<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 8, 1998)
$750,000,000
[LOGO]
HARRAH'S OPERATING COMPANY, INC.
PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM, IF ANY, GUARANTEED BY
HARRAH'S ENTERTAINMENT, INC.
7 7/8% SENIOR SUBORDINATED NOTES DUE 2005
-------------------
INTEREST PAYABLE ON JUNE 15 AND DECEMBER 15
-------------------
HARRAH'S OPERATING COMPANY, INC. MAY REDEEM ANY OR ALL OF THE NOTES AT ANY TIME
AT THE REDEMPTION PRICE DESCRIBED HEREIN PLUS ACCRUED INTEREST.
-------------------
THE NOTES WILL RANK EQUALLY WITH THE OTHER UNSECURED SENIOR SUBORDINATED
INDEBTEDNESS OF HARRAH'S OPERATING. THE NOTES WILL BE JUNIOR TO OUR SENIOR
INDEBTEDNESS, INCLUDING OUR CREDIT FACILITY, AND ALL LIABILITIES OF
OUR SUBSIDIARIES. THE NOTES WILL BE GUARANTEED BY HARRAH'S
ENTERTAINMENT, INC. THE GUARANTEE WILL BE JUNIOR IN RIGHT OF
PAYMENT TO ALL OF HARRAH'S ENTERTAINMENT'S SENIOR
INDEBTEDNESS, INCLUDING ITS GUARANTEE OF OUR
CREDIT FACILITY.
FOR A MORE DETAILED DESCRIPTION OF THE NOTES, SEE "DESCRIPTION OF
NOTES" BEGINNING ON PAGE S-30.
-------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
S-12.
-----------------
PRICE 100% AND ACCRUED INTEREST, IF ANY
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO COMPANY
<S> <C> <C> <C>
PER NOTE..................................... 100.00% 1.75% 98.25%
TOTAL........................................ $750,000,000 $13,125,000 $736,875,000
</TABLE>
-------------------
THE SECURITIES AND EXCHANGE COMMISSION, STATE SECURITIES REGULATORS AND GAMING
REGULATORY AUTHORITIES HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS ARE
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE NOTES TO PURCHASERS ON
DECEMBER 9, 1998.
-------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY
CIBC OPPENHEIMER
FLEET SECURITIES, INC.
SG COWEN
DECEMBER 4, 1998
<PAGE>
[MAP OF UNITED STATES (WITH SMALLER MAP
OF AUSTRALIA INSET) DEPICTING GENERAL LOCATION
OF HARRAH'S CASINO PROPERTIES.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT PAGE
---------
<S> <C>
Where You Can Find More Information................................................... S-4
Summary............................................................................... S-5
Risk Factors.......................................................................... S-12
Use of Proceeds....................................................................... S-14
Recent Developments................................................................... S-15
Capitalization........................................................................ S-17
Selected Financial Data............................................................... S-18
Unaudited Pro Forma Condensed Financial Statements.................................... S-20
Regulation and Licensing.............................................................. S-28
Description of Notes.................................................................. S-30
Underwriters.......................................................................... S-40
Legal Matters......................................................................... S-41
Experts............................................................................... S-41
PROSPECTUS
Available Information................................................................. 2
Incorporation of Certain Information By Reference..................................... 2
Disclosure Regarding Forward-Looking Statements....................................... 3
The Company........................................................................... 3
Ratio of Earnings to Fixed Charges.................................................... 3
Use of Proceeds....................................................................... 4
Description of the Common Stock....................................................... 4
Description of the Debt Securities.................................................... 5
Description of the Preferred Stock.................................................... 13
Depositary Shares..................................................................... 16
Plan of Distribution.................................................................. 20
Legal Matters......................................................................... 21
Experts............................................................................... 21
</TABLE>
S-3
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy any document we file at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 (1-800-732-0330) for further information on the
public reference rooms. You can also obtain copies of these materials from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
(http://www.sec.gov). You also may read and copy reports and other information
we file at the office of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We have filed a registration statement and related exhibits with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
The registration statement contains additional information about us and the
notes. You may inspect the registration statement and its exhibits without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and you may obtain copies from the Commission at prescribed rates.
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 you to those documents. The information incorporated by reference is
an important part of this prospectus supplement and the accompanying prospectus,
and information that we file later with the Commission will automatically update
and supersede this information. We incorporate by reference the documents listed
below and any future filings made with the Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended ("the
Exchange Act"), until such time as all of the securities covered by this
prospectus supplement have been sold:
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998;
- Proxy Statement on Schedule 14A dated October 15, 1998; and
- Current Reports on Form 8-K dated June 1, 1998, August 9, 1998, September
4, 1998, October 21, 1998 and December 4, 1998 and on Form 8-K/A dated
June 1, 1998.
You may request a free copy of these filings by writing or telephoning us at
the following address:
Attn.: Corporate Secretary
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
(901) 762-8600
You should not assume that the information in this prospectus supplement and
the accompanying prospectus is accurate as of any date other than the date on
the front of those documents regardless of the time of delivery of this
prospectus supplement or any sale of the notes. You should rely only on the
information incorporated by reference or provided in this prospectus supplement
and the accompanying prospectus. We have not authorized anyone else to provide
you with different information. We are offering the notes and seeking offers to
buy the notes only in jurisdictions where offers and sales are permitted.
S-4
<PAGE>
SUMMARY
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THE WORDS
"COMPANY," "HARRAH'S," "WE," "OUR," "OURS," AND "US" REFER TO HARRAH'S
ENTERTAINMENT, INC., A DELAWARE CORPORATION ("HARRAH'S ENTERTAINMENT"), AND ITS
WHOLLY OWNED SUBSIDIARY, HARRAH'S OPERATING COMPANY, INC., A DELAWARE
CORPORATION ("HARRAH'S OPERATING"), UNLESS OTHERWISE STATED OR THE CONTEXT
OTHERWISE REQUIRES. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS
OFFERING. IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. THE
"DESCRIPTION OF NOTES" SECTION OF THIS PROSPECTUS SUPPLEMENT AND THE
"DESCRIPTION OF THE DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS CONTAIN MORE
DETAILED INFORMATION REGARDING THE TERMS AND CONDITIONS OF THE NOTES.
THE COMPANY
We are one of the leading casino entertainment companies in the United
States, operating in more markets than any other casino company and offering a
Harrah's casino experience within a three-hour drive of one-third of the U.S.
population. Our U.S. operations currently include eight land-based casinos,
seven riverboat or dockside casinos; and three casinos on Indian reservations.
We also own a partial interest in and manage a land-based casino in Sydney,
Australia and own a non-controlling interest in and will manage the only
land-based casino in New Orleans, Louisiana upon its anticipated completion in
late October 1999. In addition, completion of our pending merger with Rio Hotel
& Casino, Inc. (expected to close by the end of 1998) will add a profitable,
premier Las Vegas destination resort with a unique level of service, strong
brand name, and distinct customer base to our existing national distribution of
casino offerings. See "Recent Transactions--The Rio Merger."
After taking into account our acquisition of Showboat in June 1998 and our
merger with Rio by the end of 1998, our gaming operations would include (with
data regarding number of hotel rooms, slots and gaming tables, and casino square
footage provided as of December 31, 1997):
<TABLE>
<CAPTION>
CASINO
HOTEL SQUARE GAMING
MARKET/PROPERTY TYPE OF CASINO ROOMS FOOTAGE SLOTS TABLES
- ------------------------------------------------------------ -------------- -------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
ATLANTIC CITY, NEW JERSEY
Harrah's Atlantic City.................................... Land-based 1,174 80,800 2,529 97
Atlantic City Showboat.................................... Land-based 800 102,000 3,700 95
LAS VEGAS, NEVADA
Harrah's Las Vegas........................................ Land-based 2,677 86,700 1,963 97
Rio Suite Hotel & Casino.................................. Land-based 2,582 116,000 2,431 103
Las Vegas Showboat........................................ Land-based 451 75,000 1,540 25
LAKE TAHOE, NEVADA
Harrah's Lake Tahoe....................................... Land-based 532 63,200 1,711 107
Bill's Lake Tahoe......................................... Land-based -- 18,000 547 20
RENO, NEVADA
Harrah's Reno............................................. Land-based 973 55,450 1,581 65
LAUGHLIN, NEVADA
Harrah's Laughlin......................................... Land-based 1,690 47,000 1,291 42
CHICAGO, ILLINOIS
Harrah's Joliet........................................... Riverboat -- (1) 37,000 988 56
East Chicago Showboat..................................... Riverboat -- 53,000 1,700 82
TUNICA, MISSISSIPPI
Harrah's Tunica........................................... Dockside 199 50,000 857 44
VICKSBURG, MISSISSIPPI
Harrah's Vicksburg........................................ Dockside 117 18,000 573 31
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
CASINO
HOTEL SQUARE GAMING
MARKET/PROPERTY TYPE OF CASINO ROOMS FOOTAGE SLOTS TABLES
- ------------------------------------------------------------ -------------- -------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
SHREVEPORT, LOUISIANA
Harrah's Shreveport....................................... Dockside -- 22,550 1,069 40
NORTH KANSAS CITY, MISSOURI
Harrah's North Kansas City................................ Dockside 200 62,100 2,029 82
ST. LOUIS, MISSOURI
Harrah's St. Louis Riverport.............................. Dockside 291 60,000 1,300 60
PHOENIX, ARIZONA
Harrah's Phoenix Ak-Chin Casino........................... Indian -- 38,000 475 25
Reservation
CHEROKEE, NORTH CAROLINA
Harrah's Cherokee Smoky Mountains Casino.................. Indian -- 50,000 1,801 --
Reservation
TOPEKA, KANSAS
Harrah's Prairie Band Casino-Topeka....................... Indian 100 26,000 500 40
Reservation
SYDNEY, AUSTRALIA
Star City................................................. Land-based 352 153,000 1,500 200
</TABLE>
- ------------------------
(1) We currently are in the process of constructing a 204-room hotel at Harrah's
Joliet which is expected to be completed in the fourth quarter of 1999.
BRAND STRATEGY
We seek to differentiate ourselves by building the industry's only national
brand. To accomplish this objective, we have invested significant time and
resources learning who the best customers in our industry are and what they want
from a gaming experience. We are building our brand with a focus on the broad
middle market gaming segment, but because of our strategy, we are uniquely
positioned to appeal to those customers that play in more than one market. These
customers represent 12% of the industry's customers, but generate 55% of the
industry's revenue. Our strategy is comprised of four integrated components
which combine to create a sustainable competitive advantage for Harrah's. These
four elements are geographic distribution, quality facilities, proprietary
technology and superior customer service.
NATIONAL GEOGRAPHIC DISTRIBUTION
Geographic distribution serves as the foundation of our strategy. Upon
completing the Rio merger, we will operate 19 casinos in 14 markets in the
United States, more than any other casino operator. As a result, we not only
have diversified sources of revenue and earnings, but this geographic
distribution also allows us to develop relationships with more customers in
more markets than any other casino entertainment company. Since many of our
markets have a limited number of gaming licenses, most of which have already
been allocated, we believe it will be difficult for a competitor to
duplicate our nationwide scope. In addition, through strategic growth
opportunities, we will continue to expand our distribution and build even
greater access to our target customers.
S-6
<PAGE>
QUALITY FACILITIES
We have recently completed a large investment program in our facilities
to ensure consistent quality among our properties as a necessary component
in building a national brand. Our ongoing maintenance capital expenditure
program ensures that our properties maintain a high level of quality and
meet the expectations of our target customer. We recently completed several
important renovations and expansions at our casinos, the most dramatic of
which was the transformation of our Las Vegas property after approximately
$200 million of investment. In 1999 our capital program includes building
hotels at two of our riverboat properties, completing the expansion at the
Rio and maintenance capital.
PROPRIETARY TECHNOLOGY
We have invested in proprietary technology and tools that help us better
market to and understand our customers. Our proprietary technology not only
enables us to market effectively and efficiently but also gives us the
ability to operate centralized back office systems to achieve economies of
scale and synergies. This technology includes powerful elements such as our
patented Total Gold program and its underlying Winners Information Network
(WINet) database. Total Gold is the only program in the casino industry that
rewards and recognizes casino customers on a nationwide basis. Total Gold
allows customers to earn points and comps based on play and redeem these
points and comps for cash, merchandise, food, lodging or show tickets at any
Harrah's casino across the country. There are currently over 15 million
records in our WINet database. Total Gold was launched in September 1997.
Our revenues for the nine months ended September 30, 1998 from
cross-property tracked play as a percent of total gaming revenue have
increased to over 12% compared to 8% for the same period in 1997. Total Gold
and WINet integrate all of our casinos and, as such, serve as a platform on
which we are able to build national brand loyalty.
SUPERIOR CUSTOMER SERVICE
We are committed to ensuring that our employees deliver a recognizable,
differentiated customer experience based on level of play. Our goal is to
increase the number of target customers who visit our casinos and to capture
a greater share of their gaming budget. The key to this strategy is having
highly capable, motivated employees that engender customer loyalty in local
markets, and then capturing the revenues generated by these loyal customers
when they travel to other markets. We are just beginning to implement this
stage of our strategy.
RECENT TRANSACTIONS
Consistent with our goal of establishing a national brand, we intend to be a
key player in the consolidation of the gaming industry. We believe that we have
a strong platform upon which to build value through acquisitions, first through
the creation of synergies inherent in our technology and centralized services,
and second through the expansion of our nationwide distribution system.
THE SHOWBOAT ACQUISITION
On June 1, 1998, we completed our acquisition of Showboat, Inc.
("Showboat"). We paid approximately $518 million in cash and assumed
approximately $635 million in Showboat debt. Our acquisition of Showboat
gives us a stronger presence in the two key growth and feeder markets of
Atlantic City and Chicago. In Atlantic City, Showboat provides us with a
very strong additional brand in a strategic Boardwalk location that
complements Harrah's existing location in the Marina district. In the
Chicago market, the combination of Showboat's riverboat casino complex
southeast of Chicago in neighboring Indiana and Harrah's in Joliet,
Illinois, southwest of Chicago, makes it possible for us to seek the loyalty
of a broader share of visitors from the Chicago area. The acquisition also
gives us a
S-7
<PAGE>
presence in Sydney, Australia through Showboat's management and partial
ownership of the Star City casino. Showboat also owns a property in Las
Vegas that is a non-strategic asset for us.
THE RIO MERGER
On August 10, 1998, we agreed to merge with Rio Hotel & Casino, Inc.
("Rio"). Rio is an all-suite hotel-casino with over 2,500 suites and 116,000
square feet of gaming space featuring approximately 2,400 slot machines and
100 table games, in addition to an 18-hole, championship golf course. In
addition, Rio has approximately 35 acres of land adjacent to its existing
property available for further development. We anticipate that Harrah's
merger with Rio will add more than one million customers to our existing 15
million-customer database. We also believe that the combination of Rio's
customers, more than 50% of whom are from the Las Vegas and Los Angeles
markets, with Harrah's customers, who are predominantly from outside these
markets, will provide significant opportunities to strategically expand
cross-market play through our database management and marketing strength.
The addition of Rio to the family of Harrah's properties provides our
customers who frequent Las Vegas a choice between two distinct, high-quality
experiences, a Las Vegas Strip destination and a high quality resort
experience.
In connection with our merger with Rio, we will issue approximately 25
million shares of our common stock and expect to assume approximately $370.3
million in Rio debt. The stockholders of each of Harrah's and Rio approved
the merger at stockholder meetings held on November 18, 1998. The Nevada
gaming regulatory authorities approved the merger on November 19, 1998. We
expect to complete the transaction by the end of 1998.
------------------------
The principal executive offices of Harrah's are located at 1023 Cherry Road,
Memphis, Tennessee 38117, telephone (901) 762-8600.
S-8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total Amount of Notes Offered...... $750,000,000 in principal amount of 7 7/8% Senior Subordinated
Notes due 2005.
Maturity........................... December 15, 2005.
Issue Price........................ 100% of par plus accrued interest from the issue date of the
notes.
Interest........................... 7 7/8% per year.
Interest Payment Dates............. June 15 and December 15, beginning on June 15, 1999. Interest
will accrue from the issue date of the notes.
Guarantee.......................... Harrah's Entertainment will unconditionally guarantee the notes.
However, Harrah's Entertainment's obligations under the
guarantee are subordinate to all of its present and future
senior indebtedness, including its guarantee of our credit
facility. Since its sole material asset is its equity interest
in Harrah's Operating, Harrah's Entertainment is dependent on
the receipt of dividends or other payments from Harrah's
Operating to make payments on the guarantee of the notes.
Ranking............................ The notes are unsecured senior subordinated obligations of
Harrah's Operating. At September 30, 1998, giving effect to our
merger with Rio and the issuance of the notes, the notes would
have been subordinated to $1,607.1 million of senior
indebtedness of Harrah's Operating and debt obligations of our
subsidiaries, including $1,061.6 million under our credit
facility.
Optional Redemption................ We may redeem some or all of the notes at any time at the
redemption price described in the "Description of Notes"
section under the heading "Optional Redemption," plus accrued
interest to the date of redemption.
Covenants.......................... The indenture governing the notes will contain covenants that
limit our ability and our subsidiaries' ability to:
- enter into certain sale and lease-back transactions;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer or sell substantially all of our assets.
For more details, see the "Description of Notes" section under
the heading "Additional Covenants of Harrah's Operating" in
this prospectus supplement and the "Merger, Consolidation or
Sale of Assets" section under the heading "Description of the
Debt Securities" in the accompanying prospectus.
Limitation on Incurrence of New
Debt............................. The indenture does not limit the amount of indebtedness that we
may issue or provide holders any protection should we be
involved in a highly leveraged transaction.
Use of Proceeds.................... We will use the proceeds of the notes to reduce outstanding
indebtedness under our credit facility.
</TABLE>
S-9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial data below is derived from our
audited consolidated financial statements, except for the financial data for the
nine months ended September 30, which is derived from our unaudited consolidated
financial statements. The selected unaudited pro forma financial data below
under the heading "Pro Forma" gives effect to our acquisition of Showboat and
merger with Rio and is derived from our unaudited pro forma condensed financial
statements included herein. The balance sheet data below under the heading "Pro
Forma as Adjusted" gives effect to both our merger with Rio and the offering of
the notes. See "Capitalization." You should read the financial data presented
below in conjunction with the respective consolidated financial statements and
accompanying notes of Harrah's Entertainment, Rio and Showboat, as well as the
respective management's discussion and analysis of results of operations and
financial condition of Harrah's Entertainment and Rio, all of which are
incorporated by reference into the accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
(UNAUDITED) --------------------------------------------
----------------------------------- PRO FORMA
PRO FORMA (UNAUDITED)
1998(1) 1998(1)(2) 1997(3) 1997(3) 1997(3) 1996(4) 1995(5)
----------- ----------- --------- ----------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $ 1,940.6 $ 1,479.3 $ 1,221.2 $ 2,389.2 $ 1,619.2 $ 1,586.0 $ 1,578.8
Income from operations................. 309.0 239.1 174.2 298.3 213.5 236.9 209.4
Income before income taxes and minority
interests............................ 196.1 176.7 162.1 190.0 183.6 172.1 151.6
Income from continuing operations...... 109.4 106.1 95.4 99.3 107.5 98.9 78.8
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(6).............................. $ 472.7 $ 364.9 $ 301.7 $ 532.7 $ 374.7 $ 335.3 $ 305.1
Adjusted EBITDA(6)..................... 472.1 364.3 293.1 546.7 377.6 408.0 387.1
Cash flows from operating
activities........................... 296.3 245.3 219.0 355.2 255.1 285.7 213.7
Interest expense....................... 130.4 81.4 57.9 161.6 79.1 70.0 73.9
Ratio of earnings to fixed
charges(7)........................... 2.3x 2.8x 3.1x 1.7x 2.8x 2.8x 1.3x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------
PRO FORMA AT DECEMBER 31,
AS ADJUSTED PRO FORMA -------------------------------
1998 1998 1998 1997 1996 1995
----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
BALANCE SHEET DATA:
Total assets............................................ $ 4,278.5 $ 4,267.0 $ 3,191.9 $ 2,005.5 $ 1,974.1 $ 1,636.7
Current portion of long-term debt....................... 52.4 52.4 49.8 1.8 1.8 2.0
Long-term debt.......................................... 2,304.7 2,290.6 1,914.0 924.4 889.5 753.7
Stockholders' equity.................................... 1,351.1 1,352.8 827.4 735.5 719.7 585.5
</TABLE>
- ------------------------
(1) 1998 includes a $13.2 million gain from the sale of our equity investment in
a restaurant subsidiary.
(2) Includes financial results of Showboat only from June 1, 1998, the date of
its acquisition.
(3) 1997 includes $13.8 million in pre-tax charges for write-downs and reserves
relating to debtor-in-possession financing provided to Harrah's Jazz Company
and a $37.4 million gain on the sale of equity in our New Zealand
subsidiary.
S-10
<PAGE>
(4) 1996 includes $52.2 million in pre-tax charges for write-downs of the value
of certain riverboat casino facilities and reserves relating to liability
arising from our guarantee of third party debt.
(5) 1995 includes $93.3 million in pre-tax charges for write-downs primarily
relating to our New Orleans casino development project.
(6) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs and
reserves, project opening costs, venture restructuring costs, gains on sales
of subsidiary equity interests and provision for settlement of litigation
and related costs. EBITDA and Adjusted EBITDA are supplemental financial
measurements used by management, as well as by industry analysts, to
evaluate Harrah's operations. However, EBITDA and Adjusted EBITDA should not
be construed as an alternative to Income from operations (as an indicator of
Harrah's operating performance) or to Cash flows from operating activities
(as a measure of liquidity) as determined in accordance with generally
accepted accounting principles and presented in our consolidated financial
statements. All companies do not calculate EBITDA in the same manner. As a
result, EBITDA as presented by Harrah's may not be comparable to similarly
titled measures presented by other companies.
(7) For purposes of computing this ratio, "earnings" consist of income before
income taxes plus fixed charges (excluding capitalized interest) and
minority interests (relating to subsidiaries whose fixed charges are
included in the computation), excluding equity in undistributed earnings of
less than 50% owned investments. "Fixed charges" include interest whether
expensed or capitalized, amortization of debt expense, discount or premium
related to indebtedness and such portion of rental expense that we deem to
be representative of interest. As required by the rules which govern the
computation of this ratio, both earnings and fixed charges are adjusted
where appropriate to include the financial results for the Company's
nonconsolidated majority-owned subsidiaries. Accordingly, the 1995 period
has been adjusted to include the financial results and fixed charges for
Harrah's Jazz Company. For the nine months ended September 30, 1998 and for
the pro forma 1997 and 1998 periods, the computation of the ratio has been
adjusted to include the financial results and fixed charges of Showboat
Marina Casino Partnership. On a pro forma basis giving effect to the
offering of the notes and the application of the proceeds as contemplated in
"Use of Proceeds" (and excluding the effect of our acquisition of Showboat
and our merger with Rio), the ratio of earnings to fixed charges for the
year ended December 31, 1997 and the nine months ended September 30, 1998
would have been 2.3x and 2.6x, respectively.
FORWARD-LOOKING STATEMENTS
This prospectus supplement includes forward-looking statements, including,
in particular, the statements about our plans, strategies and properties under
the heading "Summary." Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we can give no assurance that such plans, intentions or expectations
will be achieved. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including those discussed elsewhere in
the documents which are incorporated by reference into this prospectus
supplement and the accompanying prospectus and the following, any of which could
affect our future results and could cause results to differ materially from
those expressed in such forward-looking statements:
- the effect of economic, credit and capital market conditions;
- our construction and development activities;
- the ability of Harrah's and Rio to successfully integrate their
operations;
- the impact of competition;
- changes in laws or regulations, third party relations and approvals,
decisions of courts, regulators and governmental bodies; and
- changes in customer demand.
S-11
<PAGE>
RISK FACTORS
YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS BEFORE INVESTING IN THE
NOTES. AMONG THE FACTORS THAT MAY ADVERSELY AFFECT AN INVESTMENT IN THE NOTES
ARE THE FOLLOWING:
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We currently have a significant amount of indebtedness, including $1,797.5
million under our credit facility. At September 30, 1998, after giving effect to
our merger with Rio and this offering, our total consolidated indebtedness would
have been approximately $2,357.1 million. See "Capitalization."
The notes will not restrict our ability to borrow substantial additional
indebtedness in the future that may be senior to the notes and the guarantee.
For example, our credit facility would permit additional borrowing of senior
indebtedness of up to $223.9 million after completion of this offering, plus an
additional amount sufficient to refinance the outstanding long-term indebtedness
related to the East Chicago Showboat Casino. If new indebtedness is added to our
current debt levels, the related risks that we now face could increase.
Our indebtedness could have important consequences for the holders of the
notes, including:
- limiting our ability to satisfy our obligations with respect to the notes;
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing to fund future working
capital, capital expenditures and other general corporate requirements;
- requiring a substantial portion of our cash flow from operations for the
payment of principal of, and interest on, our indebtedness and reducing
our ability to use our cash flow to fund working capital, capital
expenditures and general corporate requirements;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- disadvantaging us compared to competitors with less indebtedness.
SERVICING OUR INDEBTEDNESS WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including these notes, and
to fund planned capital expenditures will depend on our ability to generate cash
in the future. Harrah's Entertainment is a holding company and Harrah's
Operating conducts substantially all of its operations through its subsidiaries.
As a result, our ability to meet our debt service obligations substantially
depends upon our subsidiaries' cash flow and payments of funds to us by our
subsidiaries. This ability, to some extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
Based on our current level of operations and recent or pending acquisitions,
we believe our cash flow from operations, available cash and available
borrowings under our credit facility will be adequate to meet our future
liquidity needs for the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our credit facility in an amount sufficient to enable us to pay our
indebtedness, including these notes, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness, including these
notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our credit facility and these
notes, on commercially reasonable terms or at all.
S-12
<PAGE>
THE NOTES ARE JUNIOR TO ALL OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS. ALSO,
THE GUARANTEE OF THESE NOTES IS JUNIOR TO ALL OF HARRAH'S ENTERTAINMENT'S
EXISTING AND FUTURE SENIOR INDEBTEDNESS.
These notes rank behind all of Harrah's Operating's existing and future
senior indebtedness, including indebtedness under our credit facility. Likewise,
Harrah's Entertainment's guarantee of the notes ranks behind all of its existing
and future senior indebtedness. As a result, upon any distribution to either
company's creditors in a bankruptcy, liquidation or reorganization or similar
proceeding, the holders of senior indebtedness of both companies and their
subsidiaries will be entitled to be paid in full in cash before any payment may
be made to holders of these notes or with respect to the guarantee. The notes
also will effectively rank junior to all liabilities of our subsidiaries. In the
event of a bankruptcy, liquidation or dissolution of a subsidiary and following
payments of its liabilities, the subsidiary may not have sufficient assets
remaining to make any payments to us as a shareholder or otherwise so that we
can meet our obligations under the notes.
In addition, all payments on the notes and the guarantee will be blocked in
the event of a payment default on senior indebtedness and may be blocked for up
to 179 of 360 consecutive days in the event of certain nonpayment defaults on
senior indebtedness.
At September 30, 1998, after giving effect to our merger with Rio and this
offering, these notes would have been subordinated to $1,607.1 million of senior
indebtedness of Harrah's Operating and debt obligations of its subsidiaries, and
approximately $223.9 million would have been available for borrowing as
additional senior indebtedness under our credit facility (excluding an
additional amount that would be available to refinance the outstanding long-term
indebtedness related to the East Chicago Showboat Casino). The indenture does
not limit our ability to borrow substantial additional indebtedness, including
senior indebtedness, in the future.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.
Prior to this offering, there was no public market for these notes. We have
been informed by the underwriters that they intend to make a market in these
notes after this offering is completed. However, the underwriters may cease
their market-making at any time. In addition, the liquidity of the trading
market in these notes, and the market price quoted for these notes, may be
adversely affected by changes in the overall 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 these notes.
S-13
<PAGE>
USE OF PROCEEDS
We anticipate our net proceeds from the sale of the notes will be $735.9
million after deducting underwriting discounts and commissions and estimated
offering expenses of $14.1 million. We intend to use the net proceeds to reduce
outstanding indebtedness under our credit facility. We may, to the extent
permitted by the terms of our credit facility, subsequently reborrow a portion
of such funds to refinance other long-term indebtedness.
Our current credit facility consists of a $1.90 billion five-year unsecured
line of credit and a $150 million 364-day unsecured line of credit with
maturities of July 31, 2000 and May 11, 1999, respectively. As of September 30,
1998, the amount outstanding under our credit facility was $1,797.5 million, and
the weighted average interest rate under the credit facility was 6.43% per
annum. See "Recent Developments--Modification of Credit Facility."
Since January 1, 1998, we have made borrowings under our credit facility
(other than short-term borrowings for working capital) of (i) $204.0 million to
redeem Harrah's Operating's 8 3/4% Senior Subordinated Notes due 2000, (ii)
approximately $500.0 million to pay a portion of the consideration paid to
Showboat's stockholders in our acquisition of Showboat, and (iii) $388.7 million
to complete our tender offer and consent solicitation for Showboat's 9 1/4%
First Mortgage Bonds due 2008 and 13% Senior Subordinated Notes due 2009.
S-14
<PAGE>
RECENT DEVELOPMENTS
EAST CHICAGO
A subsidiary of Showboat, Showboat Indiana Investment, Inc., holds a 55%
partnership interest in both Showboat Marina Partnership ("SMP") and Showboat
Marina Investment Partnership ("SMIP"). Waterfront Entertainment and
Development, Inc. ("Waterfront") is the minority partner, holding 45% of both
SMP and SMIP. SMP and SMIP hold 99% and 1%, respectively, of the partnership
interests in Showboat Marina Casino Partnership, the owner of the East Chicago
Showboat Casino.
We currently are negotiating an agreement with the shareholders of
Waterfront to increase our ownership in SMP and SMIP to 91% of the equity in
both companies. We also would amend the partnership agreements relating to SMP,
SMIP and Showboat Marina Casino Partnership to give us greater flexibility in
operating the East Chicago Showboat Casino and give continuing shareholders of
Waterfront the right to require us to buy their shares of Waterfront stock in
the future.
We presently account for the operating results of SMP and SMIP on an equity
method basis. If we acquire additional equity in such entities and amend the
partnership agreements as described above, we will consolidate the financial
results of SMP and SMIP with the financial results of our other businesses.
NEW ORLEANS CASINO
On October 30, 1998, Harrah's Jazz Company ("Jazz"), a partnership in which
one of our former subsidiaries was a partner, consummated a plan of
reorganization. Jazz originally was formed to develop, own and operate the only
land-based casino entertainment facility in New Orleans, Louisiana. Jazz filed
for bankruptcy protection on November 22, 1995 before completing construction of
a permanent casino facility. As a result of consummating its reorganization,
Jazz ended its bankruptcy, all litigation relating to the bankruptcy filing has
been or is in the process of being dismissed and a newly formed limited
liability company, Jazz Casino Company, L.L.C. ("JCC"), is recommencing
construction of the casino.
A subsidiary of Harrah's Operating owns approximately 43% of the equity of
JCC's publicly-held parent company (which may be reduced to approximately 40%
due to certain option exercises), and a subsidiary of Harrah's Operating will
manage the casino under a management agreement. Harrah's Operating has
guaranteed (i) JCC's initial $100 million annual tax payment to the State of
Louisiana (and, subject to certain conditions, agreed to provide the guarantee
for four additional years), (ii) $166.5 million of JCC bank debt, and (iii)
completion and opening of the casino on or before October 30, 1999 (subject to
force majeure). Harrah's Operating also is obligated to make a $22.5 million
subordinated loan to JCC as a part of the financing of construction of the
casino. Harrah's Operating and its subsidiaries will receive certain fees in
connection with the management of the casino and for providing the bank and
State guarantees, subject to deferral in certain circumstances. The casino is
currently expected to open by late October 1999.
MODIFICATION OF CREDIT FACILITY
In connection with obtaining the consent of the lenders under our credit
facility to our merger with Rio, we have agreed to modify certain terms of the
credit facility relating to mandatory principal reductions and the interest
rates charged under such facility. Currently, our borrowings under the credit
facility bear interest at either a base rate or a Eurodollar rate, each adjusted
for an applicable margin (which is further defined in the related credit
agreement). The base rate is equal to the higher of the following: (i) a
certificate of deposit rate plus 0.50%, (ii) the prime interest rate or (iii)
the overnight federal funds rate plus 0.50%.
The applicable margins on our $1.90 billion five-year unsecured line of
credit (the "$1.90 Billion Line") and our $150 million 364-day unsecured line of
credit (the "$150 Million Line") are based on a
S-15
<PAGE>
maximum of 1.25% and 0.875%, respectively, minus predetermined percentage
discounts based on our interest coverage ratios or credit ratings received from
specified rating agencies (the "Reduction Discounts"). As of September 30, 1998,
the Reduction Discounts applicable to the $1.90 Billion Line and $150 Million
Line were 0.50% and 0.25%, respectively. The $1.90 Billion Line requires that we
pay an annual fee of up to 0.25% on the unused portion of the line of credit,
and the $150 Million Line requires that we pay an annual fee of up to 0.15% on
the full commitment. Both of these fees are further adjusted by the appropriate
Reduction Discount. After adjusting these fees for the applicable Reduction
Discount, as of September 30, 1998, the annual fee on the $1.90 Billion Line was
0.20% and 0.11% on the $150 Million Line.
As amended, our credit facility will (i) provide for us to refinance at
least $250 million of amounts available under the credit facility by each of
December 31, 1998, March 31, 1999 and June 30, 1999 (a total of $750 million)
from the proceeds of an equity offering of Harrah's Entertainment or an offering
of senior unsecured or subordinated debt of Harrah's Operating; (ii) permanently
increase the interest rate margin applicable to all amounts outstanding under
the credit facility by 0.50% for each $250 million not refinanced by such dates
(a total increase of 1.50%); and (iii) require Harrah's Operating to
collateralize amounts borrowed under the credit facility with substantially all
of its assets and those of its subsidiaries in the event that we have not
refinanced at least $500 million by June 30, 1999 AND senior unsecured
indebtedness of Harrah's Operating is at the time rated less than investment
grade by both Standard & Poors and Moody's. Under the amended credit facility,
we will not be subject to certain previously scheduled permanent reductions in
our borrowing availability and we will be able to reborrow a portion of the
proceeds of this offering to refinance the outstanding long-term indebtedness
related to the East Chicago Showboat Casino.
S-16
<PAGE>
CAPITALIZATION
The following table sets forth our debt and equity capitalization as of
September 30, 1998 (i) on a historical basis, (ii) after giving pro forma effect
to our merger with Rio, and (iii) as further adjusted to give effect to this
offering of notes and the application of our estimated net proceeds as described
under "Use of Proceeds." You should read this table in conjunction with our
selected financial data presented elsewhere in this prospectus supplement along
with the consolidated financial statements and related notes of Harrah's
Entertainment, Rio and Showboat incorporated by reference into the accompanying
prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
CURRENT PORTION OF LONG-TERM DEBT:
Total current portion of long-term debt................................... $ 49.8 $ 52.4 $ 52.4
--------- ----------- -----------
--------- ----------- -----------
LONG-TERM DEBT:
Revolving Credit Facilities
Harrah's Operating...................................................... $ 1,797.5 $ 1,797.5 $ 1,061.6
Rio..................................................................... 136.5 136.5
Unsecured Notes Payable................................................... 3.9 15.6 15.6
Capitalized Lease Obligations............................................. 2.2 2.2 2.2
9 1/4% First Mortgage Bonds due 2008...................................... 58.3 58.3 58.3
13% Senior Subordinated Notes due 2009.................................... 2.4 2.4 2.4
Atlantic City Mortgage Debt............................................... 99.5 99.5 99.5
10 5/8% Senior Subordinated Notes due 2005................................ 105.5 105.5
9 1/2% Senior Subordinated Notes due 2007................................. 125.5 125.5
Notes offered hereby...................................................... 750.0
Less current portion of long-term debt.................................. (49.8) (52.4) (52.4)
--------- ----------- -----------
Total long-term debt, net of current portion............................ 1,914.0 2,290.6 2,304.7
STOCKHOLDERS' EQUITY:
Total stockholders' equity................................................ 827.4 1,352.8 1,351.1
--------- ----------- -----------
Total capitalization.................................................... $ 2,741.4 $ 3,643.4 $ 3,655.8
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
S-17
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data below is derived from our audited
consolidated financial statements, except for the financial data for the nine
months ended September 30, which is derived from our unaudited consolidated
financial statements. You should read the financial data presented below in
conjunction with the consolidated financial statements, accompanying notes and
management's discussion and analysis of results of operations and financial
condition of Harrah's Entertainment, which are incorporated by reference into
the accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1998(1) 1997(2) 1997(2) 1996(3) 1995(4) 1994(5)
--------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............................................. $ 1,479.3 $ 1,221.2 $ 1,619.2 $ 1,586.0 $ 1,578.8 $ 1,349.9
Income from operations................................ 239.1 174.2 213.5 236.9 209.4 267.2
Income before income taxes and minority interests..... 176.7 162.1 183.6 172.1 151.6 139.3
Income from continuing operations..................... 106.1 95.4 107.5 98.9 78.8 50.0
Net income(6)......................................... 87.8 87.2 99.4 98.9 78.8 78.4
Net income per share--diluted(6)...................... 0.87 0.86 0.98 0.95 0.76 0.76
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)............................................. $ 364.9 $ 301.7 $ 374.7 $ 335.3 $ 305.1 $ 285.4
Adjusted EBITDA(7).................................... 364.3 293.1 377.6 408.0 387.1 354.1
Cash flows from operating activities.................. 245.3 219.0 255.1 285.7 213.7 227.3
Interest expense...................................... 81.4 57.9 79.1 70.0 73.9 76.4
Ratio of earnings to fixed charges(8)................. 2.8x 3.1x 2.8x 2.8x 1.3x 2.0x
<CAPTION>
1993
---------
<S> <C>
INCOME STATEMENT DATA:
Revenues.............................................. $ 1,020.6
Income from operations................................ 210.0
Income before income taxes and minority interests..... 139.0
Income from continuing operations..................... 74.9
Net income(6)......................................... 86.3
Net income per share--diluted(6)...................... 0.84
OTHER FINANCIAL AND OPERATING DATA:
EBITDA(7)............................................. $ 274.1
Adjusted EBITDA(7).................................... 274.5
Cash flows from operating activities.................. 198.2
Interest expense...................................... 73.1
Ratio of earnings to fixed charges(8)................. 2.6x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets(6)......................................... $ 3,191.9 $ 2,005.5 $ 1,974.1 $ 1,636.7 $ 1,738.0 $ 1,528.0
Current portion of long-term debt....................... 49.8 1.8 1.8 2.0 1.0 1.0
Long-term debt.......................................... 1,914.0 924.4 889.5 753.7 727.5 665.2
Stockholders' equity(6)................................. 827.4 735.5 719.7 585.5 623.4 536.0
</TABLE>
- ------------------------
(1) 1998 includes a $13.2 million gain from the sale of our equity investment in
a restaurant subsidiary. Includes financial results of Showboat only from
June 1, 1998, the date of its acquisition.
(2) 1997 includes $13.8 million in pre-tax charges for write-downs and reserves
relating to debtor-in-possession financing provided to Harrah's Jazz Company
and a $37.4 million gain on the sale of equity in our New Zealand
subsidiary.
(3) 1996 includes $52.2 million in pre-tax charges for write-downs of the value
of certain riverboat casino facilities and reserves relating to liability
arising from our guarantee of third party debt.
(4) 1995 includes $93.3 million in pre-tax charges for write-downs primarily
relating to our New Orleans casino development project.
(5) 1994 includes a $53.4 million provision for settlement of all claims and
related costs related to the Merger Agreement and Tax Sharing Agreement
arising from the 1990 spin-off of Harrah's Entertainment and acquisition of
the Holiday Inn business by Bass PLC.
S-18
<PAGE>
(6) Amounts for periods prior to the June 30, 1995 dividend of Promus Hotel
Corporation common stock to our stockholders reflect the impact of the
financial position and results of operations for the discontinued hotel
business in those periods.
(7) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs and
reserves, project opening costs, venture restructuring costs, gains on sales
of subsidiary equity interests and provision for settlement of litigation
and related costs. EBITDA and Adjusted EBITDA are supplemental financial
measurements used by management, as well as by industry analysts, to
evaluate Harrah's operations. However, EBITDA and Adjusted EBITDA should not
be construed as an alternative to Income from operations (as an indicator of
Harrah's operating performance) or to Cash flows from operating activities
(as a measure of liquidity) as determined in accordance with generally
accepted accounting principles and presented in our consolidated financial
statements. All companies do not calculate EBITDA in the same manner. As a
result, EBITDA as presented by Harrah's may not be comparable to similarly
titled measures presented by other companies.
(8) For purposes of computing this ratio, "earnings" consist of income before
income taxes plus fixed charges (excluding capitalized interest) and
minority interests (relating to subsidiaries whose fixed charges are
included in the computation), excluding equity in undistributed earnings of
less than 50% owned investments. "Fixed charges" include interest whether
expensed or capitalized, amortization of debt expense, discount or premium
related to indebtedness and such portion of rental expense that we deem to
be representative of interest. As required by the rules which govern the
computation of this ratio, both earnings and fixed charges are adjusted
where appropriate to include the financial results for the Company's
nonconsolidated majority-owned subsidiaries. Accordingly, the 1994 and 1995
periods have been adjusted to include the financial results and fixed
charges for Harrah's Jazz Company. For the nine months ended September 30,
1998, the computation of the ratio has been adjusted to include the
financial results and fixed charges of Showboat Marina Casino Partnership.
On a pro forma basis giving effect to the offering of the notes and the
application of the proceeds as contemplated in "Use of Proceeds," the ratio
of earnings to fixed charges for the year ended December 31, 1997 and the
nine months ended September 30, 1998 would have been 2.3x and 2.6x,
respectively.
S-19
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are based
upon and should be read in conjunction with the historical consolidated
financial statements of Harrah's Entertainment, Rio and Showboat which are
incorporated by reference into the accompanying prospectus.
The unaudited pro forma condensed statements of income for the nine months
ended September 30, 1998 and the year ended December 31, 1997 give effect to (i)
our acquisition of both Showboat and Rio applying the purchase method of
accounting; (ii) our refinancing of certain amounts of Showboat's existing
indebtedness (on June 15, 1998, we completed tender offers and consent
solicitations and retired a portion of the debt assumed in our acquisition of
Showboat); (iii) certain adjustments that are directly attributable to our
acquisition of Showboat and Rio and anticipated to have continuing impact,
including certain estimated operational benefits arising from the elimination of
duplicative corporate office and operational support functions; (iv)
de-consolidation of the Showboat East Chicago property, in which we hold a 55%
non-controlling interest; and (v) the presentation of the Showboat Las Vegas
property as an asset held for sale. The pro forma condensed statements of income
reflecting our acquisition of Showboat and Rio assume that both transactions
were consummated on the first day of each of the periods presented.
The unaudited pro forma condensed balance sheet presents the combined
financial position of Harrah's Entertainment (including Showboat) and Rio as of
September 30, 1998. The unaudited pro forma condensed balance sheet gives effect
to (i) our merger with Rio applying the purchase method of accounting as if the
merger was consummated on September 30, 1998; and (ii) certain adjustments that
are directly attributable to our merger with Rio.
The unaudited pro forma condensed financial statements have been prepared
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 such data purport to represent the combined
financial results of Harrah's Entertainment, Showboat and Rio for future
periods.
S-20
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HARRAH'S
AS RIO PRO FORMA
HARRAH'S SHOWBOAT PRO FORMA ADJUSTED HISTORICAL ADJUSTMENTS FOR HARRAH'S AS
HISTORICAL HISTORICAL ADJUSTMENTS FOR (NOTE RIO ADJUSTED
(NOTE 1) (NOTE 2) (NOTE 3) SHOWBOAT 4) (NOTE 5) FOR RIO
----------- -------- ------------ --------- ------- --------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Casino........................... $ 1,220.3 $ 237.6 $ (92.7) (a) $1,365.2 $149.0 $ $1,514.2
Food and beverage................ 171.8 25.9 (10.4) (a) 187.3 99.6 286.9
Rooms............................ 114.5 9.7 (2.5) (a) 121.7 59.9 181.6
Management fees.................. 48.6 4.4 (0.5) (a) 52.5 - 52.5
Other............................ 60.7 4.1 (1.8) (a) 63.0 21.8 84.8
Less: casino promotional
allowances..................... (136.6) (17.4) 3.0 (a) (151.0) (28.4) (179.4)
----------- -------- ------------ --------- ------- ------ ------------
Total revenues............... 1,479.3 264.3 (104.9) 1,638.7 301.9 1,940.6
----------- -------- ------------ --------- ------- ------ ------------
Operating expenses
Direct
Casino......................... 651.2 100.6 (42.4) (a) 709.4 83.8 793.2
Food and beverage.............. 86.8 27.6 (11.7) (a) 102.7 71.5 174.2
Rooms.......................... 31.7 6.1 (1.6) (a) 36.2 18.9 55.1
Depreciation--buildings,
riverboats and equipment....... 94.9 19.0 (7.7) (a) 106.2 20.7 (1.0) (h) 125.9
Equity in (income) losses of
nonconsolidated subsidiaries... 8.7 1.2 2.9 (a) 12.8 - 12.8
Project opening costs............ 7.2 - - 7.2 - 7.2
Other............................ 359.7 108.1 (38.8) (a) 409.2 56.5 2.8 (i) 463.2
6.2 (b) (5.3) (j)
(26.0) (c)
----------- -------- ------------ --------- ------- ------ ------------
Total operating expenses..... 1,240.2 262.6 (119.1) 1,383.7 251.4 (3.5) 1,631.6
----------- -------- ------------ --------- ------- ------ ------------
Income from operations............. 239.1 1.7 14.2 255.0 50.5 3.5 309.0
Interest expense, net of interest
capitalized...................... (81.4) (29.7) 9.1 (a) (111.6) (18.2) (0.6) (k)(l) (130.4)
5.0 (d)
(14.6) (e)
Other income, including interest
income........................... 19.0 1.8 (0.1) (a) 20.7 (3.2) 17.5
----------- -------- ------------ --------- ------- ------ ------------
Income before income taxes and
minority interests............... 176.7 (26.2) 13.6 164.1 29.1 2.9 196.1
Provision for income taxes......... (65.0) 4.0 (7.5) (g) (68.5) (10.6) (2.0) (m) (81.1)
Minority interests................. (5.6) - - (5.6) (5.6)
----------- -------- ------------ --------- ------- ------ ------------
Income from continuing
operations....................... $ 106.1 $ (22.2) $ 6.1 $ 90.0 $ 18.5 $ 0.9 $ 109.4
----------- -------- ------------ --------- ------- ------ ------------
----------- -------- ------------ --------- ------- ------ ------------
Income from continuing operations
per share
Basic.......................... $ 1.06 $ 0.91 $ 0.87(n)
Diluted........................ $ 1.05 $ 0.90 $ 0.86(n)
Average common shares
outstanding...................... 100.2 100.2 125.0(n)
Average common and common
equivalent shares outstanding.... 101.3 101.3 126.7(n)
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
S-21
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HARRAH'S
AS PRO FORMA
HARRAH'S SHOWBOAT PRO FORMA ADJUSTED RIO ADJUSTMENTS FOR HARRAH'S AS
HISTORICAL HISTORICAL ADJUSTMENTS FOR HISTORICAL RIO ADJUSTED
(NOTE 1) (NOTE 2) (NOTE 3) SHOWBOAT (NOTE 4) (NOTE 5) FOR RIO
--------- --------- ------------ --------- --------- --------------- ------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Casino.......................... $1,338.0 $ 497.1 $ (152.8) (a) $1,682.3 $ 214.0 $ $1,896.3
Food and beverage............... 196.8 62.7 (20.9) (a) 238.6 114.8 353.4
Rooms........................... 128.4 25.4 (6.1) (a) 147.7 70.4 218.1
Management fees................. 24.6 5.7 30.3 - 30.3
Other........................... 78.9 10.7 (5.5) (a) 84.1 25.6 109.7
Less: casino promotional
allowances.................... (147.5) (44.8) 6.4 (a) (185.9) (32.7) (218.6)
--------- --------- ------------ --------- --------- ------ ------------
Total revenues.............. 1,619.2 556.8 (178.9) 1,997.1 392.1 2,389.2
--------- --------- ------------ --------- --------- ------ ------------
Operating expenses
Direct
Casino........................ 685.9 252.8 (79.0) (a) 859.7 117.6 977.3
Food and beverage............. 103.6 37.4 (18.4) (a) 122.6 89.0 211.6
Rooms......................... 39.7 6.6 (3.7) (a) 42.6 20.6 63.2
Depreciation--buildings,
riverboats and equipment...... 103.7 40.8 (14.3) (a) 130.2 23.2 (1.3) (h) 152.1
Equity in (income) losses of
nonconsolidated
subsidiaries.................. 11.1 3.5 23.9 (a) 38.5 - 38.5
Project opening costs........... 17.6 9.6 (9.6) (a) 17.6 11.2 28.8
Other........................... 444.1 180.0 (65.2) (a) 552.2 70.4 3.8 (i) 619.4
15.3 (b) (7.0) (j)
(22.0) (c)
--------- --------- ------------ --------- --------- ------ ------------
Total operating expenses.... 1,405.7 530.7 (173.0) 1,763.4 332.0 (4.5) 2,090.9
--------- --------- ------------ --------- --------- ------ ------------
Income from operations............ 213.5 26.1 (5.9) 233.7 60.1 4.5 298.3
Interest expense, net of interest
capitalized..................... (79.1) (49.4) 16.6 (a) (134.5) (26.3) (0.8) (k)(l) (161.6)
10.9 (d)
(33.5) (e)
Other income, including interest
income.......................... 49.2 5.1 (1.0) (a) 53.3 - 53.3
--------- --------- ------------ --------- --------- ------ ------------
Income before income taxes and
minority interests.............. 183.6 (18.2) (12.9) 152.5 33.8 3.7 190.0
Provision for income taxes........ (68.7) 2.3 (1.9) (g) (68.3) (12.4) (2.6) (m) (83.3)
Minority interests................ (7.4) (2.6) 2.6 (a) (7.4) - (7.4)
--------- --------- ------------ --------- --------- ------ ------------
Income from continuing
operations...................... $ 107.5 $ (18.5) $ (12.2) $ 76.8 $ 21.4 $ 1.1 $ 99.3
--------- --------- ------------ --------- --------- ------ ------------
--------- --------- ------------ --------- --------- ------ ------------
Income from continuing operations
per share
Basic......................... $ 1.07 $ 0.76 $ 0.81(n)
Diluted....................... $ 1.06 $ 0.76 $ 0.80(n)
Average common shares
outstanding..................... 100.6 100.6 122.2(n)
Average common and common
equivalent shares outstanding... 101.3 101.3 123.5(n)
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
S-22
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HARRAH'S
HARRAH'S RIO PRO FORMA AS
HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTED
(NOTE 1) (NOTE 4) (NOTE 6) FOR RIO
--------- --------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................. $ 128.7 $ 21.3 $ $ 150.0
Receivables, less allowance for doubtful
accounts................................ 46.7 37.7 84.4
Deferred income tax benefits.............. 16.1 - 16.1
Inventories............................... 15.6 13.8 29.4
Prepayments and other..................... 29.0 8.4 37.4
--------- --------- ------------ ---------
Total current assets.................... 236.1 81.2 317.3
--------- --------- ------------ ---------
Land, buildings, riverboats and equipment... 2,641.6 738.5 186.2 (o) 3,465.1
(101.2) (o)
Less: accumulated depreciation.............. (765.5) (101.2) 101.2 (o) (765.5)
--------- --------- ------------ ---------
1,876.1 637.3 186.2 2,699.6
Excess of purchase price over net assets
acquired in Showboat acquisition.......... 521.8 - 521.8
Goodwill arising from Rio acquisition....... - - 150.0 (p) 150.0
Investments in and advances to
nonconcolidated subsidiaries.............. 284.7 - 284.7
Other assets................................ 273.2 24.7 (4.3) (q) 293.6
--------- --------- ------------ ---------
$3,191.9 $ 743.2 $ 331.9 $4,267.0
--------- --------- ------------ ---------
--------- --------- ------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................... $ 39.2 $ 27.6 $ $ 66.8
Accrued expenses.......................... 203.1 36.0 26.9 (r) 266.0
Current portion of long-term debt......... 49.8 2.6 52.4
--------- --------- ------------ ---------
Total current liabilities............... 292.1 66.2 26.9 385.2
Long-term debt.............................. 1,914.0 367.7 8.9 (s) 2,290.6
Deferred credits and other.................. 99.8 - 99.8
Deferred income taxes....................... 44.1 17.9 62.1 (t) 124.1
--------- --------- ------------ ---------
2,350.0 451.8 97.9 2,899.7
--------- --------- ------------ ---------
Minority interests.......................... 14.5 - 14.5
--------- --------- ------------ ---------
Commitments and contingencies
Stockholders' equity
Common stock.............................. 10.1 0.2 2.3 (u) 12.6
Capital surplus........................... 398.0 182.7 340.2 (u) 920.9
Retained earnings......................... 437.3 108.5 (108.5) (u) 437.3
Accumulated other comprehensive income.... (0.4) - (0.4)
Deferred compensation related to
restricted stock........................ (17.6) - (17.6)
--------- --------- ------------ ---------
827.4 291.4 234.0 1,352.8
--------- --------- ------------ ---------
$3,191.9 $ 743.2 $ 331.9 $4,267.0
--------- --------- ------------ ---------
--------- --------- ------------ ---------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
S-23
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
Note 1--Historical financial information for Harrah's for the nine months
ended September 30, 1998 and the year ended December 31, 1997 has been derived
from the Harrah's historical financial statements. Harrah's financial statements
for the nine month period ended September 30, 1998 include Showboat's operations
after its June 1, 1998 acquisition by Harrah's.
Note 2--The Showboat historical financial information for the year ended
December 31, 1997 has been derived from Showboat's historical financial
information. Showboat's historical financial results reflected in the Unaudited
Pro Forma Condensed Statement of Income for the Nine Months Ended September 30,
1998 include only the five months of Showboat's operations prior to its June 1,
1998 acquisition by Harrah's.
Note 3--Following are brief descriptions of the pro forma adjustments to
reflect Harrah's acquisition of Showboat.
(a) Adjusts the historical statements of income to reflect the operating
results of Showboat East Chicago as being accounted for under the equity method
(rather than consolidated) and to remove the operating results of Showboat Las
Vegas. Harrah's owns a 55% non-controlling interest in the partnership which
owns and operates Showboat East Chicago. The agreements which govern the
management of this partnership stipulate that certain actions require unanimous
approval of all partners, or the consent of the minority partner, before such
action can be taken. These actions include, among others, the approval of the
annual operating budget, approval of the annual capital budget, decisions to buy
or sell assets totaling more than $500,000 in any one calendar year and the
incurrence of more than $500,000 of debt in any one calendar year. Given the
significance of the issues requiring the concurrence of the minority partner,
Harrah's has concluded that it does not have control of the partnership for
accounting purposes and will account for this investment under the equity method
of accounting. Showboat Las Vegas is being carried by Harrah's as an asset held
for sale and, as such, is carried on Harrah's balance sheet at its estimated
realizable value, net of estimated selling expenses and carrying costs through
the expected date of sale. The net impact on income from continuing operations
of the pro forma adjustments related to Showboat East Chicago is zero. The net
impact of the adjustments related to Showboat Las Vegas is to increase income
from continuing operations by $2.1 million for the nine months ended September
30, 1998 and $3.5 million for the year ended December 31, 1997.
(b) Reflects estimated expense for the amortization of the excess of the
purchase price paid over the net book value of the assets acquired. Harrah's is
currently in the process of allocating the purchase price among the tangible and
intangible assets acquired and the liabilities assumed based on fair market
values, as determined by appraisals, discounted cash flows, quoted market prices
and estimates made by management. The purchase price allocation process is
expected to be completed by the end of 1998. For purposes of these pro forma
statements, it is assumed that the excess purchase price will be amortized over
an average 30 year life for all tangible and intangible assets acquired. Upon
completion of the purchase price allocation process, to the extent the purchase
price exceeds the fair value of the net identifiable tangible and intangible
assets acquired, such excess will be allocated to goodwill and amortized over 40
years.
(c) Reflects adjustments for transaction costs expensed by Showboat in
pre-transaction periods and estimated administrative costs savings to be
realized as a result of merger efficiencies.
(d) Reflects reduction in interest expense for the impact of Harrah's
retirement of $218.6 million face amount of Showboat's 9 1/4% First Mortgage
Bonds due 2008 and $117.9 million face amount of Showboat's 13% Senior
Subordinated Notes due 2009 using funds drawn under Harrah's credit facility.
See Note (f).
S-24
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(e) Reflects additional interest expense, including amortization of related
deferred finance charges, arising from the incremental borrowings incurred by
Harrah's to fund the purchase of Showboat's outstanding common stock. See Note
(f).
(f) The funds required to fund the retirement of a portion of Showboat's
outstanding debt (see Note (d)) and the purchase of Showboat's outstanding
common stock (see Note (e)) were borrowed under Harrah's credit facility, and
the pro forma effects of such borrowing on interest expense have been computed
at a historical average floating rate of 6.26% for the nine months ended
September 30, 1998, and 6.29% for the year ended December 31, 1997. Each 1/8 of
a percent change in the floating rate on these borrowings would result in a
change in interest expense of $0.8 million for the nine months ended September
30, 1998, and $1.1 million for the year ended December 31, 1997.
(g) Records the estimated tax effect of the pro forma adjustments, with the
exception of the amortization of the unallocated purchase price, which is
assumed to be nondeductible for tax purposes.
Note 4--The Rio historical financial information for the nine months ended
September 30, 1998 and the year ended December 31, 1997 has been derived from
Rio's historical financial information.
Note 5--The following table sets forth the determination and preliminary
allocation of the purchase price based on a market value of $19.83 per share of
Harrah's common stock, which is the average of the quoted market price of
Harrah's common stock for the period beginning three trading days before and
ending three trading days after our merger with Rio was announced.
<TABLE>
<CAPTION>
(IN
MILLIONS)
------------
<S> <C>
Merger exchange of shares (24.8 million shares of Rio common stock converted to
Harrah's common stock on a one for one exchange basis, and fair market value
assigned to outstanding Rio stock options to be converted to Harrah's
options)...................................................................... $ 525.4
Estimated fair market value of Rio debt assumed by Harrah's..................... 379.2
Transaction costs and expenses.................................................. 26.9
------------
Pro forma purchase price........................................................ $ 931.5
------------
------------
</TABLE>
The preliminary allocation of the pro forma purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
Land............................................................................ $ 185.7
Buildings, and furniture, fixtures and equipment................................ 637.8
Goodwill........................................................................ 150.0
Other, net...................................................................... (42.0)
------------
$ 931.5
------------
------------
</TABLE>
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 by June 30, 1999.
Following are brief descriptions of the pro forma adjustments to the
statements of income to reflect our merger with Rio.
S-25
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(h) Adjusts depreciation expense due to the revaluation of acquired
buildings and equipment resulting from the allocation of the purchase price of
Rio. Depreciation expense is reduced $1.0 million for the nine months ended
September 30, 1998 and $1.3 million for the year ended December 31, 1997.
(i) Reflects an increase in expense due to amortization of goodwill arising
from Harrah's purchase of Rio. Amortization expense is increased $2.8 million
for the nine months ended September 30, 1998 and $3.8 million for the year ended
December 31, 1997. Goodwill is assumed to be amortized over a life of 40 years.
(j) Records the impact on expenses of certain estimated operational
efficiencies for functions which are expected to be eliminated or reduced as a
result of our merger with Rio. The elimination of duplicative corporate office
and operational support functions is estimated to reduce other costs and
expenses and corporate expense by $5.3 million for the nine months ended
September 30, 1998 and to reduce other costs and expenses and corporate expense
by $7.0 million for the year ended December 31, 1997.
(k) Reflects net increase in interest expense comprised of incremental
borrowings incurred by Harrah's to fund transaction costs, which is partially
offset by the amortization of the estimated premium to be recognized to adjust
Rio's outstanding debt to its fair value as of the date of acquisition. The pro
forma interest expense arising from the additional borrowings has been computed
using Harrah's historical average floating rate on its credit facility of 6.26%
for the nine months ended September 30, 1998, and 6.29% for the year ended
December 31, 1997. Each 1/8 percent change in the floating rate on these
borrowings would result in a change in interest expense of $25,000 for the nine
months ended September 30, 1998, and $34,000 for the year ended December 31,
1997.
(l) In connection with obtaining the consent of the lenders under our credit
facility to our merger with Rio, we have agreed to modify certain terms of the
credit facility relating to mandatory principal reductions and the interest
rates charged under such facility. As amended, the credit facility will (i)
provide for Harrah's to refinance at least $250 million of the amounts available
under the credit facility by each of December 31, 1998, March 31, 1999 and June
30, 1999 (a total of $750 million); (ii) permanently increase the interest rate
margin applicable to all amounts outstanding under the credit facility by 0.50%
for each $250 million not refinanced by such dates (a total increase of 1.50%);
and (iii) require Harrah's Operating to collateralize amounts borrowed under the
credit facility if at least $500 million has not been refinanced by June 30,
1999, and senior unsecured indebtedness of Harrah's Operating is rated less than
investment grade by both of Standard & Poors and Moody's. These pro forma income
statements do not reflect the possible increase in interest costs that may arise
as a result of the debt refinancings or the increase in the credit facility
interest rate that will occur if the debt refinancings are not completed. Had
the provisions of this amendment to the credit facility been in place as of the
first day of each period presented, the increase in pro forma interest expense
would have been:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Assuming $750 million refinanced at an average 8.0%
fixed rate........................................... $ 14.5 $ 11.1
Impact on expense of a 1/8% change in the assumed
rate............................................. 0.9 0.7
Assuming a 1.5% increase in the floating rate paid
under the credit facility............................ 22.1 18.7
</TABLE>
S-26
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(m) Records the estimated tax effect of these pro forma adjustments, with
the exception of the amortization of goodwill, which is assumed to be
nondeductible for tax purposes.
(n) Pro forma income from continuing operations per share is computed on the
basis of the combined weighted average number of shares of Harrah's common stock
and Harrah's common stock equivalents after giving effect to the issuance of
shares to consummate our merger with Rio.
Note 6--Following are brief descriptions of the pro forma adjustments to the
balance sheet to reflect our merger with Rio.
(o) Reflects the net increase in the carrying value of Rio's land, buildings
and equipment to adjust those assets to their estimated fair market value.
(p) Reflects as goodwill the excess purchase price over fair value of net
tangible and intangible assets acquired and liabilities assumed.
(q) Reduces other assets to reflect deferred financing costs of Rio not
valued due to the adjustment of debt to estimated fair market value.
(r) Records as current liabilities the accrual of severance and direct
merger costs of Harrah's and Rio.
(s) Reflects the net adjustment to long-term debt to reflect the Rio debt at
its estimated fair market value and incremental borrowings to fund payment of
additional deferred finance charges.
(t) Records the deferred tax effect of the pro forma balance sheet
adjustments, primarily related to land, buildings and equipment.
(u) The net increase in stockholders' equity reflects: (i) the issuance of
one share of Harrah's common stock for each share of Rio common stock
outstanding and (ii) the elimination of Rio's historical retained earnings.
S-27
<PAGE>
REGULATION AND LICENSING
The ownership and operation of casino gaming facilities are subject to
extensive governmental regulation. Each of the jurisdictions in which we operate
gaming facilities requires us to hold various licenses, findings of suitability,
registrations, permits, and approvals (collectively, "Gaming Licenses"). Under
the gaming laws of Nevada, New Jersey, Mississippi, Missouri, Louisiana,
Illinois, Indiana, and other jurisdictions, and our corporate charter, holders
of our securities may be required, under certain circumstances, to dispose of
the securities. If the holder refuses to do so, we may be required to repurchase
the security.
Consequently, each holder of notes, by accepting any notes, will be deemed
to have agreed to be bound by the requirements imposed by the gaming authority
in any jurisdiction we, or any of our subsidiaries, conduct or propose to
conduct gaming activities. See "Description of the Debt Securities-- Mandatory
Disposition Pursuant to Gaming Laws," in the accompanying prospectus. In
addition, under the indenture governing the notes, each holder and beneficial
owner of notes, by accepting or otherwise acquiring an interest in any notes,
will be deemed to have agreed to apply for a license, qualification or finding
of suitability as required by the gaming authorities in any jurisdiction in
which we, or any of our subsidiaries, conduct or propose to conduct gaming
activities. If a holder of notes fails to apply or become licensed or qualified
or is found unsuitable, we shall have the right, at our option:
- to require the holder to dispose of its notes or beneficial interest
therein within 30 days of receiving notice of our election or such earlier
date as may be requested or prescribed by a gaming authority; or
- to redeem the bonds at a redemption price equal to the lesser of (i) the
holder's cost or (ii) 100% of the principal amount thereof, plus accrued
and unpaid interest to the earlier of the redemption date and the date of
the finding of unsuitability, which may be less than 30 days following the
notice of redemption if so requested or prescribed by the gaming
authority.
We will not be responsible for any costs or expenses incurred by any such
holder or beneficial owner in connection with its application for a license,
qualification or finding of suitability. Harrah's Operating's charter also
expressly provides that debt securities issued by Harrah's Operating may be
redeemed if a holder of such securities is found unsuitable by any governmental
agency.
The Nevada Gaming Commission, the New Jersey Casino Control Commission, the
Mississippi Gaming Commission, the Missouri Gaming Commission, the Louisiana
Gaming Control Board, the Illinois Gaming Board, the Indiana Gaming Commission
and the New South Wales Casino Control Authority, may also, among other things,
limit, condition, suspend or revoke a Gaming License or approval to own the
stock or joint venture interests of any of our operations in such licensing
authority's jurisdiction, for any cause deemed reasonable by such licensing
authority. Substantial fines or forfeiture of assets for violations of gaming
laws or regulations may be levied against us, such subsidiaries and joint
ventures and the persons involved. The suspension or revocation of any of our
Gaming Licenses or the levy on us of substantial fines or forfeiture of assets
could have a material adverse effect on our business.
Under Nevada and Mississippi law, we may not make a public offering of our
securities without the prior approval of the applicable gaming commission if we
intend to use the offering proceeds to construct, acquire or finance a gaming
facility, or retire or extend existing obligations incurred for such purposes.
On November 19, 1998, the Nevada Gaming Commission granted Harrah's
Entertainment and Harrah's Operating prior approval to make offerings for a
period of two years, subject to certain conditions. The Chairman of the Nevada
State Gaming Control Board may rescind its approval for good cause without prior
notice upon the issuance of an interlocutory stop order. These prior approvals
do not constitute a finding, recommendation or approval by the Nevada Gaming
Commission or the Nevada State Gaming Control Board as to the accuracy or
adequacy of the accompanying prospectus or the prospectus supplement, or the
investment merits of the securities offered. Any representation to the contrary
is
S-28
<PAGE>
unlawful. The Company received a similar 1-year waiver of approval requirements
from the Mississippi Gaming Commission on August 20, 1998.
To date, we have obtained all Gaming Licenses necessary for the operation of
our gaming activities. Gaming Licenses and related approvals, however, are
deemed to be privileges under the laws of the jurisdictions in which we conduct
gaming activities, and no assurances can be given that any new Gaming Licenses
that may be required in the future will be granted or that existing Gaming
Licenses will not be revoked or suspended.
The foregoing is only a summary of the regulatory requirements applicable to
the Company. For a more detailed description of the regulatory requirements
applicable to the Company, including under gaming laws and our corporate
charter, see "Governmental Regulation" in Harrah's Entertainment's Annual Report
on Form 10-K for the year ended December 31, 1997, incorporated by reference
herein.
S-29
<PAGE>
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY (REFERRED TO IN THE ACCOMPANYING PROSPECTUS AS THE "DEBT SECURITIES")
SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION
OF THE GENERAL TERMS AND PROVISIONS OF THE DEBT SECURITIES SET FORTH IN THE
ACCOMPANYING PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE. THE
FOLLOWING SUMMARY OF THE NOTES IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
HOC INDENTURE REFERRED TO IN THE ACCOMPANYING PROSPECTUS, WHICH IS REFERRED TO
IN THIS PROSPECTUS SUPPLEMENT AS THE "INDENTURE." CERTAIN CAPITALIZED TERMS USED
AND NOT OTHERWISE DEFINED IN THE FOLLOWING DISCUSSION ARE DEFINED BELOW UNDER
"--CERTAIN DEFINITIONS" OR UNDER "DESCRIPTION OF THE DEBT SECURITIES" IN THE
ACCOMPANYING PROSPECTUS.
GENERAL
The notes will constitute a separate series of Debt Securities under the
Indenture, limited to $750 million aggregate principal amount. The notes will
mature on December 15, 2005, referred to as the "Maturity Date." Harrah's
Operating will issue the notes in fully registered book-entry form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Each note
will bear interest at the rate of 7 7/8% from December 9, 1998 or from the most
recent interest payment date to which interest has been paid or provided for,
payable semiannually on June 15 and December 15 of each year (each, an "Interest
Payment Date"), commencing June 15, 1999, to the persons in whose names such
notes are registered at the close of business on the date fifteen days prior to
such Interest Payment Date.
If any Interest Payment Date, date of redemption (the "Redemption Date") or
Maturity Date of any of the notes is not a business day, then payment of
principal, premium, if any, and interest will be made on the next succeeding
business day. No interest will accrue on the amount so payable for the period
from such Interest Payment Date, Redemption Date or Maturity Date, as the case
may be, to the date payment is made. Interest on the notes will be computed on
the basis of a 360-day year of twelve 30-day months.
The notes will not be entitled to the benefit of any sinking fund.
The notes will be unsecured senior subordinated Obligations of Harrah's
Operating that will rank on a parity with all other unsecured senior
subordinated Indebtedness of Harrah's Operating from time to time outstanding
and will be subordinate to all Senior Indebtedness of Harrah's Operating.
OPTIONAL REDEMPTION
The notes are redeemable, in whole or in part, at any time, and at our
option, at a redemption price equal to the greater of:
- 100% of the principal amount of notes then outstanding, or
- the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments
of interest accrued as of the date of redemption) discounted to the
Redemption Date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate, plus 50 basis
points, as calculated by an Independent Investment Banker.
plus, in either of the above cases, accrued and unpaid interest thereon to the
Redemption Date.
"Adjusted Treasury Rate" means, with respect to any Redemption Date:
- the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication
which is published weekly by the Board of Governors of the Federal Reserve
System and which establishes yields on actively traded United States
Treasury securities adjusted to
S-30
<PAGE>
constant maturity under the caption "Treasury Constant Maturities," for
the maturity corresponding to the Comparable Treasury Issue (if no
maturity is within three months before or after the Remaining Life, yields
for the two published maturities most closely corresponding to the
Comparable Treasury Issue shall be determined and the Adjusted Treasury
Rate shall be interpolated or extrapolated from such yields on a straight
line basis, rounding to the nearest month); or
- if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields, the
rate per annum equal to the semi-annual equivalent yield to maturity of
the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal
to the Comparable Treasury Price for such Redemption Date. The Adjusted
Treasury Rate shall be calculated on the third business day preceding the
Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such securities ("Remaining Life").
"Comparable Treasury Price" means (1) the average of five Reference Treasury
Dealer Quotations for such Redemption Date, after excluding the highest and
lowest Reference Treasury Dealer Quotations, or (2) if the Independent
Investment Banker obtains fewer than five such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the trustee after consultation with us.
"Reference Treasury Dealer" means:
- each of Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated,
NationsBanc Montgomery Securities LLC, Salomon Smith Barney Inc., CIBC
Oppenheimer Corp., Fleet Securities, Inc. and SG Cowen Securities
Corporation, and their respective successors; provided that, if any of the
foregoing ceases to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), we will substitute another
Primary Treasury Dealer; and
- any other Primary Treasury Dealer selected by the trustee after
consultation with us.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Independent Investment Banker, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Independent Investment Banker at 5:00 p.m., New York
City time, on the third Business Day preceding such Redemption Date.
We will mail a notice of redemption at least 30 days but not more than 60
days before the Redemption Date to each holder of notes to be redeemed. If we
elect to partially redeem the notes, the Trustee will select in a fair and
appropriate manner the notes to be redeemed.
Unless we default in payment of the redemption price, on and after the
Redemption Date, interest will cease to accrue on the notes or portions thereof
called for redemption.
SUBORDINATION
The payment of principal, interest and premium, if any, on and all other
Obligations owing in respect of these notes will be subordinated to the prior
payment in full in cash of all Senior Indebtedness of Harrah's Operating.
S-31
<PAGE>
The holders of Senior Indebtedness will be entitled to receive payment in
full in cash of all Obligations due in respect of Senior Indebtedness (including
interest accruing after the commencement of any bankruptcy, insolvency or
similar proceeding at the rate specified in the applicable Senior Indebtedness,
whether or not such interest is an allowed claim in any such proceeding) before
the holders of notes will be entitled to receive any payment of any kind or
character with respect to the notes (except that holders of notes may receive
payments made from the trust described under "Description of the Debt
Securities--Defeasance and Discharge of Debt Securities or Certain Covenants in
Certain Circumstances" in the accompanying prospectus), in the event of any
distribution to creditors of Harrah's Operating:
- in a total or partial liquidation or dissolution of Harrah's Operating;
- in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Harrah's Operating or its property;
- in an assignment for the benefit of creditors; or
- in any marshalling of Harrah's Operating's assets and liabilities.
Harrah's Operating also may not make any payment in respect of the notes
(except from the trust described under "Description of the Debt
Securities--Defeasance and Discharge of Debt Securities or Certain Covenants in
Certain Circumstances," in the accompanying prospectus) if:
- a payment default on Designated Senior Indebtedness occurs and is
continuing; or
- any other default occurs and is continuing on Designated Senior
Indebtedness that permits holders of the Designated Senior Indebtedness
to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Representative of any
Designated Senior Indebtedness.
Payments on the notes may and shall be resumed:
- in the case of a payment default, upon the date on which such default is
cured or waived; and
- in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived (so long as no other nonpayment
default exists) or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any
Designated Senior Indebtedness has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 180 days.
Harrah's Operating must promptly notify holders of Designated Senior
Indebtedness if payment of the notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of Harrah's Operating, holders of
these notes may recover less ratably than creditors of Harrah's Operating who
are holders of Senior Indebtedness. See "Risk Factors."
As of September 30, 1998, on a pro forma basis after giving effect to our
merger with Rio and the offering of the notes, Harrah's Operating would have had
approximately $1,065.5 million of Senior Indebtedness, including approximately
$1,061.6 million under our credit facility, and its Subsidiaries would have had
capital lease obligations and Indebtedness to third parties of approximately
$541.6 million (excluding guarantees of Senior Indebtedness of Harrah's
Operating). Under certain circumstances, the amount of additional Indebtedness
that Harrah's Operating and its Subsidiaries may incur could be
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substantial and, in any case, all or a portion of such indebtedness may be
Senior Indebtedness or effectively subordinated, and may be secured.
Subject to the "Merger, Consolidation or Sale of Assets" covenants, the
Indenture does not prohibit the merger, consolidation or sale of assets of
Harrah's Operating to its Subsidiaries or other corporations organized under the
laws of the United States which expressly assume, by supplemental indenture, all
of the obligations of Harrah's Operating under the notes and the Indenture. In
the event of any such transfer, holders of the notes will be effectively
subordinated to the claims of holders of Senior Indebtedness of such
Subsidiaries or other acquiring entities and effectively subordinated to holders
of all Indebtedness of their Subsidiaries.
ADDITIONAL COVENANTS OF HARRAH'S OPERATING
The covenant provisions of the Indenture described under the caption
"Description of the Debt Securities--Merger, Consolidation or Sale of Assets" in
the accompanying prospectus will apply to the notes. Further, the provisions of
the Indenture described under the caption "Events of Default" and "Modification
and Waiver" in the accompanying prospectus will apply to the notes. In addition
to the foregoing, the following covenants of Harrah's Operating will apply to
the notes.
LIMITATION ON LIENS. Neither Harrah's Operating nor any of its Subsidiaries
may issue, assume or guarantee any Indebtedness secured by a Lien upon any
Consolidated Property or on any Indebtedness or shares of capital stock of, or
other ownership interests in, any Subsidiaries (regardless of whether the
Consolidated Property, Indebtedness, capital stock or ownership interests were
acquired before or after the date of the Indenture) without effectively
providing that the notes shall be secured equally and ratably with (or prior to)
such Indebtedness so long as such Indebtedness shall be so secured, except that
this restriction will not apply to:
(a) Liens existing on the date of original issuance of the notes;
(b) Liens affecting property of a corporation or other entity existing
at the time it becomes a Subsidiary of Harrah's Operating or at the time it
is merged into or consolidated with Harrah's Operating or a Subsidiary of
Harrah's Operating;
(c) Liens on property existing at the time of acquisition thereof or to
secure Indebtedness incurred prior to, at the time of, or within 24 months
after the acquisition for the purpose of financing all or part of the
purchase price thereof;
(d) Liens on any property to secure all or part of the cost of
improvements or construction thereon or Indebtedness incurred to provide
funds for such purpose in a principal amount not exceeding the cost of such
improvements or construction;
(e) Liens which secure Indebtedness owing by a Subsidiary of Harrah's
Operating to Harrah's Operating or to a Subsidiary of Harrah's Operating;
(f) Liens securing Indebtedness of Harrah's Operating the proceeds of
which are used substantially simultaneously with the incurrence of such
Indebtedness to retire Funded Debt;
(g) purchase money security Liens on personal property;
(h) Liens securing Indebtedness of Harrah's Operating or any of its
Subsidiaries the proceeds of which are used within 24 months of the
incurrence of such Indebtedness for the cost of the construction and
development or improvement of property of Harrah's Operating or any of its
Subsidiaries;
(i) Liens on the stock, partnership or other equity interest of Harrah's
Operating or any of its Subsidiaries in any Joint Venture or any such
Subsidiary which owns an equity interest in such Joint
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Venture to secure Indebtedness, provided the amount of such Indebtedness is
contributed and/or advanced solely to such Joint Venture;
(j) certain Liens to government entities, including pollution control or
industrial revenue bond financing;
(k) Liens required by any contract or statute in order to permit
Harrah's Operating or a Subsidiary of Harrah's Operating to perform any
contract or subcontract made by it with or at the request of a governmental
entity;
(l) mechanic's, materialman's, carrier's or other like Liens, arising in
the ordinary course of business;
(m) certain Liens for taxes or assessments and similar charges;
(n) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property and certain other minor
irregularities of title;
(o) Liens securing Senior Indebtedness and Liens on assets of a
Subsidiary securing Indebtedness of that Subsidiary; and
(p) any extension, renewal, replacement or refinancing of any
Indebtedness secured by a Lien permitted by any of the foregoing clauses (a)
through (j).
Notwithstanding the foregoing, Harrah's Operating and any one or more of its
Subsidiaries may, without securing the notes, issue, assume or guarantee
Indebtedness which would otherwise be subject to the foregoing restrictions in
an aggregate principal amount which, together with all other such Indebtedness
of Harrah's Operating and its Subsidiaries which would otherwise be subject to
the foregoing restrictions (not including Indebtedness permitted to be secured
under clauses (a) through (o) inclusive above) and the aggregate Value of Sale
and Lease-Back Transactions (other than those in connection with which Harrah's
Operating has voluntarily retired Funded Debt) does not at any one time exceed
15% of Consolidated Net Tangible Assets of Harrah's Operating and its
consolidated Subsidiaries.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. Neither Harrah's Operating
nor any of its Subsidiaries will enter into any Sale and Lease-Back Transaction
unless either (a) Harrah's Operating or such Subsidiary would be entitled,
pursuant to the above provisions, to incur Indebtedness in a principal amount
equal to or exceeding the Value of such Sale and Lease-Back Transaction, secured
by a Lien on the property to be leased, without equally and ratably securing the
notes or (b) Harrah's Operating within 120 days after the effective date of such
Sale and Lease-Back Transaction applies to the voluntary retirement of its
Funded Debt an amount equal to the Value of the Sale and Lease-Back Transaction
(subject to credits for certain voluntary retirements of Funded Debt).
The defeasance and covenant defeasance provisions of the Indenture described
under the caption "Description of the Debt Securities--Defeasance of Debt
Securities or Certain Covenants in Certain Circumstances" in the accompanying
prospectus will apply to the notes.
GUARANTEE OF NOTES
Harrah's Entertainment will irrevocably and unconditionally guarantee, on an
unsecured senior subordinated basis, the payment of all obligations of Harrah's
Operating under the notes. If Harrah's Operating defaults in the payment of the
principal of, premium, if any, or interest on such notes when and as the same
shall become due, whether upon maturity, acceleration, call for redemption or
otherwise, without the necessity of action by the Trustee or any holder of such
notes, Harrah's Entertainment shall be required promptly and fully to make such
payment. The Indenture provides for the release of Harrah's Entertainment as
guarantor of the notes in certain circumstances discussed under the caption
"Guarantee of HOC Debt Securities" in the accompanying prospectus.
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Harrah's Entertainment conducts substantially all of its business through
Harrah's Operating and its Subsidiaries and does not own any material assets
other than the common stock of Harrah's Operating. As such, Harrah's
Entertainment is dependent on the receipt of dividends or other payments from
Harrah's Operating to make payments on the guarantee of the notes. Our credit
facility imposes significant restrictions on Harrah's Operating's ability to pay
dividends to Harrah's Entertainment. Moreover, Harrah's Entertainment's
obligations under the guarantee are as a secondary obligor, and such obligations
are subordinated to all of its present and future Senior Indebtedness on the
same basis as the notes are subordinated to the Senior Indebtedness of Harrah's
Operating. The Indenture also permits either company, or their Subsidiaries, to
incur future Senior Indebtedness.
CERTAIN DEFINITIONS
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"Consolidated Property" means any property of Harrah's Operating or any of
its Subsidiaries.
"Credit Facility" means the Credit Agreement, dated as of July 22, 1993 and
amended and restated as of June 9, 1995 and further amended and restated as of
April 1, 1998, together with the Credit Agreement, dated as of June 9, 1995 and
amended and restated as of April 1, 1998, in each case by and among Harrah's
Entertainment, Harrah's Operating, Marina Associates, certain lenders, Canadian
Imperial Bank of Commerce and Societe Generale, as Co-Syndication Agents, Bank
of America National Trust and Savings Association, as Documentation Agent, and
Bankers Trust Company, as Administrative Agent, and together with the related
documents thereto (including, without limitations, any guarantee agreements and
security documents), as such agreements may be amended (including any amendment
and restatement thereof), modified, extended, renewed, replaced, restructured or
refinanced from time to time, whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Designated Senior Indebtedness" means (i) Indebtedness under the Credit
Facility and (ii) any other Senior Indebtedness the principal amount of which is
$100.0 million or more and that has been designated by Harrah's Operating as
"Designated Senior Indebtedness" in the documentation with respect thereto.
"Funded Debt" means all Indebtedness of Harrah's Operating which (i) matures
by its terms on, or is renewable at the option of any obligor thereon to, a date
more than one year after the date of original issuance of such Indebtedness and
(ii) ranks at least pari passu with the notes.
"Indebtedness" of any person means (a) any indebtedness of such person,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof), or evidenced by notes, bonds, debentures or similar
instruments or letters of credit, or representing the balance deferred and
unpaid of the purchase price of any property, including any such indebtedness
incurred in connection with the acquisition by such person or any of its
Subsidiaries of any other business or entity, if and to the extent such
indebtedness would appear as a liability upon a balance sheet of such person
prepared in accordance with generally accepted accounting principles, including
for such purpose obligations under capitalized leases, and (b) any guarantee,
endorsement (other than for collection or deposit in the ordinary course of
business), discount with recourse, agreement (contingent or otherwise) to
purchase, repurchase or otherwise acquire or to supply or advance funds with
respect to, or to become liable with respect to (directly or indirectly) any
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indebtedness, obligation, liability or dividend of any person, but shall not
include indebtedness or amounts owed for compensation to employees, or for goods
or materials purchased, or services utilized, in the ordinary course of business
of such person. Notwithstanding anything to the contrary in the foregoing,
"Indebtedness" shall not include (i) any contracts providing for the completion
of construction or other payment or performance with respect to the
construction, maintenance or improvement of, or payment of taxes, revenue share
payments or other fees to governmental entities with respect to, property or
equipment of Harrah's Operating or its Affiliates or (ii) any contracts
providing for the obligation to advance funds, property or services on behalf of
an Affiliate of Harrah's Operating in order to maintain the financial condition
of such Affiliate. For purposes of this definition of Indebtedness, a
"capitalized lease" shall be deemed to mean a lease of real or personal property
which, in accordance with generally accepted accounting principles, is required
to be capitalized, and an Affiliate shall be deemed to include Jazz Holding
Company, a Delaware corporation in which Harrah's Operating indirectly owns a
minority interest, and each of its Affiliates.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"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 interests is owned, directly or indirectly, by Harrah's
Operating and/or one or more of its Subsidiaries.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit,
arrangement, encumbrance, security interest, lien (statutory or otherwise), or
preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Obligations" means any principal, interest, premium, if any, penalties,
fees, indemnifications, reimbursements, damages or other liabilities or amounts
payable under the documentation governing or otherwise in respect of any
Indebtedness.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; PROVIDED that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness.
"Sale and Lease-Back Transaction" means any arrangement with a person (other
than Harrah's Operating or any of its Subsidiaries), or to which any such person
is a party, providing for the leasing to Harrah's Operating or any of its
Subsidiaries for a period of more than three years of any Consolidated Property
which has been or is to be sold or transferred by Harrah's Operating or any of
its Subsidiaries to such person or to any other person (other than Harrah's
Operating of any of its Subsidiaries), to which funds have been or are to be
advanced by such person on the security of the leased property.
"Senior Indebtedness" means the following obligations of Harrah's Operating
or Harrah's Entertainment, as the case may be, whether outstanding on the date
of the offering or thereafter incurred:
(i) all Indebtedness and all other Obligations of Harrah's Operating or
Harrah's Entertainment, as the case may be, under (or in respect of) the
Credit Facility or any Interest Rate Agreement or Currency Agreement, and
(ii) all interest accruing subsequent to events of bankruptcy of
Harrah's Entertainment or Harrah's Operating at the rate provided for in the
document governing any Senior Indebtedness,
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whether or not such interest is an allowed claim enforceable against the
debtor in a bankruptcy case under bankruptcy law, and
(iii) all other Indebtedness and all other Obligations of Harrah's
Operating and Harrah's Entertainment, including principal and interest on
such Indebtedness, unless such Indebtedness is expressly made equal or
subordinate in right of payment to the notes or the guarantee, by its terms
or the terms of any issuing agreement or instrument; PROVIDED that the term
"Senior Indebtedness" shall not include:
- any Indebtedness that was non-recourse when incurred by either
Harrah's Entertainment or Harrah's Operating;
- any Indebtedness of Harrah's Operating to any of its Subsidiaries, or
to a joint venture in which Harrah's Operating has an interest;
- that portion of any Indebtedness to the extent that the Lien securing
such Indebtedness is not permitted under the Indenture;
- any Indebtedness to any employee of either Harrah's Entertainment,
Harrah's Operating or any of their Subsidiaries;
- any liability for taxes owed or owing by either Harrah's
Entertainment, Harrah's Operating, or any of their Subsidiaries; or
- any trade payables.
"Stated Maturity" means, when used with respect to any security or any
installment of principal thereof or interest thereon, the date specified in such
security as the fixed date on which the principal of such security or such
installment of principal or interest is due and payable.
"Subsidiary" of any specified person means any corporation of which at least
a majority of the outstanding stock having by the terms thereof ordinary voting
power for the election of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned by such person, or by one or more
other Subsidiaries, or by such person and one or more other Subsidiaries.
"Value" means, with respect to a Sale and Lease-Back Transaction, as of any
particular time, the amount equal to the greater of (i) the net proceeds of the
sale or transfer of property leased pursuant to such Sale and Lease-Back
Transaction or (ii) the fair value, in the opinion of Harrah's Operating's Board
of Directors as evidenced by a board resolution, of such property at the time of
entering into such Sale and Lease-Back Transaction.
BOOK-ENTRY SYSTEM, FORM AND DELIVERY
The notes will be represented by one or more global securities registered in
the name of Cede & Co., the nominee of the Depository Trust Company, as
"Depositary," and the provisions set forth under "Description of Debt
Securities--Global Securities" in the accompanying prospectus will apply to the
notes.
The Depositary is a limited-purpose trust company organized under New York
banking law, a "banking organization" within the meaning of New York banking
law, a member of the United States Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary holds securities that its participants deposit with
the Depositary. The Depositary also facilitates the settlement among its
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby
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eliminating the need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. The Depositary is owned
by a number of its direct participants and by The New York Stock Exchange, Inc.,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary's system is also available to indirect
participants in the Depositary such as securities brokers and dealers, banks and
trust companies that clear through, or maintain a custodial relationship with, a
direct participant, either directly or indirectly. The rules applicable to the
Depositary and its participants are on file with the Securities and Exchange
Commission.
Purchases of the notes under the Depositary's system must be made by or
through direct participants, which will receive a credit for the notes on the
Depositary's records. The beneficial ownership interest of each actual purchaser
of each note is in turn to be recorded on the direct and indirect participants'
respective records. Beneficial owners will not receive written confirmation from
the Depositary of their purchase, but beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participant through
which the beneficial owner entered into the transaction. Transfers of ownership
interest in the notes are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interest in notes except in
the event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited with the Depositary
by participants in the Depositary will be registered in the name of Cede & Co.
The deposit of the notes with the Depositary and their registration in the name
of Cede & Co. effect no change in beneficial ownership. The Depositary has no
knowledge of the actual beneficial owners of the notes; the Depositary's records
reflect only the identity of the direct participants to whose accounts such
notes are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the Depositary to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the notes. Under its usual procedures, the Depositary mails an omnibus proxy to
Harrah's Operating as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the notes are credited on the record date (identified in a
listing attached to the omnibus proxy).
Payments of principal, interest and premium, if any, on the notes will be
made to Cede & Co. The Depositary's practice is to credit direct participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payment on such payment date. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities for the accounts of
customers in bearer form or registered in "street-name," and will be the
responsibility of each participant and not of the Depositary, the underwriters,
or Harrah's Operating, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, interest and premium,
if any, to Cede & Co. is the responsibility of Harrah's Operating or the
respective trustees. Disbursement of such payments to direct participants is the
responsibility of the Depositary, and disbursement of such payments to the
beneficial owners of the notes is the responsibility of direct and indirect
participants in the Depositary.
The Depositary may discontinue providing its services as securities
depository with respect to the notes at any time by giving reasonable notice to
Harrah's Operating. Under such circumstances and in the
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event that a successor securities depository is not obtained, certificates for
the notes are required to be printed and delivered. In addition, Harrah's
Operating may decide to discontinue use of the system of book-entry transfers
through the Depositary (or a successor securities depository). In that event,
certificates will be printed and delivered.
Harrah's Operating will not have any responsibility or obligation to
participants in the Depositary or the persons for whom they act as nominees with
respect to the accuracy of the records of the Depositary, its nominee or any
direct or indirect participant with respect to any ownership interest in the
notes, or with respect to payments to or providing of notice for the direct
participants, the indirect participants or the beneficial owners of the notes.
The information contained herein under the caption "Description of
Notes--Book-Entry System, Form and Delivery" concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Harrah's
Operating believes to be reliable. Neither Harrah's Operating, the Trustee nor
the underwriters, dealers or agents take responsibility for the accuracy or
completeness thereof.
THE TRUSTEE
The trustee under the Indenture is IBJ Schroder Bank & Trust Company,
referred to as the "Trustee."
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated December 4, 1998 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters") have severally agreed to purchase,
and we have agreed to sell to them, severally, the respective principal amount
of the notes set forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated..................................................... $ 435,000,000
BT Alex. Brown Incorporated........................................................... 82,500,000
NationsBanc Montgomery Securities LLC................................................. 82,500,000
Salomon Smith Barney Inc.............................................................. 82,500,000
CIBC Oppenheimer Corp................................................................. 22,500,000
Fleet Securities, Inc................................................................. 22,500,000
SG Cowen Securities Corporation....................................................... 22,500,000
----------------
Total............................................................................. $ 750,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the notes is subject to, among
other things, the approval of certain legal matters by their counsel and certain
other conditions. The Underwriters are obligated to take and pay for all of the
notes if any are taken.
The Underwriters initially propose to offer part of the notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
0.250% of the principal amount of the notes. Any Underwriter may allow, and any
such dealers may reallow, a concession to certain other dealers not to exceed
0.125% of the principal amount of the notes. After the initial offering of the
notes, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The total price to the public for the offering of the notes will be $750.0
million, the total underwriters' discounts and commissions will be $13.1
million, and the total proceeds to the Company (after deducting the estimated
offering expenses of $1.0 million) will be $735.9 million.
Harrah's Operating and Harrah's Entertainment have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
We do not intend to apply for listing of the notes on a national securities
exchange, but have been advised by the Underwriters that they intend to make a
market in the notes. The Underwriters are not obligated, however, to do so and
may discontinue their market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the notes.
In order to facilitate the offering of the notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the prices
of the notes. Specifically, the Underwriters may overallot in connection with
the offering, creating a short position in the notes for their own account. In
addition, to cover overallotments or to stabilize the price of the notes, the
Underwriters may bid for, and purchase, the notes in the open market. Finally,
the Underwriters may reclaim selling concessions allowed to an Underwriter or a
dealer for distributing the notes in the offering, if they repurchase previously
distributed notes in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price for the notes above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Certain of the Underwriters and their respective affiliates have, from time
to time, performed various investment or commercial banking and financial
advisory services for Harrah's Entertainment and Harrah's Operating in the
ordinary course of business. As described under "Use of Proceeds," the Company
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intends to use a portion of the net proceeds from the offering of the notes to
repay indebtedness outstanding under our credit facility. The lenders under our
credit facility include Bankers Trust, Bank of America National Trust and
Savings Association, CIBC Oppenheimer Corp., Fleet National Bank, and Societe
Generale, which are affiliates of BT Alex. Brown Incorporated, NationsBanc
Montgomery Securities LLC, CIBC Oppenheimer Corp., Fleet Securities, Inc. and SG
Cowen Securities Corporation, respectively, five of the Underwriters. It is
expected that these lenders will in the aggregate receive more than 10% of the
net proceeds from the offering of the notes in the form of repayment of
borrowings outstanding under Harrah's credit facility. Accordingly, the offering
of the notes is being made pursuant to Rule 2710(c)(8) of the Conduct Rules of
the National Association of Securities Dealers, Inc. Morgan Stanley & Co.
Incorporated will act as "qualified independent underwriter" as defined pursuant
to Rule 2720(b)(15) of the Conduct Rules and will assume the responsibilities in
connection therewith.
LEGAL MATTERS
Latham & Watkins of Los Angeles, California, and E. O. Robinson, Jr., our
General Counsel, will issue opinions about certain legal matters with respect to
the notes for Harrah's. Gibson, Dunn & Crutcher LLP of San Francisco,
California, will issue an opinion about certain legal matters with respect to
the notes for the Underwriters.
EXPERTS
The audited financial statements of Harrah's Entertainment appearing in
Harrah's Entertainment's Annual Report on Form 10-K for the year ended December
31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of such firm as
experts in giving said reports.
The audited financial statements of Rio appearing in Rio's Annual Report on
Form 10-K for the year ended December 31, 1997 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of such firm as experts in giving said reports.
The consolidated financial statements of Showboat, Inc. and subsidiaries as
of December 31, 1997, and for each of the three year periods ended December 31,
1997, appearing in the Showboat, Inc. Form 10-K for the year ended December 31,
1997, incorporated herein by reference, has been incorporated herein by
reference in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
S-41
<PAGE>
PROSPECTUS
$750,000,000
[LOGO]
<TABLE>
<S> <C>
HARRAH'S ENTERTAINMENT, INC. HARRAH'S OPERATING COMPANY, INC.
COMMON STOCK DEBT SECURITIES
DEBT SECURITIES PREFERRED STOCK
PREFERRED STOCK DEPOSITARY SHARES
DEPOSITARY SHARES
</TABLE>
Harrah's Entertainment, Inc., a Delaware corporation ("HET"), and Harrah's
Operating Company, Inc., a Delaware corporation ("HOC"), as the case may be,
from time to time may offer, issue and sell the following: (i) shares of common
stock, par value $0.10 per share, of HET (the "Common Stock"), (ii) debt
securities consisting of debentures, notes or other evidence of indebtedness of
HET (the "HET Debt Securities"), (iii) shares or fractional shares of preferred
stock, par value $100.00 per share, of HET (the "HET Preferred Stock"), (iv)
shares of HET Preferred Stock represented by depositary shares (the "HET
Depositary Shares"), (v) debt securities consisting of debentures, notes or
other evidence of indebtedness of HOC (the "HOC Debt Securities"), (vi) shares
or fractional shares of preferred stock, par value $0.10 per share, of HOC (the
"HOC Preferred Stock") or (vii) shares of HOC Preferred Stock represented by
depositary shares (the "HOC Depositary Shares"), at an aggregate public offering
price for all such securities not to exceed $750,000,000. The payment of
principal and interest with respect to the HOC Debt Securities will be
unconditionally guaranteed by HET. See "Description of the Debt
Securities--Guarantee of HOC Debt Securities." With respect to the HOC Preferred
Stock, the payment of dividends, if and to the extent declared out of monies
held by HOC and legally available therefor, and payments on liquidation or
redemption will be guaranteed by HET to the extent described herein. See
"Description of the Preferred Stock--Guarantee of HOC Preferred Stock." The
Common Stock, HET Debt Securities, HOC Debt Securities, HET Preferred Stock, HOC
Preferred Stock, HET Depositary Shares and HOC Depositary Shares (collectively,
the "Securities") may be offered separately or together, in separate series, in
amounts, at prices and on terms determined by market conditions at the time of
sale and to be set forth in one or more supplements to this Prospectus (each, a
"Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement which will
include, where applicable: (i) in the case of Common Stock, the number of
shares, purchase price and terms of the offering and sale thereof; (ii) in the
case of Debt Securities, the specific title, aggregate principal amount, form
(which may be certificated or global), authorized denominations, maturity (which
may be fixed or extendible), interest rate (which may be fixed or variable) (or
manner of calculation thereof), if any, the time of payment of interest, if any,
any terms of redemption, conversion or exchange thereof, security, if any,
ranking and terms of subordination, any terms for sinking fund payments,
additional covenants, purchase price and other terms with respect to the Debt
Securities; (iii) in the case of Preferred Stock, the specific designation and
stated value per share, the number of shares and purchase price, any dividend,
liquidation, redemption, conversion, exchange, voting and other rights, and the
terms of HET's guarantee with respect to the HOC Preferred Stock; and (iv) in
the case of Depositary Shares, the aggregate number of shares offered, the
fractional share of HOC Preferred Stock represented by each such Depositary
Share and the Purchase Price. The Debt Securities may be sold at a substantial
discount below their principal amount and, if issued, certain terms thereof will
be set forth in a Prospectus Supplement related thereto. See "Description of the
Debt Securities."
HET's Common Stock is traded on The New York Stock Exchange (the "NYSE")
under the symbol HET. Any Common Stock sold pursuant to a Prospectus Supplement
will be listed on the NYSE. On May 15, 1998, the last reported sale price of the
Common Stock on the NYSE was $25.625 per share. The Company has not yet
determined whether any of the other Securities offered hereby will be listed on
any exchange or over-the-counter market. If the Company decides to seek listing
of any such Securities, a Prospectus Supplement relating thereto will disclose
such exchange or market.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
NO GAMING REGULATORY AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS.
The Securities may be offered directly to one or more purchasers, through
agents designated from time to time by the offeror or to or through underwriters
or dealers. If any agents or underwriters are involved in the sale of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
The date of this Prospectus is June 8, 1998
<PAGE>
AVAILABLE INFORMATION
HET and HOC (collectively, the "Company") have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-3
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of the Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to, or incorporated by reference in, the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to HET and HOC and the
Securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and financial statements and notes filed as a
part thereof or incorporated by reference therein. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to, or incorporated by reference in, the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
HET is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In accordance therewith, HET files
consolidated reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by HET may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60606, and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy statements and other information
regarding registrants that file electronically with the Commission. In addition,
HET's reports, proxy statements and other information filed with the Commission
may also be inspected and copied at the offices of the New York, Chicago,
Pacific and Philadelphia Stock Exchanges, on which exchanges the Common Stock is
listed.
HOC is not currently subject to the informational reporting requirements of
the Exchange Act. HOC will become subject to such requirements upon the
effectiveness of the Registration Statement, although it intends to seek and
expects to receive exemptions therefrom.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the Commission and are
incorporated by reference in this Prospectus: (i) HET's Annual Report on Form
10-K (File No. 1-10410) for the year ended December 31, 1997 (the "1997 HET Form
10-K"), (ii) HET's Quarterly Report on Form 10-Q for the period ended March 31,
1998 and (iii) HET's Current Report on Form 8-K, filed with the Commission on
December 24, 1997. All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Securities shall be deemed
to be incorporated herein by reference and to be a part hereof from the
respective dates of filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is
2
<PAGE>
delivered, upon written or oral request. Copies of this Prospectus, as amended
or supplemented from time to time, and any other documents (or parts of
documents) that constitute part of the Prospectus under Section 10(a) of the
Securities Act will also be provided without charge to each such person, upon
written or oral request. Requests should be directed to Harrah's Entertainment,
Inc., at its principal executive offices at 1023 Cherry Road, Memphis, Tennessee
38117, Attention: Corporate Secretary, (901) 762-8600.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS, INCLUDING ANY DOCUMENTS THAT ARE INCORPORATED BY REFERENCE
AS SET FORTH IN "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH STATEMENTS ARE INDICATED BY WORDS
OR PHRASES SUCH AS "ANTICIPATE," "ESTIMATE," "EXPECTS," "PROJECTS," "MANAGEMENT
BELIEVES," "THE COMPANY BELIEVES" AND SIMILAR WORDS AND PHRASES. SUCH STATEMENTS
ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES OR ASSUMPTIONS. SHOULD ONE OR MORE
OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS
PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED,
ESTIMATED OR PROJECTED.
THE COMPANY
The Company is one of the leading casino entertainment companies in the
United States and is unique in its broad geographic diversification. The Company
operates casino hotels in the five traditional U.S. gaming markets of Reno, Lake
Tahoe, Las Vegas and Laughlin, Nevada and Atlantic City, New Jersey. It also
operates riverboat or dockside casinos in Joliet, Illinois, Vicksburg and
Tunica, Mississippi, Shreveport, Louisiana, and North Kansas City and Maryland
Heights, Missouri; and manages casinos on four Indian reservations, near
Phoenix, Arizona, north of Seattle, Washington, in Cherokee, North Carolina and
north of Topeka, Kansas. HET is a holding company, the principal asset of which
is the capital stock of HOC. HOC directly owns certain of the assets and
directly and indirectly owns the stock of certain subsidiaries which operate the
Company's business. The principal executive offices of the Company are located
at 1023 Cherry Road, Memphis, Tennessee 38117, telephone (901) 762-8600.
On December 18, 1997, the Company entered into an agreement whereby it
agreed to acquire Showboat, Inc. ("Showboat"). Showboat owns and operates
casinos in Atlantic City, New Jersey and Las Vegas, Nevada. Showboat manages and
is the largest single shareholder of a casino in Sydney, New South Wales,
Australia, and owns 55% of a subsidiary which owns and manages a casino in East
Chicago, Indiana. It is anticipated that the acquisition of Showboat will be
completed in May 1998.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges for
the Company for each of the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ---------------------------------------------------------------
MARCH 31, 1998 1997 1996 1995 1994 1993
- ----------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
2.9 2.8 2.8 1.3 2.0 2.6
</TABLE>
For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges (excluding capitalized interest) and minority
interests (relating to subsidiaries whose fixed charges are included in the
computation), excluding equity in undistributed earnings of less than 50% owned
investments. Fixed charges include interest whether expensed or capitalized,
amortization of debt expense, discount or premium related to indebtedness and
such portion of rental expense deemed by the Company to be representative of
interest. Where applicable, both earnings and fixed charges have been adjusted
to include 100% of the financial results of the Company's nonconsolidated,
majority-owned subsidiary.
3
<PAGE>
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for general corporate purposes, including acquisitions, capital expenditures and
working capital requirements; to repay, redeem or repurchase outstanding
indebtedness; or for such other purposes as may be specified in a Prospectus
Supplement. A description of any indebtedness to be refinanced with the proceeds
of the Debt Securities will be set forth in the applicable Prospectus
Supplement.
DESCRIPTION OF THE COMMON STOCK
The description of the Common Stock set forth below does not purport to be
complete and is qualified in its entirety by reference to HET's Certificate of
Incorporation (the "HET Certificate") and HET's Bylaws (the "HET Bylaws").
GENERAL
The HET Certificate authorizes the issuance of up to 360,000,000 shares of
Common Stock with a par value of $0.10 per share. At March 31, 1998, HET had
101,099,242 shares of Common Stock issued and outstanding. In addition, HET has
reserved for issuance under its 1990 Stock Option Plan, as amended, and 1990
Restricted Stock Plan, as amended, an aggregate of 7,886,871 shares of Common
Stock (inclusive of additional options and restricted stock awards authorized by
HET's stockholders on May 1, 1998).
Subject to the limitations contained in the Company's debt instruments and
after provision for the payment of dividends on any series of preferred stock
which might be issued and which has a preference with respect to the payment of
dividends, holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors of HET (the "HET Board") from time to time
out of funds legally available for such purpose.
In the event of any liquidation, dissolution or winding up of the affairs of
HET, after payment of all debts and other liabilities and payment of any
liquidation preference on any series of preferred stock which might be issued
and which has a liquidation preference, the holders of shares of Common Stock
are entitled to share pro rata in all lawful distributions of the remaining
assets of HET.
The holders of Common Stock will be entitled to one vote per share.
Stockholders are not entitled to cumulative voting rights in the election of
directors.
All shares of Common Stock now outstanding are, and additional shares of
Common Stock offered will be when issued, fully paid and non-assessable. The
Common Stock has no conversion rights. No holder of Common Stock has any
preemptive right to subscribe for any stock or other securities of HET which may
be issued.
REDEMPTION
The Common Stock can be redeemed by HET if, among other circumstances, in
the judgment of the HET Board such redemption is necessary to avoid any
regulatory sanctions against, or to prevent the loss of, or to secure the
reinstatement of, any license, franchise or entitlement from any governmental
agency held by HET, any affiliate of HET, or any entity in which HET or an
affiliate is an owner, which license, franchise or entitlement (i) is needed to
conduct any portion of the business of HET, any such affiliate or other entity
or which license, franchise or entitlement is conditioned upon some or all of
the holders of Common Stock possessing prescribed qualifications, or (ii) needed
to allow the conduct of any portion of the business of HET or HOC, as the case
may be, any such affiliate or other entity.
RIGHTS AND SPECIAL STOCK
HET currently has 5,000,000 authorized shares of special stock, par value
$1.125 per share ("Special Stock"). The HET Board has the authority, without
further action by stockholders, to determine the rights,
4
<PAGE>
preferences and privileges of the unissued Special Stock. Provisions could be
included in the shares of Special Stock, such as extraordinary voting, dividend,
redemption or conversion rights, which could discourage an unsolicited tender
offer or takeover proposal.
The HET Board has authorized that one special stock purchase right (a
"Right") be attached to each outstanding share of Common Stock. These Rights are
exercisable only if a person or group acquires 15% or more of the Common Stock
or announces a tender offer for 15% or more of the Common Stock. Each Right
entitles stockholders to buy one two-hundredth of a share (a "Unit") of Series A
Special Stock (the "Series A Stock") at a purchase price of $130.00 per Unit,
subject to certain antidilution adjustments (the "Purchase Price"). If a person
acquires 15% of more of the outstanding Common Stock, each Right entitles its
holder to purchase Common Stock having a market value at that time of twice the
Right's exercise price. Under certain conditions, each Right entitles its holder
to purchase stock of an acquiring company at a discount. Rights held by the 15%
owner will become void. The Rights will expire on October 5, 2006, unless
earlier redeemed by the HET Board at one cent per Right.
PROHIBITED BUSINESS TRANSACTIONS
As a corporation organized under the laws of the State of Delaware, HET is
subject to Section 203 of the DGCL, which restricts certain business
combinations between HET and an "interested stockholder" (in general, a
stockholder owning 15% or more of the outstanding voting stock of HET) or such
stockholder's affiliates or associates for a period of three years following the
date on which the stockholder becomes an "interested stockholder." The
restrictions do not apply if: (i) prior to an interested stockholder becoming
such, the HET Board approves either the business combination or the transaction
by which such person became an interested stockholder; (ii) upon consummation of
the transaction, the interested stockholder owns at least 85% of the voting
stock of HET outstanding at the time the transaction commenced (excluding shares
owned by certain employee stock plans and persons who are both directors and
officers of HET); or (iii) at or subsequent to the time an interested
stockholder becomes such, the business combination is both approved by the HET
Board and authorized at an annual or special meeting of HET's stockholder by the
affirmative vote of at least two-thirds of the outstanding voting stock of HET
not owned by the interested stockholder.
The HET Certificate also prohibits business combinations with "Interested
Stockholders" and defines them to be anyone who is or intends to become the
beneficial owner of 10% or more of the voting stock of HET. Unless approved by a
majority of Continuing Directors (as defined in the HET Certificate) or the
Interested Stockholder satisfies a number of criteria relating to, among other
things, the consideration to be received by HET stockholders and the public
disclosure of the business combination, a proposed business combination with an
Interested Stockholder requires the affirmative vote of 75% of all the votes
entitled to be cast by holders of HET voting stock and not less than a majority
of votes entitled to be cast by holders of HET voting stock, excluding the votes
of the interested stockholder.
DESCRIPTION OF THE DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent to which such general
provisions may apply to the Debt Securities will be described in the Prospectus
Supplement relating to such Debt Securities.
The HET Debt Securities may be issued under an indenture and one or more
indentures supplemental thereto (the "HET Indenture") between HET and one or
more trustees, and the HOC Debt Securities may be issued under a separate
indenture and one or more indentures supplemental thereto (the "HOC Indenture")
between HOC, as obligor, HET, as guarantor, and one or more trustees. The HET
Indenture and the HOC Indenture are referred to collectively herein as the
"Indentures."
5
<PAGE>
The terms of the Debt Securities include those stated in the Indentures and
those made part of the Indentures by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), and holders of the Debt Securities
are referred to the Indentures and the Trust Indenture Act for a statement
thereof. A copy of the form of each Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Debt Securities and the Indentures, while
including a discussion of all material aspects or features thereof, do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Debt Securities and the Indentures,
including the definitions therein of certain terms which are not otherwise
defined in this Prospectus. Wherever particular provisions or defined terms of
the Indentures are referred to, such provisions or defined terms are
incorporated herein by reference. Certain capitalized terms used below but not
defined herein have the meanings ascribed to them in the Indentures.
GENERAL
The Indentures provide that the Debt Securities may be issued without limit
as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the HET Board or the Board of Directors of HOC (the "HOC Board"),
as the case may be, or as established in one or more indentures supplemental to
the Indentures. All Debt Securities of one series need not be issued at the same
time and, unless otherwise provided, a series may be reopened, without the
consent of the holders of the Debt Securities of such series, for issuances of
additional Debt Securities of such series.
The Indentures provide that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any trustee under
the Indentures (the "Trustee") may resign or be removed with respect to one or
more series of Debt Securities, and a successor Trustee may be appointed to act
with respect to such series. In the event that two or more persons are acting as
Trustees with respect to different series of Debt Securities, each such Trustee
shall be a Trustee of a trust under the Indentures separate and apart from the
trust administered by any other Trustee thereunder, and, except as otherwise
indicated herein, any action described herein to be taken by the Trustee may be
taken by each such Trustee with respect to, and only with respect to, the one or
more series of Debt Securities for which it is Trustee under the Indentures.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) The title of such Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount thereof payable upon declaration of acceleration of
the maturity or upon redemption thereof and the rate or rates at which
original issue discount ("OID") will accrue;
(4) The date or dates on which the principal of such Debt Securities
will be payable (or the method by which such date or dates will be
determined);
(5) The rate or rates (which may be fixed or variable) and, if
applicable, the method used to determine the rate, at which such Debt
Securities will bear interest, if any, the date or dates from which such
interest will accrue, and the circumstances, if any, in which HET or HOC, as
the case may be, may defer interest payments, the dates on which such
interest shall be payable and the record date for the interest payable on
any interest payment date;
(6) The place or places where principal of, premium, if any, and
interest on such Debt Securities will be payable (or the method of such
payment), and such Debt Securities may be surrendered for conversion or
registration of transfer or exchange;
6
<PAGE>
(7) The obligation, if any, of HET or HOC, as the case may be, to redeem
or purchase such Debt Securities pursuant to any sinking fund or analogous
provisions or at the option of a holder thereof and the right, if any, of
HET or HOC, as the case may be, to redeem such Debt Securities and the
period or periods within which, the price or prices at which, and the terms
and conditions upon which, such Debt Securities may be redeemed;
(8) The denominations in which such Debt Securities are issuable, if
other than denominations of $1,000 and any integral multiple thereof;
(9) Whether such Debt Securities are to be issued at a discount and the
portion of the principal amount of such Debt Securities that shall be
payable upon acceleration, if other than the principal amount thereof;
(10) Provisions, if any, for the defeasance or discharge of certain
obligations with respect to such Debt Securities, which provisions may be in
addition to, in substitution for, or in modification of (or any combination
of the foregoing), the provisions of the Indentures;
(11) Whether such Debt Securities will be in registered or bearer form;
(12) The currency or currencies in which payment of principal of and
interest on such Debt Securities will be made;
(13) If payments of principal of, premium, if any, or interest on the
Debt Securities are to be made in currency other than the denominated
currency, the manner in which the exchange rate with respect to such
payments will be determined;
(14) The manner in which the amounts of payment of principal of, premium,
if any, or interest on such Debt Securities will be determined, if such
amounts may be determined by reference to an index based on a currency or
currencies other than that in which such Debt Securities are denominated or
designated to be payable or by reference to a commodity, commodity index,
stock exchange index or financial index;
(15) Any addition to, or modification or deletion of, any Events of
Default or covenants set forth in the Indentures;
(16) A discussion of any material and/or special United States federal
income tax considerations applicable to such Debt Securities;
(17) Any depositaries, trustees, interest rate calculation agents,
exchange rate calculation agents or other agents with respect to the Debt
Securities other than those originally appointed;
(18) Whether such Debt Securities will be issued in the form of one or
more global securities and whether such global securities are to be issuable
in a temporary global form or permanent global form;
(19) Any rights of the holders of such Debt Securities to convert or
exchange such Debt Securities into or for other securities or property of
HET or HOC and, if so, the terms and conditions, which may be in addition to
or in lieu of the provisions contained in the Indentures, upon which such
Debt Securities will be convertible or exchangeable;
(20) The terms, if any, on which such Debt Securities will be subordinate
to other debt of HET or HOC, as the case may be;
(21) Any listing of the Debt Securities on a securities exchange;
(22) The provisions, if any, relating to any security provided for such
Debt Securities; and
(23) Any other terms of such Debt Securities, which other terms will not
be inconsistent with the provisions of the Indentures.
7
<PAGE>
The Debt Securities may be sold at a discount below their principal amount.
Even if the Debt Securities are not issued at a discount below their principal
amount, such securities may, for United States federal income tax purposes, be
deemed to have been issued with OID because of certain interest payment
characteristics. Special United States federal income tax considerations
applicable to Debt Securities issued with OID will be described in more detail
in any applicable Prospectus Supplement. In addition, special United States
federal tax considerations or other restrictions or terms applicable to any Debt
Securities issuable in bearer form, offered exclusively to foreigners, or
denominated in a currency other than United States dollars will be set forth in
a Prospectus Supplement relating thereto.
GUARANTEE OF HOC DEBT SECURITIES
HET irrevocably and unconditionally will guarantee the payment of all
obligations of HOC under the HOC Debt Securities. If HOC defaults in the payment
of the principal of, premium, if any, or interest on such HOC Debt Securities
when and as the same shall become due, whether upon maturity, acceleration, call
for redemption or otherwise, without the necessity of action by the Trustee or
any holder of such HOC Debt Securities, HET shall be required promptly and fully
to make such payment. The Indentures provide for the release of HET as guarantor
of HOC Debt Securities in certain circumstances, including (i) HOC ceases to be
a wholly owned Subsidiary of HET, or (ii) a transfer by HOC of all or
substantially all of its assets or a merger of HOC which transfer or merger is
governed by the "Merger, Consolidation, or Sale of Assets" covenant, and in
connection with which the transferee entity assumes HOC's obligations under the
Indenture and such transfer or merger otherwise complies with the requirements
of such covenant.
HET conducts substantially all of its business through HOC and its
subsidiaries and does not own any material assets other than all of the stock of
HOC. HET's obligations under the guarantee are as a secondary obligor, and such
obligations are subordinated to all present and future senior indebtedness of
HET. HET is presently dependent on the receipt of dividends or other payments
from HOC to make payments on the guarantee of the HOC Debt Securities.
EXCHANGE REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, payment
of principal, premium, if any, and any interest on the Debt Securities will be
registrable, at the office of the Trustee or at any other office or agency
maintained by HET or HOC, as the case may be, for such purpose subject to the
limitations of the Indenture. Unless otherwise indicated in the applicable
Prospectus Supplement, the Debt Securities will be issued in denominations of
U.S. $1,000 or integral multiples thereof. No service charge will be made for
any registration of transfer or exchange of the Debt Securities, but HET or HOC,
as the case may be, may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities (the "Global Securities") that will be deposited with a
Depositary or its nominee identified in the applicable Prospectus Supplement. In
such a case, one or more Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Debt Securities of the series to be represented by such Global
Securities. Each Global Security will be deposited with such Depositary or
nominee or a custodian therefor and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to below
and any such other matters as may be provided for pursuant to the applicable
Indenture.
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Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Security may be transferred to, or registered or
exchanged for Debt Securities registered in the name of, any person or entity
other than the Depositary for such Global Security or any nominee of such
Depositary, and no such transfer may be registered, unless (i) the Depositary
has notified HET or HOC, as the case may be, that it is unwilling or unable to
continue as Depositary for such Global Security or has ceased to be qualified to
act as such as required by the applicable Indenture, (ii) HET or HOC, as the
case may be, executes and delivers to the Trustee an order that such Global
Security shall be so transferable, registrable and exchangeable, and such
transfers shall be registrable, or (iii) there shall exist such circumstances,
if any, as may be described in the applicable Prospectus Supplement. All Debt
Securities issued in exchange for a Global Security or any portion thereof will
be registered in such names as the Depositary may direct.
The specific terms of the Depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. HET and HOC expect that the
following provisions will apply to Depositary arrangements:
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of such Global
Security, and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depositary or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or by HET or HOC, as the case may
be, if such Debt Securities are offered and sold directly by HET or HOC.
Ownership of beneficial interests in such Global Security will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests by participants in such Global Security will be shown
on, and the transfer of that ownership interest will be effected only through,
records maintained by the Depositary or its nominee for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Global Securities.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certified form and will not be
considered the holders thereof for any purposes under the Indenture.
Accordingly, each person owning a beneficial interest in such Global Security
must rely on the procedures of the Depositary and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder under the Indenture. If the
Company requests any action of holders or if an owner of a beneficial interest
in such Global Security desires to give any notice or take any action a holder
is entitled to give or take under the Indenture, the Depositary will authorize
the participants to give such notice or take such action, and participants would
authorize beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Notwithstanding any other provisions to the contrary in the Indenture, the
rights of the beneficial owners of the Debt Securities to receive payment of the
principal and premium, if any, of and interest on
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such Debt Securities, on or after the respective due dates expressed in such
Debt Securities, or to institute suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of the beneficial owners.
Principal of and any interest on a Global Security will be payable in the
manner described in the applicable Prospectus Supplement.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures provide that HET or HOC, as the case may be, may not
consolidate or merge with or into, or sell, assign, convey, transfer or lease
its properties and assets substantially in their entirety (computed on a
consolidated basis) to, another corporation, person or entity unless (i) either
(a) in the case of a merger or consolidation, HET or HOC, as the case may be, is
the surviving person or (b) the successor or transferee is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes, by supplemental indenture, all the
obligations of HET or HOC, as the case may be, under the Debt Securities and the
Indentures, and (ii) immediately after such transaction no Default or Event of
Default shall exist.
EVENTS OF DEFAULT
Unless otherwise specified in the applicable Prospectus Supplement, the
following will constitute Events of Default under the Indentures with respect to
Debt Securities of any series: (a) failure to pay principal of any Debt Security
of that series when due and payable at maturity, upon redemption or otherwise or
failure to deposit a sinking fund payment when and as due in respect of any Debt
Security of that series; (b) failure to pay any interest on any Debt Security of
that series when due, and the Default continues for 30 days; (c) default in the
performance, or breach, of any covenant or warranty of HET or HOC, as the case
may be, in the Indenture (other than a covenant or warranty that has been
included in the Indenture solely for the benefit of a series of Debt Securities
other than that series), which default continues uncured for a period of 60 days
after written notice to HET or HOC, as the case may be, by the applicable
Trustee or to HET or HOC, as the case may be, and the applicable Trustee by the
holders of at least 25% in principal amount of the outstanding Debt Securities
of that series as provided in the Indenture; (d) the acceleration of the
maturity of any indebtedness of HET or HOC, as the case may be, (other than
Non-recourse Indebtedness (as defined below)), at any one time, in an amount in
excess of the greater of (i) $25 million and (ii) 5% of Consolidated Net
Tangible Assets (as defined below), if such acceleration is not annulled within
30 days after written notice to HET or HOC, as the case may be, by the Trustee
and the holders of at least 25% in principal amount of the outstanding Debt
Securities of that series; and (e) certain events of bankruptcy, insolvency or
reorganization. The Prospectus Supplement may provide for any other Event of
Default with respect to Debt Securities of that particular series.
"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.
"Consolidated Net Tangible Assets" means the total amount of assets
(including investments in joint ventures) of HET or HOC, as the case may be, and
its subsidiaries (less applicable depreciation, amortization and other valuation
reserves) after deducting therefrom (a) all current liabilities of it and its
subsidiaries (excluding (i) the current portion of long-term indebtedness, (ii)
intercompany liabilities and (iii) any liabilities which are by their terms
renewable or extendible at the option of the obligor thereon to a time more than
12 months from the time as of which the amount thereof is being computed) and
(b) all goodwill, trade names, trademarks, patents, unamortized debt discount
and any other like intangibles, all as set forth on the consolidated balance
sheet of HET or HOC, as the case may be, for the most recently completed fiscal
quarter for which financial statements are available and computed in accordance
with generally accepted accounting principles.
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If an Event of Default with respect to outstanding Debt Securities of any
series (other than an Event or Default relating to certain events of bankruptcy,
insolvency or reorganization) shall occur and be continuing, either the Trustee
or the holders of at least 25% in principal amount of the outstanding Debt
Securities of that series by notice, as provided in the Indenture, may declare
the unpaid principal amount (or, if the Debt Securities of that series initially
were issued at a discount, such lesser amount as may be specified in the terms
of that series) of, and any accrued and unpaid interest on, all Debt Securities
of that series to be due and payable immediately. However, at any time after a
declaration of acceleration with respect to Debt Securities of any series has
been made, but before a judgment or decree based on such acceleration has been
obtained, the holders of a majority in principal amount of the outstanding Debt
Securities of that series may, under certain circumstances, rescind and annul
such acceleration. For information as to waiver of defaults, see "Modification
and Waiver" below.
The Indenture will provide that, subject to the duty of the Trustee during
an Event of Default to act with the required standard of care, the Trustee will
be under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions, including those requiring security or
indemnification of the Trustee, the holders of a majority in principal amount of
the outstanding Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Debt Securities of that series.
HET or HOC, as the case may be, will be required to furnish to the Trustee
under the Indenture annually a statement as to the performance by HET or HOC, as
the case may be, of its obligations under that Indenture and as to any default
in such performance.
MODIFICATION AND WAIVER
Subject to certain exceptions, HET or HOC, as the case may be, and the
Trustee may amend the Indenture or the Debt Securities with the written consent
of the holders of a majority in principal amount of the then outstanding Debt
Securities of each series affected by the amendment with each series voting as a
separate class. The holders of a majority in principal amount of the then
outstanding Debt Securities of any series may also waive compliance in a
particular instance by HET or HOC, as the case may be, with any provision of the
Indenture with respect to the Debt Securities of that series; provided, however,
that without the consent of each holder of Debt Securities affected, an
amendment or waiver may not (i) reduce the percentage of the principal amount of
Debt Securities whose holders must consent to an amendment or waiver; (ii)
reduce the rate or change the time for payment of interest on any Debt Security
(including default interest); (iii) reduce the principal of or premium, if any,
or change the fixed maturity of any Debt Security, reduce the amount of, or
postpone the date fixed for, redemption or the payment of any sinking fund or
analogous obligation with respect thereto or reduce the portion of the principal
amount payable upon acceleration of the maturity of any Debt Securities issued
at a discount; (iv) make any Debt Security payable in currency other than that
stated in the Debt Security; (v) make any change in the provisions concerning
waivers of Default or Events of Default by holders or the rights of holders to
recover the principal of, premium, if any, or interest on, any Debt Security; or
(vi) waive a default in the payment of the principal of, or interest on, any
Debt Security, except as otherwise provided in the Indenture. HET or HOC, as the
case may be, and the Trustee may amend the Indenture or the Debt Securities
without notice to or the consent of any holder of a Debt Security: (i) to cure
any ambiguity, defect or inconsistency; (ii) to comply with the Indenture's
provisions with respect to successor corporations; (iii) to comply with any
requirements of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act; (iv) to provide for certificated or
unregistered Debt Securities and to make all appropriate changes for such
purpose; (v) to add to, change or eliminate any of the provisions of the
Indenture in respect of one of more series of Debt Securities, provided,
however, that any such addition, change or elimination (A) shall neither (1)
apply to any Debt Security of any series created prior to the execution of
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such amendment and entitled to the benefit of such provision, nor (2) modify the
rights of a holder of any such Debt Security with respect to such provision, or
(B) shall become effective only when there is no outstanding Debt Security of
any series created prior to such amendment and entitled to the benefit of such
provision; (vi) to make any change that does not adversely affect in any
material respect the interest of any holder; or (vii) to establish additional
series of Debt Securities as permitted by the Indenture.
The holders of a majority in principal amount of the then outstanding Debt
Securities of any series, by notice to the Trustee, may waive an existing
Default or Event of Default and its consequences except a Default or Event of
Default in the payment of the principal of, or any interest on, any Debt
Security with respect to the Debt Securities of that series; PROVIDED, HOWEVER,
that the holders of a majority in principal amount of the outstanding Debt
Securities of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration.
DEFEASANCE OF DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
DEFEASANCE AND DISCHARGE. The Indentures provide that HET or HOC, as the
case may be, may be discharged from any and all obligations in respect of the
Debt Securities of any series (except for certain obligations to pay additional
amounts, if any, upon the occurrence of certain tax, assessment or governmental
charge events with respect to payments on such Debt Securities, to register the
transfer or exchange of Debt Securities of such series, to replace stolen, lost
or mutilated Debt Securities of such series, to maintain paying agencies and to
hold money for payment in trust) upon the irrevocable deposit with the Trustee,
in trust, of money and/or government obligations that, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient in the opinion of a nationally recognized
firm of independent public accountants to pay and discharge each installment of
principal (and premium, if any) and interest on, and any mandatory sinking fund
payments in respect of, the Debt Securities of such series on the dates such
payments are due. Such discharge may occur only if, among other things, the
Company shall have delivered to the Trustee an opinion of counsel or a ruling
from the United States Internal Revenue Service (an "IRS Ruling"), in either
case to the effect that holders of the Debt Securities of such series will not
recognize income, gain or loss for United States Federal income tax purposes as
a result of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS. Upon compliance with certain conditions,
HET or HOC, as the case may be, may omit to comply with certain restrictive
covenants contained in the Indentures (or, if provided for in the applicable
Prospectus Supplement, any other restrictive covenant relating to any series of
Debt Securities provided for in a Board Resolution or supplemental indenture
which, by its terms may be defeased pursuant to the terms of such series of Debt
Securities) and any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to any Debt Securities.
The conditions include, among others: the deposit with the Trustee of money
and/or government obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will provide money
in an amount sufficient in the opinion of a nationally recognized firm of
independent public accountants to pay principal, premium, if any, and interest
on and any mandatory sinking fund payments in respect of the Debt Securities of
such series on the dates such payments are due; and the delivery to the Trustee
of an opinion of counsel or an IRS Ruling to the effect that the holders of the
Debt Securities of such series will not recognize income, gain or loss for
United States federal income tax purposes as a result of such deposit and
related covenant defeasance.
LIMITED LIABILITY OF CERTAIN PERSONS
The Indentures provide that no stockholder, incorporator, employee officer
or director, as such, past, present or future of HET or HOC, as the case may be,
its affiliates or any successor corporation shall have any personal liability in
respect of the obligations of HET or HOC, as the case may be, under the
Indentures or the Debt Securities by reason of his, her or its status as such
stockholder, incorporator, employee officer or director.
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MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
The casino entertainment operations of HET and HOC are subject to extensive
regulation by federal, state and local authorities in several jurisdictions. See
"Business and Properties--Governmental Regulation" in the 1997 HET Form 10-K,
incorporated by reference herein. The Indentures provide that each holder, by
accepting any of the Debt Securities subject thereto, shall be deemed to have
agreed that if the gaming authority of any jurisdiction of which HET or HOC, as
the case may be, or any of its subsidiaries conducts or proposes to conduct
gaming requires that a person who is a holder or the beneficial owner of the
Debt Securities of a holder must be licensed, qualified or found suitable under
applicable gaming laws, such holder or beneficial owner, as the case may be,
shall apply for a license, qualification or a finding of suitability within the
required time period. If such person fails to apply or become licensed or
qualified or is found unsuitable, HET or HOC, as the case may be, shall have the
right, at its election, (i) to require such person to dispose of its Debt
Securities or beneficial interest therein within 30 days of receipt of notice of
such election or such earlier date as may be requested or prescribed by such
gaming authority or (ii) to redeem such Debt Securities at a redemption price
equal to the lesser of (A) such person's cost or (B) 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the earlier of the
redemption date or the date of the finding of unsuitability, which may be less
than 30 days following the notice of redemption if so requested or prescribed by
the applicable gaming authority. HET or HOC, as the case may be, shall notify
the Trustee in writing of any such redemption as soon as practicable. HET or
HOC, as the case may be, shall not be responsible for any costs or expenses any
such holder may incur in connection with its application for a license,
qualification or a finding of suitability. The Indentures will require the
Trustee to report the names of the record holders of the Debt Securities to any
gaming authority when required by law.
CONVERSION AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into or exchangeable for other securities or property of HET or HOC
will be set forth in the applicable Prospectus Supplement relating thereto. Such
terms will include whether such Debt Securities are convertible into or
exchangeable for other securities or property of HET or HOC, the conversion or
exchange price (or manner of calculation thereof), the conversion or exchange
period, provisions as to whether conversion or exchange will be at the option of
the holders of such Debt Securities, the events requiring an adjustment of the
conversion or exchange price and provisions affecting conversion or exchange in
the event of the redemption of such Debt Securities.
DESCRIPTION OF THE PREFERRED STOCK
The description of Preferred Stock set forth below does not purport to be
complete and is qualified in its entirety by reference to the respective
Certificates of Incorporation and Bylaws of HET or HOC, as applicable. The
particular terms of a series of Preferred Stock offered by any Prospectus
Supplement will be described in the Prospectus Supplement relating to such
series.
GENERAL
The HET Certificate authorizes the issuance of 150,000 shares of HET
Preferred Stock with a par value of $100.00 per share, none of which was
outstanding as of the date of this Prospectus. HOC's Certificate of
Incorporation (the "HOC Certificate") authorizes the issuance of 1,000,000
shares of Preferred Stock with a par value of $.10 per share, none of which was
outstanding as of the date of this Prospectus. Shares of HET Preferred Stock and
HOC Preferred Stock may be issued from time to time, in one or more series, as
authorized by the HET Board and the HOC Board, respectively. Prior to issuance
of shares of each series, the HET Board or the HOC Board, as the case may be, is
required by their respective Certificates of Incorporation to fix for each
series the terms, preferences, rights, voting powers, restrictions, limitations
as to dividends or other distributions, qualifications and terms or conditions
of
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redemptions. The Preferred Stock will, when issued, be fully paid and
nonassessable and will have no preemptive rights.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the respective Certificates of Incorporation and Bylaws
of HET or HOC and any applicable amendments thereto designating terms of a
series of Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The voting rights, if any, of such Preferred Stock;
(10) Any rights of the holders of such Preferred Stock to convert or
exchange such Preferred Stock into or for other securities or property
of HET or HOC and, if so, the terms and conditions upon which such
Preferred Stock will be convertible or exchangeable;
(11) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of HET or HOC, as the case may be;
(13) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of HET or HOC, as the case may be;
(14) Whether dividends are payable in additional shares of Preferred Stock;
and
(15) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
RANK
Unless otherwise specified in a Prospectus Supplement, the Preferred Stock
of HET or HOC will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of HET or HOC, as the case may be, rank (i) senior to
all equity securities ranking junior to such Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of HET or
HOC, as the case may be; (ii) on a parity with all equity securities issued by
the terms of which specifically provide that such equity securities rank on a
parity with such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of HET or HOC, as the case may be; and
(iii) junior to all equity
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securities issued by HET or HOC, as the case may be, the terms of which
specifically provide that such equity securities rank senior to such Preferred
Stock with respect to dividend rights or rights upon liquidation, dissolution or
winding up of HET or HOC, as the case may be. The term "equity securities" does
not include convertible debt securities.
GAMING REDEMPTION
Each of the Certificates of Incorporation of HET and HOC provide that any of
its equity securities can be redeemed by HET or HOC, as the case may be, if,
among other circumstances, in the judgment of the HET Board or the HOC Board, as
the case may be, such redemption is necessary to avoid any regulatory sanctions
against, or to prevent the loss of, or to secure the reinstatement of any
license, franchise or entitlement from any governmental agency held by it or any
of its affiliates, or any entity in which HET or HOC, as the case may be, or an
affiliate is an owner, which license, franchise or entitlement is (i) needed to
conduct any portion of the business of HET or HOC, as the case may be, any such
affiliate or other entity or which license, franchise or entitlement is
conditioned upon some or all of the holders of such security possessing
prescribed qualifications; or (ii) needed to allow the conduct of any portion of
the business of HET or HOC, as the case may be, or any such affiliate or other
entity.
GUARANTEE OF HOC PREFERRED STOCK
HET will irrevocably and unconditionally agree, to the extent set forth
herein, to pay in full to the holders of the HOC Preferred Stock of any series,
the Guarantee Payments (as defined below) (except to the extent paid by HOC), as
and when due, regardless of any defense, right of set-off or counterclaim which
HOC may have or assert. The following payments to the extent not paid by HOC
(the "Guarantee Payments") will be subject to such guarantee (without
duplication): (i) any accumulated and unpaid dividends which have been
theretofore declared on the HOC Preferred Stock of such series out of funds
legally available therefor, (ii) the redemption price (including all accumulated
unpaid dividends) payable out of funds legally available therefor with respect
to HOC Preferred Stock of any series called for redemption by HOC and (iii) upon
the liquidation of HOC, the lesser of (a) the aggregate of the stated
liquidation preference and all accumulated and unpaid dividends (whether or not
declared) to the date of payment and (b) the amount of assets of HOC legally
available for distribution to holders of HOC Preferred Stock of such series in
liquidation. HET's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by HET to the holders of HOC Preferred
Stock of any series or by causing HOC to pay such amounts to such holders.
In connection with the guarantee of HOC Preferred Stock, HET will covenant
that, so long as any shares of HOC Preferred Stock of any series remain
outstanding, neither HET nor any majority owned subsidiary of HET will declare
or pay any dividend on, or redeem, purchase, acquire or make a liquidation
payment with respect to, any of HET's capital stock or make any guarantee
payments with respect to the foregoing (other than payments under its guarantee
of HOC Preferred Stock, redemptions described under "Description of Common
Stock--Redemption," payments to redeem common share purchase rights under HET's
stockholder rights plan dated October 5, 1996, as amended, or the declaration of
a dividend of similar share purchase rights in the future), if at such time, HET
will be in default with respect to its payment or other obligations under such
guarantee.
HET's guarantee of HOC Preferred Stock will constitute an unsecured
obligation of HET and will rank (i) subordinate and junior in right of payment
to all other liabilities of HET, (ii) pari passu with the most senior preferred
stock hereafter issued by HET and with any guarantee now or hereafter entered
into by HET in respect of any preferred or preference stock of any affiliate of
HET and (iii) senior to HET's common stock. For purposes of clause (ii), pari
passu means that any payments to which beneficiaries of HET's guarantee of HOC
Preferred Stock are entitled must be shared with holders of any preferred or
preference stock to which such guarantee is stated to be pari passu ("Pari Passu
Stock") to the same extent
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as would be required under applicable law if instead such guarantee constituted
a class of preferred or preference stock of HET ranking pari passu with such
Pari Passu Stock as to such payments.
HET's guarantee of HOC Preferred Stock will constitute a guarantee of
payment and not of collection. Accordingly, a holder of HOC Preferred Stock may
enforce such guarantee directly against HET, and HET will waive any right or
remedy to require that any action be brought against HOC or any other person or
entity before proceeding against HET. HET's guarantee will not be discharged
except by payment of the Guarantee Payments in full to the extent not paid by
HOC.
Since HET is a holding company, the rights of HET, and hence the rights of
creditors of HET (including the rights of holders of Preferred Stock under HET's
guarantee of HOC Preferred Stock), to participate in any distribution of the
assets of any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of HET itself as a creditor of the subsidiary may be
recognized.
CONVERSION AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into or exchangeable for other securities or
property of HET or HOC will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include whether such Preferred Stock is
convertible into or exchangeable for other securities or property of HET or HOC,
the conversion or exchange price (or manner of calculation thereof), the
conversion or exchange period, provisions as to whether conversion or exchanges
will be at the option of the holders of such Preferred Stock, the events
requiring an adjustment of the conversion or exchange price and provisions
affecting conversion or exchange in the event of the redemption of such
Preferred Stock.
DEPOSITARY SHARES
GENERAL
HET or HOC may issue receipts ("Depositary Receipts") for Depositary Shares,
each of which will represent a fractional interest of a share of a particular
series of their respective Preferred Stock, as specified in the applicable
Prospectus Supplement. Shares of Preferred Stock of each series represented by
Depositary Shares will be deposited under a separate Deposit Agreement (each, a
"Deposit Agreement") among HET or HOC, as the case may be, the depositary named
therein (the "Preferred Stock Depositary") and the holders from time to time of
the Depositary Receipts. Subject to the terms of the Deposit Agreement, each
owner of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of a particular series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the Preferred Stock represented by such Depositary Shares
(including dividend, voting, conversion, exchange, redemption and liquidation
rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock to the Preferred Stock Depositary, HET or
HOC, as the case may be, will cause the Preferred Stock Depositary to issue, on
behalf of HET or HOC, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from HET upon request,
and the statements made hereunder relating to the Deposit Agreement and the
Depositary Receipts to be issued thereunder are summaries of certain provisions
thereof and do not purport to be complete and are subject to, and qualified in
their entirety by reference to, all of the provisions of the applicable Deposit
Agreement and related Depositary Receipts.
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DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Stock
Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of HET or HOC,
as the case may be, sell such property and distribute the net proceeds from such
sale to such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock converted into other securities.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into other securities), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional shares of the Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by such Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
Preferred Stock Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever HET or HOC, as the case may be, redeems shares of Preferred Stock
held by the Preferred Stock Depositary, the Preferred Stock Depositary will
redeem as of the same redemption date the number of Depositary Shares
representing shares of the Preferred Stock so redeemed, provided HET or HOC, as
the case may be, shall have paid in full to the Preferred Stock Depositary the
redemption price of the Preferred Stock to be redeemed plus an amount equal to
any accrued and unpaid dividends thereon to the date fixed for redemption. The
redemption price per Depositary Share will be equal to the corresponding
proportion of the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by HET or HOC.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption and surrender thereof to the Preferred Stock Depositary.
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VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as to the exercise of the voting rights pertaining to the amount of Preferred
Stock represented by such holder's Depositary Shares. The Preferred Stock
Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and HET or HOC, as the
case may be, will agree to take all reasonable action which may be deemed
necessary by the Preferred Stock Depositary in order to enable the Preferred
Stock Depositary to do so. The Preferred Stock Depositary will abstain from
voting the amount of Preferred Stock represented by such Depositary Shares to
the extent it does not receive specific instructions from the holders of
Depositary Receipts evidencing such Depositary Shares. The Preferred Stock
Depositary shall not be responsible for any failure to carry out any instruction
to vote, or for the manner or effect of any such vote made, as long as such
action or non-action is in good faith and does not result from negligence or
willful misconduct of the Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of HET or HOC, as
the case may be, whether voluntary or involuntary, the holders of each
Depositary Receipt will be entitled to the fraction of the liquidation
preference accorded each share of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, as set forth in the applicable
Prospectus Supplement.
CONVERSION AND EXCHANGE RIGHTS
The Depositary Shares, as such, are not convertible into or exchangeable for
any securities or property of HET or HOC. Nevertheless, if so specified in the
applicable Prospectus Supplement relating to an offering of Depositary Shares,
the Depositary Receipts may be surrendered by holders thereof to the Preferred
Stock Depositary with written instructions to the Preferred Stock Depositary to
instruct HET or HOC, as the case may be, to cause conversion or exchange of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into or for other securities or property of HET or HOC, and
each of HET and HOC has agreed that upon receipt of such instructions and any
amounts payable in respect thereof, it will cause the conversion or exchange
thereof utilizing the same procedures as those provided for delivery of
Preferred Stock to effect such conversion. If the Depositary Shares evidenced by
a Depositary Receipt are to be converted or exchanged in part only, a new
Depositary Receipt or Receipts will be issued for any Depositary shares not to
be converted or exchanged. No fractional shares of Common Stock will be issued
upon conversion or exchange, and if such conversion or exchange would result in
a fractional share being issued, an amount will be paid in cash by HET or HOC,
as the case may be, equal to the value of the fractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion or exchange.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between HET or HOC, as the case may be, and the
Preferred Stock Depositary. However, any amendment that materially and adversely
alters the rights of the holders of Depositary Receipts or that would be
materially and adversely inconsistent with the rights granted to the holders of
the related Preferred Stock will not be effective unless such amendment has been
approved by the existing holders of at least 66 2/3% of the Depositary Shares
evidenced by the Depositary Receipts then outstanding. No amendment shall impair
the
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right, subject to certain exceptions in the Depositary Agreement, of any holder
of Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with law. Every
holder of an outstanding Depositary Receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by the Deposit Agreement as
amended thereby.
The Deposit Agreement may be terminated by HET or HOC, as the case may be,
upon not less that 30 days' prior written notice to the Preferred Stock
Depositary if a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon the Preferred Stock
Depositary shall deliver or make available to each holder of Depositary
Receipts, upon surrender of the Depositary Receipts held by such holder, such
number of whole or fractional shares of Preferred Stock as are represented by
the Depositary Shares evidenced by such Depositary Receipts together with any
other property held by the Preferred Stock Depositary with respect to such
Depositary Receipt. In addition, the Deposit Agreement will terminate
automatically if (i) all outstanding Depositary Shares shall have been redeemed,
(ii) there shall have been a final distribution in respect of the related
Preferred Stock in connection with any liquidation, dissolution or winding up of
HET or HOC, as the case may be, and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Stock or (iii) each share of the related
Preferred Stock shall have been converted into securities of HET or HOC not so
represented by Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
HET or HOC, as the case may be, will pay all transfer and other taxes and
governmental charges arising solely from the existence of the Deposit Agreement.
In addition, HET or HOC, as the case may be, will pay the fees and expenses of
the Preferred Stock Depositary in connection with the performance of its duties
under the Deposit Agreement. However holders of Depositary Receipts will pay the
fees and expenses of the Preferred Stock Depositary for any duties requested by
such holders to be performed which are outside of those expressly provided for
in the Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to HET
or HOC, as the case may be, notice of its election to do so, and HET or HOC, as
the case may be, may at any time remove the Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary must be
appointed within 60 days after delivery of the notice of resignation or removal
and must be a bank or trust company having its principal office in the United
States and having a combined capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from HET or HOC, as the case may be,
which are received by the Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither the Preferred Stock Depositary nor HET or HOC, as the case may be,
will be liable if it is prevented from or delayed in, by law or any
circumstances beyond its control, performing its obligations under the Deposit
Agreement. The obligations of HET or HOC, as the case may be, and the Preferred
Stock Depositary under the Deposit Agreement will be limited to performing their
duties thereunder in good faith and without negligence (in the case of any
action or inaction in the voting of Preferred Stock represented by the
Depositary Shares), gross negligence or willful misconduct, and HET or HOC, as
the case may be, and the Preferred Stock Depositary will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Receipts,
Depositary Shares or shares of Preferred Stock
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represented thereby unless satisfactory indemnity is furnished. HET or HOC, as
the case may be, and the Preferred Stock Depositary may rely on written advice
of counsel or accountants, or information provided by persons presenting shares
of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
PLAN OF DISTRIBUTION
HET and HOC may sell the Securities to one or more underwriters for public
offering and sale by them and may also sell the Securities to investors directly
or through agents. Any such underwriter, or agent involved in the offer and sale
of Securities will be named in the applicable Prospectus Supplement. HET and HOC
reserve the right to sell or exchange Securities directly to investors on its
own behalf in those jurisdictions where and in such manner as it is authorized
to do so.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. Sales of Common Stock offered
hereby may be effected from time to time in one or more transactions on the NYSE
or in negotiated transactions or a combination of such methods. HET and HOC may
also, from time to time, authorize dealers, acting as agents of HET and HOC, as
the case may be, to offer and sell Securities upon the terms and conditions as
are set forth in the applicable Prospectus Supplement. In connection with the
sale of Securities, underwriters may receive compensation from HET or HOC in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of the Securities for whom they may act as agent. Underwriters
may sell Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent. Any such underwriter, dealer or agent will be identified, and any such
compensation received from HET or HOC will be described, in a Prospectus
Supplement. Unless otherwise indicated in a Prospectus Supplement, an agent will
be acting on a best efforts basis and a dealer will purchase Securities as a
principal, and may then resell such Securities at varying prices to be
determined by the dealer.
Any underwriting compensation paid by HET or HOC to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Dealers and agents participating in the
distribution of Securities may be deemed to be underwriters, and any discounts
and commissions received by them and any profit realized by them on resale of
the Securities may be deemed to be underwriting discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered into
with HET or HOC, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act, and to
reimbursement by HET or HOC for certain expenses.
To facilitate an offering of a series of Securities, certain persons
participating in the offering may engage in transactions that stabilize,
maintain, or otherwise affect the price of the Securities. This may include
over-allotments or short sales of the Securities, which involves the sale by
persons participating in the offering of more Securities than have been sold to
them by HET or HOC. In such circumstances, such persons would cover such
over-allotments or short positions by purchasing in the open market or by
exercising the over-allotment option granted to such persons. In addition, such
persons may stabilize or maintain the price of the Securities by bidding for or
purchasing Securities in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in any such offering may be
reclaimed if Securities sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be to stabilize
or maintain the market price of the Securities at a level above that which might
otherwise prevail in the open market. Such transactions, if commenced, may be
discontinued at any time.
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LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby will be
passed upon for HET and HOC by Latham & Watkins and E. O. Robinson, Jr., Senior
Vice President and General Counsel of HET and HOC.
EXPERTS
The audited financial statements and schedules incorporated by reference in
this Prospectus and in the Registration Statement, to the extent and for the
periods indicated in their reports, 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.
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