMENT OF SECURITIES.
In any case where any Interest Payment Date or Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date or
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 1.16. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be
<PAGE>
-18-
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of a Default or an Event of Default if
such action is taken or condition exists.
Section 1.17. SCHEDULES AND EXHIBITS.
All schedules and exhibits attached hereto are by this reference
made a part hereof with the same effect as if herein set forth in full.
Section 1.18. COUNTERPARTS.
This Indenture may be executed in any number of counterparts,
each of which shall be deemed an original; but all such counterparts shall
together constitute but one and the same instrument.
Section 1.19. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders of Securities may communicate pursuant to TIA Section
312(b) with other Holders of Securities with respect to their rights under this
Indenture or the Securities. The Company, the Trustee, the Paying Agent and any
other Person shall have the protection of TIA Section 312(c).
Section 1.20. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 1.21. QUALIFICATION OF INDENTURE.
The Company shall qualify this Indenture under the TIA in
accordance with the terms and conditions of the Registration Rights Agreement
and shall pay all costs and expenses (including attorneys' fees for the Company
and the Trustee) incurred in connection therewith, including, but not limited
to, costs and expenses of qualification of this Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
Section 1.22. REGISTRATION RIGHTS.
Certain Holders of Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
<PAGE>
-19-
ARTICLE II
SECURITY FORMS
Section 2.01. FORMS GENERALLY.
The Securities and the Trustee's certificate of authentication
thereon shall be in substantially the forms set forth in this Article II, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted hereby and may have such letters, numbers or other
marks of identification and such legends or endorsements placed thereon as may
be required to comply with the rules of any securities exchange, any
organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
Initial Securities offered and sold in reliance on Rule 144A
shall be issued initially in the form of one or more Rule 144A Global
Securities, substantially in the form set forth in Section 2.02, deposited upon
issuance with the Trustee, as custodian for the Depositary, registered in the
name of the Depositary, or its nominee, in each case for credit to an account of
a direct or indirect participant of the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the Rule 144A Global Securities may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Exchange Securities exchanged for Initial Securities shall be
issued initially in the form of one or more Exchange Global Securities,
substantially in the form set forth in Section 2.02, deposited upon issuance
with the Trustee, as custodian for the Depositary, registered in the name of the
Depositary or its nominee, in each case for credit to an account of a direct or
indirect participant of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Exchange Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Section 2.02. FORM OF FACE OF SECURITY.
(a) The form of the face of any Initial Securities authenticated
and delivered hereunder shall be substantially as follows:
<PAGE>
-20-
Unless and until (i) an Initial Security is sold under an
effective registration statement under the Securities Act or (ii) an Initial
Security is exchanged for an Exchange Security in connection with an effective
registration statement under the Securities Act, in each case pursuant to the
Registration Rights Agreement, then such Initial Security shall bear the legend
set forth below (the "Private Placement Legend") on the face thereof:
THE SERIES A SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THE SERIES A SECURITY EVIDENCED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SERIES A SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THIS SERIES A SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SERIES
A SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1)(a) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, OR (c) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS),
(2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE
SERIES A SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE.
In addition, unless and until an Initial Security is issued in a
form other than global form, such Initial Security shall bear the legend set
forth below (the "Global Legend") on the face thereof:
THIS SERIES A SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR
DEPOSITARY. TRANSFERS OF THIS
<PAGE>
-21-
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTIONS 3.06 AND 3.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
PARK PLACE ENTERTAINMENT CORPORATION
7.95% SERIES A SENIOR NOTE DUE 2003
CUSIP NO.
No. __________ $_______________________
Park Place Entertainment Corporation, a Delaware corporation
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to _____________ or registered assigns, the principal sum of ___________ United
States dollars on August 1, 2003, at the office or agency of the Company
referred to below, and to pay interest thereon from August 1, 1999, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on August 1 and February 1 in each year, commencing
February 1, 2000 at the rate of 7.95% per annum, subject to adjustments as
described in the second following paragraph, in United States dollars, until the
principal hereof is paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Holder of this Series A Security is entitled to the benefits
of the Registration Rights Agreement. Under the Registration Rights Agreement,
subject to the terms and conditions thereof, the Company is obligated to
consummate the Exchange Offer pursuant to which the Holder of this Series A
Security shall have the right to exchange this Series A Security for a like
principal
<PAGE>
-22-
amount of the Series B Securities as provided therein. The Series A Securities
and the Series B Securities are together referred to as the "Securities." The
Series A Securities rank PARI PASSU in right of payment with the Series B
Securities.
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 Series A Securities, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 120th
calendar day following the date of original issue of the Series A Securities or
(c) the Exchange Offer is not consummated or, if the Company is prohibited from
doing an Exchange Offer, 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 Series A Securities (each such event referred to
in clauses (a) through (c) above, a "Registration Default"), the interest rate
borne by the Series A Securities shall be increased by an absolute amount of
0.25% per annum upon the occurrence of any Registration Default, which rate (as
increased as aforesaid) will increase by an additional absolute amount of 0.25%
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 an absolute amount of 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
PROVIDED, HOWEVER, that, if after any such reduction in interest rate, a
different event specified in clause (a), (b) or (c) above occurs, the interest
rate shall again be increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 15 or July 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Securities, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may either be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by this Indenture not inconsistent with the requirements of such exchange, all
as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on,
the Securities, and exchange or transfer of the Securities, will be made at the
office or agency of the Company in The City of New York maintained for that
purpose (which initially will be a corporate trust office of the Trustee located
at Norwest Corporate Trust, c/o Depository Trust Company, 1st Floor, TADS
Department, 55 Water Street, New York, New York 10041, or at such other office
or agency as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; PROVIDED, HOWEVER, that payment of interest may
<PAGE>
-23-
be made at the option of the Company by check mailed to the address of the
Person entitled thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Series
A Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Series A Security shall not be entitled to any
benefit under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PARK PLACE ENTERTAINMENT
CORPORATION
By:
-----------------------------------
Name:
Title:
Attest:
------------------ ------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 7.95% Series A Senior Notes due 2003 referred
to in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, N.A., as
Trustee
By:
-----------------------------------
Authorized Signer
Dated:
--------------------------------
(b) The form of the face of any Exchange Securities authenticated
and delivered hereunder shall be substantially as follows:
<PAGE>
-24-
Unless and until an Exchange Security is issued in a form other
than global form, such Exchange Security shall bear the Global Legend set forth
below on the face thereof:
THIS SERIES B SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR
DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS
3.06 AND 3.07 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
PARK PLACE ENTERTAINMENT CORPORATION
__________________
7.95% SERIES B SENIOR NOTE DUE 2003
CUSIP NO.
No. __________ $_______________________
Park Place Entertainment Corporation, a Delaware corporation
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to _____________ or registered assigns, the principal sum of ___________ United
States dollars on August 1, 2003, at the office or agency of the Company
referred to below, and to pay interest thereon from August 1, 1999, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on August 1 and February 1 in each year, commencing
February 1, 2000 at the rate of 7.95% per annum, subject to
<PAGE>
-25-
adjustments as described in the second following paragraph, in United States
dollars, until the principal hereof is paid or duly provided for. Interest shall
be computed on the basis of a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the Series A Securities were exchanged for a like principal
amount of the Series B Securities. The Series B Securities rank PARI PASSU in
right of payment with the Series A Securities. The Series A Securities and the
Series B Securities are together referred to as the "Securities."
For any period in which the Series A Security exchanged for this
Series B Security was outstanding, 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 Series A Securities,
(b) the Exchange Offer Registration Statement has not been declared effective on
or prior to the 120th calendar day following the date of original issue of the
Series A Securities or (c) the Exchange Offer is not consummated or, if the
Company is prohibited from doing an Exchange Offer, 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 Series A Securities
(each such event referred to in clauses (a) through (c) above, a "Registration
Default"), the interest rate borne by the Series A Securities shall be increased
by an absolute amount of 0.25% per annum upon the occurrence of any Registration
Default, which rate (as increased as aforesaid) will increase by an additional
absolute amount of 0.25% 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 an absolute
amount of 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; PROVIDED that, to the extent interest at such
increased interest rate has been paid or duly provided for with respect to the
Series A Securities, interest at such increased interest rate, if any, on the
Series B Securities shall accrue from the most recent Interest Payment Date to
which such interest on the Series A Security has been paid or duly provided for;
PROVIDED, HOWEVER, that, if after any such reduction in interest rate, a
different event specified in clause (a), (b) or (c) above occurs, the interest
rate shall again be increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 15 or July 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the interest rate borne by the Securities, to the extent
lawful, shall forthwith cease to be payable to the Holder on such Regular Record
Date, and may either be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice
<PAGE>
-26-
as may be required by this Indenture not inconsistent with the requirements of
such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on,
the Securities, and exchange or transfer of the Securities, will be made at the
office or agency of the Company in The City of New York maintained for that
purpose (which initially will be a corporate trust office of the Trustee located
at Norwest Corporate Trust, c/o Depository Trust Company, 1st Floor, TADS
Department, 55 Water Street, New York, New York 10041), or at such other office
or agency as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; PROVIDED, HOWEVER, that payment of interest may be
made at the option of the Company by check mailed to the address of the Person
entitled thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Series
B Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Series B Security shall not be entitled to any
benefit under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
PARK PLACE ENTERTAINMENT
CORPORATION
By:
----------------------------------------
Name:
Title:
Attest:
-------------------------------------------
Authorized Officer
<PAGE>
-27-
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 7.95% Series B Senior Notes due 2003 referred
to in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, N.A., as
Trustee
By:
------------------ ------------------
Authorized Signer
Dated:
---------------
Section 2.03. FORM OF REVERSE OF SECURITIES.
(a) The form of the reverse of the Initial Securities shall be
substantially as follows:
PARK PLACE ENTERTAINMENT CORPORATION
7.95% Series A Senior Notes due 2003
This Series A Security is one of a duly authorized issue of
securities of the Company designated as its 7.95% Series A Senior Notes due 2003
(herein called the "Series A Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount to
$300,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of August 2, 1999, between the Company and
Norwest Bank Minnesota, N.A., as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Indenture contains provisions for defeasance at any time of
(a) the entire Debt on the Securities and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time, at the
option of the Company, in whole but not in part, on not less than 30 nor more
than 60 days' prior notice, in amounts of $1,000 or an integral multiple
thereof, 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 Redemption Date (subject to the rights of Holders of record on
relevant record dates to receive interest due on an Interest Payment Date).
<PAGE>
-28-
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
Each Holder, by accepting a Security, 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 Securities 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 to (a) require such Person to
dispose of its Securities 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 (b) redeem such Securities
at a redemption price equal to the lesser of (i) such Person's cost or (ii) 100%
of the principal amount of the Securities plus accrued and unpaid interest
thereon, if any, to the earlier of the Redemption Date or the date of the
finding of unsuitablility which may be less than 30 days following the notice of
redemption if so requested or prescribed by the applicable gaming authority.
In the event of redemption or repurchase of the Securities in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the Holders under the Indenture and the Securities at any time by
the Company and the Trustee with the consent of the Holders of at least a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of at
least a majority in aggregate principal amount of the Securities (100% of the
Holders in certain circumstances) at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company with certain
provisions of the Indenture and the Securities and certain past Defaults under
the Indenture and the Securities and their consequences. Any such consent or
waiver by or on behalf of the Holder of a Security shall be conclusive and
binding upon such Holder and upon all future Holders of such Security and of any
Security issued upon the registration of transfer hereof or in exchange therefor
or in lieu hereof whether or not notation of such consent or waiver is made upon
such Security.
<PAGE>
-29-
No reference herein to the Indenture and no provision of the
Securities or of the Indenture shall alter or impair the obligation of the
Company or any other obligor on the Securities (in the event such other obligor
is obligated to make payments in respect of the Securities), which is absolute
and unconditional, to pay the principal of, premium, if any, and interest on,
the Securities at the times, place, and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of a Security is registrable in the Security
Register, upon surrender of such Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Rule 144A Global
Securities if (x) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such Global Security and a successor
Depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. 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). All such certificated Series A Securities would be required to include
the Private Placement Legend.
Securities in certificated form are issuable only in registered
form without coupons in a minimum amount of $100,000 and in denominations of
$1,000 and any integral multiple thereof that is above the minimum amount of
$100,000. As provided in the Indenture and subject to certain limitations
therein set forth, the Securities are exchangeable for a like aggregate
principal amount of Securities of a differing authorized denomination, as
requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or
15(d) of the Exchange Act, upon the written request of a Holder of a Series A
Security, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Security who such Holder informs the Company is
reasonably believed to be a "Qualified Institutional Buyer" within the meaning
of Rule 144A under the Securities Act, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Secu-
<PAGE>
-30-
rity is registered as the owner hereof for all purposes, whether or not such
Security is overdue, and neither the Company, the Trustee nor any such agent
shall be affected by notice to the contrary.
THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
All terms used in this Series A Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The Transferee Certificate, in the form of Appendix I hereto,
will be attached to the Initial Security.
Unless and until (i) an Initial Security is sold under an
effective registration statement under the Securities Act or (ii) an Initial
Security is exchanged for an Exchange Security in connection with an effective
registration statement under the Securities Act, in each case pursuant to the
Registration Rights Agreement, then the Restricted Security Certificate, in the
form of Exhibit A hereto, will be attached to the Initial Security. After such
Initial Security is sold under an effective registration statement under the
Securities Act or exchanged for an Exchange Security, then the Unrestricted
Security Certificate, in the form of Exhibit B hereto, will be attached to the
Exchange Security.
(b) The form of the reverse of the Exchange Securities shall be
substantially as follows:
PARK PLACE ENTERTAINMENT CORPORATION
7.95% Series B Senior Notes due 2003
This Series B Security is one of a duly authorized issue of
securities of the Company designated as its 7.95% Series B Senior Notes due 2003
(herein called the "Series B Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal amount to
$300,000,000, issued under and subject to the terms of an indenture (herein
called the "Indenture") dated as of August 2, 1999, between the Company and
Norwest Bank Minnesota, N.A., as trustee (herein called the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.
The Indenture contains provisions for defeasance at any time of
(a) the entire Debt on the Securities and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
<PAGE>
-31-
The Securities are subject to redemption at any time, at the
option of the Company, in whole or but not in part, on not less than 30 nor more
than 60 days' prior notice, in amounts of $1,000 or an integral multiple
thereof, 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 Redemption Date (subject to the rights of Holders of record on
relevant record dates to receive interest due on an Interest Payment Date).
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
Each Holder, by accepting a Security, 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 Securities 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 to (a) require such Person to
dispose of its Securities 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 (b) redeem such Securities
at a redemption price equal to the lesser of (i) such Person's cost or (ii) 100%
of the principal amount of the Securities plus accrued and unpaid interest
thereon, 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.
In the event of redemption or repurchase of the Securities in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal amount of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the Holders under the Indenture and the Securities at any time by
the Company and the Trustee with the consent of the Holders of at least a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of at
least a majority in aggregate principal amount of the Securities (100% of the
Holders in certain circumstances) at the time Outstanding, on behalf of the
Holders of all the Securities, to
<PAGE>
-32-
waive compliance by the Company with certain provisions of the Indenture and the
Securities and certain past Defaults under the Indenture and the Securities and
their consequences. Any such consent or waiver by or on behalf of the Holder of
a Security shall be conclusive and binding upon such Holder and upon all future
Holders of such Security and of any Security issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof whether or not
notation of such consent or waiver is made upon such Security.
No reference herein to the Indenture and no provision of the
Securities or of the Indenture shall alter or impair the obligation of the
Company or any other obligor on the Securities (in the event such other obligor
is obligated to make payments in respect of the Securities), which is absolute
and unconditional, to pay the principal of, premium, if any, and interest on,
the Securities at the times, place, and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of a Security is registrable in the Security
Register, upon surrender of such Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Global Securities if
(x) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Exchange Global Security and a successor
Depositary is not appointed by the Company within 90 days or (y) there shall
have occurred and be continuing an Event of Default and the Security Registrar
has received a request from the Depositary. 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).
Securities in certificated form are issuable only in registered
form without coupons in a minimum amount of $100,000 and in denominations of
$1,000 and any integral multiple thereof that is above the minimum amount of
$100,000. As provided in the Indenture and subject to certain limitations
therein set forth, the Securities are exchangeable for a like aggregate
principal amount of Securities of a differing authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner
hereof for all purposes, whether or not such Security is overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
<PAGE>
-33-
THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
All terms used in this Series B Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The Unrestricted Security Certificate, in the form of Exhibit B
hereto, and the Transferee Certificate, in the form of Appendix II hereto, will
be attached to the Exchange Security.
ARTICLE III
THE SECURITIES
Section 3.01. TITLE AND TERMS.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $300,000,000 in
principal amount of Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 3.03, 3.04, 3.05, 3.06, 3.07, 3.08, 9.06 or
11.08.
The Initial Securities shall be known and designated as the
"7.95% Series A Senior Securities due 2003" of the Company. The Exchange
Securities shall be known and designated as the "7.95% Series B Senior
Securities due 2003" of the Company. The Stated Maturity of the Securities shall
be August 1, 2003, and the Securities shall each bear interest at the rate of
7.95% per annum, as such interest rate may be adjusted as set forth in the
Securities and the Registration Rights Agreement, from August 2, 1999 or from
the most recent Interest Payment Date to which interest has been paid, as
applicable, payable semiannually on August 1 and February 1 in each year,
commencing February 1, 2000, until the principal thereof is paid or duly
provided for. Interest on any overdue principal, interest (to the extent lawful)
or premium, if any, shall be payable on demand.
The principal of, premium, if any, and interest on, the
Securities shall be payable and the Securities shall be exchangeable and
transferable at an office or agency of the Company in The City of New York
maintained for such purposes (which initially will be a corporate trust office
of the trustee located at Norwest Corporate Trust, c/o Depository Trust Company,
1st Floor, TADS Department, 55 Water Street, New York, New York 10041);
PROVIDED, HOWEVER, that payment of interest may be made at the option of the
Company by check mailed to addresses of the Persons entitled thereto as shown on
the Security Register.
For all purposes hereunder, the Initial Securities and the
Exchange Securities will be treated as one class and are together referred to as
the "Securities." The Initial Securities rank PARI PASSU in right of payment
with the Exchange Securities.
<PAGE>
-34-
The Securities shall be redeemable as provided in Article XI and
in the Securities.
At the election of the Company, the entire Debt on the Securities
or certain of the Company's obligations and covenants and certain Events of
Default thereunder may be defeased as provided in Article IV.
Section 3.02. DENOMINATIONS.
The Securities shall be issuable only in fully registered form
without coupons in a minimum amount of $100,000 and only in denominations of
$1,000 and any integral multiple thereof that is above the minimum amount of
$100,000.
Section 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by one
of its Chairman of the Board, its President, its Chief Executive Officer, its
Chief Financial Officer or one of its Vice Presidents attested by its Secretary
or one of its Assistant Secretaries. The signatures of any of these officers on
the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee (with or without Guarantees endorsed thereon) for
authentication, together with a Company Order for the authentication and
delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and make available for delivery such Securities as
provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security endorsed thereon shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication substantially in the
form provided for herein duly executed by the Trustee by manual signature of an
authorized officer, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article VIII, shall, in a single
transaction or through a series of related transactions, be consolidated or
merged with or into any other Person or shall sell, assign, convey or transfer
its properties and assets substantially in their entirety to any Person, and the
successor Person resulting from such consolidation or surviving such merger, or
into which the Company shall have been merged, or the successor Person which
shall have participated in the sale, assignment, conveyance or transfer, as
aforesaid, shall have executed an indenture supplemental hereto
<PAGE>
-35-
with the Trustee pursuant to Article VIII, any of the Securities authenticated
or delivered prior to such consolidation, merger, sale, assignment, conveyance
or transfer may, from time to time, at the request of the successor Person, be
exchanged for other Securities executed in the name of the successor Person with
such changes in phraseology and form as may be appropriate, but otherwise in
substance of like tenor as the Securities surrendered for such exchange and of
like principal amount; and the Trustee, upon request of the successor Person,
shall authenticate and deliver Securities as specified in such request for the
purpose of such exchange. If Securities shall at any time be authenticated and
delivered in any new name of a successor Person pursuant to this Section 3.03 in
exchange or substitution for or upon registration of transfer of any Securities,
such successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities on behalf of the Trustee. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Security Registrar or Paying
Agent to deal with the Company and its Affiliates.
If an officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates such Security such Security
shall be valid nevertheless.
Section 3.04. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee (in accordance with a Company Order for the authentication of
such Securities) shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Securities of authorized
denominations. Until so exchanged the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
<PAGE>
-36-
Section 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause the Trustee to keep, so long as it is the
Security Registrar, at the Corporate Trust Office of the Trustee, or such other
office as the Trustee may designate, a register (the register maintained in such
office or in any other office or agency designated pursuant to Section 10.02
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as the Security Registrar may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. Such transfers of Securities must be in a minimum amount of
$100,000. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 10.02, the
Company shall execute, and the Trustee shall (in accordance with a Company Order
for the authentication of such Securities) authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series of any authorized denomination or
denominations, of a like aggregate principal amount.
Furthermore, any Holder of the Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial interests
in such Global Security may be effected only through a book-entry system
maintained by the Holder of such Global Security (or its agent), and that
ownership of a beneficial interest in a Security shall be required to be
reflected in a book entry. Transfers of beneficial interests must be in a
minimum amount of $100,000.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall (in accordance with a Company
Order for the authentication of such Securities) authenticate and make available
for delivery, Securities of the same series which the Holder making the exchange
is entitled to receive; PROVIDED that no exchange of Initial Securities for
Exchange Securities shall occur until an Exchange Offer Registration Statement
shall have been declared effective by the Commission and the Initial Securities
exchanged for the Exchange Securities have been canceled.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same Debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange, repurchase or redemption, shall (if so required by
the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
<PAGE>
-37-
No service charge shall be made to a Holder for any registration
of transfer, exchange or redemption of Securities, except for any tax or other
governmental charge that may be imposed in connection therewith, other than
exchanges pursuant to Sections 3.03, 3.04, 3.05, 9.06 or 11.08 not involving any
transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption under Section 11.04 and ending at the close of business
on the day of such mailing or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Every Security shall be subject to the restrictions on transfer
provided in the legend required to be set forth on the face of each Security
pursuant to Section 2.02, and the restrictions set forth in this Section 3.05,
and the Holder of each Security, by such Holder's acceptance thereof (or
interest therein), agrees to be bound by such restrictions on transfer.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any Global Security, whether pursuant to this Section 3.05,
Section 3.04, 3.08, 9.06 or 11.08 or otherwise, shall also be a Global Security
and bear the legend specified in Section 2.02.
Section 3.06. BOOK ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) Each Global Security initially shall (i) be registered in the
name of the Depositary for such Global Security or the nominee of such
Depositary, (ii) be deposited with, or on behalf of, the Depositary or with the
Trustee as custodian for such Depositary and (iii) bear legends in the form set
forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under such Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or shall impair, as
between the Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any Security.
(b) Notwithstanding any other provision in this Indenture, no
Global Security may be exchanged in whole or in part for Securities registered,
and no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or a
nominee thereof unless (i) the Company notifies the Trustee in writing that such
Depositary (A) has notified the Company that it is unwilling or unable to
continue as Depositary for such Global Security or (B) has ceased to be a
clearing agency registered as such under the Exchange Act, and in
<PAGE>
-38-
either case the Company fails to appoint a successor Depositary within 90 days,
(ii) the Company, at its option, executes and delivers to the Trustee a Company
Order stating that it elects to cause the issuance of the Securities in
certificated form and that all Global Securities shall be exchanged in whole for
Securities that are not Global Securities (in which case such exchange shall be
effected by the Trustee) or (iii) there shall have occurred and be continuing an
Event of Default or any event which after notice or lapse of time or both would
be an Event of Default with respect to such Global Security.
(c) If any Global Security is to be exchanged for other
Securities or canceled in whole, it shall be surrendered by or on behalf of the
Depositary or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation as provided in this Article III. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
Security, then either (i) such Global Security shall be so surrendered for
exchange or cancellation as provided in this Article III or (ii) the principal
amount thereof shall be reduced or increased by an amount equal to the portion
thereof to be so exchanged or canceled, or equal to the principal amount of such
other Security to be so exchanged for a beneficial interest therein, as the case
may be, by means of an appropriate adjustment made on the records of the
Trustee, as Security Registrar, whereupon the Trustee, in accordance with the
Applicable Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Security, the Trustee shall, subject to this
Section 3.06(c) and as otherwise provided in this Article III, authenticate and
deliver any Securities issuable in exchange for such Global Security (or any
portion thereof) to or upon the order of, and registered in such names as may be
directed by, the Depositary or its authorized representative. Upon the request
of the Trustee in connection with the occurrence of any of the events specified
in the preceding paragraph, the Company shall promptly make available to the
Trustee a reasonable supply of Securities that are not in the form of Global
Securities. The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or its authorized representative which is given or
made pursuant to this Article III if such order, direction or request is given
or made in accordance with the Applicable Procedures.
(d) Every Security authenticated and delivered upon registration
of transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Article III or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under the Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members.
<PAGE>
-39-
Section 3.07. SPECIAL TRANSFER AND EXCHANGE PROVISIONS.
(a) CERTAIN TRANSFERS AND EXCHANGES. Transfers and exchanges of
Securities and beneficial interests in a Global Security of the kinds specified
in this Section 3.07 shall be made only in accordance with this Section 3.07.
(b) EXCHANGES BETWEEN GLOBAL SECURITY AND NON-GLOBAL SECURITY. A
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security as provided in Section 3.06(b).
(c) PRIVATE PLACEMENT LEGENDS. Rule 144A Securities and their
Successor Securities shall bear a Private Placement Legend, subject to the
following:
(i) subject to the following clauses of this Section 3.07(c), a
Security or any portion thereof which is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Private Placement Legend borne by such Global Security while represented
thereby;
(ii) subject to the following clauses of this Section 3.07(c), a
new Security which is not a Global Security and is issued in exchange for
another Security (including a Global Security) or any portion thereof,
upon transfer or otherwise, shall bear the Private Placement Legend borne
by such other Security;
(iii) Exchange Securities, and all other Securities sold or
otherwise disposed of pursuant to an effective registration statement
under the Securities Act, together with their respective Successor
Securities, shall not bear a Private Placement Legend;
(iv) at any time after the Securities may be freely transferred
without registration under the Securities Act or without being subject to
transfer restrictions pursuant to the Securities Act, a new Security
which does not bear a Private Placement Legend may be issued in exchange
for or in lieu of a Security (other than a Global Security) or any
portion thereof which bears such a legend if the Trustee has received an
Unrestricted Securities Certificate substantially in the form of Exhibit
B hereto, satisfactory to the Trustee and duly executed by the Holder of
such legended Security or his attorney duly authorized in writing, and
after such date and receipt of such certificate, the Trustee shall
authenticate and deliver such a new Security in exchange for or in lieu
of such other Security as provided in this Article III;
(v) a new Security which does not bear a Private Placement
Legend may be issued in exchange for or in lieu of a Security (other than
a Global Security) or any portion thereof which bears such a legend if,
in the Company's judgment, placing such a legend upon such new Security
is not necessary to ensure compliance with the registration requirements
of the Securities Act, and the Trustee, at the direction of the Company,
shall authenticate and deliver such a new Security as provided in this
Article III; and
<PAGE>
-40-
(vi) notwithstanding the foregoing provisions of this Section
3.07(c), a Successor Security of a Security that does not bear a
particular form of Private Placement Legend shall not bear such form of
legend unless the Company has reasonable cause to believe that such
Successor Security is a "restricted security" within the meaning of Rule
144, in which case the Trustee, at the direction of the Company, shall
authenticate and deliver a new Security bearing a Private Placement
Legend in exchange for such Successor Security as provided in this
Article III.
By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.
The Security Registrar shall retain copies of all letters, notices
and other written communications received pursuant to Section 3.06 or this
Section 3.07. The Company shall have the right to inspect and make copies of
all such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Security Registrar.
Section 3.08. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If (i) any mutilated Security is surrendered to the Trustee, or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, and the Trustee, such security or indemnity, in each case, as may be
required by them to save each of them harmless, then, in the absence of notice
to the Company, or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and upon a Company Request the Trustee
shall authenticate and make available for delivery, in exchange for any such
mutilated Security or in lieu of any such destroyed, lost or stolen Security, a
replacement Security of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this
Section, the Company may require the payment of a sum sufficient to pay all
documentary, stamp or similar issue or transfer taxes or other governmental
charges that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
<PAGE>
-41-
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.09. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Security which is payable, and is punctually paid
or duly provided for, on the Stated Maturity of such interest shall be paid to
the Person in whose name the Security (or any Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
payment.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on the Stated Maturity of such interest,
and interest on such defaulted interest at the then applicable interest rate
borne by the Securities, to the extent lawful (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest"), shall
forthwith cease to be payable to the Holder on the Regular Record Date; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or any relevant
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be
paid on each Security and the date (not less than 30 days after such
notice) of the proposed payment (the "Special Payment Date"), and at the
same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the Special Payment Date, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Subsection provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the Special Payment Date and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company in writing of such Special
Record Date. In the name and at the expense of the Company, the Trustee
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at its address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date and Special Payment Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities are registered on such Special Record Date and shall no longer
be payable pursuant to the following Subsection (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Secu-
<PAGE>
-42-
rities may be listed, and upon such notice as may be required by this
Indenture not inconsistent with the requirements of such exchange, if,
after written notice given by the Company to the Trustee of the proposed
payment pursuant to this Subsection, such payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section 3.09, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
Section 3.10. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if
then generally in use), and the Company, or the Trustee on behalf of the
Company, shall use CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; PROVIDED, HOWEVER, that any such notice shall state that
no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities; and PROVIDED FURTHER, HOWEVER, that failure
to use CUSIP numbers in any notice of redemption or exchange shall not affect
the validity or sufficiency of such notice.
Section 3.11. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Security is registered as the owner of
such Security for the purpose of receiving payment of principal of, premium, if
any, and (subject to Section 3.09) interest on, such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 3.12. CANCELLATION.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company may at any
time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section 3.12, except as expressly
permitted by this Indenture. All canceled Securities held by the Trustee shall
be returned to the Company. The Trustee shall provide the Company a list of all
Securities that have been canceled from time to time as requested by the
Company.
<PAGE>
-43-
Section 3.13. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
Section 3.14. DESIGNATION.
(a) The Debt evidenced by the Securities is hereby irrevocably
designated as "senior indebtedness" or such other term denoting seniority (i)
for all purposes of the provisions defining subordination contained in
agreements that provide that the Debt of the Company issued pursuant to such
agreements is subordinate to Debt designated as senior indebtedness and (ii) for
the purposes of any future Debt of the Company which the Company expressly makes
subordinate to any senior indebtedness or such other term denoting seniority.
In connection with the issuance of any such future subordinated Debt, the
Company shall take all necessary steps to effectuate the foregoing.
(b) The Series A Securities and the Series B Securities shall
vote and consent together on all matters as one class, and neither the Series A
Securities nor the Series B Securities will have the right to vote or consent as
a separate class on any matter.
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.01. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at its option by Board Resolution, with respect
to the Securities, elect to have either Section 4.02 or Section 4.03 be applied
to all of the Outstanding Securities (the "Defeased Securities"), upon
compliance with the conditions set forth below in this Article Four.
Section 4.02. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.02, the Company and any other obligor upon the
Securities, if any, shall be deemed to have been discharged from its obligations
with respect to the Defeased Securities on the date the conditions set forth in
Section 4.04 below are satisfied (hereinafter, "defeasance"). For this purpose,
such defeasance means that the Company and any other obligor upon the Securities
shall be deemed to have paid and discharged the entire Debt represented by the
Defeased Securities, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 4.05 and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company and upon Company
Request, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of Defeased Securities to receive, solely
from the trust fund described in Section 4.04 and as more fully set forth in
such Section, payments in respect of the principal of, premium, if
<PAGE>
-44-
any, and interest on, such Securities, when such payments are due, (b) the
Company's obligations with respect to such Defeased Securities under Sections
3.04, 3.05, 3.08, 10.02 and 10.03, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder, including, without limitation, the
Trustee's rights under Section 6.07, and (d) this Article IV. Subject to
compliance with this Article IV, the Company may exercise its option under this
Section 4.02 notwithstanding the prior exercise of its option under Section 4.03
with respect to the Securities.
Section 4.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained or referred to in Sections
10.05 through 10.11, inclusive, and Article VIII hereof, with respect to the
Defeased Securities on and after the date the conditions set forth in Section
4.04 below are satisfied (hereinafter, "covenant defeasance"), and the Defeased
Securities shall thereafter be deemed to be not "Outstanding" for the purposes
of any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Defeased
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such Section,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such Section or by reason of any reference in any such Section to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 5.01(c) but, except as
specified above, the remainder of this Indenture and such Defeased Securities
shall be unaffected thereby.
Section 4.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 4.02 or Section 4.03 to the Defeased Securities:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (i)
cash in United States dollars, (ii) U.S. Government Obligations, or (iii)
a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants
or a nationally recognized investment banking firm expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee to pay and discharge, the principal
of, premium, if any, and interest (which shall include Additional
Interest, if any) on, the Defeased Securities, on the stated date for
payment thereof or on the applicable redemption date, as the case may be,
of such principal, premium, if any, or interest (which shall include
Additional Interest, if any) on such Defeased Securities if at or prior
to electing to exercise either its option applicable to Section 4.02 or
its option applicable to Section 4.03, the Company has delivered to the
Trustee an irrevocable notice of such defeasance, including the date that
such defeasance is to occur.
<PAGE>
-45-
For this purpose, "U.S. Government Obligations" means securities that are
(i) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case, are not callable
or redeemable at the option of the issuer thereof, and shall also include
a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such U.S.
Government Obligatin or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the
account of the holder of such depositary receipt, PROVIDED that (except
as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest
on the U.S. Government Obligation evidenced by such depositary receipt;
(b) In the case of an election under Section 4.02, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in
the United States reasonably acceptable to the Trustee confirming that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (ii) since the date hereof, 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 Independent
Counsel in the United States shall confirm that, the Holders of the
Outstanding Securities will not recognize income, gain or loss for
Federal income tax purposes as a result of such 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 defeasance had not
occurred;
(c) In the case of an election under Section 4.03, the Company
shall have delivered to the Trustee an Opinion of Independent Counsel in
the United States reasonably acceptable to such Trustee to the effect
that the Holders of the Outstanding Securities 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;
(d) No Default or Event of Default (other than a Default or Event
of Default under this Indenture resulting from the borrowing of funds to
be applied to such deposit) shall have occurred and be continuing on the
date of such deposit, and with respect to an election under Section 4.02
insofar as Section 5.01(e) or (f) is concerned, at any time during the
period ending on the 91st day after the date of deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);
(e) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, this Indenture or
any other material agreement or instrument to which the Company or any
Restricted Subsidiary is a party or by which it is bound; and
<PAGE>
-46-
(f) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of the Securities over the other
creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others.
Opinions of Counsel or Opinions of Independent Counsel required to
be delivered under this Section shall be in form and substance reasonably
satisfactory to the Trustee and may have qualifications customary for opinions
of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 4.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 10.03,
all United States dollars and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 4.04 in respect
of the Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 4.04 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is imposed, assessed or for the account of the Holders of the Defeased
Securities.
Anything in this Article IV to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 4.04 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 4.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or U.S. Government Obligations in accordance with Section 4.02 or
4.03, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated, with present and prospective effect,
as though no deposit had occurred pursuant to Section 4.02 or 4.03, as the case
may be, until such time as the Trustee or Paying Agent is permitted to apply all
such United States dollars or U.S. Government Obligations in accordance with
<PAGE>
-47-
Section 4.02 or 4.03, as the case may be; PROVIDED, HOWEVER, that if the Company
makes any payment to the Trustee or Paying Agent of principal of, premium, if
any, or interest on any Security following the reinstatement of its obligations,
the Trustee or Paying Agent shall promptly pay any such amount to the Holders of
the Securities and the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the United States dollars and
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE V
REMEDIES
Section 5.01. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) a default in the payment of any interest on any Security when
it becomes due and payable, and such default shall continue for a period
of 30 days;
(b) a default in the payment of the principal of (or premium, if
any, on) any Security at its Maturity (upon acceleration, optional or
mandatory redemption or otherwise);
(c) a default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture which default continues uncured
for a period of 60 days after written notice has been given, by certified
mail, (i) to the Company by the Trustee or (ii) to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of
the Outstanding Securities;
(d) an acceleration of the maturity of Debt of the Company (other
than Non- recourse Debt), at any one time, in an aggregate amount in
excess of the greater of (i) $25 million and (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 aggregate principal amount of the Outstanding Securities;
(e) the entry by a court of competent jurisdiction of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or (ii) a decree or order adjudging the Company or any
Significant Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Significant Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Subsidiary
or of any substantial part of their respective properties, or ordering
the winding up or liquidation of their re-
<PAGE>
-48
spective affairs, and any such decree or order for relief shall continue
to be in effect, or any such other decree or order shall be unstayed and
in effect, for a period of 60 consecutive days; or
(f) (i) the Company or any Significant Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (ii)
the Company or any Significant Subsidiary consents to the entry of a
decree or order for relief in respect of the Company or such Significant
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, (iii) the Company or any Significant
Subsidiary files a petition or answer or consent seeking reorganization
or relief under any applicable federal or state law, (iv) the Company or
any Significant Subsidiary (A) consents to the filing of such petition or
the appointment of, or taking possession by, a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the
Company or such Significant Subsidiary or of any substantial part of
their respective properties, (B) makes an assignment for the benefit of
creditors or (C) admits in writing its inability to pay its debts
generally as they become due or (v) the Company or any Significant
Subsidiary takes any corporate action in furtherance of any such actions
in this paragraph (f).
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than an Event of Default specified
in Sections 5.01(e) or (f) with respect to the Company) shall occur and be
continuing with respect to this Indenture, the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Securities then Outstanding
may, and the Trustee at the request of such Holders shall, declare all unpaid
principal of, premium, if any, and accrued interest on all Securities to be due
and payable, by a notice in writing to the Company (and to the Trustee if given
by the Holders of the Securities) and upon any such declaration, such principal,
premium, if any, and interest shall become due and payable immediately. If an
Event of Default specified in clause (e) or (f) of Section 5.01 occurs with
respect to the Company and is continuing, then all the Securities shall IPSO
FACTO become and be due and payable immediately in an amount equal to the
principal amount of the Securities, together with accrued and unpaid interest
thereon, if any, to the date the Securities become due and payable, without any
declaration or other act on the part of the Trustee or any Holder. Thereupon,
the Trustee may, at its discretion, proceed to protect and enforce the rights of
the Holders of the Securities by appropriate judicial proceedings.
After a declaration of acceleration with respect to the
Securities, but before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in aggregate principal amount of the Securities
Outstanding, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if the Company has paid or deposited
with the Trustee a sum sufficient to pay:
(a) all sums paid or advanced by the Trustee under this Indenture
and the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel,
<PAGE>
-49-
(b) all overdue interest on all Outstanding Securities,
(c) the principal of and premium, if any, on any Outstanding
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at a rate borne by the Securities, and
(d) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities; and
all Events of Default, other than the non-payment of principal of the Securities
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13. No such rescission shall affect
any subsequent Default or impair any right consequent thereon.
Section 5.03. COLLECTION OF DEBT AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Stated Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal and premium, if any, and, to the extent that payment of
such interest shall be legally enforceable, upon overdue installments of
interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts within 3 Business Days of
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders under this Indenture by such appropriate private or judicial
proceedings as the Trustee shall deem most effectual to protect and enforce such
rights, whether for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted herein or therein,
or to enforce any other proper remedy, subject however to Section 5.12. No
recovery of any such judgment upon any property of the Company shall affect or
impair any rights, powers or remedies of the Trustee or the Holders.
<PAGE>
-50-
Section 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
and premium, if any, and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 5.06. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or
<PAGE>
-51-
restructuring in anticipation or in lieu of any proceeding contemplated by this
Article shall be applied, subject to applicable law, in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal, premium, if any, or interest, upon presentation
of the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07;
SECOND: To the payment of the amounts then due and unpaid upon
the Securities for principal, premium, if any, and interest, in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if
any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to
the Holders and the Trustee have been paid in full as required by this
Indenture.
Section 5.07. LIMITATION ON SUITS.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as trustee hereunder;
(c) such Holder or Holders have offered to the Trustee an
indemnity satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 15 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed
to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 15-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any Security to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference
<PAGE>
-52-
over any other Holders or to enforce any right under this Indenture or any
Security, except in the manner provided in this Indenture and for the equal and
ratable benefit of all the Holders.
Section 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder
of any Security shall have the right based on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium, if
any, and (subject to Section 3.09) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or the repurchase date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
Section 5.09. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, any
other obligor on the Securities, the Trustee and the Holders shall, subject to
any determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
Section 5.10. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
Section 5.12. CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, PROVIDED that
<PAGE>
-53-
(a) such direction shall not be in conflict with any rule of law
or with this Indenture (including, without limitation, Section 5.07),
expose the Trustee to personal liability, or be unduly prejudicial to
Holders not joining therein; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all
Outstanding Securities waive any past Default hereunder and its consequences,
except a Default
(a) in the payment of the principal of, premium, if any, or
interest on any Security; or
(b) in respect of a covenant or a provision hereof which under
this Indenture cannot be modified or amended without the consent of the
Holder of each Security Outstanding affected by such modification or
amendment.
Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 5.14. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant,
but the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 5.15. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury or other law wherever enacted, now or at any time hereafter in force,
which would prohibit or forgive the Company from paying all or any portion of
the principal of,
<PAGE>
-54-
premium, if any, or interest on the Securities contemplated herein or in the
Securities or which may affect the covenants or the performance of this
Indenture; and each of the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.16. REMEDIES SUBJECT TO APPLICABLE LAW.
All rights, remedies and powers provided by this Article V may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises, including applicable gaming laws,
and to be limited to the extent necessary so that they will not render this
Indenture invalid, unenforceable or not entitled to be recorded, registered or
filed under the provisions of any applicable law.
ARTICLE VI
THE TRUSTEE
Section 6.01. DUTIES OF TRUSTEE.
Subject to the provisions of Trust Indenture Act Sections 315(a)
through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, and subject to compliance with applicable gaming laws, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances
in the conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(i) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or obligations
shall be implied in this Indenture that are adverse to the Trustee; and
(ii) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
<PAGE>
-55-
(i) this Subsection (c) does not limit the effect of Subsection
(b) of this Section 6.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith, in accordance with a direction
of the Holders of a majority in principal amount of Outstanding
Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power confirmed upon the Trustee under this Indenture;
(d) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of
any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it;
(e) whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
Subsections (a), (b), (c) and (d) and (f) of this Section 6.01;
(f) the Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree with the Company.
Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law;
(g) the Trustee shall cooperate with any gaming authority
(including, but not limited to, the New Jersey Casino Control Commission,
the New Jersey Division of Gaming Enforcement, the Mississippi Gaming
Commission, the Louisiana Gaming Control Board, the Nevada Gaming
Commission, the Nevada State Gaming Control Board and the Clark County
Liquor and Gaming Licensing Board) of any jurisdiction in which the
Company or any of its subsidiaries conducts or proposes to conduct gaming
and shall produce any document or information as any of them may request;
and
(h) The Trustee shall in no event be required to expend its own
funds in the exercise of any of the remedies set forth in this Section
6.01.
Section 6.02. NOTICE OF DEFAULTS.
Within 30 days after a Responsible Officer of the Trustee receives
notice of the occurrence of any Default, the Trustee shall transmit by mail to
all Holders and any other Persons entitled to receive reports pursuant to
Section 313(c) of the Trust Indenture Act, as their names and addresses appear
in the Security Register, notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; PROVIDED, HOWEVER, that,
except in the case of a Default in
<PAGE>
-56-
the payment of the principal of, premium, if any, or interest on any Security,
the Trustee shall be protected in withholding such notice if and so long as a
trust committee of Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Holders.
Section 6.03. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 6.01 hereof and Trust
Indenture Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon receipt by it of any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of Debt or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order and
any resolution of the Board of Directors may be sufficiently evidenced by
a Board Resolution;
(c) the Trustee may consult with counsel of its selection and any
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon
in accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities
which might be incurred therein or,
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within
the discretion, rights or powers conferred upon it by this Indenture
other than any liabilities arising out of the negligence, bad faith or
willful misconduct of the Trustee;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other
paper or document unless requested in writing to do so by the Holders of
not less than a majority in aggregate principal amount of the Securities
then Outstanding; PROVIDED that, if the payment within a reasonable time
to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition
to proceeding; the reasonable expenses of every such investigation so
requested by the Holders
<PAGE>
-57-
of not less than 25% in aggregate principal amount of the Securities
Outstanding shall be paid by the Company or, if paid by the Trustee or
any predecessor Trustee, shall be repaid by the Company upon demand;
PROVIDED, FURTHER, the Trustee in its discretion may make such further
inquiry or investigation into such facts or matters as it may deem fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due
care by it hereunder.
Section 6.04. TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITIONS OF
SECURITIES OR APPLICATION OF PROCEEDS THEREOF.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in any Statement of Eligibility and Qualification on Form T-1 supplied to the
Company are true and accurate subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Securities or the proceeds thereof.
Section 6.05. TRUSTEE AND AGENTS MAY HOLD SECURITIES; COLLECTIONS; ETC.
The Trustee, any Paying Agent, Security Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Securities, with the same rights it would have if it were
not the Trustee, Paying Agent, Security Registrar or such other agent and,
subject to Trust Indenture Act Sections 310 and 311, may otherwise deal with the
Company and receive, collect, hold and retain collections from the Company with
the same rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
Section 6.06. MONEY HELD IN TRUST.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Except for funds or securities deposited with the
Trustee pursuant to Article IV, the Trustee shall be required to invest all
moneys received by the Trustee, until used or applied as herein provided, in
Cash Equivalents in accordance with the directions of the Company.
<PAGE>
-58-
Section 6.07. COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR
CLAIM.
The Company covenants and agrees to pay to the Trustee from time
to time, and the Trustee shall be entitled to, such compensation as the parties
shall agree in writing from time to time for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all agents) except any such
expense, disbursement or advance as may arise from its negligence, bad faith or
willful misconduct. The Company also covenants and agrees to indemnify the
Trustee and each predecessor Trustee for, and to hold it harmless against, any
claim, loss, liability, tax, assessment or other governmental charge (other than
taxes applicable to the Trustee's compensation hereunder) or expense incurred
without negligence, bad faith or willful misconduct on its part, arising out of
or in connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder, including enforcement of this Section
6.07 and also including any liability which the Trustee may incur as a result of
failure to withhold, pay or report any tax, assessment or other governmental
charge, and the costs and expenses of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The obligations of the Company under this
Section 6.07 to compensate and indemnify the Trustee and each predecessor
Trustee and to pay or reimburse the Trustee and each predecessor Trustee for
reasonable expenses, disbursements and advances shall constitute an additional
obligation hereunder and shall urvive the satisfaction and discharge of this
Indenture and the resignation or removal of the Trustee and each predecessor
Trustee.
Section 6.08. CONFLICTING INTERESTS.
The Trustee shall comply with the provisions of Section 310(b) of
the Trust Indenture Act.
Section 6.09. TRUSTEE ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $250,000,000, to the
extent there is an institution eligible and willing to serve. If the Trustee
does not have a Corporate Trust Office in The City of New York, the Trustee may
appoint an agent in The City of New York reasonably acceptable to the Company to
conduct any activities which the Trustee may be required under this Indenture to
conduct in The City of New York. If such Trustee publishes reports of condition
at least annually, pursuant to law or to the requirements of federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section 6.09, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
6.09, the Trustee shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
<PAGE>
-59-
Section 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR TRUSTEE.
(a) No resignation or removal of the Trustee and no appointment
of a successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereafter appointed,
may at any time resign by giving written notice thereof to the Company. Upon
receiving such notice or resignation, the Company shall promptly appoint a
successor trustee by written instrument executed by authority of the Board of
Directors of the Company, a copy of which shall be delivered to the resigning
Trustee and a copy to the successor trustee. If an instrument of acceptance by
a successor trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may, or
any Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper, appoint
and prescribe a successor trustee.
(c) The Trustee may be removed at any time for any cause or for
no cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of
Trust Indenture Act Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security
for at least six months,
(ii) the Trustee shall cease to be eligible under Section 6.09
and shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Security for at least
six months, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall
<PAGE>
-60-
promptly appoint a successor trustee and shall comply with the applicable
requirements of Section 6.11. If, within 60 days after such resignation, removal
or incapability, or the occurrence of such vacancy, the Company has not
appointed a successor Trustee, a successor trustee shall be appointed by the Act
of the Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee. Such successor trustee so
appointed shall forthwith upon its acceptance of such appointment become the
successor trustee and supersede the successor trustee appointed by the Company.
If no successor trustee shall have been so appointed by the Company or the
Holders of the Securities and accepted appointment in the manner hereinafter
provided, the Trustee or the Holder of any Security who has been a bona fide
Holder for at least six months may, subject to Section 5.14, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company or
the successor trustee, upon payment of its charges pursuant to Section 6.07 then
unpaid, such retiring Trustee shall pay over to the successor trustee all moneys
at the time held by it hereunder and shall execute and deliver an instrument
transferring to such successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $250,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.10.
Upon acceptance of appointment by any successor trustee as
provided in this Section 6.11, the Company shall give notice thereof to the
Holders of the Securities, by mailing such notice to such Holders at their
addresses as they shall appear on the Security Register. If the acceptance of
appointment is substantially contemporaneous with the appointment, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 6.10. If the Company fails
<PAGE>
-61-
to give such notice within 10 days after acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be given at
the expense of the Company.
Section 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture) shall be
the successor of the Trustee hereunder, PROVIDED that such corporation shall be
eligible under Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $250,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.09,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have; PROVIDED that the right to adopt
the certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
Section 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the
Company (or other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor). A Trustee who has resigned or
been removed shall be subject to Trust Indenture Act Section 311(a) to the
extent indicated therein.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
<PAGE>
-62-
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request,
a list of similar form and content to that in subsection (a) hereof as of
a date not more than 15 days prior to the time such list is furnished;
PROVIDED, HOWEVER, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 7.02. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Holders may communicate pursuant to Trust Indenture Act Section
312(b) with other Holders with respect to their rights under this Indenture or
the Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Security Registrar and any other Person
shall have the protection of Trust Indenture Act Section 312(c). Further, every
Holder of Securities, by receiving and holding the same, agrees with the Company
and the Trustee that neither the Company nor the Trustee or any agent of either
of them shall be held accountable by reason of the disclosure of any information
as to the names and addresses of the Holders in accordance with Trust Indenture
Act Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Trust Indenture Act Section 312.
Section 7.03. REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year commencing with the
first May 15 after the issuance of Securities, the Trustee, if so required under
the Trust Indenture Act, shall transmit by mail to all Holders, in the manner
and to the extent provided in Trust Indenture Act Section 313(c), a brief report
dated as of such May 15 in accordance with and with respect to the matters
required by Trust Indenture Act Section 313(a). The Trustee shall also transmit
by mail to all Holders, in the manner and to the extent provided in Trust
Indenture Act Section 313(c), a brief report in accordance with and with respect
to the matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 7.03 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Securities are listed
and also with the Commission. The Company will notify the Trustee promptly if
the Securities are listed on any stock exchange.
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
(a) The Company may not, in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other Person; or (ii) sell, assign, convey or
<PAGE>
-63-
transfer its properties and assets substantially in their entirety (computed on
a Consolidated basis) to any Person, unless:
(i) either (A) the Company is the surviving entity; or (B) the
Person formed by or surviving such consolidation or merger (if other than
the Company) or to which such sale, assignment, conveyance or transfer
shall have been made (the "Surviving Entity") is an entity organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(ii) the Surviving Entity assumes all the obligations of the
Company under the Securities and this Indenture; and
(iii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
(b) The foregoing shall not apply to a sale, assignment,
conveyance, transfer, or other disposition of properties or assets solely
between or among the Company and any of its wholly-owned Subsidiaries.
Section 8.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
conveyance or transfer of the properties and assets of the Company substantially
in their entirety in accordance with Section 8.01, the Surviving Entity shall
succeed to, and be substituted for, and may exercise every right and power of
the Company under this Indenture and/or in the Securities, as the case may be,
with the same effect as if such successor had been named as the Company herein
and in the Securities, and the Company shall be discharged from all obligations
and covenants hereof and in the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holders, the Company and any other
obligor under the Securities when authorized by a Board Resolution, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto or agreements in form and substance satisfactory
to the Trustee, for any of the following purposes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
<PAGE>
-64-
(c) to evidence the succession of another Person to the Company
or any other obligor upon the Securities, and the assumption by any such
successor or obligor of the covenants of the Company herein and in the
Securities in accordance with Article VIII;
(d) to add to the covenants of the Company or any other obligor
upon the Securities for the benefit of the Holders, or to surrender any
right or power conferred upon the Company or any other obligor upon the
Securities, as applicable, herein or in the Securities or to make any
change that does not adversely affect the legal rights of Holders under
the Indenture;
(e) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 9.05 or otherwise; or
(f) to evidence and provide the acceptance of the appointment of
a successor trustee hereunder.
Section 9.02. SUPPLEMENTAL INDENTURES AND AGREEMENTS WITH CONSENT OF
HOLDERS.
Except as permitted by Section 9.01, with the consent of the
Holders of at least a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by Board Resolutions, and the Trustee may (i) enter
into an indenture or indentures supplemental hereto or agreements in form and
substance satisfactory to the Trustee, for the purpose of adding any provisions
to or amending, modifying or changing in any manner or eliminating any of the
provisions of this Indenture or the Securities (including but not limited to,
for the purpose of modifying in any manner the rights of the Holders under this
Indenture or the Securities) or (ii) waive compliance with any provision in this
Indenture or the Securities (other than waivers of past Defaults covered by
Section 5.13 and waivers of covenants which are covered by Section 10.12);
PROVIDED, HOWEVER, that no such supplemental indenture or agreement shall,
without the consent of the Holder of each Outstanding Security affected thereby:
(a) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture or agreement, or the consent of whose Holders is
required for any waiver or compliance with certain provisions of this
Indenture;
(b) change the Stated Maturity of the principal of, or any
installment of interest on, or extend the time for payment of interest on
any Security, or change to an earlier date any Redemption Date of, or
waive a default in the payment of the principal or interest on, any such
Security or otherwise alter the provisions with respect to the redemption
of the Securities in a manner adverse to Holders, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which the
principal of any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date); and
<PAGE>
-65-
(c) modify any of the provisions of this Section 9.02 or Sections
5.13, 10.01 or 10.12.
Upon the written request of the Company accompanied by a copy of
Board Resolutions authorizing the execution of any such supplemental indenture
or agreement and upon the filing with the Trustee of evidence of the consent of
Holders as aforesaid, the Trustee shall join with the Company in the execution
of such supplemental indenture.
It shall not be necessary for any Act of Holders under this
Section 9.02 to approve the particular form of any proposed supplemental
indenture or agreement, but it shall be sufficient if such Act shall approve the
substance thereof.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES OR AGREEMENTS.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article IX or the modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject to Trust Indenture Act
Sections 315(a) through 315(d) and Section 6.02 hereof) shall be fully protected
in relying upon, an Opinion of Counsel and an Officers' Certificate stating that
the execution of such supplemental indenture, agreement or instrument is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture, agreement or
instrument which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
<PAGE>
-66-
Section 9.07. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.02, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 1.06, setting forth in general terms the
substance of such supplemental indenture. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such supplemental indenture.
ARTICLE X
COVENANTS
Section 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall duly and punctually pay the principal of,
premium, if any, and interest on the Securities in accordance with the terms of
the Securities and this Indenture. Payments in respect of the Securities
represented by a Global Security (including principal, premium, if any, interest
and Additional Interest will be made by wire transfer of immediately available
funds to the accounts specified by the Global Security Holder. With respect to
Securities that are not Global 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 Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address.
Section 10.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency where Securities
may be presented or surrendered for payment. The Company also will maintain in
The City of New York an office or agency where Securities may be surrendered for
registration of transfer, redemption or exchange and where notices and demands
to or upon the Company in respect of the Securities and this Indenture may be
served. The office of the Trustee, at its Corporate Trust Office initially
located at Norwest Corporate Trust, c/o Depository Trust Company, 1st Floor,
TADS Department, 55 Water Street, New York, New York 10041, will be such office
or agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of the location and any change in the
location of any such offices or agencies. If at any time the Company shall fail
to maintain any such required offices or agencies or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the office of the Trustee and the Company
hereby appoints the Trustee such agent as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation. The Company will give
<PAGE>
-67-
prompt written notice to the Trustee of any such designation or rescission and
any change in the location of any such office or agency.
The Trustee shall initially act as Paying Agent for the
Securities.
Section 10.03. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company or any of its Affiliates shall at any time act as
Paying Agent, it will, on or before each due date of the principal of, premium,
if any, or interest on any of the Securities, segregate and hold in trust for
the benefit of the Holders entitled thereto a sum sufficient to pay the
principal, premium, if any, or interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its action or failure so to act.
If the Company or any of its Affiliates is not acting as Paying
Agent, the Company will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, deposit with a Paying
Agent a sum in same day funds sufficient to pay the principal, premium, if any,
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will
cause each Paying Agent other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on the Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default, upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with
the provisions of this Indenture relating to the duties, rights and
disabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by
the Company or
<PAGE>
-68-
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect
to such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), and mail to each such Holder, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification,
publication and mailing, any unclaimed balance of such money then remaining will
promptly be repaid to the Company.
Section 10.04. CORPORATE EXISTENCE.
Subject to Article VIII, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to preserve any such right or franchise or the corporate
existence of any such Restricted Subsidiary if the Board of Directors of the
Company shall determine that the preservation thereof is no longer necessary or
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole; and PROVIDED, FURTHER, HOWEVER, that the foregoing
shall not prohibit a sale, transfer or conveyance of a Restricted Subsidiary or
any of its assets in compliance with the terms of this Indenture.
Section 10.05. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or
discharged, on or before the date the same shall become due and payable, (a) all
taxes, assessments and governmental charges levied or imposed upon the Company
or any of its Subsidiaries shown to be due on any return of the Company or any
of its Subsidiaries or otherwise assessed or upon the income, profits or
property of the Company or any of its Subsidiaries if failure to pay or
discharge the same could reasonably be expected to have a material adverse
effect on the ability of the Company to perform its obligations hereunder and
(b) all lawful claims for labor, materials and supplies, which, if unpaid, would
by law become a Lien upon the property of the Company or any of its
Subsidiaries, except for any Lien permitted to be incurred under Section 10.07,
if failure to pay or discharge the same could reasonably be expected to have a
material adverse effect on the ability of the Company to perform its obligations
hereunder; PROVIDED, HOWEVER, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings properly instituted and diligently con-
<PAGE>
-69-
ducted and in respect of which appropriate reserves (in the good faith judgment
of management of the Company) are being maintained in accordance with GAAP.
Section 10.06. MAINTENANCE OF INSURANCE.
The Company shall at all times keep all of its and its
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually so insured by corporations similarly situated and owning like properties
in the same general geographic areas in which the Company and its Subsidiaries
operate, except where the failure to do so could not reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, business affairs or prospects of the Company and its Subsidiaries,
taken as a whole.
Section 10.07. LIMITATION ON LIENS.
(a) Neither the Company nor any Restricted Subsidiary will,
directly or indirectly, create, assume or suffer to exist any Lien of any kind
(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 Securities with (or prior to) the Debt secured by such Lien, for so long as
such Debt shall be so secured, PROVIDED, HOWEVER, that the Company and any
Restricted Subsidiary may, directly or indirectly, create, assume or suffer to
exist Permitted Liens.
(b) Notwithstanding the foregoing, the Company or any Restricted
Subsidiary may create, assume or suffer to exist Liens not otherwise permitted
as described above, provided that at the time of such incurrence, assumption or
sufferance, after giving effect to such Lien, the sum of outstanding Debt
secured by such Liens (not including Permitted Liens) plus all Attributable Debt
in respect of Sale and Lease-Back Transactions entered into (not including Sale
and Lease-Back Transactions expressly permitted under Section 10.08(a) below),
measured, in each case, at the time the Lien is incurred, does not exceed 15% of
Consolidated Net Tangible Assets.
Section 10.08. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
(a) 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 (a "Sale and Lease-Back
Transaction"), unless either: (i) the Company or such Restricted Subsidiary
would be entitled, pursuant to the provisions described in clauses (a) through
(n) of the definition of "Permitted Liens" to create, assume or suffer to exist
a Lien on the property to be leased without equally and ratably securing the
Securities, or (ii) an amount equal to (A) the greater of the net cash proceeds
of such sale or the fair market value of such property (in the opinion of the
Board of Directors) less (B) the fair market value (in the opinion of the Board
of Directors) of any noncash proceeds
<PAGE>
-70-
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 Securities or Pari Passu Debt.
(b) Notwithstanding the foregoing, the Company or any Restricted
Subsidiary may enter into Sale and Lease-Back Transactions not otherwise
permitted as described above, provided that at the time of entering into such
Sale and Lease-Back Transaction, after giving effect to such Sale and Lease-Back
Transaction, the sum of outstanding Debt secured by such Liens (not including
Permitted Liens) plus all Attributable Debt in respect of Sale and Lease-Back
Transactions entered into (not including Sale and Lease-Back Transactions
permitted under Section 10.08(a)), measured, in each case, at the time any such
Sale and Lease-Back Transaction is entered into, does not exceed 15% of
Consolidated Net Tangible Assets.
Section 10.09. RULE 144A INFORMATION REQUIREMENTS.
So long as any of the Initial Securities remain outstanding, the
Company shall furnish, within a reasonable amount of time, to the Holders or
beneficial owners of Initial Securities and to prospective purchasers of the
Initial Securities the information required by Rule 144A(d)(4) under the
Securities Act, upon their written request, until such time as the Company has
either exchanged the Initial Securities for the Exchange Securities or until
such time as the Holders thereof have disposed of such Initial Securities
pursuant to an effective shelf registration statement under the Securities Act.
The Company shall also furnish such information during the pendency of any
suspension of effectiveness of the shelf registration statement.
Section 10.10. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company will deliver to the Trustee, on or before a date
not more than 120 days after the end of each fiscal year of the Company ending
after the date hereof, a written statement signed by two executive officers of
the Company, one of whom shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company, as to
compliance herewith, including whether or not, after a review of the activities
of the Company during such year and of the Company's performance under this
Indenture, to the best knowledge, based on such review, of the signers thereof,
the Company has fulfilled all of their respective obligations and are in
compliance with all conditions and covenants under this Indenture throughout
such year and, if there has been a Default specifying each Default and the
nature and status thereof and any actions being taken by the Company with
respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, the Company shall deliver notice to the Trustee promptly upon
becoming aware of any Default or Event of Default, by registered or certified
mail or facsimile transmission followed by an originally executed copy of an
Officers' Certificate specifying such Default or Event of Default, the status
thereof and what actions the Company is taking or proposes to take with respect
thereto.
<PAGE>
-71-
Section 10.11. REPORTS BY COMPANY.
The Company shall:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from time to
time by rules and regulations prescribe) which the Company may be
required to file with the Commission pursuant to Section 13 or Section
15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections,
then it shall (i) deliver to the Trustee annual audited financial
statements of the Company and its Subsidiaries, prepared on a
Consolidated basis in conformity with GAAP, within 120 days after the end
of each fiscal year of the Company, and (ii) file with the Trustee and,
to the extent permitted by law, the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission,
such of the supplementary and periodic information, documents and reports
which may be required pursuant to Section 13 or Section 15(d) of the
Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules
and regulations;
(b) file with the Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants of this
Indenture as are required from time to time by such rules and regulations
(including such information, documents and reports referred to in Trust
Indenture Act Section 314(a)); and
(c) within the time period allowed for filings with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided
in Trust Indenture Act Section 313(c), such summaries of any information,
documents and reports required to be filed by the Company pursuant to
subsections (a) and (b) of this Section as are required by rules and
regulations prescribed from time to time by the Commission.
Section 10.12. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.06 through 10.11, if, before or
after the time for such compliance, the Holders of not less than a majority in
aggregate principal amount of the Securities at the time Outstanding shall, by
Act (which for purposes of this Section 10.12 includes transmissions across the
internet) of such Holders, waive such compliance in such instance with such
covenant or provision, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
<PAGE>
-72-
ARTICLE XI
REDEMPTION AND MANDATORY DISPOSITION OF SECURITIES
Section 11.01. RIGHTS OF REDEMPTION.
(a) The Securities are subject to redemption at any time, at the
option of the Company, in whole but not in part, 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 Redemption Date (subject to
the right of Holders of record on relevant Regular Record Dates and Special
Record Dates to receive interest due on relevant Interest Payment Dates and
Special Payment Dates).
Section 11.02. APPLICABILITY OF ARTICLE.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article XI.
Section 11.03. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities pursuant to
Section 11.01 shall be evidenced by a Company Order and an Officers'
Certificate. In case of any redemption at the election of the Company, the
Company shall, not less than 45 nor more than 60 days prior to the Redemption
Date fixed by the Company (unless a shorter notice period shall be satisfactory
to the Trustee), notify the Trustee in writing of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 11.04. SECURITIES TO BE REDEEMED IN PART.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part in accordance
with Section 11.09, to the portion of the principal amount of such Security
which has been or is to be redeemed.
Section 11.05. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
<PAGE>
-73-
(c) if less than all Outstanding Securities are to be redeemed in
accordance with Section 11.09, the identification of the particular
Securities to be redeemed;
(d) in the case of a Security to be redeemed in part in
accordance with Section 11.09, the principal amount of such Security to
be redeemed and that after the Redemption Date upon surrender of such
Security, new Security or Securities in the aggregate principal amount
equal to the unredeemed portion thereof will be issued;
(e) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security or portion thereof to be
redeemed, and that (unless the Company shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after
said date;
(g) the names and addresses of the Paying Agent and the offices
or agencies referred to in Section 10.02 where such Securities are to be
surrendered for payment of the Redemption Price;
(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the
Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election
of the Company shall be given by the Company or, at the Company's written
request, by the Trustee in the name and at the expense of the Company. If the
Company elects to give notice of redemption, it shall provide the Trustee with a
certificate stating that such notice has been given in compliance with the
requirements of this Section 11.05.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 11.06. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company or any of its Affiliates
is acting as Paying Agent, segregate and hold in trust as provided in Section
10.03) an amount of money in same day funds sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date
or Special Payment Date) accrued interest on, all the Securities or portions
thereof which are to be redeemed on that date. The Paying Agent shall promptly
mail or deliver to Holders of Securities so re-
<PAGE>
-74-
deemed payment in an amount equal to the Redemption Price of the Securities
purchased from each such Holder. All money, if any, earned on funds held in
trust by the Trustee or any Paying Agent shall be remitted to the Company. For
purposes of this Section 11.06, the Company shall choose a Paying Agent which
shall not be the Company.
Section 11.07. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued interest) such Securities shall cease to bear interest. Holders will be
required to surrender the Securities to be redeemed to the Paying Agent at the
address specified in the notice of redemption at least one Business Day prior to
the Redemption Date. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price together with accrued interest to the Redemption Date;
PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such on the relevant
Regular Record Dates and Special Record Dates according to the terms and the
provisions of Section 3.09.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 11.08. SECURITIES REDEEMED OR PURCHASED IN PART.
Any Security which is to be redeemed or purchased only in part in
accordance with Section 11.09 shall be surrendered to the Paying Agent at the
office or agency maintained for such purpose pursuant to Section 10.02 (with, if
the Company, the Security Registrar or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company, the
Security Registrar or the Trustee, as the case may be, duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing), and the
Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities, of
any authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the unredeemed portion of the principal of
the Security so surrendered that is not redeemed or purchased.
Section 11.09. MANDATORY DISPOSITION PURSUANT TO GAMING LAWS.
Each Holder, by accepting a Security, 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 Securities 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:
<PAGE>
-75-
(a) to require such Person to dispose of its Securities 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
(b) to redeem such Securities at a Redemption Price equal to the
lesser of (i) such Person's cost or (ii) 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, 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 Holder or beneficial owner may incur in connection with
its application for a license, qualification or a finding or suitability.
Section 11.10. REDEMPTION PROCEDURES.
Other than as specifically provided in Section 11.09, any
redemption pursuant to Section 11.09 shall be made pursuant to the provisions of
Section 11.01 through 11.08 hereof, unless the context otherwise requires.
ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall be discharged and shall cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Securities as expressly provided for herein) as to all Outstanding
Securities hereunder, and the Trustee, upon Company Request and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(i) all the Securities theretofore authenticated and delivered
(other than (A) lost, stolen or destroyed Securities which have been
replaced or paid as provided in Section 3.08 or (B) all Securities whose
payment has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust as provided in Section 10.03) have been delivered to the
Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation (A) have become due and payable, (B) will become
due and payable at their
<PAGE>
-76-
Stated Maturity within one year or (C) are to be called for redemption
within one year under arrangements reasonably satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at
the expense, of the Company; and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust an amount
in United States dollars sufficient to pay and discharge the entire Debt
on the Securities not theretofore delivered to the Trustee for
cancellation, including the principal of, premium, if any, and accrued
interest on, such Securities at such Maturity, Stated Maturity or
Redemption Date;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, in form and substance
reasonably satisfactory to the Trustee, each stating that (A) all
conditions precedent herein relating to the satisfaction and discharge
hereof have been complied with and (B) such satisfaction and discharge
will not result in a breach or violation of, or constitute a default
under, this Indenture or any other material agreement or instrument to
which the Company or any Subsidiary is a party or by which the Company or
any Subsidiary is bound.
Notwithstanding the satisfaction and discharge hereof, the
obligations of the Company to the Trustee under Section 6.06 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(ii) of subsection (a) of this Section 12.01, the obligations of the Trustee
under Section 12.02 and the last paragraph of Section 10.03 shall survive.
Section 12.02. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 10.03,
all United States dollars deposited with the Trustee pursuant to Section 12.01
shall be held in trust and applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
* * *
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed, as of the day and year first above written.
PARK PLACE ENTERTAINMENT
CORPORATION
By:
-----------------------------------
Name:
Title:
Attest:
-------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, N.A., as
Trustee
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 3.07(a)(i) of the Indenture)
Norwest Bank Minnesota, N.A.
[address]
Re: 7.95% SENIOR NOTES DUE 2003
OF PARK PLACE ENTERTAINMENT CORPORATION (THE "SECURITIES")
Reference is made to the Indenture, dated as of August 2, 1999
(the "Indenture"), among Park Place Entertainment Corporation (the "Company")
and Norwest Bank Minnesota, N.A., as Trustee. Terms used herein and defined in
the Indenture or in Rule 144A or Rule 144 under the U.S. Securities Act of 1933
(the "Securities Act") are used herein as so defined.
This certificate relates to US$ _____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s).
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". The Specified Securities are represented by a Global Security and are
held through the Depositary or an Agent Member in the name of the Undersigned,
as or on behalf of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as follows:
(a) RULE 144A TRANSFERS. If the transfer is being effected in
accordance with Rule 144A:
(i) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe is
a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
A-1
<PAGE>
(ii) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(b) RULE 144 TRANSFERS. If the transfer is being effected
pursuant to Rule 144:
(i) the transfer is occurring after a holding period of at
least one year (computed in accordance with paragraph (d) of Rule 144)
has elapsed since the Specified Securities were last acquired from the
Company or from an affiliate of the Company, whichever is later, and is
being effected in accordance with the applicable amount, manner of sale
and notice requirements of Rule 144; or
(ii) the transfer is occurring after a holding period of at
least two years has elapsed since the Specified Securities were last
acquired from the Company or from an affiliate of the Company, whichever
is later, and the Owner is not, and during the preceding three months has
not been, an affiliate of the Company.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated:
------------
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:
-----------------------------------
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
A-2
<PAGE>
EXHIBIT B
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 3.07(b))
Norwest Bank Minnesota, N.A.
[address]
Re: 7.95% SENIOR NOTES DUE 2003
OF PARK PLACE ENTERTAINMENT CORPORATION (THE "SECURITIES")
Reference is made to the Indenture, dated as of August 2, 1999,
among Park Place Entertainment Corporation (the "Company") and Norwest Bank
Minnesota, N.A., as Trustee. Terms used herein and defined in the Indenture or
in Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are
used herein as so defined.
This certificate relates to US$ _____________ principal amount of
Securities, which are evidenced by the following certificate(s) (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the
"Undersigned") hereby certifies that either (i) it is the sole beneficial owner
of the Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security, they
are held through the Depositary or an Agent Member in the name of the
Undersigned, as or on behalf of the Owner. If the Specified Securities are not
represented by a Global Security, they are registered in the name of the
Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged
for Securities bearing no Private Placement Legend pursuant to Section 3.07(b)
of the Indenture. In connection with such exchange, the Owner hereby certifies
that the exchange is occurring after a holding period of at least two years
(computed in accordance with paragraph (d) of Rule 144) has elapsed since the
Specified Securities were last acquired from the Company or from an affiliate of
the Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
B-1
<PAGE>
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company and the Initial Purchasers.
Dated:
-------------------
(Print the name of the Undersigned, as
such term is defined in the second
paragraph of this certificate.)
By:
-----------------------------------
Name:
Title:
(If the Undersigned is a corporation,
partnership or fiduciary, the title of
the person signing on behalf of the
Undersigned must be stated.)
B-2
<PAGE>
APPENDIX I
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
--------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- -------------------------------------------------------------------------------
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES
FOR 7.95% SERIES A SENIOR NOTES DUE 2003
In connection with any transfer of this Security occurring prior
to the date which is the earlier of the date of an effective Registration
Statement or the date this Security is exchanged for a Series B Security in
connection with an effective Registration Statement, the undersigned confirms
that without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
[ ] (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the
Indenture.
I-1
<PAGE>
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 3.07 of the Indenture
shall have been satisfied.
Date:
------------------------ --------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:
-------------------------
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
--------------------------------------------------
NOTICE: To be executed by an authorized signatory
I-2
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number of assignee)
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint_________________________________________________ as
Agent, to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated Signed
----------------------- ------------------------------------
(Sign exactly as name appears on the
other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
II-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
DATED AS OF AUGUST 2, 1999
AMONG
PARK PLACE ENTERTAINMENT CORPORATION
AND
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
BANC OF AMERICA SECURITIES LLC
DEUTSCHE BANK SECURITIES INC.
SG COWEN SECURITIES CORPORATION
SCOTIA CAPITAL MARKETS (USA) INC.
BNY CAPITAL MARKETS, INC.
FIRST UNION CAPITAL MARKETS CORP.
PNC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
NORWEST INVESTMENT SERVICES, INC.
--------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into this 2nd day of August, 1999, among Park Place Entertainment Corporation, a
Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other
Initial Purchasers named in Schedule A to the Purchase Agreement (as defined
below) (collectively, the "Initial Purchasers," which term shall also include
any initial purchaser substituted as provided in Section 11 thereof).
This Agreement is made pursuant to the Purchase Agreement, dated July 28,
1999, among the Company and the Initial Purchasers (the "Purchase Agreement"),
which provides for the sale by the Company to the Initial Purchasers of an
aggregate of $300,000,000 principal amount of the Company's 7.95% Series A
Senior Notes due 2003 (the "Securities"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to Holders (as defined herein) the registration rights set forth in this
Agreement. The execution of this Agreement is a condition to the closing under
the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time to
time.
"1934 ACT" shall mean the Securities Exchange Act of l934, as amended
from time to time.
"CLOSING DATE" shall mean the Closing Time as defined in the Purchase
Agreement.
"COMPANY" shall have the meaning set forth in the preamble and shall also
include the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, PROVIDED, HOWEVER, that such depositary
must have an address in the Borough of Manhattan, in the City of New York.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of Exchange
Securities for Registrable Securities pursuant to Section 2.1 hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2.1 hereof.
<PAGE>
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement,
including the Prospectus contained therein, all exhibits thereto and all
documents incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2.1 hereof.
"EXCHANGE SECURITIES" shall mean the 7.95% Series B Senior Notes due 2003
issued by the Company under the Indenture, which will be freely tradeable under
the 1933 Act, containing terms identical to the Securities in all material
respects (except for references to certain interest rate provisions,
restrictions on transfers and restrictive legends). The Exchange Securities will
be offered to Holders of Securities in exchange for Registrable Securities
pursuant to the Exchange Offer and the Exchange Offer Registration Statement.
"HOLDER" shall mean any registered holder of Registrable Securities.
"INDENTURE" shall mean the Indenture relating to the Securities, dated as
of August 2, 1999, between the Company and Norwest Bank Minnesota, N.A., as
trustee, as the same may be amended, supplemented, waived or otherwise modified
from time to time in accordance with the terms thereof.
"INITIAL PURCHASER" or "INITIAL PURCHASERS" shall have the meaning set
forth in the preamble.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate
principal amount of Outstanding (as defined in the Indenture) Registrable
Securities.
"PARTICIPATING BROKER-DEALER" shall mean any of Merrill Lynch, Banc of
America Securities LLC, Deutsche Bank Securities Inc., SG Cowen Securities
Corporation, Scotia Capital Markets (USA) Inc., BNY Capital Markets, Inc., First
Union Capital Markets Corp., PNC Capital Markets, Inc., Bear, Stearns & Co.,
Inc. and Norwest Investment Services, Inc., and any other broker-dealer which
makes a market in the Securities and exchanges Registrable Securities in the
Exchange Offer for Exchange Securities.
"PERSON" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated organization, or
a government or agency or political subdivision thereof.
"PRIVATE EXCHANGE" shall have the meaning set forth in Section 2.1
hereof.
"PRIVATE EXCHANGE SECURITIES" shall have the meaning set forth in Section
2.1 hereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any
-2-
<PAGE>
prospectus supplement, including any such prospectus supplement with respect to
the terms of the offering of any portion of the Registrable Securities covered
by a Shelf Registration Statement, and by all other amendments and supplements
to a prospectus, including post-effective amendments, and in each case including
all material incorporated by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble.
"REGISTRABLE SECURITIES" shall mean the Securities and, if issued, the
Private Exchange Securities; PROVIDED, HOWEVER, that Securities and, if issued,
the Private Exchange Securities, shall cease to be Registrable Securities when
(i) a Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities have
been sold to the public pursuant to Rule l44 (or any similar provision then in
force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have
ceased to be outstanding or (iv) the Exchange Offer is consummated (except with
respect to Securities purchased from the Company and continued to be held by the
Initial Purchasers).
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees, including,
if applicable, the fees and expenses of any "qualified independent underwriter"
(and its counsel) that is required to be retained by any Holder in accordance
with the rules and regulations of the NASD, (ii) all fees and expenses incurred
in connection with compliance with state securities or blue sky laws and
compliance with the rules of the NASD (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection with blue
sky qualification of any of the Exchange Securities or Registrable Securities
and any filings with the NASD), (iii) all expenses of any Persons in preparing
or assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements thereto,
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all fees
and expenses incurred in connection with the listing, if any, of any of the
Registrable Securities on any securities exchange or exchanges, (v) all rating
agency fees, (vi) the fees and disbursements of counsel for the Company and of
the independent public accountants of the Company, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, (vii) the fees and expenses of the Trustee, and any
escrow agent or custodian, (viii) the reasonable fees and expenses of one firm
of attorneys (in addition to any local counsel, if any) to the Initial
Purchasers and the Holders in connection therewith, and (ix) any fees and
disbursements of the underwriters customarily required to be paid by issuers or
sellers of securities and the fees and expenses of any special experts retained
by the Company in connection with any Registration Statement,
-3-
<PAGE>
but excluding underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission or any successor
agency or government body performing the functions currently performed by the
United States Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2.2 hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.2 of this
Agreement which covers all of the Registrable Securities or all of the Private
Exchange Securities on an appropriate form under Rule 415 under the 1933 Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under the
Indenture.
2. REGISTRATION UNDER THE 1933 ACT.
2.1. EXCHANGE OFFER. The Company shall, for the benefit of the Holders,
at the Company's cost, (i) prepare and, as soon as practicable but not later
than 30 days following the Closing Date, file with the SEC an Exchange Offer
Registration Statement on an appropriate form under the 1933 Act with respect to
a proposed Exchange Offer and the issuance and delivery to the Holders, in
exchange for the Registrable Securities (other than Private Exchange
Securities), of a like principal amount of Exchange Securities, (ii) use its
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the 1933 Act within 90 days of the Closing Date, (iii) use its
best efforts to keep the Exchange Offer Registration Statement effective until
the closing of the Exchange Offer and (iv) use its best efforts to cause the
Exchange Offer to be consummated not later than 150 days following the Closing
Date. The Exchange Securities will be issued under the Indenture. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company shall
promptly commence the Exchange Offer, it being the objective of such Exchange
Offer to enable each Holder eligible and electing to exchange Registrable
Securities for Exchange Securities (assuming that such Holder (i) is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (ii)
is not a broker-dealer tendering Registrable Securities acquired di-
-4-
<PAGE>
rectly from the Company for its own account, (iii) acquired the Exchange
Securities in the ordinary course of such Holder's business and (iv) has no
arrangements or understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities) to transfer such
Exchange Securities from and after their receipt without any limitations or
restrictions under the 1933 Act and under state securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(a) mail as promptly as practicable to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period of
not less than 30 calendar days after the date notice thereof is mailed to
the Holders (or longer if required by applicable law) (such period
referred to herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange
Offer;
(d) permit Holders to withdraw tendered Registrable Securities at
any time prior to 5:00 p.m. (Eastern Time), on the last business day of
the Exchange Period, by sending to the institution specified in the
notice, a telegram, telex, facsimile transmission or letter setting forth
the name of such Holder, the principal amount of Registrable Securities
delivered for exchange, and a statement that such Holder is withdrawing
such Holder's election to have such Securities exchanged;
(e) notify each Holder that any Registrable Security not tendered
will remain outstanding and continue to accrue interest, but will not
retain any rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If, upon consummation of the Exchange Offer, the Initial Purchasers hold
any Securities acquired by them and having the status of an unsold allotment in
the initial distribution, the Company upon the request of any Initial Purchaser
shall, simultaneously with the delivery of the Exchange Securities in the
Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the
"Private Exchange") for the Securities held by such Initial Purchaser, a like
principal amount of debt securities of the Company that are identical in all
material respects (except that such securities shall bear appropriate transfer
restrictions) to the Exchange Securities (the "Private Exchange Securities").
-5-
<PAGE>
The Exchange Securities and the Private Exchange Securities shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such
qualification, and shall provide that the Exchange Securities shall not be
subject to the transfer restrictions set forth in the Indenture but that the
Private Exchange Securities shall be subject to such transfer restrictions. The
Indenture or such indenture shall provide that the Exchange Securities, the
Private Exchange Securities and the Securities shall vote and consent together
on all matters as one class and that none of the Exchange Securities, the
Private Exchange Securities or the Securities will have the right to vote or
consent as a separate class on any matter. The Private Exchange Securities shall
be of the same series as, and the Company shall use all commercially reasonable
efforts to have the Private Exchange Securities bear the same CUSIP number as,
the Exchange Securities. The Company shall not have any liability under this
Agreement solely as a result of such Private Exchange Securities not bearing the
same CUSIP number as the Exchange Securities.
As soon as practicable after the close of the Exchange Offer and/or the
Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Registrable Securities duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with
the terms of the Exchange Offer Registration Statement and the letter of
transmittal which shall be an exhibit thereto;
(b) accept for exchange all Securities properly tendered pursuant to
the Private Exchange;
(c) deliver to the Trustee for cancellation all Registrable
Securities so accepted for exchange; and
(d) cause the Trustee promptly to authenticate and deliver Exchange
Securities or Private Exchange Securities, as the case may be, to each
Holder of Registrable Securities so accepted for exchange in a principal
amount equal to the principal amount of the Registrable Securities of
such Holder so accepted for exchange.
Interest on each Exchange Security and Private Exchange Security will
accrue from the last date on which interest was paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of original issuance. The Exchange
Offer and the Private Exchange shall not be subject to any conditions, other
than (i) that the Exchange Offer or the Private Exchange, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the due tendering of Registrable
Securities in accordance with the Exchange Offer and the Private Exchange, (iii)
that each Holder of Registrable Securities exchanged in the Exchange Offer shall
have represented that all Exchange Securities to be re-
-6-
<PAGE>
ceived by it shall be acquired in the ordinary course of its business and that
at the time of the consummation of the Exchange Offer it shall have no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the 1933 Act) of the Exchange Securities and shall have
made such other representations as may be reasonably necessary under applicable
SEC rules, regulations or interpretations to render the use of Form S-4 or other
appropriate form under the 1933 Act available and (iv) that no action or
proceeding shall have been instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer or the Private
Exchange which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer or the
Private Exchange. The Company shall inform the Initial Purchasers of the names
and addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.
2.2. SHELF REGISTRATION. (i) If, because of any changes in law, SEC rules
or regulations or applicable interpretations thereof by the staff of the SEC,
the Company is not permitted to effect the Exchange Offer as contemplated by
Section 2.1 hereof, (ii) if for any other reason the Exchange Offer is not
consummated within 150 days after the original issue of the Registrable
Securities, (iii) upon the request of any of the Initial Purchasers if any such
Initial Purchaser holds Securities acquired as part of an unsold allotment or
(iv) if a Holder is not permitted to participate in the Exchange Offer or does
not receive fully tradeable Exchange Securities pursuant to the Exchange Offer,
then in case of each of clauses (i) through (iv) the Company shall, at its cost:
(a) As promptly as practicable, file with the SEC, and thereafter
shall use its best efforts to cause to be declared effective as promptly
as practicable but no later than 150 days after the original issue of the
Registrable Securities, a Shelf Registration Statement relating to the
offer and sale of the Registrable Securities by the Holders from time to
time in accordance with the methods of distribution elected by the
Majority Holders participating in the Shelf Registration and set forth in
such Shelf Registration Statement.
(b) Use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years from the date
the Shelf Registration Statement is declared effective by the SEC (or
until one year from the date of the Shelf Registration Statement if such
Shelf Registration Statement is filed at the request of any Initial
Purchaser), or for such shorter period that will terminate when all
Registrable Securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement or cease to be
outstanding or otherwise to be Registrable Securities (the "Effectiveness
Period"); PROVIDED, HOWEVER, that the Effectiveness Period in respect of
the Shelf Registration Statement shall be extended to the extent required
to
-7-
<PAGE>
permit dealers to comply with the applicable prospectus delivery
requirements of Rule 174 under the 1933 Act and as otherwise provided
herein.
(c) Notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act
and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any Prospectus forming part
of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
The Company shall not permit any securities other than Registrable
Securities to be included in the Shelf Registration Statement. The Company
further agrees, if necessary, to supplement or amend the Shelf Registration
Statement, as required by Section 3(b) below, and to furnish to the Holders
copies of any such supplement or amendment promptly after its being used or
filed with the SEC.
2.3. EXPENSES. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1 or 2.2. Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
2.4. EFFECTIVENESS. (a) The Company will be deemed not to have used its
best efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if the Company voluntarily takes any action that
would, or omits to take any action which omission would, result in any such
Registration Statement not being declared effective or in the Holders covered
thereby not being able to exchange or offer and sell such Registrable Securities
during that period as and to the extent contemplated hereby, unless such action
is required by applicable law.
(b) An Exchange Offer Registration Statement pursuant to Section
2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; PROVIDED, HOWEVER, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to an Exchange Offer Registration
Statement or a Shelf Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective
-8-
<PAGE>
during the period of such interference, until the offering of Registrable
Securities pursuant to such Registration Statement may legally resume.
2.5. INTEREST. The Indenture executed in connection with the Securities
will provide that in the event that either (i) the Exchange Offer Registration
Statement is not filed with the SEC on or prior to the 30th calendar day
following the date of original issue of the Securities, (ii) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 120th
calendar day following the date of original issue of the Securities or (iii) the
Exchange Offer is not consummated or, in case of the clauses (i) through (iv) of
Section 2.2, 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 Securities (each such event referred to in clauses (i) through (iii)
above, a "Registration Default"), the interest rate borne by the Securities
shall be increased ("Additional Interest") by 0.25% per annum upon the
occurrence of a Registration Default, which rate will increase by 0.25% 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 (i.e., in the case of (i) above, the filing of the
Exchange Offer Registration Statement, in the case of (ii) above, the
effectiveness of the Exchange Offer Registration Statement and, in the case of
(iii) above, upon the consummation of the Exchange Offer or the effectiveness of
the Shelf Registration Statement, as the case may be) the accrual of Additional
Interest will cease and the interest rate will revert to the original rate.
If the Shelf Registration Statement is unusable by the Holders for any
reason, and the aggregate number of days in any consecutive twelve-month period
for which the Shelf Registration Statement shall not be usable exceeds 60 days
in the aggregate, then the interest rate borne by the Securities will be
increased by an absolute amount of 0.25% per annum of the principal amount of
the Securities for the first 90-day period (or portion thereof) beginning on the
60th day that such Shelf Registration Statement ceases to be usable, which rate
shall be increased by an additional absolute amount of 0.25% per annum of the
principal amount of the Securities at the beginning of each subsequent 90-day
period, provided that the maximum aggregate increase in the interest rate will
in no event exceed one percent (1%) per annum. Any amounts payable under this
paragraph shall also be deemed "Additional Interest" for purposes of this
Agreement. Upon the Shelf Registration Statement once again becoming usable, the
interest rate borne by the Securities will be reduced to the original interest
rate if and when the Company is otherwise in compliance with this Agreement at
such time. Additional Interest shall be computed based on the actual number of
days elapsed in each 90-day period in which the Shelf Registration Statement is
unusable.
The Company shall notify the Trustee within three business days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Additional Interest shall be
paid by depositing with the Trustee, in trust,
-9-
<PAGE>
for the benefit of the Holders, on or before the applicable semiannual interest
payment date, immediately available funds in sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date to the Holder of Securities entitled to receive the
interest payment to be paid on such date as set forth in the Indenture. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the day following the applicable Event Date.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement, within
the relevant time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Company, (ii)
shall, in the case of a Shelf Registration, be available for the sale of
the Registrable Securities by the selling Holders thereof, (iii) shall
comply as to form in all material respects with the requirements of the
applicable form and include or incorporate by reference all financial
statements required by the SEC to be filed therewith or incorporated by
reference therein, and (iv) shall comply in all respects with the
requirements of Regulation S-T under the 1933 Act, and use its best
efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary under applicable law to keep such Registration Statement
effective for the applicable period; and cause each Prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provision
then in force) under the 1933 Act and comply with the provisions of the
1933 Act, the 1934 Act and the rules and regulations thereunder
applicable to them with respect to the disposition of all securities
covered by each Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
selling Holders thereof (including sales by any Participating
Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least three business days prior to filing,
that a Shelf Registration Statement with respect to the Registrable
Securities is being filed and advising such Holders that the distribution
of Registrable Securities will be made in accordance with the method
selected by the Majority Holders participating in the Shelf Registration;
(ii) furnish to each Holder of Registrable Securities and to each
underwriter of an underwritten offering of Registrable Securities, if
any, without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may rea-
-10-
<PAGE>
sonably request, including financial statements and schedules and, if
the Holder so requests, all exhibits in order to facilitate the public
sale or other disposition of the Registrable Securities; and (iii)
hereby consent to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten offering
of Registrable Securities shall reasonably request by the time the
applicable Registration Statement is declared effective by the SEC, and
do any and all other acts and things which may be reasonably necessary or
advisable to enable each such Holder and underwriter to consummate the
disposition in each such jurisdiction of such Registrable Securities
owned by such Holder; PROVIDED, HOWEVER, that the Company shall not be
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), or (ii) take any action which would
subject it to general service of process or taxation in any such
jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified
the Company that it is utilizing the Exchange Offer Registration
Statement as provided in paragraph (f) below and, if requested by such
Holder or Participating Broker-Dealer, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) in the case of a Shelf Registration, if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating
to the offering cease to be true and correct in all material respects,
(v) of the happening of any event or the discovery of any facts during
the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus
untrue in any material respect or which requires the making of any
changes in such Registration Statement or Prospectus in order to make the
statements therein not misleading, (vi) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Registrable Securities or the Exchange Secur-
-11-
<PAGE>
ities, as the case may be, for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (vii)
of any determination by the Company that a post-effective amendment to
such Registration Statement would be appropriate;
(f) (i) in the case of the Exchange Offer Registration Statement
(A) include in the Exchange Offer Registration Statement a section
entitled "Plan of Distribution" which section shall be reasonably
acceptable to Merrill Lynch on behalf of the Participating
Broker-Dealers, and which shall contain a summary statement of the
positions taken or policies made by the staff of the SEC with respect to
the potential "underwriter" status of any broker-dealer that holds
Registrable Securities acquired for its own account as a result of
market-making activities or other trading activities and that will be the
beneficial owner (as defined in Rule 13d-3 under the 1934 Act) of
Exchange Securities to be received by such broker-dealer in the Exchange
Offer, whether such positions or policies have been publicly disseminated
by the staff of the SEC or such positions or policies, in the reasonable
judgment of Merrill Lynch on behalf of the Participating Broker-Dealers
and its counsel, represent the prevailing views of the staff of the SEC,
including a statement that any such broker-dealer who receives Exchange
Securities for Registrable Securities pursuant to the Exchange Offer may
be deemed a statutory underwriter and must deliver a prospectus meeting
the requirements of the 1933 Act in connection with any resale of such
Exchange Securities, (B) furnish to each Participating Broker-Dealer who
has delivered to the Company the notice referred to in Section 3(e),
without charge, as many copies of each Prospectus included in the
Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request, (C) hereby consent to
the use of the Prospectus forming part of the Exchange Offer Registration
Statement or any amendment or supplement thereto, by any Person subject
to the prospectus delivery requirements of the SEC, including all
Participating Broker-Dealers, in connection with the sale or transfer of
the Exchange Securities covered by the Prospectus or any amendment or
supplement thereto, and (D) include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of
Exchange Securities received in respect of such Registrable Securities
pursuant to the Exchange Offer;"
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer
will not be
-12-
<PAGE>
deemed to admit that it is an underwriter within the meaning of the 1933
Act; and (ii) in the case of any Exchange Offer Registration Statement,
the Company agrees to deliver to the Initial Purchasers on behalf of any
Participating Broker-Dealers upon the effectiveness of the Exchange Offer
Registration Statement (A) an opinion of counsel to the Company that such
counsel has participated in conferences with officers and other
representatives of the Company, counsel for the Initial Purchasers,
representatives of the independent public accountants for the Company,
and that such counsel advises that, on the basis of the foregoing, no
facts came to such counsel's attention that caused such counsel to
believe that either the Exchange Offer Registration Statement, as of its
date, or the Prospectus or any amendment or supplement thereto, at the
time the Prospectus was issued, at the time any such amended or
supplemented Prospectus was issued or at the consummation of the Exchange
Offer, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein in the light of the circumstances under which they
were made, not misleading, with customary exceptions, (B) officers'
certificates substantially in the form customarily delivered in a public
offering of debt securities and (C) a comfort letter or comfort letters
in customary form to the extent permitted by Statement on Auditing
Standards No. 72 of the American Institute of Certified Public
Accountants (or if such a comfort letter is not permitted, an agreed upon
procedures letter in customary form) from the Company's independent
certified public accountants (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements are, or
are required to be, included in the Registration Statement) at least as
broad in scope and coverage as the comfort letter or comfort letters
delivered to the Initial Purchasers in connection with the initial sale
of the Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish
counsel for the Holders copies of any comment letters received from the
SEC or any other request by the SEC or any state securities authority for
amendments or supplements to a Registration Statement and Prospectus or
for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, and each underwriter, if any, without charge,
at least one conformed copy of each Registration Statement and any
post-effective amendment thereto, in-
-13-
<PAGE>
cluding financial statements and schedules (without documents
incorporated therein by reference and all exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders or the
underwriters, if any, may reasonably request at least three business days
prior to the closing of any sale of Registrable Securities;
(k) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by Sections
3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the
occurrence of such an event, use its best efforts to prepare a supplement
or post-effective amendment to the Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities or Participating Broker-Dealers,
such Prospectus will not contain at the time of such delivery any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading or will remain so qualified. At such time
as such public disclosure is otherwise made or the Company determines
that such disclosure is not necessary, in each case to correct any
misstatement of a material fact or to include any omitted material fact,
the Company agrees promptly to notify each Holder of such determination
and to furnish each Holder such number of copies of the Prospectus as
amended or supplemented, as such Holder may reasonably request;
(l) in the case of a Shelf Registration, a reasonable time prior
to the filing of any Registration Statement, any Prospectus, any
amendment to a Registration Statement or amendment or supplement to a
Prospectus or any document which is to be incorporated by reference into
a Registration Statement or a Prospectus after initial filing of a
Registration Statement, provide copies of such document to the Initial
Purchasers on behalf of such Holders; and make representatives of the
Company as shall be reasonably requested by the Holders, or the Initial
Purchasers on behalf of such Holders, available for discussion of such
document;
(m) obtain a CUSIP number for all Exchange Securities, Private
Exchange Securities or Registrable Securities, as the case may be, not
later than the effective date of a Registration Statement, and provide
the Trustee with printed certificates for the Exchange Securities,
Private Exchange Securities or the Registrable Securities, as the case
may be, in a form eligible for deposit with the Depositary;
-14-
<PAGE>
(n) (i) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Securities or
Registrable Securities, as the case may be, (ii) cooperate with the
Trustee and the Holders to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the
terms of the TIA and (iii) execute, and use its best efforts to cause the
Trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the
SEC to enable the Indenture to be so qualified in a timely manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions in order to expedite or facilitate the disposition of
such Registrable Securities and in such connection whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(i) make such representations and warranties to the
Holders of such Registrable Securities and the underwriters, if
any, in form, substance and scope as are customarily made by
issuers to underwriters in similar underwritten offerings as
may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the holders of a majority in
principal amount of the Registrable Securities being sold)
addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested
in sales of securities or underwritten offerings and such other
matters as may be reasonably requested by such Holders and
underwriters;
(iii) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants
(and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements are, or
are required to be, included in the Registration Statement)
addressed to the underwriters, if any, and use reasonable
efforts to have such letter addressed to the selling Holders
(to the extent consistent with Statement on Auditing Standards
No. 72 of the American Institute of Certified Public
Accountants), such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort"
letters to underwriters in connection with similar underwritten
offerings;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of
-15-
<PAGE>
such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement
shall be in form, substance and scope customary for similar
offerings;
(v) if an underwriting agreement is entered into, cause
the same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and
procedures set forth in Section 4 hereof with respect to the
underwriters and all other parties to be indemnified pursuant
to said Section or, at the request of any underwriters, in the
form customarily provided to such underwriters in similar types
of transactions; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in
similar offerings to the Holders of a majority in principal
amount of the Registrable Securities being sold and the
managing underwriters, if any.
The above shall be done at (i) the effectiveness of such
Registration Statement (and each post-effective amendment
thereto) and (ii) each closing under any underwriting or
similar agreement as and to the extent required thereunder;
(p) in the case of a Shelf Registration or if a Prospectus is
required to be delivered by any Participating Broker-Dealer in the case
of an Exchange Offer, make available for inspection by representatives of
the Holders, any underwriters participating in any disposition pursuant
to a Shelf Registration Statement, any Participating Broker-Dealer and
any counsel or accountant retained by any of the foregoing, all financial
and other records, pertinent corporate documents and properties of the
Company reasonably requested by any such persons, and cause the
respective officers, directors, employees, and any other agents of the
Company to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection
with a Registration Statement, and make such representatives of the
Company available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers;
(q) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an
Exchange Offer Registration Statement or amendment or supplement to such
Prospectus, provide copies of such document to the Initial Purchasers and
to counsel to the Holders and make such changes in any such document
prior to the filing thereof as the Initial Purchasers or counsel to the
Holders may reasonably request and, except as otherwise required by
applicable law, not file any such document in a form to which the Initial
Purchasers on behalf of the Holders and counsel to the Holders shall not
have previously been advised and furnished a copy of or to which the
Initial Purchasers on behalf of the Hold-
-16-
<PAGE>
ers or counsel to the Holders shall reasonably object, and make the
representatives of the Company available for discussion of such documents
as shall be reasonably requested by the Initial Purchasers; and (ii) in
the case of a Shelf Registration, a reasonable time prior to filing any
Shelf Registration Statement, any Prospectus forming a part thereof, any
amendment to such Shelf Registration Statement or amendment or supplement
to such Prospectus, provide copies of such document to the Holders, to
the Initial Purchasers, to counsel for the Holders and to the underwriter
or underwriters of an underwritten offering of Registrable Securities, if
any, make such changes in any such document prior to the filing thereof
as the Initial Purchasers, the counsel to the Holders or the underwriter
or underwriters reasonably request and not file any such document in a
form to which the Majority Holders, the Initial Purchasers on behalf of
the Holders, counsel for the Holders or any underwriter shall not have
previously been advised and furnished a copy of or to which the Majority
Holders, the Initial Purchasers of behalf of the Holders, counsel to the
Holders or any underwriter shall reasonably object, and make the
representatives of the Company available for discussion of such document
as shall be reasonably requested by the Holders, the Initial Purchasers
on behalf of such Holders, counsel for the Holders or any underwriter;
(r) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange
on which similar debt securities issued by the Company are then listed if
requested by the Majority Holders, or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if
any;
(s) in the case of a Shelf Registration, use its best efforts to
cause the Registrable Securities to be rated by the appropriate rating
agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;
(t) otherwise comply with all applicable rules and regulations of
the SEC and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which
shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule
158 thereunder;
(u) cooperate and assist in any filings required to be made with
the NASD and, in the case of a Shelf Registration, in the performance of
any due diligence investigation by any underwriter and its counsel
(including any "qualified independent underwriter" that is required to be
retained in accordance with the rules and regulations of the NASD); and
(v) upon consummation of an Exchange Offer or a Private Exchange,
obtain a customary opinion of counsel to the Company addressed to the
Trustee for the benefit of all Holders participating in the Exchange
Offer or Private Exchange, which
-17-
<PAGE>
includes an opinion that (i) the Company has duly authorized, executed
and delivered the Exchange Securities and/or Private Exchange Securities,
as applicable, and the related indenture, and (ii) each of the Exchange
Securities and related indenture constitute a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(v) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(k) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
its expense) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders included in such offering and shall be
acceptable to the Company. No Holder of Registrable Securities may participate
in any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
4. INDEMNIFICATION; CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder, each Participating Broker-Dealer, each Person
who participates as an underwriter (any such Person being an
"Underwriter") and each Person, if any, who controls any Holder or
Underwriter within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any
-18-
<PAGE>
amendment or supplement thereto) pursuant to which Exchange
Securities or Registrable Securities were registered under the
1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 4(d) below) any such
settlement is effected with the written consent of the Company;
and
(iii) against any and all expense whatsoever, as incurred
(including the reasonable fees and disbursements of counsel chosen
by any indemnified party), reasonably incurred in investigating,
preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not
paid under subparagraph (i) or (ii) above; PROVIDED, HOWEVER, that
this indemnity agreement shall not apply to any loss, liability,
claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made
in reliance upon and in conformity with written information
furnished to the Company by the Holder or Underwriter expressly
for use in a Registration Statement (or any amendment thereto) or
any Prospectus (or any amendment or supplement thereto).
(b) Each Holder, severally, but not jointly, agrees to indemnify
and hold harmless the Company, the Initial Purchasers, each Underwriter
and the other selling Holders, and each of their respective directors and
officers, and each Person, if any, who controls the Company, the Initial
Purchasers, any Underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
against any and all loss, liability, claim, damage and expense described
in the indemnity contained in Section 4(a) hereof, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Shelf Registration Statement (or any
amendment thereto) or any Prospectus included therein
-19-
<PAGE>
(or any amendment or supplement thereto) in reliance upon and in
conformity with written information with respect to such Holder furnished
to the Company by such Holder expressly for use in the Shelf Registration
Statement (or any amendment thereto) or such Prospectus (or any amendment
or supplement thereto); PROVIDED, HOWEVER, that no such Holder shall be
liable for any claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Registrable Securities pursuant
to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be
sought hereunder, but failure so to notify an indemnifying party shall
not relieve such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any
event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action; provided,
however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified
party. In no event shall the indemnifying party or parties be liable for
the fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions
in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written
consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4
(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be
liable for any settlement of the nature contemplated by Section 4(a)(ii)
effected without its written consent if (i) such settlement is entered
into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such
settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request
prior to the date of such settlement.
-20-
<PAGE>
(e) If the indemnification provided for in this Section 4 is for
any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, in such
proportion as is appropriate to reflect the relative fault of the Company
on the one hand and the Holders and the Initial Purchasers on the other
hand in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any
other relevant equitable considerations.
The relative fault of the Company on the one hand and the Holders and the
Initial Purchasers on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company, the Holders or the Initial Purchasers and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 4. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
4 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by it were offered exceeds the amount
of any damages which such Initial Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company, and each Person,
if any, who controls the Company within the meaning
-21-
<PAGE>
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the principal amount of Securities set forth opposite their respective names
in Schedule A to the Purchase Agreement and not joint.
5. MISCELLANEOUS.
5.1. RULE 144 AND RULE 144A. For so long as the Company is subject to the
reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will file the reports required to be filed by it under the
1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the 1933
Act, (b) deliver such information to a prospective purchaser as is necessary to
permit sales pursuant to Rule 144A under the 1933 Act and it will take such
further action as any Holder of Registrable Securities may reasonably request,
and (c) take such further action that is reasonable in the circumstances, in
each case, to the extent required from time to time to enable such Holder to
sell its Registrable Securities without registration under the 1933 Act within
the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act,
as such Rule may be amended from time to time, or (iii) any similar rules or
regulations hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5.2. NO INCONSISTENT AGREEMENTS. The Company has not entered into and the
Company will not after the date of this Agreement enter into any agreement which
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not and will not for the term of this Agreement in any way
conflict with the rights granted to the holders of the Company's other issued
and outstanding securities under any such agreements.
5.3. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
departure.
5.4. NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with
-22-
<PAGE>
the provisions of this Section 5.4, which address initially is the address set
forth in the Purchase Agreement with respect to the Initial Purchasers; and (b)
if to the Company, initially at the Company's address set forth in the Purchase
Agreement, and thereafter at such other address of which notice is given in
accordance with the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and on the next
business day if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5. SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; PROVIDED that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such person shall be entitled to
receive the benefits hereof.
5.6. THIRD PARTY BENEFICIARIES. The Initial Purchasers (even if the
Initial Purchasers are not Holders) shall be third party beneficiaries to the
agreements made hereunder between the Company, on the one hand, and the Holders,
on the other hand, and shall have the right to enforce such agreements directly
to the extent they deem such enforcement necessary or advisable to protect their
rights or the rights of Holders hereunder. Each Holder of Registrable Securities
shall be a third party beneficiary to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights hereunder.
5.7. SPECIFIC ENFORCEMENT. Without limiting the remedies available to the
Initial Purchasers and the Holders, the Company acknowledges that any failure by
the Company to comply with its obligations under Sections 2.1 through 2.4 hereof
may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it would not be
possible to measure damages for such injuries precisely and that,
-23-
<PAGE>
in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's
obligations under Sections 2.1 through 2.4 hereof.
5.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.9. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.11. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PARK PLACE ENTERTAINMENT CORPORATION
By:
---------------------------------------
Name: Scott A. LaPorta
Title: Executive Vice President and Chief
Financial Officer
Confirmed and accepted as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BANC OF AMERICA SECURITIES LLC
DEUTSCHE BANK SECURITIES INC.
SG COWEN SECURITIES CORPORATION
SCOTIA CAPITAL MARKETS (USA) INC.
BNY CAPITAL MARKETS, INC.
FIRST UNION CAPITAL MARKETS CORP.
PNC CAPITAL MARKETS, INC.
BEAR, STEARNS & CO. INC.
NORWEST INVESTMENT SERVICES, INC.
By:
----------------------------------------
Authorized Signatory
<PAGE>
Exhibit 8
[Latham & Watkins Letterhead]
August 30, 1999
Park Place Entertainment Corporation
3930 Howard Hughes Parkway
Las Vegas, Nevada 89109
Re: Park Place Entertainment Corporation: Registration Statement on Form S-4
Ladies & Gentlemen:
You have requested our opinion concerning the material federal income
tax consequences expected to result to holders from the exchange of the 7.95%
Senior Notes due 2003 of Park Place Entertainment Corporation (the
"Company"), in connection with the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission (the "Commission") on August 30,
1999 (the "Registration Statement").
The facts, as we understand them, and upon which with your permission we
rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, we confirm that the information
in the Registration Statement set forth under the caption "Material Federal
Income Tax Consequences of the Exchange" constitutes our opinion as to the
material federal income tax consequences of the exchange of "old notes" for
"exchange notes" (as such terms are defined in the Registration Statement) to
holders of old notes. No opinion is expressed as to any matter not discussed
herein.
This opinion is based upon various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which
are subject to change either prospectively or retroactively. Also, any
variation or difference in the facts from those set forth in the Registration
Statement may affect the conclusions stated herein.
This opinion is rendered only to you, and is solely for your use and the
use of holders of old notes in connection with the filing of the Registration
Statement with the Commission. This opinion may not be relied upon by you or
holders of old notes for any other purpose, or furnished to, quoted to, or
relied upon by any other person, firm or corporation, for any purpose,
without our prior consent. We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and to the use of the name of our
firm therein under the headings "Material Federal Income Tax Consequences of
the Exchange" and "Legal Matters." In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules or regulations of
the Commission promulgated thereunder.
Very truly yours,
/s/ Latham & Watkins
<PAGE>
PARK PLACE ENTERTAINMENT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30, Years Ended December 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes and minority interest $ 158 $ 143 $ 216 $ 131 $ 56 $ 126 $ 124
Add:
Interest expense 58 43 87 82 37 41 37
Distributions from less than 50% owned
companies 4 2 6 4 3 6 6
Interest component of rent expense 2 1 1 2 2 1 1
--------- --------- --------- --------- --------- --------- ---------
Earnings available for fixed charges $ 222 $ 189 $ 310 $ 219 $ 98 $ 174 $ 168
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fixed charges:
Interest expense $ 58 $ 43 $ 87 $ 82 $ 37 $ 41 $ 37
Capitalized interest 27 9 25 9 7 2 6
Interest component of rent expense 2 1 1 2 2 1 1
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 87 $ 53 $ 113 $ 93 $ 46 $ 44 $ 44
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges 2.6x 3.6x 2.7x 2.4x 2.1x 4.0x 3.8x
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF PARK PLACE ENTERTAINMENT CORPORATION
1. Grand Casinos, Inc., a Minnesota corporation
2. Park Place Finance Corp., a Nevada corporation
3. Parball Corporation, a Nevada corporation
4. Consolidated Supplies, Systems, and Services, a Nevada corporation
5. PPE--ASP, Inc., a Nevada corporation
6. LVH Corporation, a Nevada corporation
7. MGM Grand--Bally's Monorail Limited Liability Co., a Nevada limited
liability company
8. GNOC Corp., a New Jersey corporation
9. Bally's Land Ventures, Inc., a New Jersey corporation
10. Atlantic City Country Club, Inc., a New Jersey corporation
11. Bally's Casino Management, Inc., a Nevada corporation
12. Bally's Louisiana, Inc., a Louisiana corporation
13. Bally's Manager, Inc., a Maryland corporation
14. Bally's Maryland, Inc., a Maryland corporation
15. Bally's Midwest Casino, Inc., a Delaware corporation
16. Bally's Operator, Inc., a Delaware corporation
17. Bally's Park Place Funding, Inc., a Delaware corporation
18. Bally's Park Place Realty Co., a New Jersey corporation
19. Bally's Park Place, Inc., a New Jersey corporation
20. Bally's Tunica, Inc., a Mississippi corporation
21. Bally Data Systems, Inc., an Illinois corporation
22. Benco, Inc., a Nevada corporation
23. BI Gaming Corporation, a Nevada corporation
24. Conrad International Hotels Corporation--SA (Proprietary) Limited, a
South Africa corporation
25. FHR Corporation, a Nevada corporation
26. Flamingo Hilton--Laughlin, Inc., a Nevada corporation
27. BL Development Corp., a Minnesota corporation
28. Grand Casinos of Mississippi, Inc., a Minnesota corporation
29. Grand Casinos Mississippi Development, Inc., a Minnesota corporation
30. BL Resorts I, L.L.C., a Minnesota limited liability company
31. GCG Resorts I, L.L.C., a Minnesota limited liability company
32. Grand Casinos of Mississippi, L.L.C. Gulfport, a Mississippi limited
liability company
33. Bally's Olympia Limited Partnership, a Delaware limited partnership
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our report dated February 5, 1999
included in Park Place Entertainment Corporation's Form 10-K for the year ended
December 31, 1998 and to all references to our Firm included in this Form S-4
registration statement.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
August 24, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 5, 1999 on the consolidated financial statements of Grand
Casinos, Inc. and Subsidiaries and to all references to our Firm included in or
made a part of this Form S-4 registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
August 24, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in this registration statement and to the incorporation by
reference in this registration statement of our report dated May 21, 1999 on the
combined consolidated financial statements of Starwood Hotels & Resorts
Worldwide, Inc. Gaming Operations To Be Sold to Park Place Entertainment
Corporation and included in Park Place Entertainment Corporation's Form 8-K
filed on July 20, 1999 and to all references to our Firm included in or made a
part of this Form S-4 registration statement.
ARTHUR ANDERSEN LLP
New York, New York
August 24, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 29, 1999 included in this
Form S-4 Registration Statement of Park Place Entertainment Corporation, with
respect to the financial statements of Metropolitan Entertainment Group,
operating as Sheraton Casinos Nova Scotia.
Ernst & Young LLP
Chartered Accountants
Halifax, Canada
August 27, 1999
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
__ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
PARK PLACE ENTERTAINMENT CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 88-0400631
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3930 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA 89109
(Address of principal executive offices) (Zip code)
-----------------------------
7.95% SENIOR NOTES DUE 2003
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Item 1. GENERAL INFORMATION. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. FOREIGN TRUSTEE. Not applicable.
Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28,
1872, by the Comptroller of the Currency to
The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis and
The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of
Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the
Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-83117
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 19th day of August 1999.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
----------------------------------------
Timothy P. Mowdy
Corporate Trust Officer
<PAGE>
EXHIBIT 6
August 19, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
---------------------------------
Timothy P. Mowdy
Corporate Trust Officer
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
WITH RESPECT TO TENDER OF
ANY AND ALL OUTSTANDING 7.95% SENIOR NOTES DUE 2003
IN EXCHANGE FOR
7.95% SENIOR NOTES DUE 2003
OF
PARK PLACE ENTERTAINMENT CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE
EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT IS:
NORWEST BANK MINNESOTA, N.A.
<TABLE>
<S> <C> <C>
BY REGISTERED OR BY FACSIMILE: BY HAND OR OVERNIGHT COURIER:
CERTIFIED MAIL: (612) 667-4927 Norwest Bank Minnesota, N.A.
Norwest Bank Minnesota, N.A. Corporate Trust Operations
Corporate Trust Operations CONFIRM BY TELEPHONE: Norwest Center
PO Box 1517 (612) 667-9764 Sixth & Marquette
Minneapolis, MN 55480-1517 Bondholder Communications MAC N9303-121
Minneapolis, MN 55479
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL
NOT CONSTITUTE VALID DELIVERY TO THE EXCHANGE AGENT.
The instructions set forth in this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed. The undersigned
acknowledges that he or she has received and reviewed the prospectus (the
"Prospectus") dated , 1999, of Park Place Entertainment Corporation,
a Delaware corporation ("Park Place" or the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together constitute the
Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of
its 7.95% Senior Notes due 2003 (the "Exchange Notes") that have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for each
$1,000 principal amount of its outstanding 7.95% Senior Notes due 2003 (the "Old
Notes"). Recipients of the Prospectus should read the requirements described in
the Prospectus with respect to eligibility to participate in the Exchange Offer.
Capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX
BELOW.
This Letter of Transmittal is to be used by a holder of Old Notes (i) if
certificates representing tendered Old Notes are to be forwarded herewith, (ii)
if a tender is made pursuant to the guaranteed delivery procedures in the
section of the Prospectus entitled "The Exchange Offer--Procedures for Tendering
Old Notes."
Holders that are tendering by book-entry transfer to the Exchange Agent's
account at DTC can execute the tender through ATOP for which the Exchange Offer
will be eligible. DTC participants that are accepting the Exchange Offer must
transmit their acceptance to DTC which will verify the acceptance and execute a
book-entry delivery to the Exchange Agent's account at DTC. DTC will then send
an agent's
<PAGE>
message forming part of a book-entry transfer in which the participant agrees to
be bound by the terms of the Letter of Transmittal (an "Agent's Message") to the
Exchange Agent for its acceptance. Transmission of the Agent's Message by DTC
will satisfy the terms of the Exchange Offer as to execution and delivery of a
Letter of Transmittal by the participant identified in the Agent's Message.
In order to properly complete this Letter of Transmittal, a holder of Old
Notes must (i) complete the box entitled, "Description of Old Notes Tendered,"
(ii) if appropriate, check and complete the boxes relating to book-entry
transfer, guaranteed delivery, Special Issuance Instructions and Special
Delivery Instructions, (iii) sign the Letter of Transmittal by completing the
box entitled "Sign Here" and (iv) complete the Substitute Form W-9. Each holder
of Old Notes should carefully read the detailed instructions below prior to
completing the Letter of Transmittal.
Holders of Old Notes who desire to tender their Old Notes for exchange and
whose Old Notes are not immediately available or who cannot deliver their Old
Notes, this Letter of Transmittal and all other documents required hereby to the
Exchange Agent or complete the procedures for book-entry transfer on or prior to
the Expiration Date, must tender the Old Notes pursuant to the guaranteed
delivery procedures set forth in the section of Prospectus entitled "The
Exchange Offer--Procedures for Tendering Old Notes." See Instruction 2. Delivery
of documents to DTC does not constitute delivery to the Exchange Agent. In order
to ensure participation in the Exchange Offer, Old Notes must be properly
tendered prior to the Expiration Date.
Holders of Old Notes who wish to tender their Old Notes for exchange must
complete columns (1) through (3) in box below entitled "Description of Old Notes
Tendered," and sign the box below entitled "Sign Here." If only those columns
are completed, such holder of Old Notes will have tendered for exchange all Old
Notes listed in column (3) below. If the holder of Old Notes wishes to tender
for exchange less than all of such Old Notes, column (4) must be completed in
full. In such case, such holder of Old Notes should refer to Instruction 5.
The Exchange Offer may be extended, terminated or amended, as provided in
the Prospectus. During any such extension of the Exchange Offer, all Old Notes
previously tendered and not withdrawn pursuant to the Exchange Offer will remain
subject to such Exchange Offer. The Exchange Offer is scheduled to expire at
5:00 p.m., New York City time, on , 1999, unless extended by Park Place.
2
<PAGE>
The undersigned hereby tenders for exchange the Old Notes described in the
box entitled "Description of Old Notes Tendered" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
-------------------------------------------------------------------------------------------
(1) (2) (3) (4)
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) AMOUNT AMOUNT
OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY TENDERED FOR
(PLEASE FILL IN, IF BLANK) NUMBER(S) CERTIFICATE(S)(A) EXCHANGE(B)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
TOTAL
PRINCIPAL
AMOUNT
TENDERED
- ---------------------------------------------------------------------------------------------
</TABLE>
(A) Unless otherwise indicated in this column, any tendering holder
will be deemed to have tendered the entire principal amount
represented by the Old Notes indicated in the column labeled
"Aggregate Principal Amount Represented by Certificate(s)." See
Instruction 5.
(B) The minimum permitted tender is $1,000 in principal amount of Old
Notes. All other tenders must be integral multiples of $1,000.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution that guaranteed delivery _______________________________
Only registered holders are entitled to tender their Old Notes for exchange
in the Exchange Offer. Any financial institution that is a participant in DTC's
system and whose name appears on a security position listing as the record owner
of the Old Notes and who wishes to make book-entry delivery of Old Notes as
described above must complete and execute a participant's letter (which will be
distributed to participants by DTC) instructing DTC's nominee to tender such Old
Notes for exchange. Persons who are beneficial owners of Old Notes but are not
registered holders and who seek to tender Old Notes should (i) contact the
registered holder of such Old Notes and instruct such registered holder to
tender on his or her behalf, (ii) obtain and include with this Letter of
Transmittal, Old Notes properly endorsed for transfer by the registered holder
or accompanied by a properly completed bond power from the registered holder,
with signatures on the endorsement or bond power guaranteed by a firm that is a
member of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., a commercial bank or trading company
having an office in the United States or certain other eligible guarantors
(each, an "Eligible Institution"), or (iii) effect a record transfer of such Old
Notes from the registered holder to such beneficial owner and comply with the
requirements applicable to registered holders for tendering Old Notes prior to
the Expiration Date. See "The Exchange Offer--Procedures for Tendering Old
Notes."
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
4
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Park Place for exchange the Old Notes indicated
above. Subject to, and effective upon, acceptance for purchase of the Old Notes
tendered herewith, the undersigned hereby sells, assigns, transfers and
exchanges to Park Place all right, title and interest in and to all such Old
Notes tendered for exchange hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent
also acts as agent of Park Place) with respect to such Old Notes, with full
power of substitution and resubstitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest) to (a) deliver certificates
representing such Old Notes, or transfer ownership of such Old Notes on the
account books maintained by DTC, together, in each such case, with all
accompanying evidences of transfer and authenticity to Park Place, (b) present
and deliver such Old Notes for transfer on the books of Park Place, and (c)
receive all benefits or otherwise exercise all rights and incidents of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned 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 Old Notes, and that, when the
same are accepted for exchange, Park Place 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 undersigned
also warrants that it will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or Park Place 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
the book-entry transfer facility. The undersigned further agrees that acceptance
of any and all validly tendered Old Notes by Park Place and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by Park
Place of its obligations under the Registration Rights Agreement.
By tendering, each holder of Old Notes represents that the Exchange Notes
acquired in the exchange will be obtained in the ordinary course of such
holder's business, that such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes, that such holder is not
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and that such holder is not engaged in, and does not intend to
engage in, a distribution of the Exchange Notes. Any holder of Old Notes 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 the position of the staff of the Securities and Exchange Commission (the
"Commission") enunciated in its series of interpretive "no-action" letters with
respect to exchange offers and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer holding Old Notes that
were acquired for its own account as a result of market-making activities or
other trading activities, it acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
Exchange Notes received in respect of such Old Notes pursuant to the Exchange
Offer, however, by so acknowledging and by delivering a prospectus in connection
with the exchange of Old Notes, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
All authority conferred or agreed to be conferred pursuant to this Letter of
Transmittal and every obligation of the undersigned hereunder shall be binding
upon the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy, and personal and legal representatives of the undersigned and shall
not be affected by, and shall survive, the death or incapacity of the
undersigned. Old Notes properly
5
<PAGE>
tendered may be withdrawn at any time prior to the Expiration Date in accordance
with the terms of this Letter of Transmittal.
The Exchange Offer is subject to certain conditions, each of which may be
waived or modified by Park Place, in whole or in part, at any time and from time
to time, as described in the Prospectus under the caption "The Exchange
Offer--Certain Conditions to the Exchange Offer." The undersigned recognizes
that as a result of such conditions Park Place may not be required to accept for
exchange, or to issue Exchange Notes in exchange for, any of the Old Notes
properly tendered hereby. In such event, the tendered Old Notes not accepted for
exchange will be returned to the undersigned without cost to the undersigned at
the address shown below the undersigned's signature(s) unless otherwise
indicated under "Special Issuance Instructions" below.
Unless otherwise indicated under "Special Issuance Instructions" below,
please return any certificates representing Old Notes not tendered or not
accepted for exchange in the name(s) of the holder(s) appearing under
"Description of Old Notes Tendered." Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail any certificates representing Old
Notes not tendered or not accepted for exchange (and accompanying document, as
appropriate) to the address(es) of the holder(s) appearing under "Description of
Old Notes Tendered." In the event that both the "Special Issuance Instructions"
and the "Special Delivery Instructions" are completed, please issue the
certificates representing the Exchange Notes issued in exchange for the Old
Notes accepted for exchange in the name(s) of, and return any Old Notes not
tendered or not accepted for exchange to, the person or persons so indicated.
Unless otherwise indicated under "Special Issuance Instructions," in the case of
a book-entry delivery of Old Notes, please credit the account maintained at DTC
with any Old Notes not tendered or not accepted for exchange. The undersigned
recognizes that Park Place does not have any obligation pursuant to the Special
Issuance Instructions, to transfer any Old Notes from the name of the holder
thereof if Park Place does not accept for exchange any of the Old Notes so
tendered or if such transfer would not be in compliance with any transfer
restrictions applicable to such Old Notes.
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if (i) Exchange Notes issued for Old Notes,
certificates for Old Notes in a principal amount not exchanged for Exchange
Notes, or Old Notes (if any) not tendered for exchange are to be issued in
the name of someone other than the undersigned, or (ii) Old Notes tendered
by book-entry transfer which are not exchanged are to be returned by credit
to an account maintained at DTC other than the account indicated above.
Issue to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
Credit Old Notes not exchanged and delivered by book-entry transfer to
the DTC account set forth below:
____________________________________________________________________________
(ACCOUNT NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if the Exchange Notes issued for Old Notes,
certificates for Old Notes in a principal amount not exchanged for Exchange
Notes, or Old Notes (if any) not tendered for exchange are to be sent to
someone other than the undersigned or to the undersigned at an address other
than that shown above.
Mail to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
7
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE TO TENDER YOUR OLD NOTES IN THE EXCHANGE OFFER
____________________________________________________________________________
____________________________________________________________________________
SIGNATURE(S) OF HOLDER(S) OF OLD NOTES
Dated: _____________________________________________________________________
(Must be signed by the registered holder(s) of Old Notes exactly as
name(s) appear(s) on certificate(s) representing the Old Notes or on a
security position listing or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature
is by attorney-in-fact, executor, administrator, trustee, guardian, officer
of a corporation or other person acting in a fiduciary or representative
capacity, please provide the following information and see Instruction 6.)
Capacity (Full Title) ______________________________________________________
____________________________________________________________________________
Name(s) ____________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number ( )________________________________________
Tax Identification or Social Security No. __________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 6)
Authorized Signature _______________________________________________________
Name _______________________________________________________________________
(PLEASE TYPE OR PRINT)
Title ______________________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number ( )________________________________________
Dated: _____________________________________________________________________
- --------------------------------------------------------------------------------
IMPORTANT: COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 IN THIS LETTER OF
TRANSMITTAL
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal need
not be guaranteed if the Old Notes tendered hereby are tendered (a) by the
registered holder(s) of Old Notes thereof, unless such holder has completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above, or (b) or the account of a firm that is a
member of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office in the United States (each, an "Eligible Institution"). In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution. Persons who are beneficial owners of Old Notes but are
not the registered holder(s) and who seek to tender Old Notes for exchange
should (i) contact the registered holder(s) of such Old Notes and instruct such
registered holder(s) to tender on such beneficial owner's behalf, (ii) obtain
and include with this Letter of Transmittal, Old Notes properly endorsed for
transfer by the registered holder(s) or accompanied by a properly completed bond
power from the registered holder(s) with signatures on the endorsement or bond
power guaranteed by an Eligible Institution, or (iii) effect a record transfer
of such Old Notes from the registered holder(s) to such beneficial owner and
comply with the requirements applicable to registered holder(s) for tendering
Old Notes for exchange prior to the Expiration Date. See Instruction 6.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD NOTES OR
BOOK-ENTRY CONFIRMATIONS; GUARANTEED DELIVERY PROCEDURES. This Letter of
Transmittal is to be completed by registered holder(s) if certificates
representing Old Notes are to be forwarded herewith. All physically delivered
Old Notes, as well as a properly completed and duly executed Letters of
Transmittal (or manually signed facsimiles thereof) and any other required
documents, must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date or the tendering holder must comply with the
guaranteed delivery procedures set forth below. Delivery of the documents to DTC
does not constitute delivery to the Exchange Agent.
The method of delivery of this Letter of Transmittal, Old Notes and all
other required documents to the Exchange Agent is at the election and risk of
the holder thereof. If such delivery is by mail, it is suggested that holders
use properly insured registered mail, return receipt requested, and that the
mailing be sufficiently in advance of the Expiration Date, to permit delivery to
the Exchange Agent prior to such date. Except as otherwise provided below, the
delivery will be deemed made when actually received or confirmed by the Exchange
Agent. This Letter of Transmittal and Old Notes tendered for exchange should be
sent only to the Exchange Agent, not to Park Place.
A holder who desires to tender Old Notes for exchange and who cannot comply
with the procedures set forth herein for tender on a timely basis or whose Old
Notes are not immediately available must comply with the guaranteed delivery
procedures described below.
If holders desire to tender Old Notes for exchange pursuant to the Exchange
Offer and (i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing Old Notes or other required documents to reach the
Exchange Agent prior to the Expiration Date, or (iii) the procedures for
book-entry transfer cannot be completed prior to the Expiration Date, such
holder may effect a tender of Old Notes for exchange in accordance with the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering Old Notes."
Pursuant to the guaranteed delivery procedures:
(a) such tender must be made by or through an Eligible Institution
(defined as an institution that is a recognized member in good standing of a
Medallion Signature Guarantee Program recognized by the Exchange Agent,
i.e., the Securities Transfer Agent's Medallion Program, the Stock
Exchange's Medallion Program and the New York Stock Exchange's Medallion
Signature Program);
9
<PAGE>
(b) prior to the Expiration Date, the Exchange Agent must have received
from such Eligible Institution, at one of the addresses of the Exchange
Agent set forth herein, a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile, mail or hand delivery) substantially in
the form provided by Park Place setting forth the name(s) and address(es) of
the registered holder(s) of such Old Notes, the certificate number(s) and
the principal amount of Old Notes being tendered for exchange and stating
that the tender is being made thereby and guaranteeing that, within three
(3) New York Stock Exchange trading days after the Expiration Date, a
properly completed and duly executed Letter of Transmittal, or a facsimile
thereof, together with certificates representing the Old Notes (or
confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account with DTC and an Agent's Message) and any other documents
required by this Letter of Transmittal and the instructions hereto, will be
deposited by such Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal or a facsimile thereof, properly
completed together with duly executed certificates for all physically
delivered Old Notes in proper form for transfer (or confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account with
DTC as described above) and all other required documents must be received by
the Exchange Agent within three (3) New York Stock Exchange trading days
after the date of the Notice of Guaranteed Delivery.
All tendering holders, by execution of this Letter of Transmittal, waive any
right to receive any notice of the acceptance of their Old Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled
"Description of Old Notes Tendered" above is adequate, the certificate numbers
and principal amounts of Old Notes tendered should be listed on a separate
signed schedule affixed hereto.
4. WITHDRAWAL OF TENDERS. A tender of Old Notes may be withdrawn at any
time prior to the Expiration Date by delivery of written or facsimile (receipt
confirmed by telephone) notice of withdrawal to the Exchange Agent at the
address set forth on the cover of this Letter of Transmittal. To be effective, a
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.
The Exchange Agent will return the properly withdrawn Old Notes promptly
following receipt of 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.
All questions as to the validity of notices of withdrawals, including, time of
receipt, will be determined by Park Place 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 the caption "The Exchange Offer-- Procedures for
Tendering Old Notes" in the Prospectus at any time prior to the Expiration Date.
10
<PAGE>
5. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY
BOOK-ENTRY TRANSFER). Tenders of Old Notes will be accepted only in integral
multiples of $1,000 principal amount. If a tender for exchange is to be made
with respect to less than the entire principal amount of any Old Notes, fill in
the principal amount of Old Notes which are tendered for exchange in column (4)
of the box entitled "Description of Old Notes Tendered," as more fully described
in the footnotes thereto. In the case of a partial tender for exchange, a new
certificate, in fully registered form, for the remainder of the principal amount
of the Old Notes, will be sent to the holders of Old Notes unless otherwise
indicated in the boxes entitled "Special Issuance Instructions" or "Special
Delivery Instructions" above, as soon as practicable after the expiration or
termination of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the holder(s) of the
Old Notes tendered for exchange hereby, the signature(s) must correspond exactly
with the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal. If any
tendered Old Notes are registered in different names on several certificates, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal and any necessary or required documents as there are names
in which certificates are held.
If this Letter of Transmittal or any certificates or bond powers 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 proper evidence satisfactory to
Park Place of its authority so to act must be submitted, unless waived by Park
Place.
If this Letter of Transmittal is signed by the holder(s) of the Old Notes
listed and transmitted hereby, no endorsements of certificates or separate bond
powers are required unless certificates for Old Notes not tendered or not
accepted for exchange are to be issued or returned in the name of a person other
than for the holder(s) thereof. Signatures on such certificates must be
guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes, the certificates representing such Old
Notes must be properly endorsed for transfer by the registered holder or be
accompanied by a properly completed bond power from the registered holder, in
either case signed by such registered holder(s) exactly as the name(s) of the
registered holder(s) the Old Notes appear(s) on the certificates. Signatures on
the endorsement or bond power must be guaranteed by an Eligible Institution
(unless signed by an Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, Park Place
will pay or cause to be paid any transfer taxes applicable to the exchange of
Old Notes pursuant to the Exchange Offer. If, however, 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 transfer taxes (whether imposed on the registered
holder(s) or any other persons) will be payable by the tendering holder. If
satisfactory evidence of the payment of such taxes or exemptions therefrom is
not submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are
to be issued or if any Old Notes not tendered or not accepted for exchange are
to be issued or sent to a person other than the person(s) signing this Letter of
Transmittal or to an address other than that shown above, the appropriate boxes
on this Letter of Transmittal should be completed. Holders of Old Notes
tendering Old Notes by book-entry transfer may request that Old Notes not
accepted for exchange be credited to such account maintained at DTC as such
holder may designate.
9. IRREGULARITIES. All questions as to the forms of all documents and the
validity of (including time of receipt) and acceptance of the tenders and
withdrawals of Old Notes will be determined by Park Place,
11
<PAGE>
in its sole discretion, which determination shall be final and binding.
Alternative, conditional or contingent tenders will not be considered valid.
Park Place reserves the absolute right to reject any or all tenders of Old Notes
that are not in proper form or the acceptance of which would, in Park Place's
opinion, be unlawful. Park Place also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. Park Place's
interpretations of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) will be final and binding. Any
defect or irregularity in connection with tenders of Old Notes must be cured
within such time as Park Place determines, unless waived by Park Place. Tenders
of Old Notes shall not be deemed to have been made until all defects or
irregularities have been waived by Park Place or cured. Neither Park Place, the
Exchange Agent, nor any other person will be under any duty to give notice of
any defects or irregularities in tenders of Old Notes, or will incur any
liability to registered holders of Old Notes for failure to give such notice.
10. WAIVER OF CONDITIONS. To the extent permitted by applicable law, Park
Place reserves the right to waive any and all conditions to the Exchange Offer
as described under "The Exchange Offer--Conditions to the Exchange Offer" in the
Prospectus, and accept for exchange any Old Notes tendered.
11. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income tax
law generally requires that a holder of Old Notes whose tendered Old Notes are
accepted for exchange or such holder's assignee (in either case, the "Payee"),
provide the Exchange Agent (the "Payor") with such Payee's correct Taxpayer
Identification Number ("TIN"), which, in the case of a Payee who is an
individual, is such Payee's social security number. If the Payor is not provided
with the correct TIN or an adequate basis for an exemption, such Payee may be
subject to a $50 penalty imposed by the Internal Revenue Service and backup
withholding in an amount equal to 31% of the gross proceeds received pursuant to
the Exchange Offer. If withholding results in an overpayment of taxes, a refund
may be obtained.
To prevent backup withholding, each Payee must provide such Payee's correct
TIN by completing the "Substitute Form W-9" set forth herein, certifying that
the TIN provided is correct (or that such Payee is awaiting a TIN) and that (i)
the Payee is exempt from backup withholding, (ii) the Payee has not been
notified by the Internal Revenue Service that such Payee is subject to backup
withholding as a result of a failure to report all interest or dividends, or
(iii) the Internal Revenue Service has notified the Payee that such Payee is no
longer subject to backup withholding.
If the Payee does not have a TIN, such Payee should consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 (the "W-9 Guidelines") for instructions on applying for a TIN, write
"Applied For" in the space for the TIN in Part 1 of the Substitute Form W-9, and
sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer
Identification Number set forth herein. If the Payee does not provide such
Payee's TIN to the Payor within 60 days, backup withholding will begin and
continue until such Payee furnishes such Payee's TIN to the Payor. Note: Writing
"Applied For" on the form means that the Payee has already applied for a TIN or
that such Payee intends to apply for one in the near future.
If Old Notes are held in more than one name or are not in the name of the
actual owner, consult the W-9 Guidelines for information on which TIN to report.
Exempt Payees (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt Payee
must enter its correct TIN in Part I of the Substitute Form W-9, write "Exempt"
in Part 2 of such form and sign and date the form. See the W-9 Guidelines for
additional instructions. In order for a nonresident alien or foreign entity to
qualify as exempt, such person must submit a completed Form W-8, "Certificate of
Foreign Status," signed under penalty of perjury attesting to such exempt
status. Such form may be obtained from the Payor.
12
<PAGE>
12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder of Old
Notes whose Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address or telephone number set forth on the
cover of this Letter of Transmittal for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
or for additional copies of the Prospectus, this Letter of Transmittal, the
Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 may be directed to the Exchange
Agent at its address set forth on the cover of this Letter of Transmittal.
IMPORTANT--THIS LETTER OF TRANSMITTAL, TOGETHER WITH CERTIFICATES FOR
TENDERED OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS, WITH ANY REQUIRED SIGNATURE
GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO THE EXPIRATION DATE.
13
<PAGE>
PAYOR'S NAME: NORWEST BANK MINNESOTA, N.A.
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------------------------------
SUBSTITUTE Part 1--PLEASE TIN ------------------------
FORM W-9 PROVIDE YOUR TIN IN (Social Security Number or
THE BOX AT RIGHT AND Employer Identification Number)
CERTIFY BY SIGNING
AND DATING BELOW
-------------------------------------------------------
Part 2--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
PLEASE WRITE "EXEMPT" HERE (SEE INSTRUCTIONS)
-------------------------------------------------------
Part 3--CERTIFICATION UNDER PENALTIES OF PERJURY, I
CERTIFY THAT (1) The number shown on this form is my
correct TIN (or I am waiting for a number to be issued
to me), and (2) I am not subject to backup withholding
because: (a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all
interest or dividends or (c) the IRS has notified me
that I am no longer subject to backup withholding.
Department of
the Treasury
Internal
Revenue Service
-------------------------------------------------------
Payor's Request for THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR
Taxpayer Identification CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN
Number ("TIN") THE CERTIFICATIONS REQUIRED TO AVOID BACK-UP
and Certification WITHHOLDING
SIGNATURE --------------- DATE ---------------
- -----------------------------------------------------------------------------------------
</TABLE>
You must cross out item (2) of Part 3 above if you have been notified by the
IRS that you are currently subject to backup withholding because of
underreporting interest or dividends on your tax return.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART 1 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS
NOT BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION TO RECEIVE
A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE
CENTER OR SOCIAL SECURITY ADMINISTRATIVE OFFICE (OR I INTEND TO MAIL OR DELIVER
AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT PROVIDE A
TAXPAYER IDENTIFICATION NUMBER TO THE PAYOR WITHIN 60 DAYS, THE PAYOR IS
REQUIRED TO WITHHOLD 31 PERCENT OF ALL CASH PAYMENTS MADE TO ME THEREAFTER UNTIL
I PROVIDE A NUMBER.
Signature Date
------------------- -------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
14
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO TENDER OF
ANY AND ALL OUTSTANDING 7.95% SENIOR NOTES DUE 2003
IN EXCHANGE FOR
7.95% SENIOR NOTES DUE 2003
OF
PARK PLACE ENTERTAINMENT CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE
EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
THE EXCHANGE AGENT IS:
NORWEST BANK MINNESOTA, N.A.
<TABLE>
<S> <C> <C>
BY REGISTERED OR BY FACSIMILE: BY HAND OR OVERNIGHT COURIER:
CERTIFIED MAIL: (612) 667-4927 Norwest Bank Minnesota, N.A.
Norwest Bank Minnesota, N.A. Corporate Trust Operations
Corporate Trust Operations CONFIRM BY TELEPHONE: Norwest Center
PO Box 1517 (612) 667-9764 Sixth & Marquette
Minneapolis, MN 55480-1517 Bondholder Communications MAC N9303-121
Minneapolis, MN 55479
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE
VALID DELIVERY.
As set forth in the prospectus (the "Prospectus") dated , 1999 of
Park Place Entertainment Corporation (the "Company") and in the accompanying
Letter of Transmittal and instructions thereto (the "Letter of Transmittal"),
this form or one substantially equivalent hereto must be used to accept the
Company's offer (the "Exchange Offer") to exchange new 7.95% Senior Notes due
2003 ("Exchange Notes") that have been registered under the Securities Act of
1933, as amended (the "Securities Act"), for all of its outstanding 7.95% Senior
Notes due 2003 (the "Old Notes") if the Letter of Transmittal or any other
documents required thereby cannot be delivered to the Exchange Agent, or Old
Notes cannot be delivered or if the procedures for book-entry transfer cannot be
completed prior to the Expiration Date. This form may be delivered by an
Eligible Institution (as defined in the Prospectus) by mail or hand delivery or
transmitted, via facsimile, to the Exchange Agent as set forth above.
Capitalized terms used but not defined herein shall have the meaning given to
them in the Prospectus.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON THE
LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION"
UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE
APPLICABLE SPACE PROVIDED IN THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal (receipt of which is hereby acknowledged), the principal amount of
Old Notes specified below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. By so
tendering, the undersigned does hereby make, at and as of the date hereof, the
representations and warranties of a tendering holder of Old Notes set forth in
the Letter of Transmittal.
The undersigned understands that tenders of Old Notes may be withdrawn if
the Exchange Agent receives at one of its addresses specified on the cover of
this Notice of Guaranteed Delivery, not later than 5:00 p.m., New York City time
on the Expiration Date, a facsimile transmission or letter setting forth the
name of the holder, the aggregate principal amount of Old Notes the holder
delivered for exchange, the certificate number(s) (if any) of the Old Notes and
a statement that such holder is withdrawing his election to have such Old Notes
or any portion thereof exchanged, in accordance with the procedures set forth in
the Prospectus.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
<PAGE>
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------
Signature(s) of registered holder(s) or Date: ------------------------------------
Authorized Signatory: Address: ---------------------------------
- --------------------- -----------------------------------------
- ----------------------------------------- Area Code and Telephone No. --------------
- -----------------------------------------
Name(s) of registered holder(s):
- ------------ If Old Notes will be delivered by
- ----------------------------------------- book-entry transfer, check trust company
- ----------------------------------------- below:
Principal Amount of Old Notes Tendered: / / The Depository Trust Company
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
Certificate No.(s) of Old Notes (if Depository Account No. -------------------
available):
- -----------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE
EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of the Old Notes exactly as their name(s) appear on certificate(s)
for the Old Notes or, if tendered by a participant in one of the book-entry
transfer facilities, exactly as such participant's name appears on a
security position listing as the owner of Old Notes, or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If the signature above
is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer or other person acting in a fiduciary or representative capacity,
such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ___________________________________________________________________
____________________________________________________________________________
Capacity: __________________________________________________________________
Address(es): _______________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the
Stock Exchange Medallion Program (each, an "Eligible Institution"), hereby
(i) represents that the above-named persons are deemed to own the Old Notes
tendered hereby within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 14e-4"), (ii) represents
that such tender of Old Notes complies with Rule 14e-4 and (iii) guarantees
that the Old Notes tendered hereby in proper form for transfer or
confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at the book-entry transfer facility, in each case together
with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantees
and any other documents required by the Letter of Transmittal, will be
received by the Exchange Agent at its address set forth above within three
New York Stock Exchange trading days after the date of execution hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Exchange Agent and must deliver the Letter of Transmittal
and Old Notes to the Exchange Agent within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm: _________________________________________________
_______________________________________________________________
Authorized Signature: _________________________________________
Title: ________________________________________________________
Address: ______________________________________________________
_______________________________________________________________
(Zip Code)
Area Code and Telephone Number: _______________________________
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER--Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer Identification Numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the type of
number to give the payer.
<TABLE>
<CAPTION>
GIVE THE GIVE THE
SOCIAL SECURITY EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
1. An individual's account The individual 8. Sole proprietorship The owner (4)
account
2. Two or more individuals The actual owner of the 9. A valid trust, estate or The legal entity (Do not
(joint account) account or, if combined pension trust furnish the identifying
funds, any one of the number of the personal
individuals (1) representative or trustee
unless the legal entity
itself is not designated in
the account title) (5)
3. Husband and wife (joint The actual owner of the 10. Corporate account The corporation
account) account or, if joint funds,
either person (1)
4. Custodian account of a The minor (2) 11. Religious, charitable, The organization
minor (Uniform Gift to or educational organization
Minors Act) account
5. Adult and minor (joint The adult or, if the minor 12. Partnership account The partnership
account) is the only contributor, held in the name of the
the minor (1) business
6. Account in the name of The ward, minor, or 13. Association, club, or The organization
guardian or committee incompetent person (3) other tax-exempt
for a designated ward, organization
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee (1) 14. A broker or registered The broker or nominee
savings trust account nominee
(grantor is also
trustee)
b. So-called trust The actual owner (1) 15. Account with the The public entity
account that is not a Department of
legal or valid trust Agriculture in the name
under State law of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
- ------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business or
"doing business" name. You may use either your Social Security Number or
Employer Identification Number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you do not have a taxpayer identification number or if you do not know
your number, obtain Form SS-5, Application for Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number, at
the local office of the Social Security Administration or the Internal Revenue
Service (the "IRS") and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments by
brokers include the following:
- A corporation.
- A financial institution.
- An organization exempt from a tax under Section 501(a), or an individual
retirement plan or a custodial account under Section 403(b)(7) if the
account satisfies the requirements of Section 401(F)(2).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
- A futures commission merchant registered with the Commodity Futures
Trading Commission.
- A person registered under the Investment Advisors Act of 1940 who
regularly acts as a broker.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under Section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- Payments described in Section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under Section 1451.
- Payments made by certain foreign corporations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, CHECK "EXEMPT" IN PART II OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Section 6041, 6041(A)(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1993, payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE
INTERNAL REVENUE SERVICE.
2
