<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1999
REGISTRATION NO. 333-86107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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. / /
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 SEPTEMBER 22, 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 OF ITS 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 October
, 1999, unless extended.
- Our completion of the exchange offer is subject to customary conditions,
which we may waive.
- Upon our completion of the exchange offer, all outstanding notes that are
validly tendered and not withdrawn will be exchanged for an equal
principal amount of notes that are registered under the Securities Act of
1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange of registered notes for outstanding notes will not be a
taxable exchange for U.S. Federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
FOR A DISCUSSION OF 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 SEPTEMBER , 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................................................................................. 18
The Acquisition............................................................................................ 19
Use of Proceeds............................................................................................ 22
Capitalization............................................................................................. 23
Unaudited Pro Forma Condensed Financial Statements......................................................... 24
Selected Financial Data.................................................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 33
Business and Properties of Park Place...................................................................... 44
Properties of Caesars...................................................................................... 53
Regulation and Licensing................................................................................... 56
Management................................................................................................. 75
Principal Stockholders..................................................................................... 77
Certain Relationships and Related Transactions............................................................. 79
Description of Other Indebtedness.......................................................................... 80
The Exchange Offer......................................................................................... 81
Description of the Exchange Notes.......................................................................... 93
Material Federal Income Tax Consequences of the Exchange................................................... 105
Plan of Distribution....................................................................................... 106
Legal Matters.............................................................................................. 107
Experts.................................................................................................... 107
Available Information...................................................................................... 107
Incorporation of Documents by Reference.................................................................... 107
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. We 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:
- nine 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.
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 opened 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 prospectus 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, 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
PARIS CASINO RESORT
On September 1, 1999 we opened the 2,900 room Paris Casino Resort in Las
Vegas, Nevada. This resort, which is located adjacent to Bally's Las Vegas on
the Las Vegas Strip, features an 85,000 square foot casino, eight restaurants,
130,000 square feet of convention space and a retail shopping complex with a
French influence. In addition to a 50 story replica of the Eiffel Tower, the
resort also features replications of some of Paris' most recognized landmarks,
including the Arc de Triomphe, the Paris Opera House, The Louvre and Rue de la
Paix.
NEW CREDIT FACILITIES
In order to finance the Caesars acquisition, we entered into a new $2.0
billion 364-day revolving credit facility on August 31, 1999. Up to $650 million
of this facility can be drawn before the closing of the acquisition, at which
point the entire $2.0 billion will be available subject to various closing
conditions. In addition to the new $2.0 billion 364-day facility, we also
entered into a $1.0 billion 364-day facility which may be used only to provide
funding for the Caesars acquisition. Availability under the $1.0 billion
facility will be reduced by the proceeds of any public notes we may issue.
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 October , 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 Caesars 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
YEAR ENDED DECEMBER 31, 1998
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
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PARK PLACE
(INCLUDING PARK PLACE
GRAND)(1) CAESARS(2) PRO FORMA
----------- ----------- -----------
(IN MILLIONS, EXCEPT RATIOS)
SIX MONTHS ENDED JUNE 30, 1999
<S> <C> <C> <C>
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 opened 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.
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, AMONG OTHER THINGS,
RECEIPT OF REGULATORY APPROVAL, INCLUDING GAMING APPROVALS IN VARIOUS
JURISDICTIONS.
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
13
<PAGE>
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, 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.
14
<PAGE>
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 Exchange
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 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
15
<PAGE>
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. Including our Paris Casino Resort, three new
mega-resorts have opened in 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. On September 10, 1999, nearly 60 Indian tribes and California's
Governor signed tribal-state agreements that would legalize casino-style
gambling in California. The agreements are contingent on a constitutional
amendment that would give tribes the right to offer a limited number of slot
machines and the range of house-banked card games. On September 10, 1999
California lawmakers approved the constitutional amendment along with a separate
measure ratifying the tribal-state agreements. California voters still must
approve the constitutional amendment which will appear on the March 2000 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 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
16
<PAGE>
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.
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 NOTES.
We are offering the exchange notes to the holders of the old notes. The old
notes were sold in August 1999 to a small number of institutional investors and
are eligible for trading in the Private Offerings, Resale and Trading through
Automatic Linkages (PORTAL) Market. To the extent that old notes are tendered
and accepted in the exchange offer, the trading market for untendered and
tendered but unaccepted old notes will be adversely affected. We cannot assure
you that this market will provide liquidity for you if you want to sell your old
notes.
We do not intend to apply for a listing of the exchange notes on a
securities exchange or on any automated dealer quotation system. The exchange
notes are new securities for which there is currently no
17
<PAGE>
market. We cannot assure you as to the liquidity of markets that may develop for
the exchange notes, your ability to sell the exchange notes or the price at
which you would be able to sell the exchange notes. If such markets were to
exist, the exchange notes could trade at prices that may be lower than their
principal amount or purchase price depending on many factors, including
prevailing interest rates and the markets for similar securities. The initial
purchasers of the old notes have advised us that they currently intend to make a
market with respect to the exchange notes. However, they are not obligated to do
so, and any market making activities may be discontinued at any time without
notice. In addition, such market making activity may be limited during the
pendency of the exchange offer.
The liquidity of, and trading market for, the exchange notes also may be
adversely affected by changes in the market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry generally.
As a result, you cannot be sure that an active trading market will develop
for the exchange notes.
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.
18
<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 the obligations.
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 closing date of the acquisition.
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.
19
<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
20
<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.
21
<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 $296 million after deducting fees and expenses associated with the
offering, to reduce our borrowings under our existing credit facility.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at June 30, 1999:
(a) on a historical basis;
(b) as adjusted after giving effect to the offering of the old notes and the
application of the estimated net proceeds as described under "Use of
Proceeds"; and
(c) pro forma for the acquisition.
You should read this information together with "The Acquisition," "Use of
Proceeds," "Unaudited Pro Forma Condensed Financial Statements" "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and related notes appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
ACTUAL AS ADJUSTED PRO FORMA
---------- ----------- ----------
($ 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 31, 1999, we had $1.2 billion outstanding under our five-year
revolving credit facility. On August 31, 1999, we entered into a new $2.0
billion revolving credit facility which replaced our prior $650 million
364-day revolving credit facility. In addition to the new $2.0 billion
364-day facility, we entered into a $1.0 billion 364-day facility which may
be used only 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.
23
<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>
24
<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.
25
<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)
26
<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.
27
<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)
28
<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)
29
<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.
30
<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-
31
<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.
32
<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 "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, features 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 opened 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 revolving
credit facilities with a syndicate of financial institutions. Prior to entering
into the new revolving credit facilities as described below, the revolving
credit facilities provided 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.
33
<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 would have matured in December 1999
and the five-year revolving credit facility matures December 2003. The 364-day
revolving credit facility provided, and the five-year revolving credit facility
provides, for extensions 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 amended 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.
NEW 364-DAY FACILITIES. In connection with the acquisition, on August 31,
1999, we terminated the $650 million 364-day facility and replaced it with the
new $2.0 billion 364-day facility. The terms of the new facility mirror the
existing five-year facility, including the amended maximum total debt to ebitda
ratio.
34
<PAGE>
Borrowings under the new $2.0 billion 364-day facility are 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, on August 31, 1999 we entered 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 any public note offerings.
SENIOR SUBORDINATED NOTES. In December 1998, we issued $400 million of
7 7/8% senior subordinated notes due December 2005 in 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.
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
35
<PAGE>
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 in
revenues for the three and six months ended June 30, 1999, was primarily a
result of the Grand merger.
36
<PAGE>
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, features
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. The Paris Casino Resort opened on
September 1, 1999.
37
<PAGE>
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. Including our Paris Casino Resort, four 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.
38
<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.
39
<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
40
<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
41
<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.
42
<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.
43
<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. We have approximately 1.4
million square feet of gaming space and approximately 23,000 rooms.
We currently own or operate:
- nine 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.
44
<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 opened 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 seven casino hotels in the State of Nevada: the
Las Vegas Hilton, the Flamingo Hilton Las Vegas, the Paris Casino Resort which
opened on September 1, 1999, Bally's Las Vegas, the Flamingo Hilton Laughlin,
the Reno Hilton and the Flamingo Hilton Reno.
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. The Paris Casino Resort and Bally's Las Vegas are located at
the "Four Corners" on the Strip in Las Vegas and cater 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 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.
45
<PAGE>
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 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.
46
<PAGE>
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 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.
47
<PAGE>
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 recent
opening of the 2,900-room Paris Casino Resort, a new casino resort adjacent to
Bally's Las Vegas which features 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 also features replications of some of
Paris' most recognized landmarks, including the Arc de Triomphe, the Paris Opera
House, The Louvre and Rue de la Paix.
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 and
approximately 800 rooms. Bally's Las Vegas also plans to erect a new marquee
sign on the strip and has completed a walkway 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
48
<PAGE>
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.
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;
49
<PAGE>
- 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.
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
50
<PAGE>
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. On August 30, 1999, a hearing
was held on the petition. On August 31, 1999, the court rendered judgment in
Bally's Louisiana's favor, dismissing Metro's suit in its entirety.
On August 30, 1999, Metro filed an action in the United States District
Court for the Eastern District of Louisiana against Bally's Louisiana, Hilton
Hotels Corporation and several officers of the Bally's and Hilton organizations,
alleging numerous racketeering and conspiracy activities intended to deprive
Metro of the benefit of its membership interest in the Belle. The charges
further allege conspiracy with members of the Louisiana Gaming Control Board,
the Louisiana state police and various state judges to obstruct enforcement of
gaming laws and deprive Metro of its lawful rights. The case is pending.
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
51
<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 challenged in court that order of the Louisiana Gaming Control
Board and on August 19, 1999, the Nineteenth Judicial District Court for the
Parish of East Baton Rouge granted Bally's Louisiana's motion for a permanent
injunction and judgment on the merits against Metro.
On June 14, 1999 the Louisiana Gaming Control Board issued a Notice of
Violation regarding 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. A hearing was held on September 15, 1999 and the court has taken
the matter under advisement. 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.
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.
52
<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
53
<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
54
<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.
55
<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 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, among other
things, receipt of regulatory approvals, including gaming approvals in various
jurisdictions."
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
56
<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
57
<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
58
<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
59
<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.
60
<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.
61
<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.
62
<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,
63
<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
64
<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;
65
<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.
66
<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
67
<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.
68
<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
69
<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;
70
<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.
71
<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
72
<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;
73
<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.
74
<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.................... 37 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
75
<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.
76
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 31, 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 August
31, 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
Southeastern Asset Management, Inc........................................... 16,853,600(3) 5.6%
6075 Poplar Avenue, Suite 900
Memphis, Tennessee 39119
Conrad N. Hilton Fund........................................................ 16,498,736(1) 5.5%
100 West Liberty Street
Reno, Nevada 89501
Highfields Capital Management LP............................................. 16,086,020(4) 5.3%
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.............................................................. 60,202(2) *
Mark R. Dodson............................................................... 34,974(2) *
Scott A. LaPorta............................................................. 98,500(2) *
All Directors and Executive Officers as a Group (14 persons)................. 43,974,588(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.
77
<PAGE>
(3) The amount of common stock owned by Southeastern Asset Management, Inc. is
based upon its filing of a Schedule 13F with the Securities and Exchange
Commission on August 6, 1999 for the period ended June 30, 1999.
(4) The amount of common stock owned by Highfields Capital Management LP is
based upon its filing of a Schedule 13F with the Securities and Exchange
Commission on August 16, 1999 for the period ended June 30, 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).
78
<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. Mr. Cummis does not participate
in the profits of the law firm. We believe that the rates paid to the law firm
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.
79
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a brief summary of important terms of our material
indebtedness:
REVOLVING CREDIT FACILITIES. In December 1998, we entered into two
revolving credit facilities with a syndicate of financial institutions,
providing 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 $700 million available to us at that date.
In connection with the acquisition, on August 31, 1999 we entered into a new
$2.0 billion revolving credit facility which replaced the $650 million 364-day
facility. In addition to the new $2.0 billion 364-day facility, we also entered
into a $1.0 billion 364-day facility which may be used only to provide funding
for the Caesars acquisition. Availability under this facility will be reduced by
the proceeds of any public notes issued.
The 364-day revolving credit facilities mature August 2000 and the five-year
revolving credit facility matures December 2003. Both the 364-day revolving
credit facilities 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."
SUBSEQUENT NOTES OFFERINGS. In connection with the acquisition, we may
issue approximately $1.5 billion in notes, inclusive of the old notes. We cannot
assure you that any such notes will be issued. The terms of these subsequent
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%.
80
<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 September , 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
81
<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.
82
<PAGE>
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The exchange offer will expire at 5:00 p.m., New York City time, on October
, 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.
83
<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.
84
<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.
85
<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.
86
<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;
87
<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.
88
<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.
89
<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
90
<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,
91
<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.
92
<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.
93
<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 such exchange notes at a redemption price equal to the lesser
of (1) the person's cost or (2) 100% of the principal amount of such
exchange notes, plus accrued and unpaid interest, if any, to the earlier
of the redemption date or the date of the finding of unsuitability, which
redemption date 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 such
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
94
<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 interest 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
95
<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
(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.
96
<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.
97
<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.
98
<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 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 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;
99
<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 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, 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 payments.
Consequently, neither Park Place nor the trustee has or will have any
responsibility or liability
100
<PAGE>
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, and interest, 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 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
101
<PAGE>
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 (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
102
<PAGE>
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.
"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.
103
<PAGE>
"PRINCIPAL PROPERTY" means any real estate or other physical facility or
depreciable asset, the net book value of which on the date of determination
exceeds the greater of $25 million or 2% of Consolidated Net Tangible Assets of
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 notes, provided that if the average life of the
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 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.
104
<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.
105
<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.
106
<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
107
<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 OCTOBER ,
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.
108
<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)
On August 31, 1999, the Company entered into a new $2.0 billion revolving
credit facility which replaces the prior $650 million 364-day credit facility.
Borrowings under the proposed $2.0 billion facility are limited to $650 million
until the closing of the Caesars acquisition (See Note 3).
In addition to the $2.0 billion 364-day facility, the Company entered into a
$1.0 billion 364-day facility which may be used only to provide funding for the
Caesars acquisition.
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>
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.
F-15
<PAGE>
NOTE 12. INCOME TAXES (CONTINUED)
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>
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>
F-16
<PAGE>
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>
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
F-17
<PAGE>
NOTE 13. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-18
<PAGE>
NOTE 15. LEASES (CONTINUED)
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 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
F-19
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. On August 30, 1999, a hearing
was held on the petition. On August 31, 1999, the court rendered judgment in
Bally's Louisiana's favor, dismissing Metro's suit in its entirety.
On August 30, 1999, Metro filed an action in the United States District
Court for the Eastern District of Louisiana against Bally's Louisiana, Hilton
Hotels Corporation and several officers of the Bally's and Hilton organizations,
alleging numerous racketeering and conspiracy activities intended to deprive
Metro of the benefit of its membership interest in the Belle. The charges
further allege conspiracy with members of the Louisiana Gaming Control Board,
the Louisiana state police and various state judges to obstruct enforcement of
gaming laws and deprive Metro of its lawful rights. The case is pending.
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;
(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.
F-20
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 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.
F-21
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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
F-22
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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.
F-23
<PAGE>
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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-24
<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>
F-62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
OFFER TO EXCHANGE UP TO $300,000,000 OF ITS
7.95% SENIOR NOTES DUE 2003,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR UP TO $300,000,000 OF ITS OUTSTANDING
7.95% SENIOR NOTES DUE 2003
--------------
PROSPECTUS
--------------
SEPTEMBER , 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 Amendment No. 1 to the Five Year Credit Agreement dated as of August 31, 1999 among
Park Place Entertainment Corporation, the Lenders, Syndication Agent and
Documentation Agents referred to in the Five Year Credit Agreement dated as of
December 31, 1998, and Bank of America National Trust and Savings Association, as
Administrative Agent.
4.5 $2.0 Billion Short Term Credit Agreement dated as of August 31, 1999 among Park
Place Entertainment Corporation, the Lenders, Documentation Agents, Co-Arrangers
and Senior Managing Agents Referred to therein, and Bank of America, N.A., as
Administrative Agent.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.6 $1.0 Billion Short Term Credit Agreement dated as of August 31, 1999 among Park
Place Entertainment Corporation, the Lenders, Documentation Agents, Co-Arrangers
and Senior Managing Agents Referred to therein, and Bank of America, N.A., as
Administrative Agent.
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
*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>
- ------------------------
* Previously filed
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.
II-2
<PAGE>
(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) 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 September 22, 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>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in their
capacities on September 22, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ -------------------
<C> <S>
*
- ------------------------------ Director
Lyle Berman
*
- ------------------------------ Chairman of the
Stephen F. Bollenbach Board of Directors
*
- ------------------------------ Director
A. Steven Crown
Executive Vice
/s/ CLIVE S. CUMMIS President--Law &
- ------------------------------ Corporate Affairs
Clive S. Cummis and Secretary and
Director
President and Chief
* Executive Officer
- ------------------------------ (Principal
Arthur M. Goldberg Executive Officer)
and Director
*
- ------------------------------ Director
Barron Hilton
*
- ------------------------------ Director
Eric Hilton
Executive Vice
President and Chief
* Financial Officer
- ------------------------------ (Principal
Scott A. LaPorta Financial and
Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ -------------------
<C> <S>
*
- ------------------------------ Director
J. Kenneth Looloian
*
- ------------------------------ Director
Rocco J. Marano
*
- ------------------------------ Director
Gilbert L. Shelton
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ CLIVE S. CUMMIS
-------------------------
Clive S. Cummis
ATTORNEY-IN-FACT
</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 Amendment No. 1 to the Five Year Credit Agreement dated as of August 31, 1999 among Park Place
Entertainment Corporation, the Lenders, Syndication Agent and Documentation Agents referred to in the
Five Year Credit Agreement dated as of December 31, 1998, and Bank of America National Trust and Savings
Association, as Administrative Agent.
4.5 $2.0 Billion Short Term Credit Agreement dated as of August 31, 1999 among Park Place Entertainment
Corporation, the Lenders, Documentation Agents, Co-Arrangers and Senior Managing Agents Referred to
therein, and Bank of America, N.A., as Administrative Agent.
4.6 $1.0 Billion Short Term Credit Agreement dated as of August 31, 1999 among Park Place Entertainment
Corporation, the Lenders, Documentation Agents, Co-Arrangers and Senior Managing Agents Referred to
therein, and Bank of America, N.A., as Administrative Agent.
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
*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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
*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>
- ------------------------
* Previously filed
Per Regulation S-K 601(b)(4)(iii)(A), the registrant agrees to file
applicable agreements with the Commission upon request.
<PAGE>
Exhibit 4.4
AMENDMENT NO.1 TO FIVE YEAR CREDIT AGREEMENT
This Amendment No. 1 to Five Year Credit Agreement dated as of
August 31, 1999 is entered into with reference to the Five Year Credit
Agreement (the "Credit Agreement") dated as of December 31, 1998, among PARK
PLACE ENTERTAINMENT CORPORATION, the Lenders, Syndication Agent and
Documentation Agents referred to therein, and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Administrative Agent. Capitalized terms used in
this Amendment and not otherwise defined herein are used with the meanings
set forth for those terms in the Credit Agreement.
1. SECTION 1.01. Section 1.01 of the Credit Agreement is hereby
amended to so that the following definitions read in full as follows (adding
those definitions not now appearing therein, and amending now appearing
definitions as set forth below):
"Caesars" means, Caesars World, Inc., a Florida corporation.
"Caesars Acquisition" means the acquisition by the Borrower of
Caesars, Sheraton Tunica, and Starwood's interests in Metropolitan
Entertainment Group, a Canadian partnership, pursuant to the Caesars
Acquisition Agreement.
"Caesars Acquisition Agreement" means the Stock Purchase Agreement
dated as of April 27, 1999 among Starwood, ITT Sheraton Corporation,
Starwood Canada Corp, Caesars, Sheraton Desert Inn Corporation,
Sheraton Tunica and the Borrower.
"Combined Pro Forma Financial Statements" means the combined pro
forma financial statements of the Gaming Segment of Hilton and the
Grand Assets for the twelve month period ended December 31, 1998
heretofore delivered by the Borrower to the Administrative Agent and
each Lender.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period before (i) income taxes, (ii) interest expense,
(iii) depreciation and amortization, (iv) minority interest, (v)
extraordinary losses or gains, (vi) Pre-Opening Expenses, (vii)
transactional expenses associated with the Spin-Off Transaction, and
(viii) nonrecurring non-cash charges, PROVIDED that, in calculating
"Consolidated EBITDA":
(a) for that portion of any period occurring prior to
December 31, 1998, "Consolidated EBITDA" shall be computed on the
basis of the operating results of the Gaming Segment and the Grand
Assets for such periods reflected in the Combined Pro Forma
Financial Statements.
(b) the operating results of each New Project which
commences operations and records not less than one full fiscal
quarter's operations during the relevant period shall be
annualized; and
-1-
<PAGE>
(c) Consolidated EBITDA shall be adjusted, on a pro forma
basis, to include the operating results of each resort or casino
property acquired by the Borrower and its Consolidated
Subsidiaries during the relevant period and to exclude the
operating results of each resort or casino property sold or
otherwise disposed of by the Borrower and its Subsidiaries, or
whose operations are discontinued during the relevant period.
"Consolidated Interest Expense" means, for any period, net interest
expense of the Borrower and its Consolidated Subsidiaries for such
period, determined in accordance with generally accepted accounting
principles, PROVIDED that for that portion of any period occurring
prior to December 31, 1998, "Consolidated Interest Expense" shall be
computed on the basis of the net interest expense allocated to the
Borrower and its Consolidated Subsidiaries and shown on the Combined
Pro Forma Financial Statements.
"Consolidated Net Income" means, for any period, the consolidated
net income of the Borrower and its Consolidated Subsidiaries for
such period, provided that for that portion of any period occurring
prior to December 31, 1998, such consolidated net income shall be
the consolidated net income of the Gaming Segment and the Grand
Assets for such periods reflected in the Combined Pro Forma
Financial Statements.
"Other Credit Agreements" means, collectively, the $2,000,000,000
Short Term Credit Agreement and the $1,000,000,000 Short Term Credit
Agreement, each dated as of August 31, 1999 among the Borrower, the
lenders referred to therein, and Bank of America, N.A., as
Administrative Agent, in each case as at any time amended.
"Pre-Opening Expenses" means, with respect to any fiscal period, the
amount of expenses (OTHER THAN Consolidated Interest Expense)
incurred with respect to capital projects which are classified as
"pre-opening expenses" on the applicable financial statements of the
Borrower and its Subsidiaries for such period (or, with respect to
that portion of any period occurring prior to December 31, 1998, the
Combined Pro Forma Financial Statements), prepared in accordance
with generally accepted accounting principles.
"Sheraton Tunica" means Sheraton Tunica Corporation, a Delaware
corporation.
"Starwood" means Starwood Hotels & Resorts Worldwide, Inc., a
Maryland corporation.
-2-
<PAGE>
2. SECTION 4.04. Section 4.04 of the Credit Agreement is hereby
amended to read in full as follows:
"4.04 FINANCIAL INFORMATION.
(a) The Combined Pro Forma Financial Statements fairly present in
all material respects, in conformity with generally accepted
accounting principles, the pro forma combined financial position of
the Gaming Segment and the divisions of Grand owning the Grand
Assets as of the dates and for the periods therein stated.
(b) Since December 31, 1998, there has been no material adverse
change in the business, financial position, results of operations or
prospects of the Gaming Segment and the Grand Assets, or in the
operations of the Borrower and its Consolidated Subsidiaries,
considered as a whole."
3. SECTION 4.05. Section 4.05 of the Credit Agreement is hereby
amended to read in full as follows:
"4.05 LITIGATION. Except as disclosed in the Borrower's form 10-K
report for the year ended December 31, 1998 or in its 10-Q reports
dated March 31, and June 30, 1999, there is no action, suit or
proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility
of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries or
which in any manner draws into question the validity or
enforceability of this Agreement or the Notes. Without limiting the
generality of the foregoing, with respect to those litigation
matters described above as reported in the Borrower's aforementioned
form 10-K or 10-Q reports, (a) the disclosure contained therein was
accurate as of the date of thereof, and (b) since such date there
has been no material adverse development."
4. AMENDMENT AND WAIVER OF SECTION 4.07. Section 4.07 of the Credit
Agreement is hereby amended to read in full as follows:
"4.07 TAXES. The United States Federal income tax returns of Hilton
and its Subsidiaries and of Grand and its Subsidiaries have been
filed through the fiscal year ended December 31, 1997. The Borrower
and its Significant Subsidiaries have filed all United States
Federal income tax returns and other material tax returns which are
required to be filed by them and have paid or agreed to settlements
of all taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Subsidiary, except for
such taxes, if any, as are being contested in good faith and as to
which adequate reserves have been provided. The charges, accruals
and reserves on the books of the Borrower and its Significant
Subsidiaries in respect of taxes or other governmental charges are,
in the opinion of the Borrower, adequate."
-3-
<PAGE>
The Lenders hereby waive any inaccuracy of the representations of the Borrower
under the former text of Section 4.07. This is a one time waiver only, the
Lenders shall be entitled to rely and insist upon the accuracy of the
representations contained in Section 4.07, as hereby amended.
5. SECTION 4.11. The second sentence of Section 4.11 of the Credit
Agreement is hereby amended to read in full as follows:
"The Borrower has disclosed to the Lenders in writing or by means of
its filings with the Securities and Exchange Commission any and all
facts which materially and adversely affect or may affect (to the
extent the Borrower can now reasonably foresee), the business,
operations or financial position of the Borrower and its
Consolidated Subsidiaries, taken as a whole, or the ability of the
Borrower to perform its obligations under this Agreement."
6. SECTION 5.01. The cross references to Sections 5.01(a) and (b)
contained in Section 5.01(d) of the Credit Agreement are hereby amended to be a
reference to Section 5.01(b) and (c). The cross reference to Section 5.01(a)
contained in Section 5.01(e) of the Credit Agreement is hereby amended to be a
reference to Section 5.01(b).
6A. SECTION 5.06. Clauses (c) and (d) of Section 5.06 of the Credit
Agreement are hereby amended to read in full as follows:
"(c) any Lien on any asset (other than Liens created to
finance or refinance the cost of acquiring the equity interests and
other assets acquired or to be acquired pursuant to the Caesars
Acquisition Agreement) securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring or
constructing such asset (it being understood that, for this purpose,
the acquisition of a Person is also an acquisition of the assets of
such Person); PROVIDED THAT the Lien attaches to such asset
concurrently with or within 180 days after the acquisition thereof,
or such longer period, not to exceed 12 months, due to the
Borrower's inability to retain the requisite governmental approvals
with respect to such acquisition; provided further that, in the case
of real estate, (i) the Lien attaches within 12 months after the
latest of the acquisition thereof, the completion of construction
thereon or the commencement of full operation thereof and (ii) the
Debt so secured does not exceed the sum of (x) the purchase price of
such real estate plus (y) the costs of such construction;
(d) any Lien on any asset of any corporation or other
business entity (including without limitation the Persons acquired
pursuant to the Caesars Acquisition Agreement) existing at the time
such corporation or other business entity is merged or consolidated
with or into the Borrower or a Subsidiary and not created in
contemplation of such event;"
7. SECTION 5.09. Section 5.09 of the Credit Agreement is hereby
amended to read in full as follows:
-4-
<PAGE>
"5.09 USE OF PROCEEDS. The proceeds of the Loans made under
this Agreement will be used by the Borrower for general corporate
purposes, including but not limited to (a) on the Effective Date,
the refinancing of obligations under the Hilton Credit Agreement and
transactional and other expenses associated with the Spin-Off
Transaction, and (b), thereafter, for working capital (including
without limitation refinancing of obligations under either of the
Other Credit Agreements), capital expenditures, the back stop of
commercial paper and the acquisition of full-service hotel\casino,
casino and casino\resort properties (including without limitation
the Caesars Acquisition). None of such proceeds will be used,
directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of buying or carrying any "margin stock"
within the meaning of Regulation U other than "margin stock" issued
by the Borrower which is retired upon purchase or for any purpose
which violates Section 5.08."
8. AMENDMENT TO LEVERAGE RATIO. Section 5.10 of the Credit Agreement
is hereby amended to read in full as follows:
"5.10 LEVERAGE RATIO. The Leverage Ratio will not, as of the last
day of any fiscal quarter of the Borrower described in the matrix
below, exceed the ratio set forth opposite that fiscal quarter:
<TABLE>
<CAPTION>
FISCAL QUARTERS ENDING MAXIMUM RATIO
---------------------- -------------
<S> <C>
Effective Date through
September 30, 1999 4.75:1.00
December 31, 1999 through and 5.25:1.00
including June 30, 2000
September 30, 2000 and
December 31, 2000 4.75:1.00
Later Fiscal Quarters 4.50:1.00."
</TABLE>
9. AMENDMENT TO SCHEDULE 2. The definition of "Level I Status" set
forth in the Credit Agreement is hereby amended to read in full as follows:
"Level I Status" exists at any date if, at such date, either (x) the
Debt Rating assigned by S&P is A- or higher or the Debt Rating
assigned by Moody's is A3 or higher, or (y) the Applicable Leverage
Ratio is less than 1.50:1."
The definition of "Margin Adjustment" set forth on Schedule 2 to the Credit
Agreement is hereby amended to read in full as follows:
"Margin Adjustment" means, (a) as of any date of determination when
the Applicable Leverage Ratio is in excess of 3.50:1 but equal to or
less than 4.00:1, an incremental
-5-
<PAGE>
interest margin of 0.075% per annum to be added to the Euro-Dollar
Margin in determining the rate applicable to Euro-Dollar Loans, (b)
as of any date of determination when the Applicable Leverage Ratio
is in excess of 4.00:1 but equal to or less than 4.75:1, an
incremental interest margin of 0.150% per annum to be added to the
Euro-Dollar Margin in determining the rate applicable to Euro-Dollar
Loans, (c) as of any date of determination when the Applicable
Leverage Ratio is in excess of 4.75:1, an incremental interest
margin of 0.225% per annum to be added to the Euro-Dollar Margin in
determining the rate applicable to Euro-Dollar Loans, and (d) as of
any date of determination when the Applicable Leverage Ratio is less
than 2.00:1, a deduction of 0.075% per annum to be subtracted from
the Euro-Dollar Margin in determining the rate applicable to
Euro-Dollar Loans."
10. CONFIDENTIALITY. The Lenders hereby agree to hold any confidential
information that they may receive from the Borrower or its Subsidiaries pursuant
to this Agreement in confidence, EXCEPT for disclosure: (a) to their respective
Affiliates and to other parties to this Agreement; (b) to legal counsel and
accountants for any such party; (c) to other professional advisors to any such
party, provided that the recipient has accepted such information subject to a
confidentiality agreement substantially similar to this paragraph or has
notified such professional advisors of the confidentiality of such information;
(d) to regulatory officials having jurisdiction over that Lender; (e) to any
Gaming Board; (f) as required by law or legal process (PROVIDED THAT the Lender
shall endeavor, to the extent it may do so under applicable law, to give the
Borrower reasonable prior notice thereof to allow the Borrower to seek a
protective order) or in connection with any legal proceeding to which that
Lender and the Borrower are adverse parties; and (g) to another financial
institution in connection with a dis-position or proposed disposition to that
financial institution of all or part of that Lenders interests hereunder or a
participation interest in its Note, provided that the recipient has accepted
such information subject to a confidentiality agreement substantially similar to
this Section. For purposes of the foregoing, "confidential information" shall
mean any information respecting the Borrower or its Subsidiaries reasonably
considered by them to be confidential, OTHER THAN (i) information previously
filed with any governmental agency and available to the public, (ii) information
previously published in any public medium from a source other than, directly or
indirectly, that Lender, and (iii) information previously disclosed by the
Borrower or its Subsidiaries to any person not associated therewith without a
confidentiality agreement substantially similar to this Section. Nothing in this
Section shall be construed to create or give rise to any fiduciary duty on the
part of any Lender.
11. WITHHOLDING CERTIFICATES. Each Lender who is required pursuant to
the Credit Agreement to deliver an IRS form 4224 or form 1001 to the
Administrative Agent or the Borrower agrees that it shall deliver in lieu
thereof IRS form W-8 ECI or such other successor form as may promulgated by the
Internal Revenue Service from time to time.
12. AMENDED EXHIBITS. The form of the Compliance Certificate and the
form of the Pricing Certificate are hereby amended to be in the forms attached
hereto as Exhibits A and C respectively.
-6-
<PAGE>
13. CONDITION PRECEDENT. The effectiveness of this Amendment shall be
conditioned upon the receipt by the Administrative Agent of written consents
hereto executed by the Required Lenders.
14. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to the Administrative Agent and the Banks that, as of the date of this
Amendment, no Default or Event of Default has occurred and remains continuing.
-7-
<PAGE>
15. CONFIRMATION. In all other respects, the terms of the Credit
Agreement and the other Loan Documents are hereby confirmed.
IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment as of the date first written above by their
duly authorized representatives.
PARK PLACE ENTERTAINMENT CORPORATION
By: /s/ Janet E. Sockwell
----------------------------------------
Janet E. Sockwell, CFA,
Vice President and Assistant Treasurer
BANK OF AMERICA, N.A. (formerly known as Bank
of America National Trust and Savings Association),
as Administrative Agent on behalf of the Required
Lenders
By: /s/ Janice Hammond
-----------------------------------------------
Janice Hammond, Vice President
-8-
<PAGE>
Exhibit 4.5
EXECUTION
$2,000,000,000 SHORT TERM CREDIT AGREEMENT
dated as of
August 31, 1999
among
PARK PLACE ENTERTAINMENT CORPORATION
The Lenders, Documentation Agents, Co-Arrangers and Senior Managing Agents
Referred to Herein
and
BANK OF AMERICA, N.A.
as Administrative Agent
--------------------------------------
BANC OF AMERICA SECURITIES LLC.
Lead Arranger and Sole Book Manager
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS .......................................................... 1
1.01 Definitions ..................................................... 1
1.02 Accounting Terms and Determinations ............................. 16
1.03 Types of Borrowings ............................................. 16
ARTICLE II
THE CREDITS .......................................................... 17
2.01 Commitments to Lend ............................................. 17
2.02 Notice of Committed Borrowings .................................. 17
2.03 RESERVED ........................................................ 18
2.04 RESERVED ........................................................ 18
2.05 Conversion and Continuation of Committed Loans .................. 18
2.06 Notice to Lenders; Funding of Loans ............................. 18
2.07 Notes ........................................................... 19
2.08 Interest Rates .................................................. 20
2.09 Upfront Fees .................................................... 21
2.10 Facility Fees ................................................... 21
2.11 RESERVED ........................................................ 21
2.12 Optional Termination or Reduction of Commitments by the Borrower 21
2.13 Optional Termination of Commitments by the Lenders .............. 21
2.14 Scheduled Termination of Commitments ............................ 22
2.15 Extensions of the Termination Date .............................. 22
2.16 Optional Prepayments ............................................ 23
2.17 General Provisions as to Payments ............................... 23
2.18 Funding Losses .................................................. 24
2.19 Computation of Interest and Fees ................................ 24
2.20 Withholding Tax Exemption ....................................... 24
2.21 RESERVED ........................................................ 25
2.22 Regulation D Compensation ....................................... 25
ARTICLE III
CONDITIONS ........................................................... 26
3.01 Borrowings ...................................................... 26
3.02 Effectiveness ................................................... 27
-i-
<PAGE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES ....................................... 28
4.01 Corporate Existence and Power ................................... 28
4.02 Corporate and Governmental Authorization; Contravention ......... 28
4.03 Binding Effect .................................................. 28
4.04 Financial Information ........................................... 28
4.05 Litigation ...................................................... 29
4.06 Compliance with ERISA ........................................... 29
4.07 Taxes ........................................................... 29
4.08 Significant Subsidiaries ........................................ 29
4.09 Not an Investment Company ....................................... 30
4.10 Environmental Matters ........................................... 30
4.11 Full Disclosure ................................................. 30
4.12 Solvency ........................................................ 30
4.13 Gaming Laws ..................................................... 30
ARTICLE V
COVENANTS ............................................................ 32
5.01 Information ..................................................... 32
5.02 Maintenance of Property; Insurance .............................. 34
5.03 Conduct of Business and Maintenance of Existence ................ 34
5.04 Compliance with Laws ............................................ 35
5.05 Inspection of Property, Books and Records ....................... 35
5.06 Negative Pledge ................................................. 35
5.07 Consolidations, Mergers and Sales of Assets ..................... 36
5.08 Hostile Tender Offers ........................................... 36
5.09 Use of Proceeds ................................................. 37
5.10 Leverage Ratio .................................................. 37
5.11 Interest Coverage Ratio ......................................... 37
ARTICLE VI
DEFAULTS ............................................................. 39
6.01 Events of Default ............................................... 39
6.02 Notice of Default ............................................... 41
6.03 RESERVED ........................................................ 41
-ii-
<PAGE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VII
THE AGENTS ........................................................... 42
7.01 Appointment and Authorization ................................... 42
7.02 Agents and Affiliates ........................................... 42
7.03 Action by Agents ................................................ 42
7.04 Consultation with Experts ....................................... 42
7.05 Liability of Agent .............................................. 42
7.06 Indemnification ................................................. 43
7.07 Credit Decision ................................................. 43
7.08 Successor Agent ................................................. 43
7.09 Agents' Fees .................................................... 43
ARTICLE VIII
CHANGE IN CIRCUMSTANCES .............................................. 44
8.01 Basis for Determining Interest Rate Inadequate or Unfair ........ 44
8.02 Illegality ...................................................... 44
8.03 Increased Cost and Reduced Return ............................... 45
8.04 Base Rate Loans Substituted for Affected Fixed Rate Loans ....... 46
ARTICLE IX
MISCELLANEOUS ........................................................ 48
9.01 Notices ......................................................... 48
9.02 No Waivers ...................................................... 48
9.03 Expenses; Documentary Taxes; Indemnification .................... 48
9.04 Amendments and Waivers .......................................... 49
9.05 Successors and Assigns .......................................... 49
9.06 Collateral ...................................................... 53
9.07 California Law; Submission to Jurisdiction ...................... 53
9.08 Counterparts; Integration ....................................... 53
9.09 Several Obligations ............................................. 53
9.10 Sharing of Set-Offs ............................................. 54
9.11 WAIVER OF JURY TRIAL ............................................ 54
9.12 Confidentiality ................................................. 54
</TABLE>
-iii-
<PAGE>
Schedules:
- ----------
Schedule 1 - Pricing Schedule
Exhibits:
- ---------
Exhibit A - Compliance Certificate
Exhibit B - Form of Note
Exhibit C - Pricing Certificate
Exhibit D - Form of Notice of Committed Borrowing
Exhibit E - Extension Agreement
Exhibit F - Opinion of Latham & Watkins (upon Caesars Acquisition)
Exhibit G - Opinion of Sills Cummis Radin Tischman Epstein & Gross, P.A.
(Effective Date)
Exhibit H - Opinion of Latham & Watkins (Effective Date)
Exhibit I - Assignment and Assumption Agreement
-iv-
<PAGE>
$2,000,000,000 SHORT TERM CREDIT AGREEMENT
$2,000,000,000 SHORT TERM CREDIT AGREEMENT dated as of August 31,
1999, among PARK PLACE ENTERTAINMENT CORPORATION, the Lenders listed on the
signature pages hereto, and BANK OF AMERICA, N.A., as Administrative Agent.
THE BANK OF NOVA SCOTIA, DEUTSCHE BANK ALEX BROWN, and MERRILL LYNCH CAPITAL
CORPORATION, are Documentation Agents and Co-Arrangers hereunder, and THE BANK
OF NEW YORK, FIRST UNION NATIONAL BANK and SG, are Senior Managing Agents
hereunder.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings: "Administrative Agent" means Bank of America, N.A. in its
capacity as administrative agent for the Lenders hereunder, and its
successors in such capacity.
"Administrative Questionnaire" means, with respect to each Lender,
an administrative questionnaire in the form prepared by the Administrative
Agent and submitted to the Administrative Agent (with a copy to the Borrower)
duly completed by such Lender.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (and the correlative
terms, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise); PROVIDED
that, in any event, any Person that owns, directly or indirectly, 5% or more
of the securities having ordinary voting power for the election of directors
or other governing body of a corporation that has more than 100 record
holders of such securities, or 5% or more of the partnership or other
ownership interests of any other Person that has more than 100 record holders
of such interests, will be deemed to control such corporation or other Person.
-1-
<PAGE>
"Agents" mean, collectively, the Administrative Agent, the
Documentation Agents and Co-Arrangers and the Senior Managing Agents, and
"Agent" means any of them.
"Applicable Lending Office" means, with respect to any Lender, (i)
in the case of its Base Rate Loans, its Domestic Lending Office, and (ii) in
the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Authorized Officer" means any of the controller, the treasurer or
the chief financial officer of the Borrower.
"Bank of America" means Bank of America, N.A., its successors and
assigns.
"Base Rate" means, as of any date of determination, the rate per
annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the
HIGHER OF (a) the Reference Rate in effect on such date (calculated on the
basis of a year of 365 or 366 days and the actual number of days elapsed) and
(b) the Federal Funds Rate in effect on such date (calculated on the basis of
a year of 360 days and the actual number of days elapsed) PLUS 1/2 of 1% (50
basis points).
"Base Rate Loan" means a Committed Loan made or to be made by a
Lender as a Base Rate Loan in accordance with the applicable Notice of
Committed Borrowing or pursuant to Article VIII.
"Base Rate Margin" has the meaning set forth on Schedule 1.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means Park Place Entertainment Corporation, a Delaware
corporation, and its successors.
"Borrowing" means the aggregation of Loans of one or more Lenders to
be made to the Borrower pursuant to Article II on a single date and, in the
case of Fixed Rate Borrowings, for a single Interest Period.
"Caesars" means, Caesars World, Inc., a Florida corporation.
"Caesars Acquisition" means the acquisition by the Borrower of
Caesars, Sheraton Tunica, and Starwood's interests in Metropolitan
Entertainment Group, a Canadian partnership, pursuant to the Caesars
Acquisition Agreement.
-2-
<PAGE>
"Caesars Acquisition Agreement" means the Stock Purchase Agreement
dated as of April 27, 1999 among Starwood, ITT Sheraton Corporation, Starwood
Canada Corp, Caesars, Sheraton Desert Inn Corporation, Sheraton Tunica and
the Borrower.
"Change of Control" means the occurrence of a Rating Decline in
connection with any of the following events: (i) upon any merger or
consolidation of the Borrower with or into any person or any sale, transfer
or other conveyance, whether direct or indirect, of all or substantially all
of the assets of the Borrower, on a consolidated basis, in one transaction or
a series of related transactions, if, immediately after giving effect to such
transaction, any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) is or becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of securities representing
a majority of the total voting power of the aggregate outstanding securities
of the transferee or surviving entity normally entitled to vote in the
election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) when any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of
1934, as amended) is or becomes the beneficial owner (within the meaning of
Rule 13d-3 promulgated by The Securities and-Exchange Commission under said
Act) of securities representing a majority of total voting power of the
aggregate outstanding securities of the Borrower normally entitled to vote in
the election of directors of the Borrower, (iii) when, during any period of
12 consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period (together with any new directors
whose election by the board of directors of the Borrower or whose nomination
for election by the stockholders of the Borrower was approved by a vote of a
majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of the Borrower, or (iv) the sale or disposition, whether
directly or indirectly, by the Borrower of all or substantially all of its
assets.
"Combined Pro Forma Financial Statements" means the combined pro
forma financial statements of the Gaming Segment of Hilton and the Grand
Assets for the twelve month period ended December 31, 1998 heretofore
delivered by the Borrower to the Administrative Agent and each Lender.
"Commitment" means, as to each Lender, the commitment of that Lender
to make Loans in each case as such amount may be reduced from time to time
pursuant to Section 2.12, 2.13 or 2.14. The aggregate amount of the
Commitments under this Agreement as of the Effective Date is $2,000,000,000.
As of the Effective Date, each Lender has made a Commitment which is equal to
the amount of the Note issued to that Lender on the Effective Date.
-3-
<PAGE>
"Committed Loan" means a loan made or to be made by a Lender
pursuant to Section 2.01.
"Compliance Certificate" means a certificate, substantially in the
form of Exhibit A, properly completed and signed by an Authorized Officer.
"Consolidated Debt" means at any date the Debt of the Borrower and
its Consolidated Subsidiaries, determined on a consolidated basis as of such
date, PROVIDED that Consolidated Debt shall exclude any Debt of the Borrower
or a Subsidiary as to which cash and cash equivalents sufficient to provide
for payment in full of such Debt at its scheduled maturity or at an earlier
date at which it shall have been or may be called for redemption shall have
been irrevocably deposited in trust for the benefit of the holders of such
Debt or a representative of such holders, which deposit shall have resulted
in the legal or in-substance defeasance thereof.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period before (i) income taxes, (ii) interest expense, (iii)
depreciation and amortization, (iv) minority interest, (v) extraordinary losses
or gains, (vi) Pre-Opening Expenses, (vii) transactional expenses associated
with the Spin-Off Transaction, and (viii) nonrecurring non-cash charges,
PROVIDED that, in calculating "Consolidated EBITDA":
(a) for that portion of any period occurring prior to December 31,
1998, "Consolidated EBITDA" shall be computed on the basis of the
operating results of the Gaming Segment and the Grand Assets for such
periods reflected in the Combined Pro Forma Financial Statements.
(b) the operating results of each New Project which commences
operations and records not less than one full fiscal quarter's
operations during the relevant period shall be annualized; and
(c) Consolidated EBITDA shall be adjusted, on a pro forma basis, to
include the operating results of each resort or casino property acquired
by the Borrower and its Consolidated Subsidiaries during the relevant
period and to exclude the operating results of each resort or casino
property sold or otherwise disposed of by the Borrower and its
Subsidiaries, or whose operations are discontinued during the relevant
period.
"Consolidated Interest Expense" means, for any period, net interest
expense of the Borrower and its Consolidated Subsidiaries for such period,
determined in accordance with generally accepted accounting principles,
PROVIDED that for that portion of any period occurring prior to December 31,
1998, "Consolidated Interest Expense" shall be computed on the basis
-4-
<PAGE>
of the net interest expense allocated to the Borrower and its Consolidated
Subsidiaries and shown on the Combined Pro Forma Financial Statements.
"Consolidated Net Income" means, for any period, the consolidated
net income of the Borrower and its Consolidated Subsidiaries for such period,
provided that for that portion of any period occurring prior to December 31,
1998, such consolidated net income shall be the consolidated net income of
the Gaming Segment and the Grand Assets for such periods reflected in the
Combined Pro Forma Financial Statements.
"Consolidated Net Tangible Assets" means the total amount of assets
of the Borrower and its Consolidated Subsidiaries, after deducting therefrom
(a) all current liabilities of the Borrower and its Consolidated Subsidiaries
(excluding (i) the current portion of long term indebtedness, (ii)
inter-company liabilities, and (iii) any liabilities which are by their terms
renewable or extendable at the option of the obligor thereon to a time more
than twelve 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 expense and other like intangibles, all as set
forth on the latest consolidated balance sheet of the Borrower prepared in
accordance with generally accepted accounting principles.
"Consolidated Net Worth" means at any date the consolidated
stockholders, equity of the Borrower and its Consolidated Subsidiaries
determined as of such date.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower
in its consolidated financial statements as of such date.
"Covered Subsidiary" means at any time any Subsidiary of the
Borrower that has consolidated assets in an amount greater than $5,000,000.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles, (v)
all indebtedness or other obligations secured by a contractual Lien on any
asset of such Person, whether or not such indebtedness or other obligations
are otherwise an obligation of such Person, and (vi) all Guarantees made by
such Person (including by way of provision of letters of credit or other
contingent obligations) with respect to indebtedness or other obligations of
any other Person which constitute "Debt" of a type or class described in
clauses (i) through (v) of this definition.
-5-
<PAGE>
"Default" means any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Documentation Agents and Co-Arrangers" means, collectively, The
Bank of Nova Scotia, Deutsche Bank Alex Brown and Merrill Lynch Capital
Corporation, when acting in their capacities as documentation agents and
co-arrangers hereunder. The capacity of the Documentation Agents and
Co-Arrangers is titular in nature, and the Documentation Agents and
Co-Arrangers shall have no obligations or liabilities under the Loan
Documents by reason of acting in such capacity.
"Dollars" and the sign "$" mean lawful money of the United States.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City or Los Angeles are
authorized or required by law to close.
"Domestic Lending Office" means, as to each Lender, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending
Office) or such other office as such Lender may hereafter designate as its
Domestic Lending Office by notice to the Borrower and the Administrative
Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.02.
"Eligible Assignee" means (a) another Lender, (b) with respect to
any Lender, any Affiliate of that Lender, (c) any commercial bank having a
combined capital and surplus of $500,000,000 or more, (d) any (i) savings
bank, savings and loan association or similar financial institution or (ii)
insurance company engaged in the business of writing insurance which, in
either case (A) has a net worth of $500,000,000 or more, (B) is engaged in
the business of lending money and extending credit under credit facilities
substantially similar to those extended under this Agreement and (C) is
operationally and procedurally able to meet the obligations of a Lender
hereunder to the same degree as a commercial bank and (e) any other financial
institution (INCLUDING a mutual fund or other fund) having total assets of
$250,000,000 or more which meets the requirements set forth in subclauses (B)
and (C) of clause (d) above; PROVIDED that each Eligible Assignee must either
(a) be organized under the Laws of the United States of America, any State
thereof or the District of Columbia or (b) be organized under the Laws of the
Cayman Islands or any country which is a member of the Organization for
Economic Cooperation and Development, or a political subdivision of such a
country, and (i) act hereunder through a branch, agency or funding office
located in the United States of America and (ii) is otherwise exempt from
withholding of tax on interest and delivers
-6-
<PAGE>
Form W-8 ECI pursuant to Section 2.20 at the time of any assignment pursuant
to Section 9.05.
"Environmental Laws" means any and all statutes, regulations,
permits, licenses or other governmental restrictions relating to the
environment or to releases of petroleum or petroleum products, chemicals or
toxic or hazardous substances or wastes into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of
a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or
any Subsidiary, are treated as a single employer under Section 414 of the
Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
Dollar deposits) in London.
"Euro-Dollar Lending office" means, as to each Lender, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Lender as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan made or to be made by a
Lender as a Euro-Dollar Loan in accordance with the applicable Notice of
Committed Borrowing.
"Euro-Dollar Margin" has the meaning set forth on Schedule 1.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System with deposits exceeding five billion Dollars in respect of
"eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate
on Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any bank
to United States residents).
"Event of Default" has the meaning set forth in Section 6.01.
-7-
<PAGE>
"Existing Short Term Credit Agreement" means the Short Term Credit
Agreement dated as of December 31, 1998 among the Borrower, the lenders
therein named and the Administrative Agent, acting under its former name,
Bank of America National Trust and Savings Association, as amended.
"Facility Fee Rate" has the meaning set forth in Section 2.10.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of l%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on
such day, as published by the Federal Reserve Bank of New York on the
Domestic Business Day next succeeding such day, provided that (i) if such day
is not a Domestic Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Domestic Business Day as
so published on the next succeeding Domestic Business Day, and (ii) if no
such rate is so published on such next succeeding Domestic Business Day, the
Federal Funds Rate for such day shall be the average rate quoted to The Bank
of New York on such day on such transactions as determined by the
Administrative Agent.
"Fixed Rate Loans" means Euro-Dollar Loans.
"Gaming Board" means, collectively, (a) the Nevada Gaming
Commission, (b) the Nevada State Gaming Control Board, (c) the New Jersey
Casino Control Commission, (d) the New Jersey Division of Gaming Enforcement,
(e) the Mississippi Gaming Commission, and (f) any other Governmental Agency
that holds regulatory, licensing or permit authority over gambling, gaming or
casino activities conducted by the Borrower or its Subsidiaries within its
jurisdiction.
"Gaming Laws" means all laws pursuant to which any Gaming Board
possesses regulatory, licensing or permit authority over gambling, gaming or
casino activities conducted by the Borrower or its Subsidiaries within its
jurisdiction.
"Gaming Segment" means the gaming segment (as "segment" is used in
Regulation S-K and Regulation S-X of the Securities and Exchange Commission)
of Hilton which, prior to December 31, 1998, was comprised of assets and
operations owned and conducted by the Borrower and its Subsidiaries following
December 31, 1998.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political subdivision
thereof, (b) any governmental or quasi-governmental agency, authority, board,
bureau, commission, department, instrumentality or public body (including any
Gaming Board) or (c) any court or administrative tribunal of competent
jurisdiction.
-8-
<PAGE>
"Grand" means Grand Casinos, Inc., a Minnesota corporation, and its
successors.
"Grand Agreement" means the Agreement and Plan of Merger dated as
of June 30, 1998 among Hilton, the Borrower (under its former name, Gaming
Co., Inc.), Gaming Acquisition Corporation, a Minnesota corporation, and GCI
Lakes, Inc., a Minnesota corporation and Grand, as amended as of December 31,
1998.
"Grand Assets" means the assets of Grand and its Subsidiaries
retained by Grand following the Lakes Spin-off pursuant to the Grand
Distribution Agreement, including without limitation the assets described on
Schedule 1 to the Grand Distribution Agreement, and acquired by the Borrower
and its Subsidiaries pursuant to the merger between the Borrower and Grand
pursuant to the Grand Agreement, including without limitation the resort
casino properties commonly known as (a) the Grand Casino Tunica, in Tunica,
Mississippi, (b) the Grand Casino Gulfport, in Gulfport, Mississippi, and (c)
the Grand Casino Biloxi, in Biloxi, Mississippi.
"Grand Distribution Agreement" means the Distribution Agreement
dated as of December 31, 1998 by and between Grand and GCI Lakes, Inc.,
together with the agreements attached as Exhibits thereto.
"Granting Lender" has the meaning set forth in Section 9.05(f).
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the holder
of such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part), including by way of provision of
letters of credit or other contingent obligations with respect thereto,
provided that the term Guarantee shall not include (x) endorsements for
collection or deposit in the ordinary course of business or (y) performance
or completion guarantees. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hilton" means Hilton Hotels Corporation, a Delaware corporation.
"Hilton Distribution Agreement" means the Distribution Agreement
dated as of December 31, 1998 by and between Hilton and the Borrower,
together with the agreements attached as Exhibits thereto.
-9-
<PAGE>
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Coverage Ratio" means, as of each date of determination,
the ratio of (a) Consolidated EBITDA for the four fiscal quarters ending on
that date, to (b) Consolidated Interest Expense for the same period.
"Interest Period" means, with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one
week or 1, 2, 3 or 6 months thereafter, as the Borrower may elect in the
applicable Notice of Committed Borrowing or Notice of
Conversion/Continuation; provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day in a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (a)(iii) below, end on the
last Euro-Dollar Business Day in the calendar month which is the last
calendar month which commences in such Interest Period; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date, or, if such date
is not a Euro-Dollar Business Day, then on the next preceding
Euro-Dollar Business Day.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment Grade" means (i) with respect to S&P, a rating of BBB-
or higher, and (ii) with respect to Moody's, a rating of Baa3 or higher.
"Lakes Spin-Off" means the contribution of all assets of Grand and
its Subsidiaries other than the Grand Assets to GCI Lakes, Inc. and the
corresponding distribution of the shares of GCI Lakes, Inc. to the
shareholders of Grand described in the Grand Agreement.
-10-
<PAGE>
"Lead Arranger and Sole Book Manager" means Banc of America
Securities LLC. Following the date of this Agreement, the Lead Arranger and
Sole Book Manager shall have no obligations or liabilities under the Loan
Documents.
"Lender" means each lender listed on the signature pages hereof and
each Lender which accepts an assignment pursuant to Section 9.05, and their
respective successors.
"Leverage Ratio" means, as of any date of determination, the ratio
of (a) Consolidated Debt on such date to (b) Consolidated EBITDA for the
period of four consecutive fiscal quarters ending on such date.
"License Revocation" means the revocation, failure to renew or
suspension of, or the appointment of a receiver, supervisor or similar
official with respect to, any casino, gambling or gaming license issued by
any Gaming Board covering any casino or gaming facility of the Borrower and
its Subsidiaries.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset. For the purposes of this Agreement, the Borrower or any
Subsidiary shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"Loan" means a Base Rate Loan or a Euro-Dollar Loan and "Loans"
means Base Rate Loans or Euro-Dollar Loans or any combination of the
foregoing.
"Loan Documents" means this Agreement, the Notes and each other
instrument, document or agreement now or hereafter executed by the parties in
furtherance of this Agreement.
"London Interbank Offered Rate" means, as to the Interest Period
applicable to each Euro-Dollar Loan, the average rounded upward, if
necessary, to the next higher 1/16 of 1%) of the respective rates per annum
at which deposits in Dollars are offered to the Administrative Agent in the
London interbank market at approximately 11:00 A.M. (London time) two
Euro-Dollar Business Days before the first day of such Interest Period in an
amount approximately equal to the principal amount of the Euro-Dollar Loan of
the Administrative Agent to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
"Margin Adjustment" has the meaning set forth in the Schedule 1.
-11-
<PAGE>
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $25,000,000.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
ERISA Group during such five year period.
"New Project" means each new hotel - casino, casino or resort
project (as opposed to any project which consists of an extension or
redevelopment of an operating hotel, casino or resort) having a development
and construction budget in excess of $25,000,000 which hereafter receives a
certificate of completion or occupancy and all relevant gaming and other
licenses, and in fact commences operations. Without limitation, the Paris
Hotel & Casino located in Las Vegas, Nevada, is a "New Project."
"Non-Recourse Debt" means Debt in respect of which the recourse of
the holder of such Debt is limited to the assets securing such Debt and such
Debt does not constitute the general obligation of the Borrower or any
Subsidiary.
"Notes" means promissory notes of the Borrower, substantially in
the form of Exhibit B hereto, evidencing the obligation of the Borrower to
repay the Loans, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02).
"Notice of Committed Borrowing" has the meaning set forth in
Section 2.02.
"Notice of Conversion\Continuation" has the meaning set forth in
Section 2.05.
"Other Credit Agreements" means, collectively, the $1,000,000,000
Short Term Credit Agreement of even date herewith among the Borrower, the
lenders therein named, and Bank of America, N.A., as Administrative Agent,
and the Five Year Credit Agreement dated as of December 31, 1998 among the
Borrower, the lenders therein named and Bank of America National Trust and
Savings Association, as Administrative Agent, in each case as at any time
amended.
"Parent" means, with respect to any Lender, any Person controlling
such Lender.
-12-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject
to the minimum funding standards under Section 412 of the Internal Revenue
Code and either (i) is maintained, or contributed to, by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees
of any Person which was at such time a member of the ERISA Group.
"Pre-Opening Expenses" means, with respect to any fiscal period,
the amount of expenses (OTHER THAN Consolidated Interest Expense) incurred
with respect to capital projects which are classified as "pre-opening
expenses" on the applicable financial statements of the Borrower and its
Subsidiaries for such period (or, with respect to that portion of any period
occurring prior to December 31, 1998, the Combined Pro Forma Financial
Statements), prepared in accordance with generally accepted accounting
principles.
"Pricing Certificate" means a Pricing Certificate substantially in
the form of Exhibit C hereto, properly completed and signed by an Authorized
Officer of the Borrower.
"Pricing Period" means (a) the period beginning on the Effective
Date and ending on August 31, 1999, and (b) each period of three months
beginning on the first day of each March, June, September and December and
ending on the last day of the succeeding May, August, November and February.
"Public Notice" means, without limitation, any filing or report
made in accordance with the requirements of the Securities and Exchange
Commission (or any successor), any press release or public announcement made
by the Borrower or any written notice the Borrower gives to the
Administrative Agent or the Lenders.
"Rating Agencies" means S&P and Moody's.
"Rating Decline" means the occurrence on any date on or within 90
days after the date of the first public notice of (i) the occurrence of an
event described in clauses (i)-(v) of the definition of "Change of Control"
or (ii) the intention by the Borrower to effect such an event (which 90-day
period shall be extended so long as the rating of the senior debt of the
Borrower is under publicly announced consideration for possible downgrade by
any of the
-13-
<PAGE>
Rating Agencies) of a decrease in the rating of the senior debt of the Borrower
by any of the Rating Agencies to below Investment Grade.
"Reference Rate" means the rate of interest publicly announced from
time to time by Bank of America in San Francisco, California, as its
"reference rate" or the similar prime rate or reference rate announced by any
successor Administrative Agent. Bank of America's reference rate is a rate
set by Bank of America based upon various factors including Bank of America's
costs and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate. Any change in the Reference Rate
announced by Bank of America or any successor Administrative Agent shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Lenders" means at any time Lenders having at least 51% of
the aggregate amount of the Commitments or, if the Commitments shall have
been terminated, holding at least 51% of the sum of the aggregate unpaid
principal amount of the Loans.
"Revolving Credit Period" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., and its successors.
"Senior Managing Agents" means The Bank of New York, First Union
National Bank and SG, in each case in their capacity as Senior Managing
Agents hereunder. The capacity of the Senior Managing Agents is titular in
nature, and the Senior Managing Agents shall have no obligations or
liabilities under the Loan Documents by reason of acting in such capacity.
"Sheraton Tunica" means Sheraton Tunica Corporation, a Delaware
corporation.
"Significant Subsidiary" means each Subsidiary of the Borrower at
any time having (i) at least "10% of the total consolidated assets of the
Borrower and its Subsidiaries (determined as of the last day of the most
recent fiscal quarter of the Borrower) or (ii) at least 10% of the
consolidated revenues of the Borrower and its Subsidiaries for the fiscal
year of the Borrower then most recently ended.
-14-
<PAGE>
"Solvent" as to any Person shall mean that (a) the sum of the
assets of such Person, both at a fair valuation and at present fair saleable
value, exceeds its liabilities, including its probable liability in respect
of contingent liabilities, (b) such Person will have sufficient capital with
which to conduct its business as presently conducted and as proposed to be
conducted and (c) such Person has not incurred debts, and does not intend to
incur debts, beyond its ability to pay such debts as they mature. For
purposes of this definition, "debt" means any liability on a claim, and
"claim" means (x) a right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right
to an equitable remedy for breach of performance if such breach gives rise to
a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured. With respect to any such contingent liabilities, such
liabilities shall be computed at the amount which, in light of all the facts
and circumstances existing at the time, represents the amount which can
reasonably be expected to become an actual or matured liability.
"SPC" has the meaning set forth in Section 9.05(f).
"Spin-Off Transaction" means (a) the contribution by Hilton of the
assets and operations of the Gaming Segment, including without limitation the
assets described on Schedule 1 to the Hilton Distribution Agreement, to the
Borrower and its Subsidiaries pursuant to the Hilton Distribution Agreement
and the substantially concurrent distribution of shares in the Borrower to
the shareholders in Hilton, (b) the execution of the First Supplemental
Indenture to the Borrower's Indenture dated as of April 15, 1997, and the
Debt Assumption Agreement between the Borrower and Hilton, in each case
substantially in the form previously delivered to the Administrative Agent
prior to December 31, 1998, and (c) the merger of the Borrower with Grand
pursuant to the Grand Agreement, each of which occurred as of December 31,
1998.
"Starwood" means Starwood Hotels & Resorts Worldwide, Inc., a
Maryland corporation.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Borrower.
"Termination Date" means August 28, 2000 or such later date to
which the Revolving Credit Period shall have been extended pursuant to
Section 2.15, or, if such day is not a Euro-Dollar Business Day, the next
preceding Euro-Dollar Business Day.
-15-
<PAGE>
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under
such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii)
the fair market value of all Plan assets allocable to such liabilities under
Title IV of ERISA (excluding any accrued but unpaid contributions), all
determined as of the then most recent valuation date for such Plan, but only
to the extent that such excess represents a potential liability of a member
of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors, qualifying shares) are at the time directly or
indirectly owned by the Borrower.
"Year 2000 Issue" means failure of computer software, hardware and
firmware systems, and equipment containing embedded computer chips, to
properly receive, transmit, process, manipulate, store, retrieve, re-transmit
or in any other way utilize data and information due to the occurrence of the
year 2000 or the inclusion of dates on or after January 1, 2000.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared, in
accordance with generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in
by the Borrower's independent public accountants and disclosed in such
financial statements) with the most recent audited consolidated financial
statements of the Borrower and its Consolidated Subsidiaries delivered to the
Lenders; provided that, if the Borrower notifies the Administrative Agent
that the Borrower wishes to amend any covenant in Article V to eliminate the
effect of any change in generally accepted accounting principles on the
operation of such covenant (or if the Administrative Agent notifies the
Borrower that the Required Lenders wish to amend Article V for such purpose),
then the Borrower's compliance with such covenant shall be determined on the
basis of generally accepted accounting principles in effect immediately
before the relevant change in generally accepted accounting principles became
effective, until either such notice is withdrawn or such covenant is amended
in a manner satisfactory to the Borrower and the Required Lenders.
1.03 TYPES OF BORROWINGS. Borrowings are classified for purposes of
this Agreement either by reference to the pricing of Loans comprising such
Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of
Euro-Dollar Loans) or by reference to the provisions of Article II under
which participation therein is determined (I.E., a "Committed Borrowing" is a
Borrowing under Section 2.01 in which all Lenders participate in proportion
to their commitments).
-16-
<PAGE>
ARTICLE II
THE CREDITS
2.01 COMMITMENTS TO LEND. During the Revolving Credit Period each
Lender severally agrees, on the terms and conditions set forth in this
Agreement, to lend to the Borrower pursuant to this Section from time to time
amounts such that (a) the aggregate principal of Committed Loans by such
Lender at any one time outstanding shall not exceed the amount of its
Commitment, (b) the aggregate principal outstanding amount of all Committed
Loans shall not exceed the aggregate Commitments, and (c) unless and until
the conditions precedent set forth in Section 3.01(e) are satisfied (or
concurrently with the satisfaction thereof), the aggregate principal
outstanding amount of all Committed Loans shall not exceed $650,000,000 at
any time. Each Borrowing under this Section shall be in an aggregate
principal amount of $10,000,000 or any larger multiple of $1,000,000; and
each Committed Borrowing shall be made from the several Lenders ratably in
proportion to their respective Commitments. Within the foregoing limits, the
Borrower may borrow under this Section, repay, or to the extent permitted by
Section 2.17, prepay Loans and reborrow at any time on or prior to the
Termination Date under this Section. The Committed Loans shall mature, and
the principal amount thereof shall be due and payable, on the Termination
Date.
2.02 NOTICE OF COMMITTED BORROWINGS. The Borrower shall give the
Administrative Agent notice (a "Notice of Committed Borrowing"), substantially
in the form of Exhibit D hereto, not later than 8:30 A.M. (California local
time) on (y) the date of each Base Rate Borrowing and (z) the third Euro-Dollar
Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business
Day in the case of a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to be Base
Rate Loans or Euro-Dollar Loans; and
(d) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
Not more than twelve Committed Borrowings which are Euro-Dollar Borrowings
having different Interest Periods shall be outstanding at any time.
-17-
<PAGE>
2.03 RESERVED.
2.04 RESERVED.
2.05 CONVERSION AND CONTINUATION OF COMMITTED LOANS. Subject to the
provisions of this Article II governing the making of Euro-Dollar Loans, the
Borrower shall have the option at any time (i) to convert all or any part of
its outstanding Committed Loans equal to $10,000,000 and integral multiples
of $1,000,000 in excess of that amount from Loans bearing interest at a rate
determined by reference to one basis to Committed Loans bearing interest at a
rate determined by reference to an alternative basis or (ii) upon the
expiration of any Interest Period applicable to a Euro-Dollar Loan, to
continue all or any portion of such Loan equal to $1,000,000 and integral
multiples of $100,000 in excess of that amount as a Euro-Dollar Loan;
PROVIDED, HOWEVER, that a Euro-Dollar Loan may only be converted into a Base
Rate Loan on the expiration date of an Interest Period applicable thereto.
The Borrower shall deliver, to the Administrative Agent, notice of
any such conversion or continuation, substantially in the form of Exhibit D
(each a "Notice of Conversion/Continuation"), no later than 8:30 A.M.
(California local time) at least one Domestic Business Day in advance of the
proposed conversion date (in the case of a conversion to a Base Rate Loan)
and at least three Euro-Dollar Business Days in advance of the proposed
conversion/continuation date (in the case of a conversion to, or a
continuation of, a Euro-Dollar Loan). A Notice of Conversion/Continuation
shall specify (i) the proposed conversion/continuation date (which shall be a
Business Day in the case of Base Rate Loans and a Euro-Dollar Business Day,
in the case of conversion to or continuation of Euro-Dollar Loans), (ii) the
amount and type of the Loan to be converted/continued, (iii) the nature of
the proposed conversion/continuation, (iv) in the case of a conversion to, or
a continuation of, a Euro-Dollar Loan, the requested Interest Period, and (v)
in the case of a conversion to, or a continuation of, a Euro-Dollar Loan,
that no Default or Event of Default has occurred and is continuing.
2.06 NOTICE TO LENDERS; FUNDING OF LOANS.
(a) Upon receipt of a Notice of Borrowing, the Administrative
Agent shall promptly notify each Lender of the contents thereof and of such
Lender's share (if any) of such Borrowing and such Notice of Borrowing
shall not thereafter be revocable by the Borrower.
(b) Not later than 11:00 A.M. (California local time) on the date
of each Borrowing, if such Borrowing is to be made in Dollars, each Lender
participating therein shall (except as provided in subsection (c) of this
Section) make available its
-18-
<PAGE>
share of such Borrowing in Dollars, in federal or other funds
immediately available to the Administrative Agent at its address
referred to in Section 9.01. Unless the Administrative Agent determines
that any applicable condition specified in Article III has not been
satisfied, the Administrative Agent will make the funds so received from
the Lenders available to the Borrower at the Administrative Agent's
aforesaid address or place.
(c) If any Lender makes a new Loan hereunder on a day on which
the Borrower is to repay all or any part of an outstanding Loan from
such Lender, such Lender shall apply the proceeds of its new Loan to
make such repayment and only an amount equal to the difference (if any)
between the amount being borrowed and the amount being repaid shall be
made available by such Lender to the Administrative Agent as provided in
subsection (b), or remitted by the Borrower to the Administrative Agent
as provided in Section 2.17, as the case may be.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of
such Borrowing, the Administrative Agent may assume that such Lender has
made such share available to the Administrative Agent on the date of
such Borrowing in accordance with subsections (b) and (c) of this
Section 2.06 and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding
amount. If and to the extent that such Lender shall not have so made
such share available to the Administrative Agent, such Lender and the
Borrower severally agree to repay to the Administrative Agent forthwith
on demand such corresponding amount together with interest thereon, for
each day from the date such amount is made available to the Borrower
until the date such amount is repaid to the Administrative Agent, at (i)
in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to
Section 2.08 and (ii) in the case of such Lender, the Federal Funds
Rate. If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such
Lender's Loan included in such Borrowing for purposes of this Agreement.
If the Borrower pays interest under this subsection (d) at the Federal
Funds Rate and the Federal Funds Rate is higher than the interest rate
applicable thereto pursuant to Section 2.08, the applicable Lender shall
pay the Borrower the difference between such rates.
2.07 NOTES.
(a) The Committed Loans of each Lender shall be evidenced by a
single Note payable to the order of such Lender for the account of its
Applicable Lending Office in an amount equal to such Lender's Commitment.
-19-
<PAGE>
(b) RESERVED.
(c) Upon receipt of each Lender's Note pursuant to Section
3.02(b), the Administrative Agent shall forward such Note to such
Lender. Each Lender shall record the date, amount, type and maturity of
each Loan made by it and the date and amount of each payment of
principal made by the Borrower with respect thereto, and may, if such
Lender so elects in connection with any transfer or enforcement of its
Note, endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each
such Loan then outstanding; provided that the failure of any Lender to
make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Lender is
hereby irrevocably authorized by the Borrower so to endorse its Note and
to attach to and make a part of its Note a continuation of any such
schedule as and when required.
2.08 INTEREST RATES. (a) Each Base Rate Loan shall bear interest on
the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day PLUS any applicable Base Rate Margin. Such interest shall be
payable on the last Domestic Business Day of each calendar quarter in arrears
and on the Termination Date. Any overdue principal of or interest on any Base
Rate Loan shall, at the option of the Required Lenders, bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
sum of the Base Rate PLUS any applicable Base Rate Margin PLUS 2% per annum.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of (a) the Euro-Dollar Margin
for such day plus (b) the applicable London Interbank Offered Rate for such
Interest Period. Such interest shall be payable for each Interest Period on
the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
(c) Any overdue principal of or interest on any Euro-Dollar Loan
shall, at the option of the Required Lenders, bear interest, payable on
demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which one day (or, if such amount due remains
unpaid more than three Euro-Dollar Business Days, then for such period of
time not longer than 6 months as the Administrative Agent may elect) deposits
in Dollars in an amount approximately equal to such overdue payment due to
the Administrative Agent are offered to the Administrative Agent in the
London interbank market for the applicable period determined as provided
above by (ii) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in
-20-
<PAGE>
clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to
the sum of 2% plus the rate applicable to Base Rate Loans for such day).
(d) RESERVED.
(e) RESERVED.
(f) The Administrative Agent shall determine in accordance with the
provisions of this Agreement, each interest rate applicable to the Loans
hereunder. The Administrative Agent shall give prompt notice to the Borrower
and the participating Lenders of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
2.09 UPFRONT FEES. On the Effective Date, the Borrower shall pay to
the Administrative Agent for the account of each Lender non-refundable
upfront fees in the amounts set forth in letter agreements between each
Lender and the Lead Arranger and Sole Book Manager and advised by the Lead
Arranger and Sole Book Manager to the Borrower.
2.10 FACILITY FEES. The Borrower shall pay to the Administrative
Agent for the account of the Lenders ratably facility fees at the Facility
Fee Rate determined daily in accordance with the Schedule 1 (the "Facility
Fee Rate"). Such facility fee shall accrue from and including the Effective
Date to but excluding the Termination Date (or earlier date of termination of
the Commitments in their entirety), on the daily aggregate amount of the
Commitments (whether used or unused). Facility fees shall be payable
quarterly in arrears on December 1, 1999 and on the first day of each
subsequent March, June, September and December and upon the date of
termination of the Commitments in their entirety, and are non-refundable.
2.11 RESERVED.
2.12 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS BY THE
BORROWER. During the Revolving Credit Period, the Borrower may, upon at least
five Domestic Business Days' notice to the Administrative Agent, (i)
terminate the Commitments at any time, if no Loans are outstanding at such
time or (ii) ratably and permanently reduce from time to time by an aggregate
amount of $25,000,000 or any larger amount in multiples of $1,000,000, the
aggregate amount of the Commitments in excess of the the aggregate
outstanding principal balance of the Loans.
2.13 OPTIONAL TERMINATION OF COMMITMENTS BY THE LENDERS. Following
the occurrence of a Change of Control, the Required Lenders may in their sole
and absolute discretion elect, during the sixty day period immediately
subsequent to the LATER of (a) such occurrence and (b) the EARLIER of (i)
receipt of the Borrower's written notice to the Administrative Agent of such
occurrence and (ii) if no such notice has been received by the
-21-
<PAGE>
Administrative Agent, the date upon which the Administrative Agent and the
Lenders have actual knowledge thereof, to terminate all of the Commitments.
In any such case the Commitments shall be terminated effective on the date
which is sixty days subsequent to the date of written notice from the
Administrative Agent to the Borrower thereof, and, to the extent that there
is then any Debt evidenced by the Notes, the same shall be immediately due
and payable.
2.14 SCHEDULED TERMINATION OF COMMITMENTS. The Commitments shall
terminate on the Termination Date and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on such date.
2.15 EXTENSIONS OF THE TERMINATION DATE. The Termination Date may
be extended, in the manner set forth in this Section, for a period of 364
days after the date on which the Termination Date would otherwise have
occurred. If the Borrower wishes to extend the Termination Date, it shall
give written notice to that effect to the Administrative Agent not less than
90 days nor more than 150 days following the delivery to the Administrative
Agent of the audited annual financial statements of the Borrower in
accordance with Section 5.01(a), whereupon the Administrative Agent shall
notify each of the Lenders of such notice. Each Lender will respond to such
request, whether affirmatively or negatively, within the period which ends
upon the later of (i) 30 days following the Borrower's request, or (ii) 45
days prior to the then effective Termination Date (the "Response Date"). If a
Lender or Lenders respond negatively or fail to timely respond to such
request (each non-responding Lender being conclusively deemed to refuse to
consent to the extension), but such non-extending Lender(s) have
Commitment(s) aggregating less than 33 1/3% of the aggregate amount of the
Commitments, the Borrower shall, for a period of 60 days following the
Response Date, have the right, with the assistance of the Administrative
Agent, to seek a mutually satisfactory substitute financial institution or
financial institutions (which may be one or more of the Lenders) to assume
the Commitment(s) of such non-extending Lender(s). Not later than the third
Domestic Business Day prior to the end of such 60-day period, the Borrower
shall, by notice to the Lenders through the Administrative Agent, either (i)
terminate, effective on the third Domestic Business Day after the giving of
such notice, the Commitment(s) of such non-extending Lender(s), whereupon the
Lenders who have consented to the extension shall continue with their
Commitments unaffected to lend subject to the terms of this Agreement to the
new Termination Date, or (ii) designate one or more new financial
institutions reasonably acceptable to the Administrative Agent to assume the
Commitments of such non-extending Lenders, whereupon the aggregate amount of
such Commitment(s) shall be assumed by such substitute financial institution
or financial institutions within such 60-day period or (iii) withdraw its
request for an extension of the Termination Date, in which case the
Commitments shall continue unaffected. The failure of the Borrower to timely
take the actions contemplated by clause (i) or (ii) of the preceding sentence
shall be deemed a withdrawal of its request for an extension as contemplated
by clause (iii) whether or not notice to such effect is given, and in no
event shall the Termination Date be extended unless each Lender which has
-22-
<PAGE>
not consented to the proposed extension has been either replaced or
terminated as set forth above. So long as Lenders having Commitment(s)
totaling not less than 66 2/3% of the aggregate amount of the Commitment(s)
shall have responded affirmatively to such a request, and such request is not
withdrawn in accordance with the preceding sentence, then, subject to receipt
by the Administrative Agent of counterparts of an Extension Agreement in
substantially the form of Exhibit E duly completed and signed by the Borrower
and each of the affirmatively responding Lenders, the Termination Date shall
be extended, effective on such extension date, for a period of 364 days to
the date stated in such Extension Agreement.
2.16 OPTIONAL PREPAYMENTS.
(a) Subject in the case of any Euro-Dollar Borrowing to
Section 2.18, the Borrower may, upon at least one Domestic Business Day's
notice to the Administrative Agent, prepay any Base Rate Borrowing, or upon
at least three Euro-Dollar Business Days' notice to the Administrative
Agent, with respect to any Euro-Dollar Borrowing, prepay any Euro-Dollar
Borrowing, in each case in whole at any time, or from time to time in part
in amounts aggregating $10,000,000 or any larger multiple of $1,000,000,
by paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Each such optional prepayment shall be
applied to prepay ratably the Loans of the several Lenders included in
such Borrowing.
(b) RESERVED.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Administrative Agent shall promptly notify each Lender of the
contents thereof and of such Lender's ratable share (if any) of such
prepayment and such notice shall not thereafter be revocable by the
Borrower.
2.17 GENERAL PROVISIONS AS TO PAYMENTS.
(a) The Borrower shall make each payment of principal of, and
interest on, Loans and of fees hereunder, in Dollars not later than
11:00 A.M. (California local time) on the date when due, in Federal or
other immediately available funds, to the Administrative Agent at its
address referred to in Section 9.01, without offset or counterclaim. The
Administrative Agent will promptly distribute to each Lender its ratable
share of each such payment received by the Administrative Agent for the
account of the Lenders, in Dollars and in the type of funds received by
the Administrative Agent. Whenever any payment of principal of, or interest
on, the Base Rate Loans or of fees shall be due on a day which is not a
Domestic Business Day, the date for payment thereof shall be extended to
the next succeeding Domestic Business Day. Whenever any payment of
principal of, or interest on, the Euro-Dollar Loans
-23-
<PAGE>
shall be due on a day which is not a Euro-Dollar Business Day, the date
for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the
next preceding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full,
the Administrative Agent may assume that the Borrower has made such payment
in full to the Administrative Agent on such date and the Administrative
Agent may, in reliance upon such assumption, cause to be distributed to
each Lender on such due date an amount equal to the amount then due such
Lender. If and to the extent that the Borrower shall not have so made such
payment, each Lender shall repay to the Administrative Agent forthwith on
demand such amount distributed to such Lender together with interest
thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
2.18 FUNDING LOSSES. If the Borrower makes any payment of principal
with respect to any Fixed Rate Loan (pursuant to Article VI or VIII or
otherwise) on any day other than the last day of the Interest Period
applicable thereto, or if the Borrower fails to borrow any Fixed Rate Loans
after notice has been given to any Lender in accordance with Section 2.06(a),
the Borrower shall reimburse each Lender within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties,
but excluding loss of margin for the period after any such payment or failure
to borrow, provided that such Lender shall have delivered to the Borrower a
certificate as to the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
2.19 COMPUTATION OF INTEREST AND FEES. Interest based on the
Reference Rate and all fees hereunder shall be computed on the basis of a
year of 365 days (or 366 days in a leap year) and paid for the actual number
of days elapsed (including the first day but excluding the last day). All
other interest shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding
the last day).
2.20 WITHHOLDING TAX EXEMPTION. At least five Domestic Business
Days prior to the first date on which interest or fees are payable hereunder
for the account of any Lender, each Lender that is not incorporated under the
laws of the United States of America or a state thereof agrees that it will
deliver to each of the Borrower and the Administrative Agent two duly
completed copies of United States Internal Revenue Service Form W-8 ECI,
certifying in
-24-
<PAGE>
either case that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes.
Each Lender which so delivers a Form W-8 ECI further undertakes to
deliver to each of the Borrower and the Administrative Agent two additional
copies of such form (or a successor form) on or before the date that such
form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the
Borrower and the Administrative Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax.
2.21 RESERVED.
2.22 REGULATION D COMPENSATION. Each Lender may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of
such Lender at a rate per annum determined by such Lender up to but not
exceeding the excess of (i) (A) the applicable London Interbank Offered Rate
divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the
applicable London Interbank Offered Rate. Any Lender wishing to require
payment of such additional interest (x) shall so notify the Borrower and the
Agent, in which case such additional interest on the Euro-Dollar Loans of
such Lender shall be payable to such Lender at the place indicated in such
notice with respect to each Interest Period commencing at least three
Euro-Dollar Business Days after the giving of such notice and (y) shall
notify the Borrower at least five Euro-Dollar Business Days prior to each
date on which interest is payable on the Euro-Dollar Loans of the amount then
due it under this Section.
-25-
<PAGE>
ARTICLE III
CONDITIONS
3.01 BORROWINGS. The obligation of any Lender to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing
as required by Section 2.02;
(b) immediately after such Borrowing, the sum of the aggregate
outstanding principal amount of the Loans will not exceed the aggregate
amount of the Commitments;
(c) immediately before and after such Borrowing, no Default or
Event of Default shall have occurred and be continuing; and
(d) the representations and warranties of the Borrower contained
in this Agreement (except the representations and warranties set forth in
Section 4.04(b) and Section 4.05, in each case as to any matter which has
theretofore been disclosed in writing by the Borrower to the Lenders) shall
be true on and as of the date of such Borrowing.
(e) where, giving effect to the requested Loan, the aggregate
principal amount of the outstanding Loans will exceed $650,000,000 for the
first time, that:
(i) the Caesars Acquisition shall have been consummated, or
shall concurrently be consummated, in accordance with the terms of the
Caesars Acquisition Agreement; and
(ii) the Administrative Agent shall have received a
supplemental opinion of Latham & Watkins (or other legal counsel
selected by the Borrower and reasonably acceptable to the
Administrative Agent), substantially in the form of Exhibit F hereto,
and a certificate of the Borrower stating that all conditions
precedent to the Caesars Acquisition set forth in the Caesars
Acquisition Agreement have been satisfied or waived by the parties
thereto and that the Caesars Acquisition has been consummated in
material compliance with applicable laws.
-26-
<PAGE>
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c) and (d) of this Section.
3.02 EFFECTIVENESS. This Agreement shall become effective on the
date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.04):
(a) receipt by the Administrative Agent of counterparts hereof
signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, receipt by the
Administrative Agent in form satisfactory to it of telegraphic, telex or
other written confirmation from such party of execution of a counterpart
hereof by such party);
(b) receipt by the Administrative Agent for the account of each
Lender of a duly executed Note dated on or before the Effective Date
complying with the provisions of Section 2.05;
(c) receipt by the Administrative Agent of an opinion of
Latham & Watkins, substantially in the form of Exhibit G and an opinion of
Sills Cummis Radin Tischman Epstein & Gross, P.A., substantially in the
form of Exhibit H;
(d) arrangements satisfactory to the Administrative Agent for the
repayment of all loans (if any) outstanding under the Existing Short Term
Credit Agreement and the termination of the lending commitments thereunder;
(e) receipt by the Administrative Agent of all documents it may
reasonably request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement and the Notes, and any
other matters relevant hereto, all in form and substance satisfactory to
the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower, the Administrative
Agent and each Lender of the effectiveness of this Agreement, and such notice
shall be conclusive and binding on all parties hereto.
-27-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
4.01 CORPORATE EXISTENCE AND POWER. The Borrower (a) is a
corporation duly incorporated, validly existing and in good standing under
the laws of Delaware, (b) has all corporate powers and authority and all
material governmental licenses (including, without limitation, any such
license issued by a Gaming Board), authorizations, consents and approvals
required to own its property and assets and carry on its business as now
conducted and (c) is duly qualified as a foreign corporation and in good
standing in each jurisdiction where the ownership, leasing and operation of
its property or the conduct of its business requires such qualification.
4.02 CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The
execution, delivery and performance by the Borrower of this Agreement and the
Notes are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any Governmental Agency and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of the Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Borrower or result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
4.03 BINDING EFFECT. This Agreement constitutes a valid and binding
agreement of the Borrower and the Notes, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations
of the Borrower, in each case enforceable in accordance with their respective
terms.
4.04 FINANCIAL INFORMATION.
(a) The Combined Pro Forma Financial Statements fairly present in
all material respects, in conformity with generally accepted accounting
principles, the pro forma combined financial position of the Gaming Segment
and the divisions of Grand owning the Grand Assets as of the dates and for
the periods therein stated.
(b) Since December 31, 1998, there has been no material adverse
change in the business, financial position, results of operations or
prospects of the Gaming Segment and the Grand Assets, or in the operations
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
-28-
<PAGE>
4.05 Litigation. Except as disclosed in the Borrower's form 10-K
report for the year ended December 31, 1998 or in its 10-Q reports dated
March 31, and June 30, 1999, there is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect
the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries or which in any
manner draws into question the validity or enforceability of this Agreement
or the Notes. Without limiting the generality of the foregoing, with respect
to those litigation matters described above as reported in the Borrower's
aforementioned form 10-K or 10-Q reports, (a) the disclosure contained
therein was accurate as of the date of thereof, and (b) since such date there
has been no material adverse development.
4.06 COMPLIANCE WITH ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and
the Internal Revenue Code with respect to each Plan. No member of the ERISA
Group has (i) sought a waiver of the minimum funding standard under Section
412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make
any contribution or payment to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien
or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any liability under Title IV or ERISA other
than a liability to the PBGC for premiums under Section 4007 of ERISA.
4.07 TAXES. The United States Federal income tax returns of Hilton
and its Subsidiaries and of Grand and its Subsidiaries have been filed
through the fiscal year ended December 31, 1997. The Borrower and its
Significant Subsidiaries have filed all United States Federal income tax
returns and other material tax returns which are required to be filed by them
and have paid or agreed to settlements of all taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except for such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. The charges,
accruals and reserves on the books of the Borrower and its Significant
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
4.08 SIGNIFICANT SUBSIDIARIES. Each of the Significant Subsidiaries
(a) is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation, (b) has all corporate
powers and authority and all material governmental licenses (including,
without limitation, any such license issued by a Gaming Board),
authorizations, consents and approvals required to own its property and
assets and
-29-
<PAGE>
carry on its business as now conducted and (c) is duly qualified as a foreign
corporation and in good standing in each jurisdiction where the ownership,
leasing and operation of its property or the conduct of its business requires
such qualification, and the failure to be so qualified would have a material
adverse effect on the Borrower and its Subsidiaries.
4.09 NOT AN INVESTMENT COMPANY. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
4.10 ENVIRONMENTAL MATTERS. The Borrower has reasonably concluded
that Environmental Laws are unlikely to have a material adverse effect on the
business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
4.11 FULL DISCLOSURE. All information heretofore furnished by
Hilton, Grand and the Borrower to the Agents or to any Lender for purposes of
or in connection with this Agreement or any transaction contemplated hereby
is, and all such information hereafter furnished by the Borrower to the
Administrative Agent or any Lender will be, taken as a whole, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower has disclosed to the Lenders in writing or
by means of its filings with the Securities and Exchange Commission any and
all facts which materially and adversely affect or may affect (to the extent
the Borrower can now reasonably foresee), the business, operations or
financial position of the Borrower and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Borrower to perform its obligations under
this Agreement. With respect to any projections or forecasts provided, such
projections or forecasts represent, as of the date thereof, management's best
estimates based on reasonable assumptions and all available information, but
are subject to the uncertainty inherent in all projections and forecasts.
4.12 SOLVENCY. Giving effect hereto, as of the Effective Date, the
Borrower and its Significant Subsidiaries are, on a consolidated basis,
Solvent.
4.13 GAMING LAWS. The Borrower and its Subsidiaries are in material
compliance with all applicable Gaming Laws.
4.14 YEAR 2000. The Borrower and its Subsidiaries have reviewed the
effect of the Year 2000 Issue on the computer software, hardware and firmware
systems and equipment contained embedded microchips owned or operated by or
for the Borrower and its Subsidiaries. The costs to the Borrower and its
Subsidiaries of any reprogramming required as a result of the Year 2000 Issue
to permit the proper functioning of such systems and equipment and the proper
processing of data, and the testing of such reprogramming, and of required
systems changes are not reasonably expected to result in a Default or to have
a material
-30-
<PAGE>
adverse effect on the business, financial position, results of
operations or prospects of the Borrower and its Consolidated Subsidiaries,
considered as a whole.
-31-
<PAGE>
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note remains unpaid:
5.01 INFORMATION. The Borrower will deliver to the Administrative
Agent (who shall promptly distribute the same to the Lenders or advise the
Lenders thereof):
(a) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, the consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of such
fiscal year and the related consolidated statements of income and cash
flows for such fiscal year, setting forth in each case in comparative form
the figures as of the end of and for the previous fiscal year, all reported
on in a manner acceptable to the Securities and Exchange Commission by
Arthur Andersen LLP or other independent public accountants of nationally
recognized standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Borrower, the consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of income and cash flows for such quarter and for
the portion of the Borrower's fiscal year ended at the end of such quarter,
setting forth in the case of such statements of income and cash flows in
comparative form the figures for the corresponding quarter and the
corresponding portion of the Borrower's previous fiscal year, all certified
(subject to normal year-end adjustments) as to fairness of presentation,
generally accepted accounting principles and consistency by an Authorized
Officer;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a Compliance
Certificate (i) setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Sections 5.06, 5.10 and 5.11 on the date of such financial
statements, and (ii) stating whether any Default exists on the date of such
Compliance Certificate and, if any Default then exists, setting forth the
details thereof and the action which the Borrower is taking or proposes to
take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements
(i) whether anything has come to their attention to cause them to believe
that any Default existed on the date of such
-32-
<PAGE>
statements and (ii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith;
(e) as soon as available and in any event not later than the
last day of February of each year, a completed Pricing Certificate as of
December 31 of the prior year;
(f) within five Domestic Business Days of any officer of the
Borrower obtaining knowledge of any Default, if such Default is then
continuing, a certificate of an Authorized Officer setting forth the
details thereof and the action which the Borrower is taking or proposes
to take with respect thereto;
(g) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements, reports and
proxy statements so mailed;
(h) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent) and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall
have filed with the Securities and Exchange Commission;
(i) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to
administer, any Plan, a copy of such notice; (iv) applies for a waiver
of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041 (c) of ERISA, a copy of such
notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any payment or contribution to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement or
makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a
bond or other security, a certificate of the chief financial officer or
the chief accounting officer of the Borrower setting forth details as to
such occurrence and action, if any,
-33-
<PAGE>
which the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(j) forthwith, notice of any change of which the Borrower
becomes aware in the rating by S&P or Moody's, of the Borrower's
outstanding senior unsecured long-term debt securities; and
(k) from time to time such additional information regarding
the financial position or business of the Borrower and its subsidiaries
as the Administrative Agent, at the request of any Lender, may
reasonably request.
5.02 MAINTENANCE OF PROPERTY; INSURANCE.
(a) The Borrower will keep, and will cause each Significant
Subsidiary to keep, all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted,
except where failure to do so would not have a material adverse effect
on the business, financial position, results of operations or prospects
of the Borrower and its Consolidated Subsidiaries, considered as a whole.
(b) The Borrower will, and will cause each of its Significant
Subsidiaries to, maintain (either in the name of the Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such
amounts and against at least such risks (and with such risk retention)
as are usually insured against in the same general area by companies of
established repute engaged in the same or a similar business and will
furnish to the Lenders, upon request from the Administrative Agent,
information presented in reasonable detail as to the insurance so
carried. Notwithstanding the foregoing, the Borrower may self-insure
with respect to such risks with respect to which companies of
established repute engaged in the same or similar business in the same
general area usually self-insure.
5.03 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower
will continue, and will cause each Significant Subsidiary to continue, to
engage in business of the same general type conducted by the Borrower and its
Significant Subsidiaries as of the Effective Date, and will preserve, renew
and keep in full force and effect, and will cause each Subsidiary to
preserve, renew and keep in full force and effect their respective corporate
existence and their respective rights, privileges and franchises necessary or
desirable in the normal conduct of business; provided that nothing in this
Section 5.03 shall prohibit (i) the merger of a Subsidiary into the Borrower
or the merger or the consolidation of a Subsidiary with or into another
Person if the corporation surviving such consolidation or merger is a
Subsidiary and if, in each case, after giving effect thereto, no Default
shall have occurred and be continuing or (ii) the termination of the
corporate existence of any Subsidiary if (A) the
-34-
<PAGE>
Borrower in good faith determines that such termination is in the best interest
of the Borrower and (B) such termination is not materially disadvantageous to
the Lenders.
5.04 COMPLIANCE WITH LAWS. The Borrower will comply, and cause each
Significant Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of any
Governmental Agency (including, without limitation, Environmental Laws,
Gaming Laws and ERISA and, in each case, the rules and regulations
thereunder) except where the necessity of compliance therewith is contested
in good faith by appropriate proceedings.
5.05 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower will
keep, and will cause each Significant Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities; and
will permit, and will cause each Significant Subsidiary to permit,
representatives of any Lender at such Lender's expense to visit and inspect
any of their respective properties, to examine and make abstracts from any of
their respective books and records and to discuss their respective affairs,
finances and accounts with their respective officers, employees and
independent public accountants, all at such reasonable times and as often as
may reasonably be desired.
5.06 NEGATIVE PLEDGE. None of the Borrower, any Covered Subsidiary
or any Significant Subsidiary will create, assume or suffer to exist any Lien
on any asset now owned or hereafter acquired by it, except:
(a) Liens existing as of the Effective Date;
(b) any Lien existing on any asset of any corporation at the
time such corporation becomes a Subsidiary and not created in
contemplation of such event;
(c) any Lien on any asset (other than Liens created to finance
or refinance the cost of acquiring the equity interests and other assets
acquired or to be acquired pursuant to the Caesars Acquisition
Agreement) securing Debt incurred or assumed for the purpose of
financing all or any part of the cost of acquiring or constructing such
asset (it being understood that, for this purpose, the acquisition of a
Person is also an acquisition of the assets of such Person); PROVIDED
THAT the Lien attaches to such asset concurrently with or within 180
days after the acquisition thereof, or such longer period, not to exceed
12 months, due to the Borrower's inability to retain the requisite
governmental approvals with respect to such acquisition; provided
further that, in the case of real estate, (i) the Lien attaches within
12 months after the latest of the acquisition thereof, the completion of
construction thereon or the commencement of full operation thereof and
(ii) the Debt so secured does not exceed
-35-
<PAGE>
the sum of (x) the purchase price of such real estate plus (y) the costs
of such construction;
(d) any Lien on any asset of any corporation or other business
entity (including without limitation the Persons acquired pursuant to
the Caesars Acquisition Agreement) existing at the time such corporation
or other business entity is merged or consolidated with or into the
Borrower or a Subsidiary and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition
thereof by the Borrower or a Subsidiary and not created in contemplation
of such acquisition;
(f) any Lien arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any of
the foregoing clauses of this Section, provided that such Debt is not
increased (other than to cover any transaction costs of such
refinancing, extension, renewal or refunding) and is not secured by any
additional assets;
(g) Liens securing Debt of a Subsidiary to the Borrower or
another Subsidiary; and
(h) Liens not otherwise permitted by the foregoing clauses of
this Section encumbering assets of the Borrower and its Consolidated
Subsidiaries having an aggregate fair market value which is not in
excess of 10% of Consolidated Net Tangible Assets (determined, in each
case, by reference to the most recent date for which the Borrower has
delivered its financial statements under Section 5.01(a)).
5.07 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Borrower and
its Subsidiaries will not (i) consolidate or merge with or into any other
Person or (ii) sell, lease or otherwise transfer all or any substantial part
of the assets of the Borrower and its Subsidiaries, taken as a whole, to any
other Person, or (iii) acquire all or substantially all of the assets of, or
more than 49% of the capital stock or other equity securities of, any Person
which is not engaged in the same general lines of business as the Borrower
and its Subsidiaries, if, giving effect to such consolidation, merger, sale
or acquisition, the Borrower is not in pro forma compliance with the
covenants set forth in Sections 5.10 and 5.11; PROVIDED that, notwithstanding
the foregoing, the Borrower may merge with another Person only if (A) the
Borrower is the corporation surviving such merger, and (B) immediately after
giving effect to such merger, no Default shall have occurred and be
continuing.
5.08 HOSTILE TENDER OFFERS. The Borrower and its Subsidiaries will
not make any offer to purchase or acquire, or prosecute, pursue or consummate
a purchase or acquisition of, 5% or more of the capital stock of any
corporation or other business entity, if
-36-
<PAGE>
the board of directors or other equivalent governing body of such corporation
or business entity has notified the Borrower or its relevant Subsidiaries
that it opposes such offer or purchase and such notice has not been withdrawn
or superseded.
5.09 USE OF PROCEEDS. The proceeds of the Loans made under this
Agreement will be used by the Borrower for general corporate purposes,
including but not limited to (a) the refinancing of obligations under the
Existing Short Term Credit Agreement and transactional and other expenses
associated herewith, and (b) for working capital (including without
limitation refinancing of obligations under either of the Other Credit
Agreements), capital expenditures, the back stop of commercial paper and the
acquisition of full-service hotel\casino, casino and casino\resort properties
(including without limitation the Caesars Acquisition). None of such proceeds
will be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of buying or carrying any "margin stock" within the
meaning of Regulation U other than "margin stock" issued by the Borrower
which is retired upon purchase or for any purpose which violates Section 5.08.
5.10 LEVERAGE RATIO. The Leverage Ratio will not, as of the last
day of any fiscal quarter of the Borrower described in the matrix below,
exceed the ratio set forth opposite that fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarters Ending Maximum Ratio
---------------------- -------------
<S> <C>
September 30, 1999 4.75:1.00
December 31, 1999 through and 5.25:1.00
including June 30, 2000
September 30, 2000 and
December 31, 2000 4.75:1.00
Later Fiscal Quarters, if any 4.50:1.00.
</TABLE>
5.11 INTEREST COVERAGE RATIO. The Interest Coverage Ratio shall
not, as of the last day of any fiscal quarter of the Borrower, be less than
3.00:1.00.
5.12 YEAR 2000. The Borrower shall promptly and in any event by
December 31, 1999 make, and shall cause each of its Subsidiaries to make, all
required systems changes in computer software, hardware and firmware systems
and equipment containing embedded microchips owned or operated by or for the
Borrower and its Subsidiaries required as a result of the Year 2000 Issue to
permit the proper functioning of such computer systems and other equipment,
except to the extent that the failure to take any such action could not
reasonably be expected to result in a Default or to have a material adverse
effect on the business, financial
-37-
<PAGE>
position, results of operations or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole. At the request of any
Lender, the Borrower shall provide, and shall cause each of its Subsidiaries
to provide, to such Lender reasonable assurance of its compliance with the
preceding sentence.
-38-
<PAGE>
ARTICLE VI
DEFAULTS
6.01 EVENTS OF DEFAULT. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to (i) pay when due any
principal of any Loan under this Agreement, or (ii) pay within five
days of the due date thereof any interest, fees or other amount payable
hereunder;
(b) the Borrower shall fail to observe or perform any
covenant contained in Sections 5.06 to 5.11, inclusive;
(c) the Borrower shall fail to observe or perform any
covenant or agreement contained in this Agreement (other than those
covered by clause (a) or (b) above) for 7 days after written notice
thereof has been given to the Borrower by the Administrative Agent,
which notice shall be delivered to the Borrower by the Administrative
Agent at the request of any Lender;
(d) any representation, warranty, certification or
statement made or deemed made by the Borrower in this Agreement or in
any certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect in any
material respect when made (or deemed made);
(e) the Borrower or any Covered Subsidiary or any
Significant Subsidiary shall fail to make any payment in respect of any
Debt (other than the Notes and Non-Recourse Debt) when due or within
any applicable grace period and the aggregate principal amount of such
Debt is in excess of $100,000,000;
(f) any event or condition shall occur which results in
the acceleration of the maturity of any Debt (other than Non-Recourse
Debt) in excess of $100,000,000 of the Borrower or any Covered
Subsidiary or any Significant Subsidiary or enables or entitles the
holder of such Debt or any Person acting on such holder's behalf to
accelerate the maturity thereof;
(g) the Borrower or any Significant Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief
or to the appointment of or taking possession by any such
-39-
<PAGE>
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be
commenced against the Borrower or any Significant Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against the Borrower or
any Significant Subsidiary under the federal bankruptcy laws as now or
hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when
due an amount or amounts aggregating in excess of $5,000,000 which it
shall have become liable to pay under Title IV of ERISA; or notice of
intent to terminate a Material Plan shall be filed under Title IV of
ERISA by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer, any Material Plan; or a
condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be terminated;
or there shall occur a complete or partial withdrawal from, or a
default, within the meaning of Section 4219(c)(5) of ERISA, with
respect to, one or more Multiemployer Plans which could cause one or
more members of the ERISA Group to incur a current payment obligation
in excess of $25,000,000;
(j) a judgment or order for the payment of money in excess
of $25,000,000 shall be rendered against the Borrower or any Subsidiary
and such judgment or order shall continue unsatisfied and unstayed for
a period of 30 days;
(k) the occurrence of a License Revocation with respect to
a license issued to the Borrower or any of its Subsidiaries by any
Gaming Board of the States of Mississippi, New Jersey or Nevada with
respect to gaming operations at any gaming facility accounting for five
percent (5%) or more of the consolidated gross revenues of the Borrower
and its Subsidiaries that continues for thirty calendar days;
then, and in every such event, the Administrative Agent shall (i) if
requested by the Required Lenders, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate, and (ii) if requested by the
Required Lenders, by notice to the Borrower declare the
-40-
<PAGE>
Loans (together with accrued interest thereon) to be, and the Loans (together
with accrued interest thereon) shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Borrower; PROVIDED that in the case of any
of the Events of Default specified in clause (g) or (h) above with respect to
the Borrower, without any notice to the Borrower or any other act by the
Administrative Agent or the Lenders, the Commitments shall thereupon
terminate and the Loans (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
6.02 NOTICE OF DEFAULT. The Administrative Agent shall give notice
to the Borrower under Section 6.01(c) promptly upon being requested to do so
by any Lender and shall thereupon notify all the Lenders thereof.
6.03 RESERVED.
-41-
<PAGE>
ARTICLE VII
THE AGENTS
7.01 APPOINTMENT AND AUTHORIZATION. Each Lender irrevocably
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the Notes as are
delegated to such Agent by the terms hereof or thereof, together with all
such powers as are reasonably incidental thereto.
7.02 AGENTS AND AFFILIATES. Bank of America and the other Agents
shall each have the same rights and powers under this Agreement as any other
Lender and each may exercise or refrain from exercising the same as though it
were not an Agent, and Bank of America and the other Agents and their
respective affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with, the Borrower or any Subsidiary or
Affiliate of the Borrower as if they were not Agents hereunder.
7.03 ACTION BY AGENTS. The obligations of the Agents hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Administrative Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.
7.04 CONSULTATION WITH EXPERTS. Each Agent may consult with legal
counsel (who may be counsel for the Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken
or omitted to be taken by it in good faith in accordance with the advice of
such counsel, accountants or experts.
7.05 LIABILITY OF AGENT. Neither any Agent nor any of their respective
affiliates nor any of the respective directors, officers, agents or employees of
any of the foregoing shall be liable for any action taken or not taken by it in
connection herewith (i) with the consent or at the request of the Required
Lenders or (ii) in the absence of its own gross negligence or willful
misconduct. Neither any Agent nor any of their respective affiliates nor any of
the respective directors, officers, agents or employees of any of the foregoing
shall be responsible for or have any duty to ascertain, inquire into or verify
(i) any statement, warranty or representation made in connection with this
Agreement or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of the Borrower; (iii) the satisfaction of any
condition specified in Article III, except in the case of the Administrative
Agent receipt of items required to be delivered to it; or (iv) the validity,
effectiveness or genuineness of this Agreement, the Notes or any other
instrument or writing furnished in connection herewith. The Administrative Agent
shall incur no liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex,
facsimile transmission or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
-42-
<PAGE>
7.06 INDEMNIFICATION. Each Lender shall, ratably in accordance with
its Commitment, indemnify the Administrative Agent, its affiliates and its
directors, officers, agents and employees (to the extent not reimbursed by
the Borrower) against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that
such indemnitee may suffer or incur in connection with the Administrative
Agent's role under this Agreement or any related action taken or omitted by
such indemnitee hereunder.
7.07 CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent, the Lead
Arranger and Sole Book Manager or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, the Lead Arranger and Sole Book Manager or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking any action under this Agreement.
7.08 SUCCESSOR AGENT. The Administrative Agent may resign at any
time subject to the appointment of a successor Agent by giving notice to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders
shall have the right to appoint a successor Agent with the consent of the
Borrower, which consent shall not be unreasonably withheld or delayed;
provided that no such consent shall be required if the successor Agent is a
Lender. If no successor Agent shall have been so appointed, and shall have
accepted such appointment, within 30 days after the retiring Agent's 'giving
of notice of resignation, then the retiring Agent may, on behalf of the
Lenders, and without the Borrower's consent, appoint a successor Agent, which
shall be a commercial bank organized or licensed under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $1,000,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
7.09 AGENTS' FEES. The Borrower shall pay to each Agent for its own
account fees in the amounts and at the times previously agreed upon between
the Borrower and such Agent.
-43-
<PAGE>
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
8.01 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If
on or prior to the first day of any Interest Period for any Fixed Rate
Borrowing:
(a) the Administrative Agent is advised by the Required
Lenders that deposits in Dollars and in the required amounts are not
being offered to the Lenders in the relevant market for such Interest
Period, or
(b) in the case of a Committed Borrowing, Lenders having
50% or more of the aggregate amount of the Commitments advise the
Administrative Agent that the London Interbank Offered Rate, as
determined by the Administrative Agent, will not adequately and fairly
reflect the cost to such Lenders of funding their Euro-Dollar Loans for
such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Lenders, whereupon until the Administrative Agent notifies the
Borrower that the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders to make Euro-Dollar Loans shall be
suspended. Unless the Borrower notifies the Administrative Agent at least two
Domestic Business Days before the date of any Fixed Rate Borrowing for which
a Notice of Borrowing has previously been given that it elects not to borrow
on such date, such Fixed Rate Borrowing shall instead be made as a Base Rate
Borrowing. The Administrative Agent shall promptly notify the Lenders of any
election by the Borrower pursuant to the preceding sentence.
8.02 ILLEGALITY. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by any Lender (or its Euro-Dollar Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for any Lender (or its Euro-Dollar Lending Office) to make,
maintain or fund its Euro-Dollar Loans and such Lender shall so notify the
Administrative Agent, the Administrative Agent shall forthwith give notice
thereof to the other Lenders and the Borrower, whereupon until such Lender
notifies the Borrower and the Administrative Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Lender
to make Euro-Dollar Loans shall be suspended. Before giving any notice to the
Administrative Agent pursuant to this Section, such Lender shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need
for giving such notice and will not, in the sole judgment of such Lender, be
otherwise disadvantageous to such
-44-
<PAGE>
Lender. If such Lender shall determine that it may not lawfully continue to
maintain and fund any of its outstanding Euro-Dollar Loans to maturity and
shall so specify in such notice, the Borrower shall immediately prepay in
full the then outstanding principal amount of each such Euro-Dollar Loan,
together with accrued interest thereon. Concurrently with prepaying each such
Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Lender (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Lenders), and such Lender shall make such a Base Rate Loan.
8.03 INCREASED COST AND REDUCED RETURN.
(a) If on or after the date hereof, the adoption of any
applicable law, rule or regulation, or any change in any applicable
law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending Office)
with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject any Lender (or its Applicable
Lending Office) to any tax, duty or other charge with respect to
its Fixed Rate Loans, its Note or its obligation to make Fixed
Rate Loans, or shall change the basis of taxation of payments to
any Lender (or its Applicable Lending Office) of the principal of
or interest on its Fixed Rate Loans or any other amounts due
under this Agreement in respect of its Fixed Rate Loans or its
obligation to make Fixed Rate Loans (except for changes in the
rate of tax on the overall net income of such Lender or its
Applicable Lending Office imposed by the jurisdiction in which
such Lender's principal executive office or Applicable Lending
Office is located); or
(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System,
but excluding, with respect to any Euro-Dollar Loan any such
requirement included in an applicable Euro-Dollar Reserve
Percentage), special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender (or its Applicable Lending
Office) or shall impose on any Lender (or its Applicable Lending
Office) or on the United States market for certificates of
deposit or the London interbank market any other condition
affecting its Fixed Rate Loans, its Note or its obligation to
make Fixed Rate Loans;
-45-
<PAGE>
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making or maintaining any
Fixed Rate Loan, or to reduce the amount of any sum received or
receivable by such Lender (or its Applicable Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed
by such Lender to be material, then, within 15 days after demand by
such Lender (with a copy to the Administrative Agent), the Borrower
shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction.
(b) If, after the date hereof, any Lender shall have
determined that any applicable law, rule or regulation regarding
capital adequacy (irrespective of the actual timing of the adoption or
implementation thereof and including, without limitation, any law or
regulation adopted pursuant to the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices) or any
change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Applicable Lending Office) with any
request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on
capital of such Lender (or its Parent) as a consequence of such
Lender's obligations hereunder to a level below that which such Lender
(or its Parent) could have achieved but for such law, regulation,
change or compliance (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Lender to be
material, then from time to time, within 15 days after demand by such
Lender (with a copy to the Administrative Agent), the Borrower shall
pay to such Lender such additional amount or amounts as will compensate
such Lender (or its Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Lender to compensation
pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole judgment of
such Lender, be otherwise disadvantageous to such Lender. A certificate
of any Lender claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such
amount, such Lender may use any reasonable averaging and attribution
methods.
8.04 BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS. If
(i) the obligation of any Lender to make Euro-Dollar Loans has been suspended
pursuant to Section 8.02 or (ii) any Lender has demanded compensation under
Section 8.03(a) and the
-46-
<PAGE>
Borrower shall, by at least five Euro-Dollar Business Days, prior notice to
such Lender through the Administrative Agent, have elected that the
provisions of this Section shall apply to such Lender, then, unless and until
such Lender notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Lender
as Euro-Dollar Loans shall be made instead as Base Rate Loans (on which
interest and principal shall be payable contemporaneously with the related
Fixed Rate Loans of the other Lenders), and
(b) after each of its Euro-Dollar Loans has been repaid, all
payments of principal which would otherwise be applied to repay such Fixed
Rate Loans shall be applied to repay its Base Rate Loans instead.
-47-
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.01 NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, telecopy or
similar writing) and shall be given to such party: (x) in the case of the
Borrower or the Administrative Agent, at its address or telex or telecopier
number set forth on the signature pages hereof, (y) in the case of any
Lender, at its address or telex or telecopier number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other
address or telex or telecopier number as such party may hereafter specify for
the purpose by notice to the Administrative Agent and the Borrower. Each such
notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answer back is received, (ii) if given by mail,
72 hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered or received at the address specified in this Section; provided
that notices to the Administrative Agent under Article II or Article VIII
shall not be effective until received.
9.02 NO WAIVERS. No failure or delay by the Administrative Agent or
any Lender in exercising any right, power or privilege hereunder or under any
Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
9.03 EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION.
(a) The Borrower shall pay (i) all reasonable
out-of-pocket expenses of the Administrative Agent and the Lead
Arranger and Sole Book Manager, including reasonable fees and
disbursements of counsel for the Administrative Agent (including the
allocated fees and expenses of any internal counsel), in connection
with the preparation of this Agreement and all related documents, the
negotiation, closing and syndication of this Agreement and the Loans,
and in connection with any waiver, amendment or consent hereunder or
any amendment hereof or any Default or alleged Default hereunder and
(ii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Administrative Agent or any Lender, including
fees and disbursements of counsel (including the allocated fees and
expenses of any internal counsel), in connection with such Event of
Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom. The Borrower shall indemnify each
Lender against any transfer taxes, documentary taxes, mortgage
-48-
<PAGE>
recording taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery or enforcement of
this Agreement and the Notes.
(b) The Borrower agrees to indemnify each Agent, the Lead
Arranger and Sole Book Manager and each Lender, their respective
affiliates and the respective directors, officers, agents and employees
of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel (including the allocated
fees and expenses of any internal counsel), which may be incurred by
such Indemnitee in connection with any investigative, administrative or
judicial proceeding (whether or not such Indemnitee shall be designated
a party thereto) brought or threatened relating to or arising out of
this Agreement or any actual or proposed use of proceeds of Loans
hereunder; provided that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
9.04 AMENDMENTS AND WAIVERS. No amendment or waiver of the terms of
this Agreement or the other Loan Documents shall be made or be effective
unless such amendment or waiver is in writing and is signed by the Borrower
and the Required Lenders (and, if the rights or duties of the Administrative
Agent are affected thereby, by the Administrative Agent); provided that no
such amendment or waiver shall, unless signed by all the Lenders, (i)
increase or decrease the amount of the Commitment of any Lender without the
consent of that Lender (except for a ratable decrease in the Commitments of
all Lenders) or subject any Lender to any additional obligation, (ii) reduce
the principal of or rate of interest on any Loan or interest thereon or any
fees hereunder, (iii) postpone the date fixed for any payment of principal of
or interest on any Loan or interest thereon or any fees hereunder, or the
Termination Date (except as contemplated by Section 2.15), (iv) change the
percentage of the Commitments or of the aggregate unpaid principal amount of
the Notes, or the percentage of Lenders, which shall be required for the
Lenders or any of them to take any action under this Section or any other
provision of this Agreement, (v) render more restrictive the ability of any
Lender to assign or grant participations in its Commitment under Section 9.05
or (vi) waive or amend the condition set forth in Section 3.01(e).
9.05 SUCCESSORS AND ASSIGNS.
(a) This Agreement and the other Loan Documents to which
the Borrower is a party will be binding upon and inure to the benefit
of Borrower, the Administrative Agent, each of the Lenders, and their
respective successors and assigns, EXCEPT that the Borrower may not
assign its rights hereunder or thereunder or any interest herein or
therein without the prior written consent of all the Lenders. Each
Lender represents that it is not acquiring its Note with a view to the
distribution thereof
-49-
<PAGE>
within the meaning of the Securities Act of 1933, as amended (subject
to any require-ment that disposition of such Note must be within the
control of such Lender). Any Lender may at any time pledge its Note or
any other instrument evidencing its rights as a Lender under this
Agreement to a Federal Reserve Bank, but no such pledge shall release
that Lender from its obligations hereunder or grant to such Federal
Reserve Bank the rights of a Lender hereunder absent foreclosure of
such pledge.
(b) From time to time following the date which is sixty
days following the Effective Date, each Lender may assign to one or
more Eligible Assignees all or any portion of its Commitment; PROVIDED
that (i) such Eligible Assignee, if not then a Lender or an Affiliate
of the assigning Lender, shall be approved by each of the
Administrative Agent and (if no Event of Default then exists) Borrower
(neither of which approvals shall be unreasonably withheld or delayed),
(ii) such assign-ment shall be evidenced by an Assignment and
Assumption Agreement substantially in the form of Exhibit I, a copy of
which shall be furnished to the Administrative Agent as hereinbelow
provided, (iii) EXCEPT in the case of an assignment to an Affiliate of
the assigning Lender, to another Lender or of the entire remaining
Commitment of the assigning Lender, the assignment shall not assign a
portion of the Commitments that is equivalent to less than $5,000,000,
and (iv) the effective date of any such assignment shall be as
specified in the Assignment and Assumption Agreement, but not earlier
than the date which is five Banking Days after the date the
Administrative Agent has received the Assignment and Assumption
Agreement. Upon the effective date of the Assignment and Assumption
Agreement, the Eligible Assignee named therein shall be a Lender for
all purposes of this Agreement, with the Commitment therein set forth
and, to the extent of such Commitment, the assigning Lender shall be
released from its further obligations under this Agreement. Borrower
agrees that they shall execute and deliver (against delivery by the
assigning Lender to the Borrower of its Note) to such assignee Lender,
a Note evidencing that assignee Lender's Commitment, and to the
assigning Lender, a Note evidencing the remaining Commitment retained
by the assigning Lender.
(c) By executing and delivering an Assignment and
Assumption Agreement, the Eligible Assignee thereunder acknowledges and
agrees that: (i) other than the representation and warranty that it is
the legal and beneficial owner of the Commitment being assigned thereby
free and clear of any adverse claim, the assigning Lender has made no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness or sufficiency of this Agreement or any
other Loan Document; (ii) the assigning Lender has made no
representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or the performance by the
Borrower of its obligations under this Agreement; (iii) it has received
a copy of this Agreement,
-50-
<PAGE>
together with copies of the most recent financial statements delivered
pursuant to Section 5.01 and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Assumption Agreement; (iv) it will,
independently and without reliance upon the Administrative Agent or any
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) it appoints and
authorizes the Administrative Agent to take such action and to exercise
such powers under this Agreement as are delegated to the Administrative
Agent by this Agreement; and (vi) it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement
are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain a copy of each
Assign-ment and Assumption Agreement delivered to it and a register (the
"Register") of the names and address of each of the Lenders and the
Commitment held by each Lender, giving effect to each Assignment and
Assumption Agreement. The Register shall be available during normal
business hours for inspection by the Borrower upon reasonable prior
notice to the Administrative Agent. The Administrative Agent shall
promptly confirm to any requesting Lender the amount of its Commitment
set forth in the Register. After receipt of a completed Assignment and
Assumption Agreement executed by any Lender and an Eligible Assignee,
and receipt of an assignment fee of $3,500 from such Lender or Eligible
Assignee, the Administrative Agent shall, promptly following the
effective date thereof, provide to the Borrower and the affected Lenders
confirmation of the changes in their respective Commitments. The
Borrower, the Administrative Agent and the Lenders shall deem and treat
the Persons listed as Lenders in the Register as the holders and owners
of the Commitments listed therein for all purposes hereof, and no
assignment or transfer of any Commitment shall be effective, in each
case unless and until an Assignment and Assumption Agreement effecting
the assignment or transfer thereof shall have been accepted by the
Administrative Agent and recorded in the Register as provided above.
Prior to such recordation, all amounts owed with respect to the
applicable Commitment shall be owed to the Lender listed in the Register
as the owner thereof, and any request, authority or consent of any
Person who, at the time of making such request or giving such authority
or consent, is listed in the Register as a Lender shall be conclusive
and binding on any subsequent holder, assignee or transferee of the
corresponding Commitment.
(e) Each Lender may from time to time grant participations in its
Commitment to one or more Lenders, other financial institutions or
special purpose trusts; PROVIDED, HOWEVER, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) the participating Lenders or
other
-51-
<PAGE>
financial institutions shall not be a Lender hereunder for any purpose
EXCEPT, if the participation agreement so provides, for the purposes of
Sections 2.22, 8.03 and 9.03 but only to the extent that the cost of
such benefits to the Borrower does not exceed the cost which the
Borrower would have incurred in respect of such Lender absent the
participation, (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, (v) the participation interest shall be expressed as a
percentage of the granting Lender's Commitment as it then exists and
shall not restrict an increase in the Commitments, or in the granting
Lender's Commitment, so long as the amount of the participation interest
is not affected thereby and (vi) the consent of the holder of such
participation interest shall not be required for amendments or waivers
of provisions of the Loan Documents OTHER THAN those which result in (A)
a decrease in fees, interest rate spreads or principal payable to the
holder of such participation, (B) increase the Commitment of the
granting Lender and thereby increase the funding requirements of the
holder of such a participation, or (C) extend the Termination Date.
(f) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Lender") may grant to a special purpose funding
vehicle (an "SPC") of such Granting Lender, identified as such in
writing from time to time by the Granting Lender to the Administrative
Agent and the Borrower the option to provide all or any part of any
Committed Loan that such Granting Lender would otherwise be obligated to
make pursuant to this Agreement, provided that (i) nothing herein shall
constitute a commitment to make any Loan by any SPC, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or
any part of such Loan, the Granting Lender shall be obligated to make
such Loan pursuant to the terms hereof, and (iii) except as expressly
set forth herein, the rights of any such SPC shall be derivative of the
rights of the Granting Lender, and each SPC shall be subject to all of
the restrictions upon the Granting Lender herein contained. Each SPC
shall be conclusively presumed to have made arrangements with its
Granting Lender for the exercise of voting and other rights hereunder in
a manner which is acceptable to the SPC, and the Administrative Agent,
the Lenders and the Borrower and each other party shall be entitled to
rely upon and deal solely with the Granting Lender with respect to Loans
made by or through its SPC. The making of a Loan by an SPC hereunder
shall utilize the Commitment of the Granting Lender to the same extent,
and as if, such Loan were made by the Granting Lender. Each party hereto
hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall
remain with the related Granting Lender). In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall
survive the termination of this Agreement) that, prior to the date that
is one year and one day after the payment in full of all outstanding
senior indebtedness of any SPC, it will not institute against, or join
any other person in instituting against, such SPC any
-52-
<PAGE>
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or similar proceedings under the laws of the United States
or any State thereof with respect to any claim arising out of or related
to this Agreement. In addition, notwithstanding anything to the contrary
contained in this Section 9.05, each SPC may, at any time, without
regard to the period required by Section 9.05(b)(iv), (i) with notice
to, but without the prior written consent of, the Borrower, the Borrower
or the Administrative Agent, and without paying any processing fee
therefor, assign all or a portion of its interests in any Loans to its
Granting Lender or to any financial institutions providing liquidity
and/or credit facilities to or for the account of such SPC to fund the
Loans made by such SPC or to support the securities (if any) issued by
such SPC to fund such Loans (but nothing contained herein shall be
construed in derogation of the obligation of the Granting Lender to make
Loans hereunder), and (ii) disclose on a confidential basis any
non-public information relating to its Loans to any rating agency,
commercial paper dealer or provider of a surety, guarantee or credit or
liquidity enhancement to such SPC. This Section 9.05(f) may not be
amended without the consent of all SPC's then designated to the
Administrative Agent in accordance with the foregoing provisions of this
Section.
9.06 COLLATERAL. Each of the Lenders represents to each Agent and
each of the other Lenders that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
9.07 CALIFORNIA LAW; SUBMISSION TO JURISDICTION. This Agreement and
each Note shall be construed in accordance with and governed by the laws of
the State of California. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Central District of
California and of any California State court sitting in Los Angeles,
California for purposes of all legal proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby. The Borrower
irrevocably, waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
9.08 COUNTERPARTS; INTEGRATION. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
9.09 SEVERAL OBLIGATIONS. The obligations of the Lenders hereunder
are several. Neither the failure of any Lender to carry out its obligations
hereunder nor the failure of this Agreement to be duly authorized, executed
and delivered by any Lender shall relieve
-53-
<PAGE>
any other Lender of its obligations hereunder (or affect the rights hereunder
of such other Lender). No Lender shall be responsible for the obligations of,
or any action taken or omitted by, any other Lender hereunder.
9.10 SHARING OF SET-OFFS. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to any Note held by it which is greater than the proportion received
by any other Lender in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Lender, the Lender
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Lenders, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes held by the Lenders shall be
shared by the Lenders pro rata; PROVIDED that nothing in this Section shall
impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to
the payment of indebtedness of the Borrower other than its indebtedness under
the Notes. The Borrower agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Note,
whether or not acquired pursuant to the foregoing arrangements, may exercise
rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
9.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE
BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
9.12 CONFIDENTIALITY. The Lenders hereby agree to hold any
confidential information that they may receive from Borrower or its
Subsidiaries pursuant to this Agreement in confidence, except for disclosure:
(a) to their respective Affiliates and to other parties to this Agreement;
(b) to legal counsel and accountants for any such party; (c) to other
professional advisors to any such party, provided that the recipient has
accepted such information subject to a confidentiality agreement
substantially similar to this paragraph or has notified such professional
advisors of the confidentiality of such information; (d) to regulatory
officials having jurisdiction over that Lender; (e) to any Gaming Board; (f)
as required by law or legal process (provided that the Lender shall endeavor,
to the extent it may do so under applicable law, to give the Borrower
reasonable prior notice thereof to allow the Borrower to seek a protective
order) or in connection with any legal proceeding to which that Lender and
the Borrower are adverse parties; and (g) to another financial institution in
connection with a disposition or proposed disposition to that financial
institution of all or part of that Lender's interests hereunder or a
participation interest in its Note, provided that the recipient has accepted
such information subject to a confidentiality agreement substantially similar
to this
-54-
<PAGE>
Section. For purposes of the foregoing, "confidential information"
shall mean any information respecting the Borrower or its Subsidiaries
reasonably considered by them to be confidential, other than (i) information
previously filed with any governmental agency and available to the public,
(ii) information previously published in any public medium from a source
other than, directly or indirectly, that Lender, and (iii) information
previously disclosed by the Borrower or
[Remainder of this page intentionally left blank]
-55-
<PAGE>
its Subsidiaries to any person not associated therewith without a
confidentiality agreement substantially similar to this Section. Nothing in
this Section shall be construed to create or give rise to any fiduciary duty
on the part of any Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
PARK PLACE ENTERTAINMENT
CORPORATION
By: /s/ Janet E. Sockwell
---------------------------------------
Janet E. Sockwell, CFA
Vice President and Assistant Treasurer
Address for Notices:
Park Place Entertainment Corporation
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: Janet E. Sockwell, CFA
Telephone: 702/699-5247
Telecopier: 702/699-5216
E-Mail: [email protected]
-56-
<PAGE>
BANK OF AMERICA, N.A., as Administrative
Agent
By: /s/ Janice Hammond
---------------------------------------
Janice Hammond, Vice President
Address for Notices:
Bank of America, N.A.
Entertainment/Media Group
Agency Management
Corporate & Investment Banking
CA9-706-11-03
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Attn: Janice Hammond, Vice President
Telecopier: (213) 228-2299
Telephone: (213) 228-9861
BANK OF AMERICA, N.A., as a Lender
By: /s/ Scott L. Faber
---------------------------------------
Scott L. Faber, Principal
Address for Notices:
Bank of America, N.A.
Credit Products - LA 3283
Entertainment & Media Group
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Attn: Scott L. Faber, Principal
Telecopier: (213) 228-2641
Telephone: (213) 228-2768
With a copy to:
Bank of America, N.A.
555 South Flower Street (LA-5777)
Los Angeles, California 90071
Attn: William Newby, Managing Director
Telecopier: (213) 228-3145
Telephone: (213) 228-2438
-57- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
BANKERS TRUST COMPANY
By: /s/ Laura S. Burwick
-------------------------------------
Laura S. Burwick
Title: Principal
-------------------------------------
Address for notices:
Bankers Trust Company
130 Liberty Street, Mail Stop 2252
New York, New York 10006
Attn.: Linda Wang
Facsimile: (212) 669-0743
Telephone: (212) 250-2781
-58- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ [Illegible]
-------------------------------
Title: Vice President
-------------------------------
Address for notices:
Merrill Lynch Capital Corporation
North Tower - WFC
250 Vesey Street
New York, New York 10281
Attn.: Carol Feeley
Facsimile: (212) 738-1649
Telephone: (212) 449-8414
-59- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ [Illegible]
----------------------------------
Title: R. M.
-------------------------------
Address for notices:
The Bank of Nova Scotia
San Francisco Agency
580 California Street, Suite 2100
San Francisco, California 94104
Attn.: Alan Pendergast, Relationship Manager
Facsimile: (415) 397-0791
Telephone: (415) 616-4155
-60- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE BANK OF NEW YORK
By: /s/ Lisa Y. Brown
---------------------------------
Lisa Y. Brown
Title: Vice President
---------------------------------
Address for notices:
The Bank of New York
One Wall Street, 22nd Floor
New York, New York 10005
Attn.: Dawn Hertling
Facsimile: (212) 635-6399 or 6877
Telephone: (212) 635-6742
-61- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Peter D. Steffen
-----------------------------
Peter D. Steffen
Title: Senior Vice President
-----------------------------
Address for notices:
First Union National Bank
301 South College Street, 10th Floor
Charlotte, North Carolina 28288-0745
Attn.: John Reid, Vice President
Facsimile: (704) 383-7236
Telephone: (704) 383-1385
-62- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
SOCIETE GENERALE
By: /s/ Alex Y. Kim
-------------------------------------
Alex Y. Kim
Title: Vice President
----------------------------------
Address for notices:
Societe Generale
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Attn.: Tequlla English
Facsimile: (214) 754-0171
Telephone: (214) 979-2767
-63- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT,
NEW YORK AND CAYMAN ISLANDS
BRANCHES
By: /s/ Christian Jagenberg
-------------------------------------
Christian Jagenberg
Title: SVP and Manager
-----------------------------------
By: /s/ Werner Schmidbauer
-------------------------------------
Werner Schmidbauer
Title: Vice President
-----------------------------------
Address for notices:
Commerzbank AG - New York Branch
2 World Financial Center
New York, New York 10281
Attn.: Christine Hunermund
Facsimile: (212) 266-7499
Telephone: (212) 266-7684
-64- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Gary W. Wessola
-------------------------------------
Gary W. Wessola
Title: Vice President
-----------------------------------
Address for notices:
PNC Bank, National Association
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attn.: Gary W. Wessels, Vice President
Facsimile: (732) 220-3270
Telephone: (732) 220-4553
-65- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: /s/ Virginia S. Christenson
-------------------------------------
Virginia S. Christenson
Title: AVP/Relationship Manager
-------------------------------------
Address for notices:
Wells Fargo Bank, National Association
201 Third Street, 8th Floor
San Francisco, California 94103
Attn.: Belle B. Gardia, Specialist -
Syndications
Facsimile: (415) 512-9408
Telephone: (415) 477-5471
Address for Notices:
Wells Fargo Bank, National Association
3800 Howard Hughes Parkway, Suite 400
Las Vegas, NV 89109
Attn: Virginia Christenson
Relationship Manager
Facsimile: (702) 791-6365
Telephone: (702) 791-6324
-66- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
BANKBOSTON, N.A.
By: /s/ Daniel M. Kortick
-------------------------------------
Daniel M. Kortick
Title: Director
----------------------------------
Address for notices:
BankBoston, N.A.
100 Federal Street
MA 01-08-08
Boston, Massachusetts 02110
Attn.: Daniel M. Kortick, Director
Facsimile: (617) 434-3401
Telephone: (617) 434-6757
-67- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: [ILLEGIBLE]
-------------------------------------
Title: Vice President
----------------------------------
Address for domestic notices:
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, CA 91755
Attn.: Gohar Katapetyan
Facsimile: (323) 720-6198
Telephone: (323) 720-2679
Address for eurodollar notices:
Union Bank of California, N.A.
1980 Saturn Street
Monterey Park, CA 91755
Attn.: Gohar Karapetyan
Facsimile: (323) 720-6198
Telephone: (323) 720-2679
-68- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
WACHOVIA BANK, N.A.
By: /s/ Eero H. Maki
-------------------------------------
Eero H. Maki
Title: Vice President
-----------------------------------
Address for notices:
Wachovia Bank, N.A.
191 Peachtree Street, 27th Floor
Atlanta, Georgia 30303
Attn.: Bill Allen, Credit Specialist
Facsimile: (404) 332-4320
Telephone: (404) 332-5271
-69- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Mark A. Isley
-------------------------------------
Mark A. Isley
Title: First Vice President
----------------------------------
Address for notices:
The First National Bank of Chicago
One First National Plaza, 11th Floor
Chicago, Illinois 60670
Attn.: Robert Simon
Facsimile: (312) 732-4840
Telephone: (312) 732-8543
-70- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.
By: /s/ Bertram H. Tang
-------------------------------------
Bertram H. Tang
Title: Vice President & Group Leader
----------------------------------
Address for notices:
The Dai-Ichi Kangyo Bank, Ltd.
1 World Trade Center, 48th Floor
New York, New York 10048
Attn.: Thomas Ho
Facsimile: (212) 912-1879
Telephone: (212) 432-8845
-71- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE FUJI BANK, LIMITED
By: /s/ Hiromitsu Ugawa
-----------------------------
Hiromitsu Ugawa
Title: Senior Vice President
-----------------------------
Address for notices:
The Fuji Bank, Limited, Los Angeles Agency
333 South Hope Street, 39th Floor
Los Angeles, California 90071
Attn.: Jay Schwartz
----------------------
Facsimile: (213) 253-4178
--------------------
Telephone: (213) 253-4149
--------------------
-72- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ V. Timiraos
-----------------------------
Vicente L. Timiraos
Title: SVP & SDGM
-----------------------------
Address for notices:
The Industrial Bank of Japan, Limited,
Atlanta Agency
1251 Avenue of Americas
New York, New York 10020
Attn.: Richard Emmich
Facsimile: (212) 282-4480
Telephone: (212) 282-4092
-73- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
FIRST SECURITY BANK, N.A.
By: /s/ David P. Williams
-----------------------------
Title: Vice President
-----------------------------
Address for notices:
First Security Bank, N.A.
Corporate Banking Division
15 East 100 South - 2nd Floor
Salt Lake City, Utah 84111
Attn.: David P. Williams, Vice President
Facsimile: (801) 246-5532
Telephone: (801) 246-5540
-74- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By: /s/ [Illegible]
-----------------------------
Title: Vice President
-----------------------------
Address for notices:
First Tennessee Bank National Association
165 Madison Avenue, 9th Floor
Memphis, Tennessee 38103-2723
Attn.: __________________
Facsimile: (901) ________
Telephone: (901) ________
-75- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ [Illegible]
-----------------------------
Title: Senior Vice President
-----------------------------
Address for notices:
The Mitsubishi Trust and Banking Corporation
520 Madison Avenue, 26th Floor
New York, New York 10022
Attn.: Reginald Johnson
Facsimile: (212) 755-2349 or 486-0970
Telephone: (212) 891-8445
-76- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
BANK OF HAWAII
By: /s/ Robert M. Wheeler, III
-----------------------------
Robert M. Wheeler, III
Title: Vice President
-----------------------------
Address for notices:
Bank of Hawaii
949 Kamokila Boulevard, 2nd Floor
Kapolei, Hawaii 96707
Attn.: Donna Arakawa, Processing & Support
Assistant
Facsimile: (808) 693-1672
Telephone: (808) 693-1698
Bank of Hawaii
130 Merchant Street, 20th Floor
Honolulu, Hi 96813
Attn.: Robert Whehler, Vice President
Facsimile: (808) 537-8301
Telephone: (808) 537-8237
-77- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
FIRST AMERICAN NATIONAL BANK,
OPERATING AS DEPOSIT GUARANTY
NATIONAL BANK
By: /s/ Larry C. Ratzlaff
-----------------------------
Larry C. Ratzlaff
Title: Senior Vice President
-----------------------------
Address for notices:
First American National Bank, operating as
Deposit Guaranty National Bank
210 East Capitol Street
Jackson, Mississippi 39201
Attn.: Larry C. Ratzlaff, Senior Vice
President
Facsimile: (601) 354-8315
Telephone: (601) 968-4749
-78- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
ERSTE BANK, DER OESTERREICHISCHEN
SPARKASSEN AG, NEW YORK BRANCH
By: /s/ David Manheim
-----------------------------
David Manheim
Title: Assistant Vice President
-----------------------------
Erste Bank New York Branch
By: /s/ John S. Runnion
-----------------------------
John S. Runnion
Title: First Vice President
-----------------------------
Address for domestic notices:
Erste Bank, New York
280 Park Avenue, West Building, 32nd Floor
New York, New York 10017
Attn.: __________________
Facsimile: (212) 984-5627
Telephone: (212) 984-5633
Address for eurodollar notices:
Erste Bank, Cayman Islands
280 Park Avenue, West Building, 32nd Floor
New York, New York 10017
Attn.: __________________
Facsimile: (212) 984-5627
Telephone: (212) 984-5633
-79- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
WHITNEY NATIONAL BANK
By: /s/ John J. Zollinger, IV
-----------------------------
John J. Zollinger, IV
Title: Vice President
-----------------------------
Address for notices:
Whitney National Bank
228 Saint Charles Avenue
New Orleans, Louisiana 70130
Attn.: John J. Zollinger
Facsimile: (504) 552-4622
Telephone: (504) 552-4586
-80- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
KBC BANK, N.V.
By: /s/ R Snauffer
-----------------------------
Robert Snauffer
Title: First Vice President
-----------------------------
By: /s/ Katherine S. McCarthy
-----------------------------
Katherine S. McCarthy
Title: Vice President
-----------------------------
Address for notices:
KBC Bank, N.V.
125 West 55th Street, 10th Floor
New York, New York 10019
Attn.: Loan Administration
Facsimile: (212) 956-5580
Telephone: (212) 541-0657
-81- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Gayle Burgess
-------------------------------------
Gayle Burgess for Dale Parshall
Title: Assistant Relationship Manager
-----------------------------------
Address for domestic notices:
U. S. Bank National Association
555 S.W. Oak Street, PL-4
Portland, Oregon 97204
Attn.: Dale Parshall, Vice President
Facsimile: (503) 275-5428
Telephone: (503) 275-3476
Address for eurodollar notices:
U. S. Bank National Association
555 S.W. Oak Street, PL-7
-----------------------------------------
Portland, Oregon 97204
-----------------------------------------
Attn.: Jan Knox, Participation Specialist
------------------------------------
Facsimile: (503) 275-4600
------------------------------
Telephone: (503) 275-6561
------------------------------
-82- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
THE PEOPLES BANK, BILOXI, MISSISSIPPI
By: /s/ Robert M. Tucei
-------------------------------------
Robert M. Tucei
Title: Senior Vice President
----------------------------------
Address for notices:
The Peoples Bank, Biloxi, Mississippi
152 Lameuse Street
Biloxi, Mississippi 39530
Attn.: Robert M. Tucei
-----------------------------------
Facsimile: (228) 435-8417
------------------------
Telephone: (228) 435-8205
------------------------
-83- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
HANCOCK BANK
By: /s/ John S. Hall
-------------------------------------
Title: Senior Vice President
----------------------------------
Address for notices:
Hancock Bank
2510 Fourteenth Street
Gulfport, Mississippi 39501
Mail:
Post Office Box 4019
Gulfport, Mississippi 39502
Attn.: John S. Hall, Senior Vice President
Facsimile: (228) 871-6031
Telephone: (228) 868-4346
-84- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
TRUSTMARK NATIONAL BANK
By: /s/ Craig E. Sosebee
----------------------------------------
Title: Vice President
-------------------------------------
Address for notices:
Trustmark National Bank
248 East Capitol Street
Jackson, Mississippi 39201
Attn.: Craig E. Sosebee
-------------------------------------
Facsimile: (601) 354-5030
---------------------------------
Telephone: (601) 354-5939
---------------------------------
-85- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
HIBERNIA NATIONAL BANK
By: [ILLEGIBLE]
---------------------------------------
Title: Vice President
------------------------------------
Address for notices:
Hibernia National Bank
313 Carondelet Street
New Orleans, Louisiana 70130
Attn.: Lorie Ferguson, Commercial Banking Dept.
Facsimile: (504) 533-2060
Telephone: (504) 533-5718
-86- LENDER'S SIGNATURE PAGE
$2,000,000,000 CREDIT FACILITY
<PAGE>
Schedule 1 - Pricing Schedule - $2,000,000,000 Short Term Credit Facility
This Schedule 1 is attached to and made a part of the $2,000,000,000
Short Term Credit Agreement dated as of August 31, 1999 among Park Place
Entertainment Corporation, a Delaware corporation, the Lenders, Documentation
Agents and Co-Arrangers, and Senior Managing Agents referred to therein, Bank
of America National Trust and Savings Association, as Administrative Agent,
and Banc of America Securities, LLC as Lead Arranger and Sole Book Manager
(the "Credit Agreement"). Capitalized terms used in this Schedule 1 are used
with the meanings set forth for those terms in the Credit Agreement.
The "Euro-Dollar Margin," "Base Rate Margin," and "Facility Fee Rate"
referred to in the Credit Agreement shall be determined for any day on the
basis of the Status (as defined below) of the Borrower as of that date,
provided, that in the event that the Borrower fails to deliver any Compliance
Certificate or Pricing Certificate on the date when required by Section 5.01,
and it is ultimately determined that the Status of the Borrower would have
been changed on the basis of such delivery, then (a) the rate at which
interest and facility fees accrue under the Credit Agreement shall be
increased in accordance with this Schedule, with retroactive effect to the
first day of the Pricing Period to which such Compliance Certificate relates,
and (b) the Borrower shall, within 10 Business Days of a request by the
Administrative Agent, make such additional payments to the Lenders through
the Administrative Agent as are required to give effect to such increased
interest rates and facility fees in respect of any payments previously made
by the Borrower. As of each date of determination, the Euro-Dollar Margin and
Facility Fee Rates shall equal the percentages set forth below under the
column corresponding to the Status that exists on such day, PROVIDED that the
Euro-Dollar Margin shall be increased or decreased by the "Margin Adjustment"
described below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Status Level I Level II Level III Level IV Level V Level VI
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility Fee Rate 0.080% 0.100% 0.125% 0.150% 0.200% 0.250%
- ------------------------------------------------------------------------------------------
Euro-Dollar Margin 0.520% 0.650% 0.875% 0.975% 1.175% 1.500%
- ------------------------------------------------------------------------------------------
</TABLE>
The "Base Rate Margin" shall, as of each date of determination, be the
percentage, not less than 0.000% per annum, which is equal to the then
prevailing Euro-Dollar Margin (after adjustment upwards or downwards by the
Margin Adjustment), MINUS 1.250%.
As of each date of determination, the Status of the Borrower shall be
determined on the basis of:
(a) the Borrower's Debt Rating as of that date; or
(b) from and after March 1, 2000 the Leverage Ratio as of the last
day of the fiscal quarter of the Borrower ending immediately prior to
the first day of the
87
<PAGE>
Pricing Period in which such date of determination occurs (the "Applicable
Leverage Ratio");
whichever such criteria yields the more favorable pricing to the Borrower
according to the following standards:
"Level I Status" exists at any date if, at such date, either (x)
the Debt Rating assigned by S&P is A- or higher or the Debt Rating
assigned by Moody's is A3 or higher, or (y) the Applicable Leverage
Ratio is less than 1.50:1.
"Level II Status" exists at any date if, at such date, (i) either
(x) the Debt Rating assigned by S&P is BBB+ or higher or the Debt Rating
assigned by Moody's is Baa1 or higher, or (y) the Applicable Leverage
Ratio is less than 2.25:1 and (ii) Level I Status does not exist.
"Level III Status" exists at any date, if, at such date, (i)
either (x) the Debt Rating assigned by S&P is BBB or higher or the Debt
Rating assigned by Moody's is Baa2 or higher, or (y) the Applicable
Leverage Ratio is less than 3.00:1 and (ii) neither Level I Status nor
Level II Status exists.
"Level IV Status" exists at any date, if, at such date, (i) either
(x) the Debt Rating assigned by S&P is BBB- or higher or the Debt Rating
Assigned by Moody's is Baa3 or higher, or (y) the Applicable Leverage
Ratio is less than 3.75:1 and (ii) none of Level I Status, Level II
Status or Level III Status exists.
"Level V Status" exists at any date, if, at such date, (i) either
(x) the Debt Rating assigned by S&P is BB+ or higher or the Debt Rating
assigned by Moody's is Ba1 or higher or (y) the Applicable Leverage
Ratio is less than 4.25:1 and (ii) none of Level I Status, Level II
Status, Level III Status or Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no such other
Status exists.
For purposes of this Schedule, the following terms have the following
meanings, subject to the final two paragraphs of this Schedule:
"Margin Adjustment" means, (a) as of any date of determination when the
Applicable Leverage Ratio is in excess of 3.50:1 but equal to or less than
4.00:1, an incremental interest margin of 0.075% per annum to be added to the
Euro-Dollar Margin in determining the rate applicable to Euro-Dollar Loans,
(b) as of any date of determination when the Applicable Leverage Ratio is in
excess of 4.00:1 but equal to or less than 4.75:1, an incremental interest
margin of 0.150% per annum to be added to the Euro-Dollar Margin in
determining the rate applicable to Euro-Dollar Loans, (c) as of any date of
determination when the Applicable Leverage Ratio is in excess of 4.75:1, an
incremental interest margin of 0.225% per annum to be added to the
Euro-Dollar Margin in determining the rate applicable to Euro-
88
<PAGE>
Dollar Loans, and (d) as of any date of determination when the Applicable
Leverage Ratio is less than 2.00:1, a deduction of 0.075% per annum to be
subtracted from the Euro-Dollar Margin in determining the rate applicable to
Euro-Dollar Loans.
"Debt Rating" means, as of any date of determination, the rating assigned
by the Rating Agencies to the senior unsecured long-term debt securities of
the Borrower without third-party credit enhancement (and any rating assigned
to any other debt security of the Borrower shall be disregarded) as of the
close of business on such date, provided that (a) during the period between
the Effective Date and March 31, 2000, to the extent that no such credit
rating has been assigned, a credit rating of BBB- shall be assumed, (b) if
such securities receive a split-rating and the rating differential is one
level, the higher of the two ratings will apply (e.g. A-/Baa1 results in
Level I Status and A-/Baa2 results in Level II Status), and (c) if the
Borrower is split-rated and the ratings differential is more than one level,
the average of the two ratings (or the higher of any two intermediate
ratings) shall be used (e.g. A-/Baa2 results in Level II Status, as does
A-/Baa3).
89
<PAGE>
Exhibit 4.6
EXECUTION
$1,000,000,000 SHORT TERM CREDIT AGREEMENT
dated as of
August 31, 1999
among
PARK PLACE ENTERTAINMENT CORPORATION
The Lenders, Documentation Agents, Co-Arrangers and Senior Managing Agents
Referred to Herein
and
BANK OF AMERICA, N.A.
as Administrative Agent
--------------------------------------
BANC OF AMERICA SECURITIES LLC.
Lead Arranger and Sole Book Manager
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS .......................................................... 1
1.01 Definitions ..................................................... 1
1.02 Accounting Terms and Determinations ............................. 16
1.03 Types of Borrowings ............................................. 16
ARTICLE II
THE CREDITS .......................................................... 17
2.01 Commitments to Lend ............................................. 17
2.02 Notice of Committed Borrowings .................................. 17
2.03 RESERVED ........................................................ 18
2.04 RESERVED ........................................................ 18
2.05 Conversion and Continuation of Committed Loans .................. 18
2.06 Notice to Lenders; Funding of Loans ............................. 18
2.07 Notes ........................................................... 19
2.08 Interest Rates .................................................. 20
2.09 Upfront Fees .................................................... 21
2.10 Facility Fees ................................................... 21
2.11 Mandatory Reduction of Commitments .............................. 21
2.12 Optional Termination or Reduction of Commitments by the Borrower. 21
2.13 Optional Termination of Commitments by the Lenders .............. 22
2.14 Scheduled Termination of Commitments ............................ 22
2.15 Extensions of the Termination Date .............................. 22
2.16 Optional Prepayments ............................................ 23
2.17 General Provisions as to Payments ............................... 23
2.18 Funding Losses .................................................. 24
2.19 Computation of Interest and Fees ................................ 24
2.20 Withholding Tax Exemption ....................................... 25
2.21 RESERVED ........................................................ 25
2.22 Regulation D Compensation ....................................... 25
ARTICLE III
CONDITIONS ........................................................... 26
3.01 Borrowings ...................................................... 26
3.02 Effectiveness ................................................... 27
-i-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES ....................................... 28
4.01 Corporate Existence and Power ................................... 28
4.02 Corporate and Governmental Authorization; Contravention ......... 28
4.03 Binding Effect .................................................. 28
4.04 Financial Information ........................................... 28
4.05 Litigation ...................................................... 29
4.06 Compliance with ERISA ........................................... 29
4.07 Taxes ........................................................... 29
4.08 Significant Subsidiaries ........................................ 29
4.09 Not an Investment Company ....................................... 30
4.10 Environmental Matters ........................................... 30
4.11 Full Disclosure ................................................. 30
4.12 Solvency ........................................................ 30
4.13 Gaming Laws ..................................................... 30
ARTICLE V
COVENANTS ............................................................ 32
5.01 Information ..................................................... 32
5.02 Maintenance of Property; Insurance .............................. 34
5.03 Conduct of Business and Maintenance of Existence ................ 34
5.04 Compliance with Laws ............................................ 35
5.05 Inspection of Property, Books and Records ....................... 35
5.06 Negative Pledge ................................................. 35
5.07 Consolidations, Mergers and Sales of Assets ..................... 36
5.08 Hostile Tender Offers ........................................... 36
5.09 Use of Proceeds ................................................. 37
5.10 Leverage Ratio .................................................. 37
5.11 Interest Coverage Ratio ......................................... 37
ARTICLE VI
DEFAULTS ............................................................. 39
6.01 Events of Default ............................................... 39
6.02 Notice of Default ............................................... 41
6.03 RESERVED ........................................................ 41
-ii-
<PAGE>
ARTICLE VII
THE AGENTS ........................................................... 42
7.01 Appointment and Authorization ................................... 42
7.02 Agents and Affiliates ........................................... 42
7.03 Action by Agents ................................................ 42
7.04 Consultation with Experts ....................................... 42
7.05 Liability of Agent .............................................. 42
7.06 Indemnification ................................................. 43
7.07 Credit Decision ................................................. 43
7.08 Successor Agent ................................................. 43
7.09 Agents' Fees .................................................... 43
ARTICLE VIII
CHANGE IN CIRCUMSTANCES .............................................. 44
8.01 Basis for Determining Interest Rate Inadequate or Unfair ........ 44
8.02 Illegality ...................................................... 44
8.03 Increased Cost and Reduced Return ............................... 45
8.04 Base Rate Loans Substituted for Affected Fixed Rate Loans ....... 46
ARTICLE IX
MISCELLANEOUS ........................................................ 48
9.01 Notices ......................................................... 48
9.02 No Waivers ...................................................... 48
9.03 Expenses; Documentary Taxes; Indemnification .................... 48
9.04 Amendments and Waivers .......................................... 49
9.05 Successors and Assigns .......................................... 49
9.06 Collateral ...................................................... 53
9.07 California Law; Submission to Jurisdiction ...................... 53
9.08 Counterparts; Integration ....................................... 53
9.09 Several Obligations ............................................. 53
9.10 Sharing of Set-Offs ............................................. 54
9.11 WAIVER OF JURY TRIAL ............................................ 54
9.12 Confidentiality ................................................. 54
</TABLE>
-iii-
<PAGE>
Schedules:
- ----------
Schedule 1 - Pricing Schedule
Exhibits:
- ---------
Exhibit A - Compliance Certificate
Exhibit B - Form of Note
Exhibit C - Pricing Certificate
Exhibit D - Form of Notice of Committed Borrowing
Exhibit E - Extension Agreement
Exhibit F - Opinion of Latham & Watkins (upon Caesars Acquisition)
Exhibit G - Opinion of Sills Cummis Radin Tischman Epstein & Gross, P.A.
(Effective Date)
Exhibit H - Opinion of Latham & Watkins (Effective Date)
Exhibit I - Assignment and Assumption Agreement
-iv-
<PAGE>
$1,000,000,000 SHORT TERM CREDIT AGREEMENT
$1,000,000,000 SHORT TERM CREDIT AGREEMENT dated as of August 31,
1999, among PARK PLACE ENTERTAINMENT CORPORATION, the Lenders listed on the
signature pages hereto, and BANK OF AMERICA, N.A., as Administrative Agent.
THE BANK OF NOVA SCOTIA, DEUTSCHE BANK ALEX BROWN, and MERRILL LYNCH CAPITAL
CORPORATION, are Documentation Agents and Co-Arrangers hereunder, and THE BANK
OF NEW YORK, FIRST UNION NATIONAL BANK and SG, are Senior Managing Agents
hereunder.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Administrative Agent" means Bank of America, N.A. in its capacity as
administrative agent for the Lenders hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Lender.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (and the correlative terms,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise); PROVIDED that, in any event, any
Person that owns, directly or indirectly, 5% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation that has more than 100 record holders of such securities, or 5% or
more of the partnership or other ownership interests of any other Person that
has more than 100 record holders of such interests, will be deemed to control
such corporation or other Person.
-1-
<PAGE>
"Agents" mean, collectively, the Administrative Agent, the
Documentation Agents and Co-Arrangers and the Senior Managing Agents, and
"Agent" means any of them.
"Applicable Lending Office" means, with respect to any Lender, (i) in
the case of its Base Rate Loans, its Domestic Lending Office, and (ii) in the
case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Authorized Officer" means any of the controller, the treasurer or the
chief financial officer of the Borrower.
"Bank of America" means Bank of America, N.A., its successors and
assigns.
"Base Rate" means, as of any date of determination, the rate per annum
(rounded upwards, if necessary, to the next 1/100 of 1%) equal to the HIGHER OF
(a) the Reference Rate in effect on such date (calculated on the basis of a year
of 365 or 366 days and the actual number of days elapsed) and (b) the Federal
Funds Rate in effect on such date (calculated on the basis of a year of 360 days
and the actual number of days elapsed) PLUS 1/2 of 1% (50 basis points).
"Base Rate Loan" means a Committed Loan made or to be made by a Lender
as a Base Rate Loan in accordance with the applicable Notice of Committed
Borrowing or pursuant to Article VIII.
"Base Rate Margin" has the meaning set forth on Schedule 1.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means Park Place Entertainment Corporation, a Delaware
corporation, and its successors.
"Borrowing" means the aggregation of Loans of one or more Lenders to
be made to the Borrower pursuant to Article II on a single date and, in the case
of Fixed Rate Borrowings, for a single Interest Period.
"Caesars" means, Caesars World, Inc., a Florida corporation.
"Caesars Acquisition" means the acquisition by the Borrower of
Caesars, Sheraton Tunica, and Starwood's interests in Metropolitan Entertainment
Group, a Canadian partnership, pursuant to the Caesars Acquisition Agreement.
-2-
<PAGE>
"Caesars Acquisition Agreement" means the Stock Purchase Agreement
dated as of April 27, 1999 among Starwood, ITT Sheraton Corporation, Starwood
Canada Corp, Caesars, Sheraton Desert Inn Corporation, Sheraton Tunica and
the Borrower.
"Change of Control" means the occurrence of a Rating Decline in
connection with any of the following events: (i) upon any merger or
consolidation of the Borrower with or into any person or any sale, transfer
or other conveyance, whether direct or indirect, of all or substantially all
of the assets of the Borrower, on a consolidated basis, in one transaction or
a series of related transactions, if, immediately after giving effect to such
transaction, any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) is or becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) of securities representing
a majority of the total voting power of the aggregate outstanding securities
of the transferee or surviving entity normally entitled to vote in the
election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) when any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of
1934, as amended) is or becomes the beneficial owner (within the meaning of
Rule 13d-3 promulgated by The Securities and-Exchange Commission under said
Act) of securities representing a majority of total voting power of the
aggregate outstanding securities of the Borrower normally entitled to vote in
the election of directors of the Borrower, (iii) when, during any period of
12 consecutive calendar months, individuals who were directors of the
Borrower on the first day of such period (together with any new directors
whose election by the board of directors of the Borrower or whose nomination
for election by the stockholders of the Borrower was approved by a vote of a
majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of the Borrower, or (iv) the sale or disposition, whether
directly or indirectly, by the Borrower of all or substantially all of its
assets.
"Combined Pro Forma Financial Statements" means the combined pro
forma financial statements of the Gaming Segment of Hilton and the Grand
Assets for the twelve month period ended December 31, 1998 heretofore
delivered by the Borrower to the Administrative Agent and each Lender.
"Commitment" means, as to each Lender, the commitment of that
Lender to make Loans in each case as such amount may be reduced from time to
time pursuant to Section 2.12, 2.13 or 2.14. The aggregate amount of the
Commitments under this Agreement as of the Effective Date is $1,000,000,000.
As of the Effective Date, each Lender has made a Commitment which is equal to
the amount of the Note issued to that Lender on the Effective Date.
-3-
<PAGE>
"Committed Loan" means a loan made or to be made by a Lender
pursuant to Section 2.01.
"Compliance Certificate" means a certificate, substantially in the
form of Exhibit A, properly completed and signed by an Authorized Officer.
"Consolidated Debt" means at any date the Debt of the Borrower and
its Consolidated Subsidiaries, determined on a consolidated basis as of such
date, PROVIDED that Consolidated Debt shall exclude any Debt of the Borrower
or a Subsidiary as to which cash and cash equivalents sufficient to provide
for payment in full of such Debt at its scheduled maturity or at an earlier
date at which it shall have been or may be called for redemption shall have
been irrevocably deposited in trust for the benefit of the holders of such
Debt or a representative of such holders, which deposit shall have resulted
in the legal or in-substance defeasance thereof.
"Consolidated EBITDA" means, for any period, Consolidated Net
Income for such period before (i) income taxes, (ii) interest expense, (iii)
depreciation and amortization, (iv) minority interest, (v) extraordinary
losses or gains, (vi) Pre-Opening Expenses, (vii) transactional expenses
associated with the Spin-Off Transaction, and (viii) nonrecurring non-cash
charges, PROVIDED that, in calculating "Consolidated EBITDA":
(a) for that portion of any period occurring prior to December 31,
1998, "Consolidated EBITDA" shall be computed on the basis of the
operating results of the Gaming Segment and the Grand Assets for such
periods reflected in the Combined Pro Forma Financial Statements.
(b) the operating results of each New Project which commences
operations and records not less than one full fiscal quarter's
operations during the relevant period shall be annualized; and
(c) Consolidated EBITDA shall be adjusted, on a pro forma basis, to
include the operating results of each resort or casino property acquired
by the Borrower and its Consolidated Subsidiaries during the relevant
period and to exclude the operating results of each resort or casino
property sold or otherwise disposed of by the Borrower and its
Subsidiaries, or whose operations are discontinued during the relevant
period.
"Consolidated Interest Expense" means, for any period, net interest
expense of the Borrower and its Consolidated Subsidiaries for such period,
determined in accordance with generally accepted accounting principles,
PROVIDED that for that portion of any period occurring prior to December 31,
1998, "Consolidated Interest Expense" shall be computed on the basis
-4-
<PAGE>
of the net interest expense allocated to the Borrower and its Consolidated
Subsidiaries and shown on the Combined Pro Forma Financial Statements.
"Consolidated Net Income" means, for any period, the consolidated
net income of the Borrower and its Consolidated Subsidiaries for such period,
provided that for that portion of any period occurring prior to December 31,
1998, such consolidated net income shall be the consolidated net income of
the Gaming Segment and the Grand Assets for such periods reflected in the
Combined Pro Forma Financial Statements.
"Consolidated Net Tangible Assets" means the total amount of assets
of the Borrower and its Consolidated Subsidiaries, after deducting therefrom
(a) all current liabilities of the Borrower and its Consolidated Subsidiaries
(excluding (i) the current portion of long term indebtedness, (ii)
inter-company liabilities, and (iii) any liabilities which are by their terms
renewable or extendable at the option of the obligor thereon to a time more
than twelve 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 expense and other like intangibles, all as set
forth on the latest consolidated balance sheet of the Borrower prepared in
accordance with generally accepted accounting principles.
"Consolidated Net Worth" means at any date the consolidated
stockholders, equity of the Borrower and its Consolidated Subsidiaries
determined as of such date.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower
in its consolidated financial statements as of such date.
"Covered Subsidiary" means at any time any Subsidiary of the
Borrower that has consolidated assets in an amount greater than $5,000,000.
"Debt" of any Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business, (iv) all obligations of such Person as
lessee which are capitalized in accordance with generally accepted accounting
principles, (v) all indebtedness or other obligations secured by a
contractual Lien on any asset of such Person, whether or not such
indebtedness or other obligations are otherwise an obligation of such Person,
and (vi) all Guarantees made by such Person (including by way of provision of
letters of credit or other contingent obligations) with respect to
indebtedness or other obligations of any other Person which constitute "Debt"
of a type or class described in clauses (i) through (v) of this definition.
-5-
<PAGE>
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Documentation Agents and Co-Arrangers" means, collectively, The Bank of
Nova Scotia, Deutsche Bank Alex Brown and Merrill Lynch Capital Corporation,
when acting in their capacities as documentation agents and co-arrangers
hereunder. The capacity of the Documentation Agents and Co-Arrangers is
titular in nature, and the Documentation Agents and Co-Arrangers shall have
no obligations or liabilities under the Loan Documents by reason of acting in
such capacity.
"Dollars" and the sign "$" mean lawful money of the United States.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City or Los Angeles are authorized
or required by law to close.
"Domestic Lending Office" means, as to each Lender, its office located
at its address set forth in its Administrative Questionnaire (or identified
in its Administrative Questionnaire as its Domestic Lending Office) or such
other office as such Lender may hereafter designate as its Domestic Lending
Office by notice to the Borrower and the Administrative Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.02.
"Eligible Assignee" means (a) another Lender, (b) with respect to any
Lender, any Affiliate of that Lender, (c) any commercial bank having a
combined capital and surplus of $500,000,000 or more, (d) any (i) savings
bank, savings and loan association or similar financial institution or (ii)
insurance company engaged in the business of writing insurance which, in
either case (A) has a net worth of $500,000,000 or more, (B) is engaged in
the business of lending money and extending credit under credit facilities
substantially similar to those extended under this Agreement and (C) is
operationally and procedurally able to meet the obligations of a Lender
hereunder to the same degree as a commercial bank and (e) any other financial
institution (INCLUDING a mutual fund or other fund) having total assets of
$250,000,000 or more which meets the requirements set forth in subclauses (B)
and (C) of clause (d) above; PROVIDED that each Eligible Assignee must either
(a) be organized under the Laws of the United States of America, any State
thereof or the District of Columbia or (b) be organized under the Laws of the
Cayman Islands or any country which is a member of the Organization for
Economic Cooperation and Development, or a political subdivision of such a
country, and (i) act hereunder through a branch, agency or funding office
located in the United States of America and (ii) is otherwise exempt from
withholding of tax on interest and delivers
-6-
<PAGE>
Form W-8 ECI pursuant to Section 2.20 at the time of any assignment pursuant
to Section 9.05.
"Environmental Laws" means any and all statutes, regulations, permits,
licenses or other governmental restrictions relating to the environment or to
releases of petroleum or petroleum products, chemicals or toxic or hazardous
substances or wastes into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the
Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
Dollar deposits) in London.
"Euro-Dollar Lending office" means, as to each Lender, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Lender as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan made or to be made by a Lender
as a Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth on Schedule 1.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System with deposits exceeding five billion Dollars in respect of
"eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate
on Euro-Dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any bank
to United States residents).
"Event of Default" has the meaning set forth in Section 6.01.
-7-
<PAGE>
"Existing Short Term Credit Agreement" means the Short Term Credit
Agreement dated as of December 31, 1998 among the Borrower, the lenders
therein named and the Administrative Agent, acting under its former name,
Bank of America National Trust and Savings Association, as amended.
"Facility Fee Rate" has the meaning set forth in Section 2.10.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of l%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business
Day next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds
Rate for such day shall be the average rate quoted to The Bank of New York on
such day on such transactions as determined by the Administrative Agent.
"Fixed Rate Loans" means Euro-Dollar Loans.
"Gaming Board" means, collectively, (a) the Nevada Gaming Commission,
(b) the Nevada State Gaming Control Board, (c) the New Jersey Casino Control
Commission, (d) the New Jersey Division of Gaming Enforcement, (e) the
Mississippi Gaming Commission, and (f) any other Governmental Agency that
holds regulatory, licensing or permit authority over gambling, gaming or
casino activities conducted by the Borrower or its Subsidiaries within its
jurisdiction.
"Gaming Laws" means all laws pursuant to which any Gaming Board
possesses regulatory, licensing or permit authority over gambling, gaming or
casino activities conducted by the Borrower or its Subsidiaries within its
jurisdiction.
"Gaming Segment" means the gaming segment (as "segment" is used in
Regulation S-K and Regulation S-X of the Securities and Exchange Commission)
of Hilton which, prior to December 31, 1998, was comprised of assets and
operations owned and conducted by the Borrower and its Subsidiaries following
December 31, 1998.
"Governmental Agency" means (a) any international, foreign, federal,
state, county or municipal government, or political subdivision thereof, (b)
any governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body (including any Gaming
Board) or (c) any court or administrative tribunal of competent jurisdiction.
-8-
<PAGE>
"Grand" means Grand Casinos, Inc., a Minnesota corporation, and its
successors.
"Grand Agreement" means the Agreement and Plan of Merger dated as of
June 30, 1998 among Hilton, the Borrower (under its former name, Gaming Co.,
Inc.), Gaming Acquisition Corporation, a Minnesota corporation, and GCI
Lakes, Inc., a Minnesota corporation and Grand, as amended as of December 31,
1998.
"Grand Assets" means the assets of Grand and its Subsidiaries retained
by Grand following the Lakes Spin-off pursuant to the Grand Distribution
Agreement, including without limitation the assets described on Schedule 1 to
the Grand Distribution Agreement, and acquired by the Borrower and its
Subsidiaries pursuant to the merger between the Borrower and Grand pursuant
to the Grand Agreement, including without limitation the resort casino
properties commonly known as (a) the Grand Casino Tunica, in Tunica,
Mississippi, (b) the Grand Casino Gulfport, in Gulfport, Mississippi, and (c)
the Grand Casino Biloxi, in Biloxi, Mississippi.
"Grand Distribution Agreement" means the Distribution Agreement dated as
of December 31, 1998 by and between Grand and GCI Lakes, Inc., together with
the agreements attached as Exhibits thereto.
"Granting Lender" has the meaning set forth in Section 9.05(f).
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such Debt
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the holder of such Debt
of the payment thereof or to protect such holder against loss in respect
thereof (in whole or in part), including by way of provision of letters of
credit or other contingent obligations with respect thereto, provided that
the term Guarantee shall not include (x) endorsements for collection or
deposit in the ordinary course of business or (y) performance or completion
guarantees. The term "Guarantee" used as a verb has a corresponding meaning.
"Hilton" means Hilton Hotels Corporation, a Delaware corporation.
"Hilton Distribution Agreement" means the Distribution Agreement dated
as of December 31, 1998 by and between Hilton and the Borrower, together with
the agreements attached as Exhibits thereto.
-9-
<PAGE>
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Coverage Ratio" means, as of each date of determination, the
ratio of (a) Consolidated EBITDA for the four fiscal quarters ending on that
date, to (b) Consolidated Interest Expense for the same period.
"Interest Period" means, with respect to each Euro-Dollar Borrowing, the
period commencing on the date of such Borrowing and ending one week or 1, 2,
3 or 6 months thereafter, as the Borrower may elect in the applicable Notice
of Committed Borrowing or Notice of Conversion/Continuation; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day in a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (a)(iii) below, end on the last
Euro-Dollar Business Day in the calendar month which is the last calendar
month which commences in such Interest Period; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date, or, if such date is
not a Euro-Dollar Business Day, then on the next preceding Euro-Dollar
Business Day.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment Grade" means (i) with respect to S&P, a rating of BBB- or
higher, and (ii) with respect to Moody's, a rating of Baa3 or higher.
"Lakes Spin-Off" means the contribution of all assets of Grand and its
Subsidiaries other than the Grand Assets to GCI Lakes, Inc. and the
corresponding distribution of the shares of GCI Lakes, Inc. to the
shareholders of Grand described in the Grand Agreement.
-10-
<PAGE>
"Lead Arranger and Sole Book Manager" means Banc of America Securities
LLC. Following the date of this Agreement, the Lead Arranger and Sole Book
Manager shall have no obligations or liabilities under the Loan Documents.
"Lender" means each lender listed on the signature pages hereof and each
Lender which accepts an assignment pursuant to Section 9.05, and their
respective successors.
"Leverage Ratio" means, as of any date of determination, the ratio of
(a) Consolidated Debt on such date to (b) Consolidated EBITDA for the period
of four consecutive fiscal quarters ending on such date.
"License Revocation" means the revocation, failure to renew or
suspension of, or the appointment of a receiver, supervisor or similar
official with respect to, any casino, gambling or gaming license issued by
any Gaming Board covering any casino or gaming facility of the Borrower and
its Subsidiaries.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset.
"Loan" means a Base Rate Loan or a Euro-Dollar Loan and "Loans" means
Base Rate Loans or Euro-Dollar Loans or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes and each other
instrument, document or agreement now or hereafter executed by the parties in
furtherance of this Agreement.
"London Interbank Offered Rate" means, as to the Interest Period
applicable to each Euro-Dollar Loan, the average rounded upward, if
necessary, to the next higher 1/16 of 1%) of the respective rates per annum
at which deposits in Dollars are offered to the Administrative Agent in the
London interbank market at approximately 11:00 A.M. (London time) two
Euro-Dollar Business Days before the first day of such Interest Period in an
amount approximately equal to the principal amount of the Euro-Dollar Loan of
the Administrative Agent to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
"Margin Adjustment" has the meaning set forth in the Schedule 1.
-11-
<PAGE>
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $25,000,000.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group
during such five year period.
"New Project" means each new hotel - casino, casino or resort project
(as opposed to any project which consists of an extension or redevelopment of
an operating hotel, casino or resort) having a development and construction
budget in excess of $25,000,000 which hereafter receives a certificate of
completion or occupancy and all relevant gaming and other licenses, and in
fact commences operations. Without limitation, the Paris Hotel & Casino
located in Las Vegas, Nevada, is a "New Project."
"Non-Recourse Debt" means Debt in respect of which the recourse of the
holder of such Debt is limited to the assets securing such Debt and such Debt
does not constitute the general obligation of the Borrower or any Subsidiary.
"Notes" means promissory notes of the Borrower, substantially in the
form of Exhibit B hereto, evidencing the obligation of the Borrower to repay
the Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined
in Section 2.02).
"Notice of Committed Borrowing" has the meaning set forth in Section
2.02.
"Notice of Conversion\Continuation" has the meaning set forth in Section
2.05.
"Other Credit Agreements" means, collectively, the $2,000,000,000 Short
Term Credit Agreement of even date herewith among the Borrower, the lenders
therein named, and Bank of America, N.A., as Administrative Agent, and the
Five Year Credit Agreement dated as of December 31, 1998 among the Borrower,
the lenders therein named and Bank of America National Trust and Savings
Association, as Administrative Agent, in each case as at any time amended.
"Parent" means, with respect to any Lender, any Person controlling such
Lender.
-12-
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA Group.
"Pre-Opening Expenses" means, with respect to any fiscal period, the
amount of expenses (OTHER THAN Consolidated Interest Expense) incurred with
respect to capital projects which are classified as "pre-opening expenses" on
the applicable financial statements of the Borrower and its Subsidiaries for
such period (or, with respect to that portion of any period occurring prior
to December 31, 1998, the Combined Pro Forma Financial Statements), prepared
in accordance with generally accepted accounting principles.
"Pricing Certificate" means a Pricing Certificate substantially in the
form of Exhibit C hereto, properly completed and signed by an Authorized
Officer of the Borrower.
"Pricing Period" means (a) the period beginning on the Effective Date
and ending on August 31, 1999, and (b) each period of three months beginning
on the first day of each March, June, September and December and ending on
the last day of the succeeding May, August, November and February.
"Public Notice" means, without limitation, any filing or report made in
accordance with the requirements of the Securities and Exchange Commission
(or any successor), any press release or public announcement made by the
Borrower or any written notice the Borrower gives to the Administrative Agent
or the Lenders.
"Rating Agencies" means S&P and Moody's.
"Rating Decline" means the occurrence on any date on or within 90 days
after the date of the first public notice of (i) the occurrence of an event
described in clauses (i)-(v) of the definition of "Change of Control" or (ii)
the intention by the Borrower to effect such an event (which 90-day period
shall be extended so long as the rating of the senior debt of the Borrower is
under publicly announced consideration for possible downgrade by any of the
-13-
<PAGE>
Rating Agencies) of a decrease in the rating of the senior debt of the
Borrower by any of the Rating Agencies to below Investment Grade.
"Reference Rate" means the rate of interest publicly announced from time
to time by Bank of America in San Francisco, California, as its "reference
rate" or the similar prime rate or reference rate announced by any successor
Administrative Agent. Bank of America's reference rate is a rate set by Bank
of America based upon various factors including Bank of America's costs and
desired return, general economic conditions and other factors, and is used as
a reference point for pricing some loans, which may be priced at, above, or
below such announced rate. Any change in the Reference Rate announced by Bank
of America or any successor Administrative Agent shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Lenders" means at any time Lenders having at least 51% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding at least 51% of the sum of the aggregate unpaid principal
amount of the Loans.
"Revolving Credit Period" means the period from and including the date
of the consummation of the Caesars Acquisition to but not including the
Termination Date.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., and its successors.
"Senior Managing Agents" means The Bank of New York, First Union
National Bank and SG, in each case in their capacity as Senior Managing
Agents hereunder. The capacity of the Senior Managing Agents is titular in
nature, and the Senior Managing Agents shall have no obligations or
liabilities under the Loan Documents by reason of acting in such capacity.
"Sheraton Tunica" means Sheraton Tunica Corporation, a Delaware
corporation.
"Significant Subsidiary" means each Subsidiary of the Borrower at any
time having (i) at least "10% of the total consolidated assets of the
Borrower and its Subsidiaries (determined as of the last day of the most
recent fiscal quarter of the Borrower) or (ii) at least 10% of the
consolidated revenues of the Borrower and its Subsidiaries for the fiscal
year of the Borrower then most recently ended.
-14-
<PAGE>
"Solvent" as to any Person shall mean that (a) the sum of the assets of
such Person, both at a fair valuation and at present fair saleable value,
exceeds its liabilities, including its probable liability in respect of
contingent liabilities, (b) such Person will have sufficient capital with
which to conduct its business as presently conducted and as proposed to be
conducted and (c) such Person has not incurred debts, and does not intend to
incur debts, beyond its ability to pay such debts as they mature. For
purposes of this definition, "debt" means any liability on a claim, and
"claim" means (x) a right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right
to an equitable remedy for breach of performance if such breach gives rise to
a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured. With respect to any such contingent liabilities, such
liabilities shall be computed at the amount which, in light of all the facts
and circumstances existing at the time, represents the amount which can
reasonably be expected to become an actual or matured liability.
"SPC" has the meaning set forth in Section 9.05(f).
"Spin-Off Transaction" means (a) the contribution by Hilton of the
assets and operations of the Gaming Segment, including without limitation the
assets described on Schedule 1 to the Hilton Distribution Agreement, to the
Borrower and its Subsidiaries pursuant to the Hilton Distribution Agreement
and the substantially concurrent distribution of shares in the Borrower to
the shareholders in Hilton, (b) the execution of the First Supplemental
Indenture to the Borrower's Indenture dated as of April 15, 1997, and the
Debt Assumption Agreement between the Borrower and Hilton, in each case
substantially in the form previously delivered to the Administrative Agent
prior to December 31, 1998, and (c) the merger of the Borrower with Grand
pursuant to the Grand Agreement, each of which occurred as of December 31,
1998.
"Starwood" means Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions are
at the time directly or indirectly owned by the Borrower.
"Termination Date" means August 28, 2000 or such later date to which the
Revolving Credit Period shall have been extended pursuant to Section 2.15,
or, if such day is not a Euro-Dollar Business Day, the next preceding
Euro-Dollar Business Day.
-15-
<PAGE>
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed
by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair
market value of all Plan assets allocable to such liabilities under Title IV
of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary
all of the shares of capital stock or other ownership interests of which
(except directors, qualifying shares) are at the time directly or indirectly
owned by the Borrower.
"Year 2000 Issue" means failure of computer software, hardware and
firmware systems, and equipment containing embedded computer chips, to
properly receive, transmit, process, manipulate, store, retrieve, re-transmit
or in any other way utilize data and information due to the occurrence of the
year 2000 or the inclusion of dates on or after January 1, 2000.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required
to be delivered hereunder shall be prepared, in accordance with generally
accepted accounting principles as in effect from time to time, applied on a
basis consistent (except for changes concurred in by the Borrower's
independent public accountants and disclosed in such financial statements)
with the most recent audited consolidated financial statements of the
Borrower and its Consolidated Subsidiaries delivered to the Lenders; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
wishes to amend any covenant in Article V to eliminate the effect of any
change in generally accepted accounting principles on the operation of such
covenant (or if the Administrative Agent notifies the Borrower that the
Required Lenders wish to amend Article V for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
generally accepted accounting principles in effect immediately before the
relevant change in generally accepted accounting principles became effective,
until either such notice is withdrawn or such covenant is amended in a manner
satisfactory to the Borrower and the Required Lenders.
1.03 TYPES OF BORROWINGS. Borrowings are classified for purposes of this
Agreement either by reference to the pricing of Loans comprising such
Borrowing (E.G., a "Euro-Dollar Borrowing" is a Borrowing comprised of
Euro-Dollar Loans) or by reference to the provisions of Article II under
which participation therein is determined (I.E., a "Committed Borrowing" is a
Borrowing under Section 2.01 in which all Lenders participate in proportion
to their commitments).
-16-
<PAGE>
ARTICLE II
THE CREDITS
2.01 COMMITMENTS TO LEND. During the Revolving Credit Period each
Lender severally agrees, on the terms and conditions set forth in this
Agreement, to lend to the Borrower pursuant to this Section from time to time
amounts such that (a) the aggregate principal of Committed Loans by such
Lender at any one time outstanding shall not exceed the amount of its
Commitment, (b) the aggregate principal outstanding amount of all Committed
Loans shall not exceed the aggregate Commitments, and (c) no Committed Loans
shall be made until each of the conditions set forth in Section 3.01 are
satisfied. Each Borrowing under this Section shall be in an aggregate
principal amount of $10,000,000 or any larger multiple of $1,000,000; and
each Committed Borrowing shall be made from the several Lenders ratably in
proportion to their respective Commitments. Within the foregoing limits, the
Borrower may borrow under this Section, repay, or to the extent permitted by
Section 2.17, prepay Loans and reborrow at any time on or prior to the
Termination Date under this Section. The Committed Loans shall mature, and
the principal amount thereof shall be due and payable, on the Termination
Date.
2.02 NOTICE OF COMMITTED BORROWINGS. The Borrower shall give the
Administrative Agent notice (a "Notice of Committed Borrowing"),
substantially in the form of Exhibit D hereto, not later than 8:30 A.M.
(California local time) on (y) the date of each Base Rate Borrowing and (z)
the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to be Base
Rate Loans or Euro-Dollar Loans; and
(d) in the case of a Euro-Dollar Borrowing, the duration of
the Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
Not more than twelve Committed Borrowings which are Euro-Dollar Borrowings
having different Interest Periods shall be outstanding at any time.
-17-
<PAGE>
2.03 RESERVED.
2.04 RESERVED.
2.05 CONVERSION AND CONTINUATION OF COMMITTED LOANS. Subject to the
provisions of this Article II governing the making of Euro-Dollar Loans, the
Borrower shall have the option at any time (i) to convert all or any part of
its outstanding Committed Loans equal to $10,000,000 and integral multiples
of $1,000,000 in excess of that amount from Loans bearing interest at a rate
determined by reference to one basis to Committed Loans bearing interest at a
rate determined by reference to an alternative basis or (ii) upon the
expiration of any Interest Period applicable to a Euro-Dollar Loan, to
continue all or any portion of such Loan equal to $1,000,000 and integral
multiples of $100,000 in excess of that amount as a Euro-Dollar Loan;
PROVIDED, HOWEVER, that a Euro-Dollar Loan may only be converted into a Base
Rate Loan on the expiration date of an Interest Period applicable thereto.
The Borrower shall deliver, to the Administrative Agent, notice of
any such conversion or continuation, substantially in the form of Exhibit D
(each a "Notice of Conversion/Continuation"), no later than 8:30 A.M.
(California local time) at least one Domestic Business Day in advance of the
proposed conversion date (in the case of a conversion to a Base Rate Loan)
and at least three Euro-Dollar Business Days in advance of the proposed
conversion/continuation date (in the case of a conversion to, or a
continuation of, a Euro-Dollar Loan). A Notice of Conversion/Continuation
shall specify (i) the proposed conversion/continuation date (which shall be a
Business Day in the case of Base Rate Loans and a Euro-Dollar Business Day,
in the case of conversion to or continuation of Euro-Dollar Loans), (ii) the
amount and type of the Loan to be converted/continued, (iii) the nature of
the proposed conversion/continuation, (iv) in the case of a conversion to, or
a continuation of, a Euro-Dollar Loan, the requested Interest Period, and (v)
in the case of a conversion to, or a continuation of, a Euro-Dollar Loan,
that no Default or Event of Default has occurred and is continuing.
2.06 NOTICE TO LENDERS; FUNDING OF LOANS.
(a) Upon receipt of a Notice of Borrowing, the Administrative
Agent shall promptly notify each Lender of the contents thereof and of
such Lender's share (if any) of such Borrowing and such Notice of
Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 11:00 A.M. (California local time) on the
date of each Borrowing, if such Borrowing is to be made in Dollars, each
Lender participating therein shall (except as provided in subsection (c)
of this Section) make available its
-18-
<PAGE>
share of such Borrowing in Dollars, in federal or other funds
immediately available to the Administrative Agent at its address
referred to in Section 9.01. Unless the Administrative Agent determines
that any applicable condition specified in Article III has not been
satisfied, the Administrative Agent will make the funds so received from
the Lenders available to the Borrower at the Administrative Agent's
aforesaid address or place.
(c) If any Lender makes a new Loan hereunder on a day on
which the Borrower is to repay all or any part of an outstanding Loan
from such Lender, such Lender shall apply the proceeds of its new Loan
to make such repayment and only an amount equal to the difference (if
any) between the amount being borrowed and the amount being repaid shall
be made available by such Lender to the Administrative Agent as provided
in subsection (b), or remitted by the Borrower to the Administrative
Agent as provided in Section 2.17, as the case may be.
(d) Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any Borrowing that such Lender
will not make available to the Administrative Agent such Lender's share
of such Borrowing, the Administrative Agent may assume that such Lender
has made such share available to the Administrative Agent on the date of
such Borrowing in accordance with subsections (b) and (c) of this
Section 2.06 and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding
amount. If and to the extent that such Lender shall not have so made
such share available to the Administrative Agent, such Lender and the
Borrower severally agree to repay to the Administrative Agent forthwith
on demand such corresponding amount together with interest thereon, for
each day from the date such amount is made available to the Borrower
until the date such amount is repaid to the Administrative Agent, at (i)
in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to
Section 2.08 and (ii) in the case of such Lender, the Federal Funds
Rate. If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such
Lender's Loan included in such Borrowing for purposes of this Agreement.
If the Borrower pays interest under this subsection (d) at the Federal
Funds Rate and the Federal Funds Rate is higher than the interest rate
applicable thereto pursuant to Section 2.08, the applicable Lender shall
pay the Borrower the difference between such rates.
2.07 NOTES.
(a) The Committed Loans of each Lender shall be evidenced by
a single Note payable to the order of such Lender for the account of its
Applicable Lending Office in an amount equal to such Lender's Commitment.
-19-
<PAGE>
(b) RESERVED.
(c) Upon receipt of each Lender's Note pursuant to Section
3.02(b), the Administrative Agent shall forward such Note to such
Lender. Each Lender shall record the date, amount, type and maturity of
each Loan made by it and the date and amount of each payment of
principal made by the Borrower with respect thereto, and may, if such
Lender so elects in connection with any transfer or enforcement of its
Note, endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each
such Loan then outstanding; provided that the failure of any Lender to
make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Lender is
hereby irrevocably authorized by the Borrower so to endorse its Note and
to attach to and make a part of its Note a continuation of any such
schedule as and when required.
2.08 INTEREST RATES. (a) Each Base Rate Loan shall bear interest on
the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day PLUS any applicable Base Rate Margin. Such interest shall be
payable on the last Domestic Business Day of each calendar quarter in arrears
and on the Termination Date. Any overdue principal of or interest on any Base
Rate Loan shall, at the option of the Required Lenders, bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
sum of the Base Rate PLUS any applicable Base Rate Margin PLUS 2% per annum.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of (a) the Euro-Dollar Margin
for such day plus (b) the applicable London Interbank Offered Rate for such
Interest Period. Such interest shall be payable for each Interest Period on
the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
(c) Any overdue principal of or interest on any Euro-Dollar Loan
shall, at the option of the Required Lenders, bear interest, payable on
demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which one day (or, if such amount due remains
unpaid more than three Euro-Dollar Business Days, then for such period of
time not longer than 6 months as the Administrative Agent may elect) deposits
in Dollars in an amount approximately equal to such overdue payment due to
the Administrative Agent are offered to the Administrative Agent in the
London interbank market for the applicable period determined as provided
above by (ii) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in
-20-
<PAGE>
clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the
sum of 2% plus the rate applicable to Base Rate Loans for such day).
(d) RESERVED.
(e) RESERVED.
(f) The Administrative Agent shall determine in accordance with the
provisions of this Agreement, each interest rate applicable to the Loans
hereunder. The Administrative Agent shall give prompt notice to the Borrower
and the participating Lenders of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
2.09 UPFRONT FEES. On the Effective Date, the Borrower shall pay to
the Administrative Agent for the account of each Lender non-refundable
upfront fees in the amounts set forth in letter agreements between each
Lender and the Lead Arranger and Sole Book Manager and advised by the Lead
Arranger and Sole Book Manager to the Borrower.
2.10 FACILITY FEES. The Borrower shall pay to the Administrative
Agent for the account of the Lenders ratably facility fees at the Facility
Fee Rate determined daily in accordance with the Schedule 1 (the "Facility
Fee Rate"). Such facility fee shall accrue from and including the Effective
Date to but excluding the Termination Date (or earlier date of termination of
the Commitments in their entirety), on the daily aggregate amount of the
Commitments (whether used or unused). Facility fees shall be payable
quarterly in arrears on the first day of each March, June, September and
December and upon the date of termination of the Commitments in their
entirety, and are non-refundable.
2.11 MANDATORY REDUCTION OF COMMITMENTS. Concurrently with the
issuance by the Borrower of any Debt in the public debt markets (excluding
loans under this Agreement and the Other Credit Facilities), (a) the Borrower
shall repay any outstanding principal balance of the Notes in an amount equal
to the net cash proceeds to Borrower of the Debt so issued, and (b) the
Commitments shall be automatically and ratably reduced, without further
action by the parties, by the amount of such net cash proceeds.
2.12 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS BY THE
BORROWER. During the Revolving Credit Period, the Borrower may, upon at least
five Domestic Business Days' notice to the Administrative Agent, (i)
terminate the Commitments at any time, if no Loans are outstanding at such
time or (ii) ratably and permanently reduce from time to time by an aggregate
amount of $25,000,000 or any larger amount in multiples of $1,000,000, the
aggregate amount of the Commitments in excess of the the aggregate
outstanding principal balance of the Loans.
-21-
<PAGE>
2.13 OPTIONAL TERMINATION OF COMMITMENTS BY THE LENDERS. Following
the occurrence of a Change of Control, the Required Lenders may in their sole
and absolute discretion elect, during the sixty day period immediately
subsequent to the LATER OF (a) such occurrence and (b) the EARLIER of (i)
receipt of the Borrower's written notice to the Administrative Agent of such
occurrence and (ii) if no such notice has been received by the Administrative
Agent, the date upon which the Administrative Agent and the Lenders have
actual knowledge thereof, to terminate all of the Commitments. In any such
case the Commitments shall be terminated effective on the date which is sixty
days subsequent to the date of written notice from the Administrative Agent
to the Borrower thereof, and, to the extent that there is then any Debt
evidenced by the Notes, the same shall be immediately due and payable.
2.14 SCHEDULED TERMINATION OF COMMITMENTS. The Commitments shall
terminate on the Termination Date and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on such date.
2.15 EXTENSIONS OF THE TERMINATION DATE. The Termination Date may
be extended, in the manner set forth in this Section, for a period of 364
days after the date on which the Termination Date would otherwise have
occurred. If the Borrower wishes to extend the Termination Date, it shall
give written notice to that effect to the Administrative Agent not less than
90 days nor more than 150 days following the delivery to the Administrative
Agent of the audited annual financial statements of the Borrower in
accordance with Section 5.01(a), whereupon the Administrative Agent shall
notify each of the Lenders of such notice. Each Lender will respond to such
request, whether affirmatively or negatively, within the period which ends
upon the later of (i) 30 days following the Borrower's request, or (ii) 45
days prior to the then effective Termination Date (the "Response Date"). If a
Lender or Lenders respond negatively or fail to timely respond to such
request (each non-responding Lender being conclusively deemed to refuse to
consent to the extension), but such non-extending Lender(s) have
Commitment(s) aggregating less than 33 1/3% of the aggregate amount of the
Commitments, the Borrower shall, for a period of 60 days following the
Response Date, have the right, with the assistance of the Administrative
Agent, to seek a mutually satisfactory substitute financial institution or
financial institutions (which may be one or more of the Lenders) to assume
the Commitment(s) of such non-extending Lender(s). Not later than the third
Domestic Business Day prior to the end of such 60-day period, the Borrower
shall, by notice to the Lenders through the Administrative Agent, either (i)
terminate, effective on the third Domestic Business Day after the giving of
such notice, the Commitment(s) of such non-extending Lender(s), whereupon the
Lenders who have consented to the extension shall continue with their
commitments unaffected to lend subject to the terms of this Agreement to the
new Termination Date, or (ii) designate one or more new financial
institutions reasonably acceptable to the Administrative Agent to assume the
Commitments of such non-extending Lenders, whereupon the aggregate amount of
such Commitment(s) shall be assumed by such substitute financial institution
or financial institutions within such 60-day period or
-22-
<PAGE>
(iii) withdraw its request for an extension of the Termination Date, in which
case the Commitments shall continue unaffected. The failure of the Borrower
to timely take the actions contemplated by clause (i) or (ii) of the
preceding sentence shall be deemed a withdrawal of its request for an
extension as contemplated by clause (iii) whether or not notice to such
effect is given, and in no event shall the Termination Date be extended
unless each Lender which has not consented to the proposed extension has been
either replaced or terminated as set forth above. So long as Lenders having
Commitment(s) totaling not less than 66 2/3% of the aggregate amount of the
Commitment(s) shall have responded affirmatively to such a request, and such
request is not withdrawn in accordance with the preceding sentence, then,
subject to receipt by the Administrative Agent of counterparts of an
Extension Agreement in substantially the form of Exhibit E duly completed and
signed by the Borrower and each of the affirmatively responding Lenders, the
Termination Date shall be extended, effective on such extension date, for a
period of 364 days to the date stated in such Extension Agreement.
2.16 OPTIONAL PREPAYMENTS.
(a) Subject in the case of any Euro-Dollar Borrowing to
Section 2.18, the Borrower may, upon at least one Domestic Business
Day's notice to the Administrative Agent, prepay any Base Rate
Borrowing, or upon at least three Euro-Dollar Business Days' notice to
the Administrative Agent, with respect to any Euro-Dollar Borrowing,
prepay any Euro-Dollar Borrowing, in each case in whole at any time, or
from time to time in part in amounts aggregating $10,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of
prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Lenders included in such Borrowing.
(b) RESERVED.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Administrative Agent shall promptly notify each Lender of
the contents thereof and of such Lender's ratable share (if any) of such
prepayment and such notice shall not thereafter be revocable by the
Borrower.
2.17 GENERAL PROVISIONS AS TO PAYMENTS.
(a) The Borrower shall make each payment of principal of, and
interest on, Loans and of fees hereunder, in Dollars not later than
11:00 A.M. (California local time) on the date when due, in Federal or
other immediately available funds, to the Administrative Agent at its
address referred to in Section 9.01, without offset or counterclaim. The
Administrative Agent will promptly distribute to each Lender its ratable
share of each such payment received by the Administrative Agent for
-23-
<PAGE>
the account of the Lenders, in Dollars and in the type of funds received
by the Administrative Agent. Whenever any payment of principal of, or
interest on, the Base Rate Loans or of fees shall be due on a day which
is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the Euro-Dollar Loans shall be
due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the
next preceding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon
shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due
to the Lenders hereunder that the Borrower will not make such payment in
full, the Administrative Agent may assume that the Borrower has made
such payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent that the Borrower
shall not have so made such payment, each Lender shall repay to the
Administrative Agent forthwith on demand such amount distributed to such
Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays
such amount to the Administrative Agent, at the Federal Funds Rate.
2.18 FUNDING LOSSES. If the Borrower makes any payment of principal
with respect to any Fixed Rate Loan (pursuant to Article VI or VIII or
otherwise) on any day other than the last day of the Interest Period
applicable thereto, or if the Borrower fails to borrow any Fixed Rate Loans
after notice has been given to any Lender in accordance with Section 2.06(a),
the Borrower shall reimburse each Lender within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties,
but excluding loss of margin for the period after any such payment or failure
to borrow, provided that such Lender shall have delivered to the Borrower a
certificate as to the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
2.19 COMPUTATION OF INTEREST AND FEES. Interest based on the
Reference Rate and all fees hereunder shall be computed on the basis of a
year of 365 days (or 366 days in a leap year) and paid for the actual number
of days elapsed (including the first day but excluding the last day). All
other interest shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding
the last day).
-24-
<PAGE>
2.20 WITHHOLDING TAX EXEMPTION. At least five Domestic Business
Days prior to the first date on which interest or fees are payable hereunder
for the account of any Lender, each Lender that is not incorporated under the
laws of the United States of America or a state thereof agrees that it will
deliver to each of the Borrower and the Administrative Agent two duly
completed copies of United States Internal Revenue Service Form W-8 ECI,
certifying in either case that such Lender is entitled to receive payments
under this Agreement and the Notes without deduction or withholding of any
United States federal income taxes.
Each Lender which so delivers a Form W-8 ECI further undertakes to
deliver to each of the Borrower and the Administrative Agent two additional
copies of such form (or a successor form) on or before the date that such
form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the
Borrower and the Administrative Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax.
2.21 RESERVED.
2.22 REGULATION D COMPENSATION. Each Lender may require the
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of
such Lender at a rate per annum determined by such Lender up to but not
exceeding the excess of (i) (A) the applicable London Interbank Offered Rate
divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the
applicable London Interbank Offered Rate. Any Lender wishing to require
payment of such additional interest (x) shall so notify the Borrower and the
Agent, in which case such additional interest on the Euro-Dollar Loans of
such Lender shall be payable to such Lender at the place indicated in such
notice with respect to each Interest Period commencing at least three
Euro-Dollar Business Days after the giving of such notice and (y) shall
notify the Borrower at least five Euro-Dollar Business Days prior to each
date on which interest is payable on the Euro-Dollar Loans of the amount then
due it under this Section.
-25-
<PAGE>
ARTICLE III
CONDITIONS
3.01 BORROWINGS. The obligation of any Lender to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of
Borrowing as required by Section 2.02;
(b) immediately after such Borrowing, the sum of the
aggregate outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitments;
(c) immediately before and after such Borrowing, no Default
or Event of Default shall have occurred and be continuing;
(d) the representations and warranties of the Borrower
contained in this Agreement (except the representations and warranties
set forth in Section 4.04(b) and Section 4.05, in each case as to any
matter which has theretofore been disclosed in writing by the Borrower
to the Lenders) shall be true on and as of the date of such Borrowing;
(e) in the case of the initial Committed Loans, the Caesars
Acquisition shall have been consummated, or shall concurrently be
consummated, in accordance with the terms of the Caesars Acquisition
Agreement; and
(f) in the case of the initial Committed Loans, the
Administrative Agent shall have received a supplemental opinion of
Latham & Watkins (or other legal counsel selected by the Borrower and
reasonably acceptable to the Administrative Agent), substantially in the
form of Exhibit F hereto, and a certificate of the Borrower stating that
all conditions precedent to the Caesars Acquisition set forth in the
Caesars Acquisition Agreement have been satisfied or waived by the
parties thereto and that the Caesars Acquisition has been consummated in
material compliance with applicable laws.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c) and (d) of this Section.
-26-
<PAGE>
3.02 EFFECTIVENESS. This Agreement shall become effective on the
date that each of the following conditions shall have been satisfied (or
waived in accordance with Section 9.04):
(a) receipt by the Administrative Agent of counterparts
hereof signed by each of the parties hereto (or, in the case of any
party as to which an executed counterpart shall not have been received,
receipt by the Administrative Agent in form satisfactory to it of
telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party);
(b) receipt by the Administrative Agent for the account of
each Lender of a duly executed Note dated on or before the Effective
Date complying with the provisions of Section 2.05;
(c) receipt by the Administrative Agent of an opinion of
Latham & Watkins, substantially in the form of Exhibit G, and an opinion
of Sills Cummis Radin Tischman Epstein & Gross, P.A., substantially in
the form of Exhibit H;
(d) arrangements satisfactory to the Administrative Agent for
the repayment of all loans (if any) outstanding under the Existing Short
Term Credit Agreement and the termination of the lending commitments
thereunder;
(e) receipt by the Administrative Agent of all documents it
may reasonably request relating to the existence of the Borrower, the
corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrower, the Administrative
Agent and each Lender of the effectiveness of this Agreement, and such notice
shall be conclusive and binding on all parties hereto.
-27-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
4.01 CORPORATE EXISTENCE AND POWER. The Borrower (a) is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware, (b) has all corporate powers and authority and all material
governmental licenses (including, without limitation, any such license issued
by a Gaming Board), authorizations, consents and approvals required to own
its property and assets and carry on its business as now conducted and (c) is
duly qualified as a foreign corporation and in good standing in each
jurisdiction where the ownership, leasing and operation of its property or
the conduct of its business requires such qualification.
4.02 CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The
execution, delivery and performance by the Borrower of this Agreement and the
Notes are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any Governmental Agency and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of the Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Borrower or result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
4.03 BINDING EFFECT. This Agreement constitutes a valid and binding
agreement of the Borrower and the Notes, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations
of the Borrower, in each case enforceable in accordance with their respective
terms.
4.04 FINANCIAL INFORMATION.
(a) The Combined Pro Forma Financial Statements fairly present in
all material respects, in conformity with generally accepted accounting
principles, the pro forma combined financial position of the Gaming
Segment and the divisions of Grand owning the Grand Assets as of the
dates and for the periods therein stated.
(b) Since December 31, 1998, there has been no material adverse
change in the business, financial position, results of operations or
prospects of the Gaming Segment and the Grand Assets, or in the
operations of the Borrower and its Consolidated Subsidiaries, considered
as a whole.
-28-
<PAGE>
4.05 LITIGATION. Except as disclosed in the Borrower's form 10-K report
for the year ended December 31, 1998 or in its 10-Q reports dated March 31,
and June 30, 1999, there is no action, suit or proceeding pending against, or
to the knowledge of the Borrower threatened against or affecting, the
Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect
the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries or which in any
manner draws into question the validity or enforceability of this Agreement
or the Notes. Without limiting the generality of the foregoing, with respect
to those litigation matters described above as reported in the Borrower's
aforementioned form 10-K or 10-Q reports, (a) the disclosure contained
therein was accurate as of the date of thereof, and (b) since such date there
has been no material adverse development.
4.06 COMPLIANCE WITH ERISA. Each member of the ERISA Group has fulfilled
its obligations under the minimum funding standards of ERISA and the Internal
Revenue Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Internal
Revenue Code with respect to each Plan. No member of the ERISA Group has (i)
sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of
any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien
or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any liability under Title IV or ERISA other
than a liability to the PBGC for premiums under Section 4007 of ERISA.
4.07 TAXES. The United States Federal income tax returns of Hilton and
its Subsidiaries and of Grand and its Subsidiaries have been filed through
the fiscal year ended December 31, 1997. The Borrower and its Significant
Subsidiaries have filed all United States Federal income tax returns and
other material tax returns which are required to be filed by them and have
paid or agreed to settlements of all taxes due pursuant to such returns or
pursuant to any assessment received by the Borrower or any Subsidiary, except
for such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. The charges, accruals and reserves on
the books of the Borrower and its Significant Subsidiaries in respect of
taxes or other governmental charges are, in the opinion of the Borrower,
adequate.
4.08 SIGNIFICANT SUBSIDIARIES. Each of the Significant Subsidiaries (a)
is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation, (b) has all corporate
powers and authority and all material governmental licenses (including,
without limitation, any such license issued by a Gaming Board),
authorizations, consents and approvals required to own its property and
assets and
-29-
<PAGE>
carry on its business as now conducted and (c) is duly qualified as a foreign
corporation and in good standing in each jurisdiction where the ownership,
leasing and operation of its property or the conduct of its business requires
such qualification, and the failure to be so qualified would have a material
adverse effect on the Borrower and its Subsidiaries.
4.09 NOT AN INVESTMENT COMPANY. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
4.10 ENVIRONMENTAL MATTERS. The Borrower has reasonably concluded that
Environmental Laws are unlikely to have a material adverse effect on the
business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
4.11 FULL DISCLOSURE. All information heretofore furnished by Hilton,
Grand and the Borrower to the Agents or to any Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Borrower to the
Administrative Agent or any Lender will be, taken as a whole, true and
accurate in all material respects on the date as of which such information is
stated or certified. The Borrower has disclosed to the Lenders in writing or
by means of its filings with the Securities and Exchange Commission any and
all facts which materially and adversely affect or may affect (to the extent
the Borrower can now reasonably foresee), the business, operations or
financial position of the Borrower and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Borrower to perform its obligations under
this Agreement. With respect to any projections or forecasts provided, such
projections or forecasts represent, as of the date thereof, management's best
estimates based on reasonable assumptions and all available information, but
are subject to the uncertainty inherent in all projections and forecasts.
4.12 SOLVENCY. Giving effect hereto, as of the Effective Date, the
Borrower and its Significant Subsidiaries are, on a consolidated basis,
Solvent.
4.13 GAMING LAWS. The Borrower and its Subsidiaries are in material
compliance with all applicable Gaming Laws.
4.14 YEAR 2000. The Borrower and its Subsidiaries have reviewed the
effect of the Year 2000 Issue on the computer software, hardware and firmware
systems and equipment contained embedded microchips owned or operated by or
for the Borrower and its Subsidiaries. The costs to the Borrower and its
Subsidiaries of any reprogramming required as a result of the Year 2000 Issue
to permit the proper functioning of such systems and equipment and the proper
processing of data, and the testing of such reprogramming, and of required
systems changes are not reasonably expected to result in a Default or to have
a material
-30-
<PAGE>
adverse effect on the business, financial position, results of operations or
prospects of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
-31-
<PAGE>
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Note remains unpaid:
5.01 INFORMATION. The Borrower will deliver to the Administrative Agent
(who shall promptly distribute the same to the Lenders or advise the Lenders
thereof):
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Borrower, the consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of the end of such
fiscal year and the related consolidated statements of income and cash
flows for such fiscal year, setting forth in each case in comparative
form the figures as of the end of and for the previous fiscal year, all
reported on in a manner acceptable to the Securities and Exchange
Commission by Arthur Andersen LLP or other independent public accountants
of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Borrower, the consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of income and cash flows for such quarter and for
the portion of the Borrower's fiscal year ended at the end of such
quarter, setting forth in the case of such statements of income and cash
flows in comparative form the figures for the corresponding quarter and
the corresponding portion of the Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by
an Authorized Officer;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a Compliance
Certificate (i) setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Sections 5.06, 5.10 and 5.11 on the date of such
financial statements, and (ii) stating whether any Default exists on the
date of such Compliance Certificate and, if any Default then exists,
setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i)
whether anything has come to their attention to cause them to believe
that any Default existed on the date of such
-32-
<PAGE>
statements and (ii) confirming the calculations set forth in the
officer'scertificate delivered simultaneously therewith;
(e) as soon as available and in any event not later than the last
day of February of each year, a completed Pricing Certificate as of
December 31 of the prior year;
(f) within five Domestic Business Days of any officer of the
Borrower obtaining knowledge of any Default, if such Default is then
continuing, a certificate of an Authorized Officer setting forth the
details thereof and the action which the Borrower is taking or proposes
to take with respect thereto;
(g) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed;
(h) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q
and 8-K (or their equivalents) which the Borrower shall have filed with
the Securities and Exchange Commission;
(i) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of
ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate,
impose liability (other than for premiums under Section 4007 of ERISA) in
respect of, or appoint a trustee to administer, any Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v)
gives notice of intent to terminate any Plan under Section 4041 (c) of
ERISA, a copy of such notice and other information filed with the PBGC;
(vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of
ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the
chief financial officer or the chief accounting officer of the Borrower
setting forth details as to such occurrence and action, if any,
-33-
<PAGE>
which the Borrower or applicable member of the ERISA Group is required
or proposes to take;
(j) forthwith, notice of any change of which the Borrower becomes
aware in the rating by S&P or Moody's, of the Borrower's outstanding
senior unsecured long-term debt securities; and
(k) from time to time such additional information regarding the
financial position or business of the Borrower and its subsidiaries as
the Administrative Agent, at the request of any Lender, may reasonably
request.
5.02 MAINTENANCE OF PROPERTY; INSURANCE.
(a) The Borrower will keep, and will cause each Significant
Subsidiary to keep, all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted, except
where failure to do so would not have a material adverse effect on the
business, financial position, results of operations or prospects of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
(b) The Borrower will, and will cause each of its Significant
Subsidiaries to, maintain (either in the name of the Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such
amounts and against at least such risks (and with such risk retention) as
are usually insured against in the same general area by companies of
established repute engaged in the same or a similar business and will
furnish to the Lenders, upon request from the Administrative Agent,
information presented in reasonable detail as to the insurance so carried.
Notwithstanding the foregoing, the Borrower may self-insure with respect
to such risks with respect to which companies of established repute
engaged in the same or similar business in the same general area usually
self-insure.
5.03 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower will
continue, and will cause each Significant Subsidiary to continue, to engage
in business of the same general type conducted by the Borrower and its
Significant Subsidiaries as of the Effective Date, and will preserve, renew
and keep in full force and effect, and will cause each Subsidiary to
preserve, renew and keep in full force and effect their respective corporate
existence and their respective rights, privileges and franchises necessary or
desirable in the normal conduct of business; provided that nothing in this
Section 5.03 shall prohibit (i) the merger of a Subsidiary into the Borrower
or the merger or the consolidation of a Subsidiary with or into another
Person if the corporation surviving such consolidation or merger is a
Subsidiary and if, in each case, after giving effect thereto, no Default
shall have occurred and
-34-
<PAGE>
be continuing or (ii) the termination of the corporate existence of any
Subsidiary if (A) the Borrower in good faith determines that such termination
is in the best interest of the Borrower and (B) such termination is not
materially disadvantageous to the Lenders.
5.04 COMPLIANCE WITH LAWS. The Borrower will comply, and cause each
Significant Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of any
Governmental Agency (including, without limitation, Environmental Laws,
Gaming Laws and ERISA and, in each case, the rules and regulations
thereunder) except where the necessity of compliance therewith is contested
in good faith by appropriate proceedings.
5.05 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower will keep,
and will cause each Significant Subsidiary to keep, proper books of record
and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and
will permit, and will cause each Significant Subsidiary to permit,
representatives of any Lender at such Lender's expense to visit and inspect
any of their respective properties, to examine and make abstracts from any of
their respective books and records and to discuss their respective affairs,
finances and accounts with their respective officers, employees and
independent public accountants, all at such reasonable times and as often as
may reasonably be desired.
5.06 NEGATIVE PLEDGE. None of the Borrower, any Covered Subsidiary or
any Significant Subsidiary will create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except:
(a) Liens existing as of the Effective Date;
(b) any Lien existing on any asset of any corporation at the time
such corporation becomes a Subsidiary and not created in contemplation of
such event;
(c) any Lien on any asset (other than Liens created to finance or
refinance the cost of acquiring the equity interests and other assets
acquired or to be acquired pursuant to the Caesars Acquisition Agreement)
securing Debt incurred or assumed for the purpose of financing all or any
part of the cost of acquiring or constructing such asset (it being
understood that, for this purpose, the acquisition of a Person is also an
acquisition of the assets of such Person); PROVIDED THAT the Lien
attaches to such asset concurrently with or within 180 days after the
acquisition thereof, or such longer period, not to exceed 12 months, due
to the Borrower's inability to retain the requisite governmental
approvals with respect to such acquisition; provided further that, in the
case of real estate, (i) the Lien attaches within 12 months after the
latest of the acquisition thereof, the completion of construction thereon
or the commencement of full operation thereof and (ii) the Debt so
secured does not exceed
-35-
<PAGE>
the sum of (x) the purchase price of such real estate plus (y) the costs
of such construction;
(d) any Lien on any asset of any corporation or other business
entity (including without limitation the Persons acquired pursuant to the
Caesars Acquisition Agreement) existing at the time such corporation or
other business entity is merged or consolidated with or into the Borrower
or a Subsidiary and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof
by the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the
foregoing clauses of this Section, provided that such Debt is not
increased (other than to cover any transaction costs of such refinancing,
extension, renewal or refunding) and is not secured by any additional
assets;
(g) Liens securing Debt of a Subsidiary to the Borrower or another
Subsidiary; and
(h) Liens not otherwise permitted by the foregoing clauses of this
Section encumbering assets of the Borrower and its Consolidated
Subsidiaries having an aggregate fair market value which is not in excess
of 10% of Consolidated Net Tangible Assets (determined, in each case, by
reference to the most recent date for which the Borrower has delivered
its financial statements under Section 5.01(a)).
5.07 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Borrower and its
Subsidiaries will not (i) consolidate or merge with or into any other Person
or (ii) sell, lease or otherwise transfer all or any substantial part of the
assets of the Borrower and its Subsidiaries, taken as a whole, to any other
Person, or (iii) acquire all or substantially all of the assets of, or more
than 49% of the capital stock or other equity securities of, any Person which
is not engaged in the same general lines of business as the Borrower and its
Subsidiaries, if, giving effect to such consolidation, merger, sale or
acquisition, the Borrower is not in pro forma compliance with the covenants
set forth in Sections 5.10 and 5.11; PROVIDED that, notwithstanding the
foregoing, the Borrower may merge with another Person only if (A) the
Borrower is the corporation surviving such merger, and (B) immediately after
giving effect to such merger, no Default shall have occurred and be
continuing.
5.08 HOSTILE TENDER OFFERS. The Borrower and its Subsidiaries will not
make any offer to purchase or acquire, or prosecute, pursue or consummate a
purchase or acquisition of, 5% or more of the capital stock of any
corporation or other business entity, if
-36-
<PAGE>
the board of directors or other equivalent governing body of such corporation
or business entity has notified the Borrower or its relevant Subsidiaries
that it opposes such offer or purchase and such notice has not been withdrawn
or superseded.
5.09 USE OF PROCEEDS. The proceeds of the Loans made under this
Agreement will be used by the Borrower for general corporate purposes,
including but not limited to (a) to finance a portion of the purchase price
payable in connection with the Caesars Acquisition and related transactional
and other expenses associated herewith, and (b) for working capital
(including without limitation refinancing of obligations under either of the
Other Credit Agreements), capital expenditures, the back stop of commercial
paper and the acquisition of full-service hotel\casino, casino and
casino\resort properties (including without limitation the Caesars
Acquisition). None of such proceeds will be used, directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
any "margin stock" within the meaning of Regulation U other than "margin
stock" issued by the Borrower which is retired upon purchase or for any
purpose which violates Section 5.08.
5.10 LEVERAGE RATIO. The Leverage Ratio will not, as of the last day of
any fiscal quarter of the Borrower described in the matrix below, exceed the
ratio set forth opposite that fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarters Ending Maximum Ratio
---------------------- -------------
<S> <C>
September 30, 1999 4.75:1.00
December 31, 1999 through and 5.25:1.00
including June 30, 2000
September 30, 2000 and
December 31, 2000 4.75:1.00
Later Fiscal Quarters, if any 4.50:1.00.
</TABLE>
5.11 INTEREST COVERAGE RATIO. The Interest Coverage Ratio shall not, as
of the last day of any fiscal quarter of the Borrower, be less than 3.00:1.00.
5.12 YEAR 2000. The Borrower shall promptly and in any event by December
31, 1999 make, and shall cause each of its Subsidiaries to make, all required
systems changes in computer software, hardware and firmware systems and
equipment containing embedded microchips owned or operated by or for the
Borrower and its Subsidiaries required as a result of the Year 2000 Issue to
permit the proper functioning of such computer systems and other equipment,
except to the extent that the failure to take any such action could not
reasonably be expected to result in a Default or to have a material adverse
effect on the business, financial
-37-
<PAGE>
position, results of operations or prospects of the Borrower and its
Consolidated Subsidiaries, considered as a whole. At the request of any
Lender, the Borrower shall provide, and shall cause each of its Subsidiaries
to provide, to such Lender reasonable assurance of its compliance with the
preceding sentence.
-38-
<PAGE>
ARTICLE VI
DEFAULTS
6.01 EVENTS OF DEFAULT. If one or more of the following events ("Events of
Default") shall have occurred and be continuing:
(a) the Borrower shall fail to (i) pay when due any principal of
any Loan under this Agreement, or (ii) pay within five days of the due
date thereof any interest, fees or other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.06 to 5.11, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by
clause (a) or (b) above) for 7 days after written notice thereof has
been given to the Borrower by the Administrative Agent, which notice
shall be delivered to the Borrower by the Administrative Agent at the
request of any Lender;
(d) any representation, warranty, certification or statement made
or deemed made by the Borrower in this Agreement or in any certificate,
financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect in any material respect
when made (or deemed made);
(e) the Borrower or any Covered Subsidiary or any Significant
Subsidiary shall fail to make any payment in respect of any Debt (other
than the Notes and Non-Recourse Debt) when due or within any applicable
grace period and the aggregate principal amount of such Debt is in
excess of $100,000,000;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Debt (other than Non-Recourse Debt)
in excess of $100,000,000 of the Borrower or any Covered Subsidiary or
any Significant Subsidiary or enables or entitles the holder of such
Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof;
(g) the Borrower or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property,
or shall consent to any such relief or to the appointment of or taking
possession by any such
-39-
<PAGE>
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part of its property,
and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of 60 days; or an order for relief shall be
entered against the Borrower or any Significant Subsidiary under the
federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $5,000,000 which it shall
have become liable to pay under Title IV of ERISA; or notice of intent
to terminate a Material Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination
of the foregoing; or the PBGC shall institute proceedings under Title IV
of ERISA to terminate, to impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer, any Material Plan; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of the ERISA
Group to incur a current payment obligation in excess of $25,000,000;
(j) a judgment or order for the payment of money in excess of
$25,000,000 shall be rendered against the Borrower or any Subsidiary and
such judgment or order shall continue unsatisfied and unstayed for a
period of 30 days;
(k) the occurrence of a License Revocation with respect to a
license issued to the Borrower or any of its Subsidiaries by any Gaming
Board of the States of Mississippi, New Jersey or Nevada with respect to
gaming operations at any gaming facility accounting for five percent
(5%) or more of the consolidated gross revenues of the Borrower and its
Subsidiaries that continues for thirty calendar days;
then, and in every such event, the Administrative Agent shall (i) if
requested by the Required Lenders, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate, and (ii) if requested by the
Required Lenders, by notice to the Borrower declare the
-40-
<PAGE>
Loans (together with accrued interest thereon) to be, and the Loans (together
with accrued interest thereon) shall thereupon become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Borrower; PROVIDED that in the case of any
of the Events of Default specified in clause (g) or (h) above with respect to
the Borrower, without any notice to the Borrower or any other act by the
Administrative Agent or the Lenders, the Commitments shall thereupon
terminate and the Loans (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
6.02 NOTICE OF DEFAULT. The Administrative Agent shall give notice
to the Borrower under Section 6.01(c) promptly upon being requested to do so
by any Lender and shall thereupon notify all the Lenders thereof.
6.03 RESERVED.
-41-
<PAGE>
ARTICLE VII
THE AGENTS
7.01 APPOINTMENT AND AUTHORIZATION. Each Lender irrevocably appoints
and authorizes each Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the Notes as are delegated to
such Agent by the terms hereof or thereof, together with all such powers as
are reasonably incidental thereto.
7.02 AGENTS AND AFFILIATES. Bank of America and the other Agents
shall each have the same rights and powers under this Agreement as any other
Lender and each may exercise or refrain from exercising the same as though it
were not an Agent, and Bank of America and the other Agents and their
respective affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with, the Borrower or any Subsidiary or
Affiliate of the Borrower as if they were not Agents hereunder.
7.03 ACTION BY AGENTS. The obligations of the Agents hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Administrative Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.
7.04 CONSULTATION WITH EXPERTS. Each Agent may consult with legal
counsel (who may be counsel for the Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken
or omitted to be taken by it in good faith in accordance with the advice of
such counsel, accountants or experts.
7.05 LIABILITY OF AGENT. Neither any Agent nor any of their
respective affiliates nor any of the respective directors, officers, agents
or employees of any of the foregoing shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request
of the Required Lenders or (ii) in the absence of its own gross negligence or
willful misconduct. Neither any Agent nor any of their respective affiliates
nor any of the respective directors, officers, agents or employees of any of
the foregoing shall be responsible for or have any duty to ascertain, inquire
into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the
performance or observance of any of the covenants or agreements of the
Borrower; (iii) the satisfaction of any condition specified in Article III,
except in the case of the Administrative Agent receipt of items required to
be delivered to it; or (iv) the validity, effectiveness or genuineness of
this Agreement, the Notes or any other instrument or writing furnished in
connection herewith. The Administrative Agent shall incur no liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex, facsimile transmission or similar
writing) believed by it to be genuine or to be signed by the proper party or
parties.
-42-
<PAGE>
7.06 INDEMNIFICATION. Each Lender shall, ratably in accordance with
its Commitment, indemnify the Administrative Agent, its affiliates and its
directors, officers, agents and employees (to the extent not reimbursed by
the Borrower) against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that
such indemnitee may suffer or incur in connection with the Administrative
Agent's role under this Agreement or any related action taken or omitted by
such indemnitee hereunder.
7.07 CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent, the Lead
Arranger and Sole Book Manager or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, the Lead Arranger and Sole Book Manager or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking
or not taking any action under this Agreement.
7.08 SUCCESSOR AGENT. The Administrative Agent may resign at any
time subject to the appointment of a successor Agent by giving notice to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders
shall have the right to appoint a successor Agent with the consent of the
Borrower, which consent shall not be unreasonably withheld or delayed;
provided that no such consent shall be required if the successor Agent is a
Lender. If no successor Agent shall have been so appointed, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving
of notice of resignation, then the retiring Agent may, on behalf of the
Lenders, and without the Borrower's consent, appoint a successor Agent, which
shall be a commercial bank organized or licensed under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $1,000,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.
7.09 AGENTS' FEES. The Borrower shall pay to each Agent for its own
account fees in the amounts and at the times previously agreed upon between
the Borrower and such Agent.
-43-
<PAGE>
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
8.01 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If on
or prior to the first day of any Interest Period for any Fixed Rate
Borrowing:
(a) the Administrative Agent is advised by the Required Lenders
that deposits in Dollars and in the required amounts are not being
offered to the Lenders in the relevant market for such Interest Period,
or
(b) in the case of a Committed Borrowing, Lenders having 50%
or more of the aggregate amount of the Commitments advise the
Administrative Agent that the London Interbank Offered Rate, as
determined by the Administrative Agent, will not adequately and fairly
reflect the cost to such Lenders of funding their Euro-Dollar Loans for
such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower
and the Lenders, whereupon until the Administrative Agent notifies the
Borrower that the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders to make Euro-Dollar Loans shall be
suspended. Unless the Borrower notifies the Administrative Agent at least two
Domestic Business Days before the date of any Fixed Rate Borrowing for which
a Notice of Borrowing has previously been given that it elects not to borrow
on such date, such Fixed Rate Borrowing shall instead be made as a Base Rate
Borrowing. The Administrative Agent shall promptly notify the Lenders of any
election by the Borrower pursuant to the preceding sentence.
8.02 ILLEGALITY. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by any Lender (or its Euro-Dollar Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for any Lender (or its Euro-Dollar Lending Office) to make,
maintain or fund its Euro-Dollar Loans and such Lender shall so notify the
Administrative Agent, the Administrative Agent shall forthwith give notice
thereof to the other Lenders and the Borrower, whereupon until such Lender
notifies the Borrower and the Administrative Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Lender
to make Euro-Dollar Loans shall be suspended. Before giving any notice to the
Administrative Agent pursuant to this Section, such Lender shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need
for giving such notice and will not, in the sole judgment of such Lender, be
otherwise disadvantageous to such
-44-
<PAGE>
Lender. If such Lender shall determine that it may not lawfully continue to
maintain and fund any of its outstanding Euro-Dollar Loans to maturity and
shall so specify in such notice, the Borrower shall immediately prepay in
full the then outstanding principal amount of each such Euro-Dollar Loan,
together with accrued interest thereon. Concurrently with prepaying each such
Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal
principal amount from such Lender (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Lenders), and such Lender shall make such a Base Rate Loan.
8.03 INCREASED COST AND REDUCED RETURN.
(a) If on or after the date hereof, the adoption of any
applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or its Applicable Lending Office)
with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject any Lender (or its Applicable Lending
Office) to any tax, duty or other charge with respect to its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans, or
shall change the basis of taxation of payments to any Lender (or
its Applicable Lending Office) of the principal of or interest on
its Fixed Rate Loans or any other amounts due under this Agreement
in respect of its Fixed Rate Loans or its obligation to make Fixed
Rate Loans (except for changes in the rate of tax on the overall
net income of such Lender or its Applicable Lending Office imposed
by the jurisdiction in which such Lender's principal executive
office or Applicable Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but excluding,
with respect to any Euro-Dollar Loan any such requirement included
in an applicable Euro-Dollar Reserve Percentage), special deposit,
insurance assessment or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any
Lender (or its Applicable Lending Office) or shall impose on any
Lender (or its Applicable Lending Office) or on the United States
market for certificates of deposit or the London interbank market
any other condition affecting its Fixed Rate Loans, its Note or its
obligation to make Fixed Rate Loans;
-45-
<PAGE>
and the result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making or maintaining any
Fixed Rate Loan, or to reduce the amount of any sum received or
receivable by such Lender (or its Applicable Lending Office) under this
Agreement or under its Note with respect thereto, by an amount deemed by
such Lender to be material, then, within 15 days after demand by such
Lender (with a copy to the Administrative Agent), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such
Lender for such increased cost or reduction.
(b) If, after the date hereof, any Lender shall have determined
that any applicable law, rule or regulation regarding capital adequacy
(irrespective of the actual timing of the adoption or implementation
thereof and including, without limitation, any law or regulation adopted
pursuant to the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices) or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any
Lender (or its Applicable Lending Office) with any request or directive
regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on capital of such Lender (or
its Parent) as a consequence of such Lender's obligations hereunder to a
level below that which such Lender (or its Parent) could have achieved
but for such law, regulation, change or compliance (taking into
consideration its policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time,
within 15 days after demand by such Lender (with a copy to the
Administrative Agent), the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender (or its
Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Lender to compensation
pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole judgment of
such Lender, be otherwise disadvantageous to such Lender. A certificate
of any Lender claiming compensation under this Section and setting forth
the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such amount,
such Lender may use any reasonable averaging and attribution methods.
8.04 BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS. If
(i) the obligation of any Lender to make Euro-Dollar Loans has been suspended
pursuant to Section 8.02 or (ii) any Lender has demanded compensation under
Section 8.03(a) and the
-46-
<PAGE>
Borrower shall, by at least five Euro-Dollar Business Days, prior notice to
such Lender through the Administrative Agent, have elected that the
provisions of this Section shall apply to such Lender, then, unless and until
such Lender notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Lender as
Euro-Dollar Loans shall be made instead as Base Rate Loans (on which
interest and principal shall be payable contemporaneously with the
related Fixed Rate Loans of the other Lenders), and
(b) after each of its Euro-Dollar Loans has been repaid, all
payments of principal which would otherwise be applied to repay such
Fixed Rate Loans shall be applied to repay its Base Rate Loans instead.
-47-
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.01 NOTICES. All notices, requests and other communications to any party
hereunder shall be in writing (including bank wire, telex, telecopy or
similar writing) and shall be given to such party: (x) in the case of the
Borrower or the Administrative Agent, at its address or telex or telecopier
number set forth on the signature pages hereof, (y) in the case of any
Lender, at its address or telex or telecopier number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other
address or telex or telecopier number as such party may hereafter specify for
the purpose by notice to the Administrative Agent and the Borrower. Each such
notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answer back is received, (ii) if given by mail,
72 hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered or received at the address specified in this Section; provided
that notices to the Administrative Agent under Article II or Article VIII
shall not be effective until received.
9.02 NO WAIVERS. No failure or delay by the Administrative Agent or any
Lender in exercising any right, power or privilege hereunder or under any
Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
9.03 EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION.
(a) The Borrower shall pay (i) all reasonable out-of-pocket
expenses of the Administrative Agent and the Lead Arranger and Sole Book
Manager, including reasonable fees and disbursements of counsel for the
Administrative Agent (including the allocated fees and expenses of any
internal counsel), in connection with the preparation of this Agreement
and all related documents, the negotiation, closing and syndication of
this Agreement and the Loans, and in connection with any waiver,
amendment or consent hereunder or any amendment hereof or any Default or
alleged Default hereunder and (ii) if an Event of Default occurs, all
reasonable out-of-pocket expenses incurred by the Administrative Agent
or any Lender, including fees and disbursements of counsel (including
the allocated fees and expenses of any internal counsel), in connection
with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom. The Borrower shall
indemnify each Lender against any transfer taxes, documentary taxes,
mortgage
-48-
<PAGE>
recording taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery or enforcement of this
Agreement and the Notes.
(b) The Borrower agrees to indemnify each Agent, the Lead
Arranger and Sole Book Manager and each Lender, their respective
affiliates and the respective directors, officers, agents and employees
of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel (including the allocated
fees and expenses of any internal counsel), which may be incurred by
such Indemnitee in connection with any investigative, administrative or
judicial proceeding (whether or not such Indemnitee shall be designated
a party thereto) brought or threatened relating to or arising out of
this Agreement or any actual or proposed use of proceeds of Loans
hereunder; provided that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
9.04 AMENDMENTS AND WAIVERS. No amendment or waiver of the terms of this
Agreement or the other Loan Documents shall be made or be effective unless
such amendment or waiver is in writing and is signed by the Borrower and the
Required Lenders (and, if the rights or duties of the Administrative Agent
are affected thereby, by the Administrative Agent); provided that no such
amendment or waiver shall, unless signed by all the Lenders, (i) increase or
decrease the amount of the Commitment of any Lender without the consent of
that Lender (except for a ratable decrease in the Commitments of all Lenders)
or subject any Lender to any additional obligation, (ii) reduce the principal
of or rate of interest on any Loan or interest thereon or any fees hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on
any Loan or interest thereon or any fees hereunder, or the Termination Date
(except as contemplated by Section 2.15), (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
percentage of Lenders, which shall be required for the Lenders or any of them
to take any action under this Section or any other provision of this
Agreement, (v) render more restrictive the ability of any Lender to assign or
grant participations in its Commitment under Section 9.05, or (vi) waive or
amend the condition set forth in Section 3.01(e).
9.05 SUCCESSORS AND ASSIGNS.
(a) This Agreement and the other Loan Documents to which the
Borrower is a party will be binding upon and inure to the benefit of
Borrower, the Administrative Agent, each of the Lenders, and their
respective successors and assigns, EXCEPT that the Borrower may not
assign its rights hereunder or thereunder or any interest herein or
therein without the prior written consent of all the Lenders. Each
Lender represents that it is not acquiring its Note with a view to the
distribution thereof
-49-
<PAGE>
within the meaning of the Securities Act of 1933, as amended (subject to
any require-ment that disposition of such Note must be within the
control of such Lender). Any Lender may at any time pledge its Note or
any other instrument evidencing its rights as a Lender under this
Agreement to a Federal Reserve Bank, but no such pledge shall release
that Lender from its obligations hereunder or grant to such Federal
Reserve Bank the rights of a Lender hereunder absent foreclosure of such
pledge.
(b) From time to time following the date which is sixty days
following the Effective Date, each Lender may assign to one or more
Eligible Assignees all or any portion of its Commitment; PROVIDED that
(i) such Eligible Assignee, if not then a Lender or an Affiliate of the
assigning Lender, shall be approved by each of the Administrative Agent
and (if no Event of Default then exists) Borrower (neither of which
approvals shall be unreasonably withheld or delayed), (ii) such
assign-ment shall be evidenced by an Assignment and Assumption Agreement
substantially in the form of Exhibit I, a copy of which shall be
furnished to the Administrative Agent as hereinbelow provided, (iii)
EXCEPT in the case of an assignment to an Affiliate of the assigning
Lender, to another Lender or of the entire remaining Commitment of the
assigning Lender, the assignment shall not assign a portion of the
Commitments that is equivalent to less than $5,000,000, and (iv) the
effective date of any such assignment shall be as specified in the
Assignment and Assumption Agreement, but not earlier than the date which
is five Banking Days after the date the Administrative Agent has
received the Assignment and Assumption Agreement. Upon the effective
date of the Assignment and Assumption Agreement, the Eligible Assignee
named therein shall be a Lender for all purposes of this Agreement, with
the Commitment therein set forth and, to the extent of such Commitment,
the assigning Lender shall be released from its further obligations
under this Agreement. Borrower agrees that they shall execute and
deliver (against delivery by the assigning Lender to the Borrower of its
Note) to such assignee Lender, a Note evidencing that assignee Lender's
Commitment, and to the assigning Lender, a Note evidencing the remaining
Commitment retained by the assigning Lender.
(c) By executing and delivering an Assignment and Assumption
Agreement, the Eligible Assignee thereunder acknowledges and agrees
that: (i) other than the representation and warranty that it is the
legal and beneficial owner of the Commitment being assigned thereby free
and clear of any adverse claim, the assigning Lender has made no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection
with this Agreement or the execution, legality, validity,
enforceability, genuineness or sufficiency of this Agreement or any
other Loan Document; (ii) the assigning Lender has made no
representation or warranty and assumes no responsibility with respect to
the financial condition of the Borrower or the performance by the
Borrower of its obligations under this Agreement; (iii) it has received
a copy of this Agreement,
-50-
<PAGE>
together with copies of the most recent financial statements delivered
pursuant to Section 5.01 and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Assumption Agreement; (iv) it will,
independently and without reliance upon the Administrative Agent or any
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) it appoints and
authorizes the Administrative Agent to take such action and to exercise
such powers under this Agreement as are delegated to the Administrative
Agent by this Agreement; and (vi) it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement
are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain a copy of each
Assignment and Assumption Agreement delivered to it and a register (the
"Register") of the names and address of each of the Lenders and the
Commitment held by each Lender, giving effect to each Assignment and
Assumption Agreement. The Register shall be available during normal
business hours for inspection by the Borrower upon reasonable prior
notice to the Administrative Agent. The Administrative Agent shall
promptly confirm to any requesting Lender the amount of its Commitment
set forth in the Register. After receipt of a completed Assignment and
Assumption Agreement executed by any Lender and an Eligible Assignee,
and receipt of an assignment fee of $3,500 from such Lender or Eligible
Assignee, the Administrative Agent shall, promptly following the
effective date thereof, provide to the Borrower and the affected Lenders
confirmation of the changes in their respective Commitments. The
Borrower, the Administrative Agent and the Lenders shall deem and treat
the Persons listed as Lenders in the Register as the holders and owners
of the Commitments listed therein for all purposes hereof, and no
assignment or transfer of any Commitment shall be effective, in each
case unless and until an Assignment and Assumption Agreement effecting
the assignment or transfer thereof shall have been accepted by the
Administrative Agent and recorded in the Register as provided above.
Prior to such recordation, all amounts owed with respect to the
applicable Commitment shall be owed to the Lender listed in the Register
as the owner thereof, and any request, authority or consent of any
Person who, at the time of making such request or giving such authority
or consent, is listed in the Register as a Lender shall be conclusive
and binding on any subsequent holder, assignee or transferee of the
corresponding Commitment.
(e) Each Lender may from time to time grant participations in its
Commitment to one or more Lenders, other financial institutions or a
special purpose trust; PROVIDED, HOWEVER, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) the participating Lenders or
other
-51-
<PAGE>
financial institutions shall not be a Lender hereunder for any purpose
except, if the participation agreement so provides, for the purposes of
Sections 2.22, 8.03 and 9.03 but only to the extent that the cost of
such benefits to the Borrower does not exceed the cost which the
Borrower would have incurred in respect of such Lender absent the
participation, (iv) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, (v) the participation interest shall be expressed as a
percentage of the granting Lender's Commitment as it then exists and
shall not restrict an increase in the Commitments, or in the granting
Lender's Commitment, so long as the amount of the participation interest
is not affected thereby and (vi) the consent of the holder of such
participation interest shall not be required for amendments or waivers
of provisions of the Loan Documents OTHER THAN those which result in (A)
a decrease in fees, interest rate spreads or principal payable to the
holder of such participation, (B) increase the Commitment of the
granting Lender and thereby increase the funding requirements of the
holder of such a participation, or (C) extend the Termination Date.
(f) Notwithstanding anything to the contrary contained herein,
any Lender (a "Granting Lender") may grant to a special purpose funding
vehicle (an "SPC") of such Granting Lender, identified as such in
writing from time to time by the Granting Lender to the Administrative
Agent and the Borrower the option to provide all or any part of any
Committed Loan that such Granting Lender would otherwise be obligated to
make pursuant to this Agreement, provided that (i) nothing herein shall
constitute a commitment to make any Loan by any SPC, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or
any part of such Loan, the Granting Lender shall be obligated to make
such Loan pursuant to the terms hereof, and (iii) except as expressly
set forth herein, the rights of any such SPC shall be derivative of the
rights of the Granting Lender, and each SPC shall be subject to all of
the restrictions upon the Granting Lender herein contained. Each SPC
shall be conclusively presumed to have made arrangements with its
Granting Lender for the exercise of voting and other rights hereunder in
a manner which is acceptable to the SPC, and the Administrative Agent,
the Lenders and the Borrower and each other party shall be entitled to
rely upon and deal solely with the Granting Lender with respect to Loans
made by or through its SPC. The making of a Loan by an SPC hereunder
shall utilize the Commitment of the Granting Lender to the same extent,
and as if, such Loan were made by the Granting Lender. Each party hereto
hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall
remain with the related Granting Lender). In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall
survive the termination of this Agreement) that, prior to the date that
is one year and one day after the payment in full of all outstanding
senior indebtedness of any SPC, it will not institute against, or join
any other person in instituting against, such SPC any
-52-
<PAGE>
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or similar proceedings under the laws of the United States
or any State thereof with respect to any claim arising out of or related
to this Agreement. In addition, notwithstanding anything to the contrary
contained in this Section 9.05, each SPC may, at any time, without
regard to the period required by Section 9.05(b)(iv), (i) with notice
to, but without the prior written consent of, the Borrower, the Borrower
or the Administrative Agent, and without paying any processing fee
therefor, assign all or a portion of its interests in any Loans to its
Granting Lender or to any financial institutions providing liquidity
and/or credit facilities to or for the account of such SPC to fund the
Loans made by such SPC or to support the securities (if any) issued by
such SPC to fund such Loans (but nothing contained herein shall be
construed in derogation of the obligation of the Granting Lender to make
Loans hereunder), and (ii) disclose on a confidential basis any
non-public information relating to its Loans to any rating agency,
commercial paper dealer or provider of a surety, guarantee or credit or
liquidity enhancement to such SPC. This Section 9.05(f) may not be
amended without the consent of all SPC's then designated to the
Administrative Agent in accordance with the foregoing provisions of this
Section.
9.06 COLLATERAL. Each of the Lenders represents to each Agent and each of
the other Lenders that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
9.07 CALIFORNIA LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Note shall be construed in accordance with and governed by the laws of the
State of California. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Central District of
California and of any California State court sitting in Los Angeles,
California for purposes of all legal proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby. The Borrower
irrevocably, waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
9.08 COUNTERPARTS; INTEGRATION. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
9.09 SEVERAL OBLIGATIONS. The obligations of the Lenders hereunder are
several. Neither the failure of any Lender to carry out its obligations
hereunder nor the failure of this Agreement to be duly authorized, executed
and delivered by any Lender shall relieve
-53-
<PAGE>
any other Lender of its obligations hereunder (or affect the rights hereunder
of such other Lender). No Lender shall be responsible for the obligations of,
or any action taken or omitted by, any other Lender hereunder.
9.10 SHARING OF SET-OFFS. Each Lender agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to any Note held by it which is greater than the proportion received
by any other Lender in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Lender, the Lender
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Lenders, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes held by the Lenders shall be
shared by the Lenders pro rata; PROVIDED that nothing in this Section shall
impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to
the payment of indebtedness of the Borrower other than its indebtedness under
the Notes. The Borrower agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Note,
whether or not acquired pursuant to the foregoing arrangements, may exercise
rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
9.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS AND THE BANKS
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
9.12 CONFIDENTIALITY. The Lenders hereby agree to hold any confidential
information that they may receive from Borrower or its Subsidiaries pursuant
to this Agreement in confidence, except for disclosure: (a) to their
respective Affiliates and to other parties to this Agreement; (b) to legal
counsel and accountants for any such party; (c) to other professional
advisors to any such party, provided that the recipient has accepted such
information subject to a confidentiality agreement substantially similar to
this paragraph or has notified such professional advisors of the
confidentiality of such information; (d) to regulatory officials having
jurisdiction over that Lender; (e) to any Gaming Board; (f) as required by
law or legal process (provided that the Lender shall endeavor, to the extent
it may do so under applicable law, to give the Borrower reasonable prior
notice thereof to allow the Borrower to seek a protective order) or in
connection with any legal proceeding to which that Lender and the Borrower
are adverse parties; and (g) to another financial institution in connection
with a disposition or proposed disposition to that financial institution of
all or part of that Lender's interests hereunder or a participation interest
in its Note, provided that the recipient has accepted such information
subject to a confidentiality agreement substantially similar to this
-54-
<PAGE>
Section. For purposes of the foregoing, "confidential information" shall mean
any information respecting the Borrower or its Subsidiaries reasonably
considered by them to be confidential, other than (i) information previously
filed with any governmental agency and available to the public, (ii)
information previously published in any public medium from a source other
than, directly or indirectly, that Lender, and (iii) information previously
disclosed by the Borrower or
[Remainder of this page intentionally left blank]
-55-
<PAGE>
its Subsidiaries to any person not associated therewith without a
confidentiality agreement substantially similar to this Section. Nothing in
this Section shall be construed to create or give rise to any fiduciary duty
on the part of any Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
PARK PLACE ENTERTAINMENT
CORPORATION
By: /s/ Janet E. Sockwell
-----------------------------------
Janet E. Sockwell, CFA
Vice President and Assistant Treasurer
Address for Notices:
Park Place Entertainment Corporation
3930 Howard Hughes Parkway, 4th Floor
Las Vegas, Nevada 89109
Attn: Janet E. Sockwell, CFA
Telephone: 702/699-5247
Telecopier: 702/699-5216
E-Mail: [email protected]
-56-
<PAGE>
BANK OF AMERICA, N.A., as Administrative
Agent
By: /s/ Janice Hammond
-------------------------------------
Janice Hammond, Vice President
Address for Notices:
Bank of America, N.A.
Entertainment/Media Group
Agency Management
Corporate & Investment Banking
CA9-706-11-03
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Attn: Janice Hammond, Vice President
Telecopier: (213) 228-2299
Telephone: (213) 228-9861
BANK OF AMERICA, N.A., as a Lender
By: /s/ Scott Faber
-------------------------------------
Scott L. Faber, Principal
Address for Notices:
Bank of America, N.A.
Credit Products - LA 3283
Entertainment & Media Group
555 South Flower Street, 11th Floor
Los Angeles, California 90071
Attn: Scott L. Faber, Principal
Telecopier: (213) 228-2641
Telephone: (213) 228-2768
With a copy to:
Bank of America, N.A.
555 South Flower Street (LA-5777)
Los Angeles, California 90071
Attn: William Newby, Managing Director
Telecopier: (213) 228-3145
Telephone: (213) 228-2438
-57- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
BANKERS TRUST COMPANY
By: /s/ Laura S. Burwick
--------------------------------------
Laura S. Burwick
Title: Principal
-----------------------------------
Address for notices:
Bankers Trust Company
130 Liberty Street, Mail Stop 2252
New York, New York 10006
Attn.: Linda Wang
Facsimile: (212) 669-0743
Telephone: (212) 250-2781
-58- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Vice President
-----------------------------------
Address for notices:
Merrill Lynch Capital Corporation
North Tower - WFC
250 Vesey Street
New York, New York 10281
Attn.: Carol Feeley
Facsimile: (212) 738-1649
Telephone: (212) 449-8414
-59- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: [ILLEGIBLE]
----------------------------------
Address for notices:
The Bank of Nova Scotia
San Francisco Agency
580 California Street, Suite 2100
San Francisco, California 94104
Attn.: Alan Pendergast, Relationship Manager
Facsimile: (415) 397-0791
Telephone: (415) 616-4155
-60- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
THE BANK OF NEW YORK
By: /s/ [ILLEGIBLE]
--------------------------------------
[ILLEGIBLE]
Title: Vice President
-----------------------------------
Address for notices:
The Bank of New York
One Wall Street, 22nd Floor
New York, New York 10005
Attn.: Dawn Hertling
Facsimile: (212) 635-6399 or 6877
Telephone: (212) 635-6742
-61- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Peter D. Steffen
--------------------------------------
Peter D. Steffen
Title: Senior Vice President
-----------------------------------
Address for notices:
First Union National Bank
301 South College Street, 10th Floor
Charlotte, North Carolina 28288-0745
Attn.: John Reid, Vice President
Facsimile: (704) 383-7236
Telephone: (704) 383-1385
-62- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
SOCIETE GENERALE
By: /s/ Alex Y. Kim
--------------------------------------
Alex Y. Kim
Title: Vice President
-----------------------------------
Address for notices:
Societe Generale
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Attn.: Tequlla English
Facsimile: (214) 754-0171
Telephone: (214) 979-2767
-63- LENDER'S SIGNATURE PAGE
$1,000,000,000 CREDIT FACILITY
<PAGE>
Schedule 1 - Pricing Schedule - $1,000,000,000 Short Term Facility
This Schedule 1 is attached to and made a part of the
$1,000,000,000 Short Term Credit Agreement dated as of August 31, 1999 among
Park Place Entertainment Corporation, a Delaware corporation, the Lenders,
Documentation Agents and Co-Arrangers, and Senior Managing Agents referred to
therein, Bank of America National Trust and Savings Association, as
Administrative Agent, and Banc of America Securities, LLC as Lead Arranger
and Sole Book Manager (the "Credit Agreement"). Capitalized terms used in
this Schedule 1 are used with the meanings set forth for those terms in the
Credit Agreement.
The "Euro-Dollar Margin," "Base Rate Margin," and "Facility Fee
Rate" referred to in the Credit Agreement shall be determined for any day on
the basis of the Status (as defined below) of the Borrower as of that date,
provided, that in the event that the Borrower fails to deliver any Compliance
Certificate or Pricing Certificate on the date when required by Section 5.01,
and it is ultimately determined that the Status of the Borrower would have
been changed on the basis of such delivery, then (a) the rate at which
interest and facility fees accrue under the Credit Agreement shall be
increased in accordance with this Schedule, with retroactive effect to the
first day of the Pricing Period to which such Compliance Certificate relates,
and (b) the Borrower shall, within 10 Business Days of a request by the
Administrative Agent, make such additional payments to the Lenders through
the Administrative Agent as are required to give effect to such increased
interest rates and facility fees in respect of any payments previously made
by the Borrower. As of each date of determination, the Euro-Dollar Margin and
Facility Fee Rates shall equal the percentages set forth below under the
column corresponding to the Status that exists on such day, PROVIDED that the
Euro-Dollar Margin shall be increased or decreased by the "Margin Adjustment"
described below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Status Level Level Level Level Level Level
I II III IV V VI
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility Fee Rate 0.080% 0.100% 0.125% 0.150% 0.200% 0.250%
- ----------------------------------------------------------------------------------
Euro-Dollar Margin 0.520% 0.650% 0.875% 0.975% 1.175% 1.500%
- ----------------------------------------------------------------------------------
</TABLE>
The "Base Rate Margin" shall, as of each date of determination, be
the percentage, not less than 0.000% per annum, which is equal to the then
prevailing Euro-Dollar Margin (after adjustment upwards or downwards by the
Margin Adjustment), MINUS 1.250%.
As of each date of determination, the Status of the Borrower shall
be determined on the basis of:
(a) the Borrower's Debt Rating as of that date; or
(b) from and after March 1, 2000 the Leverage Ratio as of the last
day of the fiscal quarter of the Borrower ending immediately prior to
the first day of the
-64-
<PAGE>
Pricing Period in which such date of determination occurs (the
"Applicable Leverage Ratio");
whichever such criteria yields the more favorable pricing to
the Borrower according to the following standards:
"Level I Status" exists at any date if, at such date, either
(x) the Debt Rating assigned by S&P is A- or higher or the Debt Rating
assigned by Moody's is A3 or higher, or (y) the Applicable Leverage
Ratio is less than 1.50:1.
"Level II Status" exists at any date if, at such date, (i)
either (x) the Debt Rating assigned by S&P is BBB+ or higher or the Debt
Rating assigned by Moody's is Baa1 or higher, or (y) the Applicable
Leverage Ratio is less than 2.25:1 and (ii) Level I Status does not
exist.
"Level III Status" exists at any date, if, at such date, (i)
either (x) the Debt Rating assigned by S&P is BBB or higher or the Debt
Rating assigned by Moody's is Baa2 or higher, or (y) the Applicable
Leverage Ratio is less than 3.00:1 and (ii) neither Level I Status nor
Level II Status exists.
"Level IV Status" exists at any date, if, at such date, (i)
either (x) the Debt Rating assigned by S&P is BBB- or higher or the Debt
Rating Assigned by Moody's is Baa3 or higher, or (y) the Applicable
Leverage Ratio is less than 3.75:1 and (ii) none of Level I Status,
Level II Status or Level III Status exists.
"Level V Status" exists at any date, if, at such date, (i)
either (x) the Debt Rating assigned by S&P is BB+ or higher or the Debt
Rating assigned by Moody's is Ba1 or higher or (y) the Applicable
Leverage Ratio is less than 4.25:1 and (ii) none of Level I Status,
Level II Status, Level III Status or Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no
such other Status exists.
For purposes of this Schedule, the following terms have the
following meanings, subject to the final two paragraphs of this Schedule:
"Margin Adjustment" means, (a) as of any date of determination when
the Applicable Leverage Ratio is in excess of 3.50:1 but equal to or less
than 4.00:1, an incremental interest margin of 0.075% per annum to be added
to the Euro-Dollar Margin in determining the rate applicable to Euro-Dollar
Loans, (b) as of any date of determination when the Applicable Leverage Ratio
is in excess of 4.00:1 but equal to or less than 4.75:1, an incremental
interest margin of 0.150% per annum to be added to the Euro-Dollar Margin in
determining the rate applicable to Euro-Dollar Loans, (c) as of any date of
determination when the Applicable Leverage Ratio is in excess of 4.75:1, an
incremental interest margin of 0.225% per annum to be added to the
Euro-Dollar Margin in determining the rate applicable to Euro-
-65-
<PAGE>
Dollar Loans, and (d) as of any date of determination when the Applicable
Leverage Ratio is less than 2.00:1, a deduction of 0.075% per annum to be
subtracted from the Euro-Dollar Margin in determining the rate applicable to
Euro-Dollar Loans.
"Debt Rating" means, as of any date of determination, the rating
assigned by the Rating Agencies to the senior unsecured long-term debt
securities of the Borrower without third-party credit enhancement (and any
rating assigned to any other debt security of the Borrower shall be
disregarded) as of the close of business on such date, provided that (a)
during the period between the Effective Date and March 31, 2000, to the
extent that no such credit rating has been assigned, a credit rating of BBB-
shall be assumed, (b) if such securities receive a split-rating and the
rating differential is one level, the higher of the two ratings will apply
(e.g. A-/Baa1 results in Level I Status and A-/Baa2 results in Level II
Status), and (c) if the Borrower is split-rated and the ratings differential
is more than one level, the average of the two ratings (or the higher of any
two intermediate ratings) shall be used (e.g. A-/Baa2 results in Level II
Status, as does A-/Baa3).
-66-
<PAGE>
[LATHAM & WATKINS LETTERHEAD]
September 22, 1999
Park Place Entertainment Corporation
3930 Howard Hughes Parkway
Las Vegas, Nevada 89109
Re: Park Place Entertainment Corporation
Registration of 7.95% Senior Notes due 2003
-------------------------------------------
Ladies and Gentlemen:
In connection with the registration of up to $300,000,000
in aggregate principal amount of 7.95% Senior Notes due 2003 (the "Exchange
Notes") by Park Place Entertainment Corporation, a Delaware corporation (the
"Company"), on a registration statement on Form S-4 under the Securities Act
of 1933, as amended, filed with the Securities and Exchange Commission (the
"Commission") on the date hereof (the "Registration Statement"), you have
requested our opinion with respect to the matters set forth below. The
Exchange Notes will be issued pursuant to an indenture, a copy of which is
filed as an exhibit to the Registration Statement, by and among the Company
and Norwest Bank Minnesota, N.A., as trustee, dated as of August 2, 1999, as
it may be supplemented or amended from time to time (the "Indenture").
Capitalized terms used herein without definition have the meanings given to
them in the Indenture.
In our capacity as your counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization and issuance of the
Exchange Notes, and for purposes of this opinion, have assumed such proceedings
will be timely completed in the manner presently proposed and terms of such
issuance will otherwise be in compliance with law.
<PAGE>
Park Place Entertainment Corporation
September 22, 1999
Page 2
As such counsel, we have examined such matters of fact and
questions of law as we have considered appropriate for purposes of rendering the
opinions expressed below.
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to authentic original documents of all documents submitted to us
as copies.
We have been furnished with, and with your consent have relied
upon, certificates of officers of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject
transaction only of the federal laws of the United States, the internal laws
of the State of New York and the General Corporation Law of the State of
Delaware, and we express no opinion with respect to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction or, in
the case of Delaware, any other laws, or as to any matters of municipal law
or the laws of any other local agencies within any state.
Subject to the foregoing and the other matters set forth
herein, it is our opinion that, as of the date hereof, the Exchange Notes, when
authenticated by the Trustee and executed and delivered by the Company in
accordance with the terms of the Registration Rights Agreement and the
Indenture, will constitute legally valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to the
following limitations, qualifications and exceptions:
(i) the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors;
(ii) the effect of general principles of equity, whether
enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought;
(iii) the unenforceability under certain circumstances under
law or court decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where such indemnification
or contribution is contrary to public policy;
(iv) to the extent that enforceability may be limited due to
the existence of an untrue statement of a material fact in the Registration
Statement or omission to state a material
<PAGE>
Park Place Entertainment Corporation
September 22, 1999
Page 3
fact therein necessary to make the statements in the Registration Statement not
misleading; it being understood that we express no view with respect thereto;
(v) the unenforceability of any provision requiring the
payment of attorney's fees, except to the extent that a court determines such
fees to be reasonable; and
(vi) we express no opinion concerning the enforceability of
the waiver of rights or defenses contained in Section 5.15 of the Indenture.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" in the prospectus included therein.
Very truly yours,
/s/ Latham & Watkins
<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 Amendment
No. 1 to the Form S-4 registration statement (File No. 333-86107).
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
September 17, 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 Amendment No. 1 to the Form S-4 registration statement (File
No. 333-86107).
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
September 17, 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 Amendment No. 1 to the Form S-4 registration statement (File No.
333-86107).
ARTHUR ANDERSEN LLP
New York, New York
September 20, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 29, 1999 included in this
Amendment No. 1 to the Form S-4 Registration Statement of Park Place
Entertainment Corporation (File No. 333-86107), with respect to the financial
statements of Metropolitan Entertainment Group, operating as Sheraton Casinos
Nova Scotia.
Ernst & Young LLP
Chartered Accountants
Halifax, Canada
September 21, 1999
