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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-10410
HARRAH'S ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE I.R.S. NO. 62-1411755
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(State of Incorporation) (I.R.S. Employer Identification No.)
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1023 CHERRY ROAD
MEMPHIS, TENNESSEE 38117
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 762-8600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Capital Stock, Par Value $0.10 per share* NEW YORK STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
PACIFIC EXCHANGE
PHILADELPHIA STOCK EXCHANGE
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* Common Capital Stock also has special stock purchase rights listed on each of
the same exchanges
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 30, 1998, based upon the closing price of $22.0625 for
the Common Stock on the New York Stock Exchange on that date, was
$2,201,684,188.
As of January 30, 1998, the Registrant had 101,053,752 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders, which will be filed within 120 days after the end of the fiscal
year, are incorporated by reference into Part III hereof and portions of the
Company's Annual Report to Stockholders for the year ended December 31, 1997 are
incorporated by reference into Parts I and II hereof.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Harrah's Entertainment, Inc. (referred to herein, together with its
subsidiaries where the context requires, as the "Company" or "Harrah's") is one
of the leading casino entertainment companies in the United States. Harrah's,
formerly named The Promus Companies Incorporated ("Promus"), was incorporated on
November 2, 1989 under Delaware law. On June 30, 1995, Promus changed its name
to Harrah's Entertainment, Inc., following the spin-off of its hotel business
into a separate public corporation.
Harrah's conducts its business through its wholly-owned subsidiary, Harrah's
Operating Company, Inc. ("HOC") (formerly named Embassy Suites, Inc.
("Embassy")), and through HOC's subsidiaries. The principal asset of Harrah's is
the stock of HOC, which holds, directly or indirectly through subsidiaries,
substantially all of the assets of the Company's businesses. The principal
executive offices of Harrah's are located at 1023 Cherry Road, Memphis,
Tennessee 38117, telephone (901) 762-8600.
On December 18, 1997, the Company entered into an agreement whereby Harrah's
agreed to acquire Showboat, Inc. ("Showboat"), subject to various conditions,
including regulatory approvals and approval by the stockholders of Showboat.
Showboat owns and operates casinos in Atlantic City, New Jersey and Las Vegas,
Nevada. It manages and is the largest single shareholder, currently owning
approximately 24.6%, of the Star City casino in Sydney, New South Wales,
Australia. Showboat also owns 55% of a subsidiary which owns and manages the
Showboat Mardi Gras Casino in East Chicago, Indiana. It is anticipated that the
acquisition of Showboat will be completed in second quarter 1998.
Operating data for the three most recent fiscal years, together with
corporate expense, interest expense and other income, is set forth on page 35 of
the Annual Report, which page is incorporated herein by reference.
For information on operating results and a discussion of those results, see
"Management's Discussion and Analysis--Results of Operations" on pages 25
through 33 of the Annual Report, which pages are incorporated herein by
reference.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
Annual Report on Form 10-K and other materials filed or to be filed by the
Company with the Securities and Exchange Commission ("SEC") (as well as
information included in oral statements or other written statements made or to
be made by the Company) contains statements that are forward looking. These
include statements relating to the following activities, among others: (A)
operations and expansions of existing properties, including future performance,
anticipated scope and opening dates of expansions; (B) planned development of
casinos that would be owned or managed by the Company; (C) the proposed plan of
reorganization and its various facets for New Orleans; (D) planned capital
expenditures for 1998 and beyond; (E) the impact of the WINet and Total Gold
Card Programs; and (F) completion of the acquisition of Showboat. These
activities involve important factors that could cause actual results to differ
materially from those expressed in any forward looking statements made by or on
behalf of the Company. These include, but are not limited to, the following
factors as well as other factors described from time to time in the Company's
reports filed with the SEC: construction factors, including zoning issues,
environmental restrictions, soil and water conditions, weather and other
hazards, site access matters and building permit issues; access to available and
feasible financing; regulatory, licensing and other governmental approvals,
third party consents and approvals, and relations with partners, owners and
other third parties; conditions of credit markets and other business and
economic conditions; litigation, judicial actions and political uncertainties,
including gaming legislative action and taxation; and effects of competition,
including locations of competitors and operating and marketing competition. Any
forward looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
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CASINO ENTERTAINMENT
GENERAL
Harrah's casino business commenced operations more than 60 years ago and is
unique among casino entertainment companies in its broad geographic
diversification. At year end, Harrah's operated 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 operated riverboat casinos in
Joliet, Illinois; dockside casinos in Vicksburg and Tunica, Mississippi,
Shreveport, Louisiana, and St. Louis and North Kansas City, Missouri; casinos on
three Indian reservations, one near Phoenix, Arizona, one north of Seattle,
Washington and one in Cherokee, North Carolina; and a land-based casino in
Auckland, New Zealand. On January 13, 1998, the Company commenced management of
a casino on an Indian reservation near Topeka, Kansas.
As of December 31, 1997, Harrah's operated a total of approximately 774,500
square feet of casino space, 19,835 slot machines, 934 table games, 8,197 hotel
rooms or suites, approximately 158,200 square feet of convention space, 61
restaurants, 21 snack bars, seven showrooms and four cabarets.
In September 1997, Harrah's introduced its new Total Gold (U.S. Patent
Pending) program, a fully integrated national player recognition and rewards
program that connects player activity and provides rewards across all of its
properties. It is the first and only program in the casino industry that rewards
and recognizes casino customers on the level of a national brand--coast to
coast. Underpinning Harrah's Total Gold is a database management system
exclusive to Harrah's, The Winners Information Network system, or WINet (U.S.
Patent Pending), which maximizes Harrah's distribution and links all of its
domestic locations.
Harrah's marketing strategy is currently designed to appeal primarily to the
broad middle-market gaming customer segment, with special emphasis on the
rapidly growing segment of multi-market gamers. Harrah's strategic direction is
focused on establishing a well-defined brand identity that communicates a
consistent message of high quality and excellent service.
LAND-BASED CASINOS
ATLANTIC CITY
The Harrah's Atlantic City casino hotel is situated on 24.17 acres in the
Marina area of Atlantic City and at year end had approximately 80,800 square
feet of casino space with 2,529 slot machines and 97 table games. It consists of
three 16-story hotel towers with 278 suites and 896 rooms and adjoining low rise
buildings which house the casino space and the 26,100 square foot convention
center. The facilities include eight restaurants, an 820-seat showroom, a health
club with swimming pool and parking for 2,862 cars, including a substantial
portion in a parking garage. The property also has a 75-slip marina.
In 1997, the Company completed an $83.7 million expansion of the property
which commenced in 1995. In 1996, construction was completed on a casino
expansion as well as enhancement of the facility's restaurant offerings. The
final portion of the expansion, construction of a new 416-room, 16-story hotel
tower, was completed in June 1997.
The Company has announced a possible additional expansion to its Atlantic
City property, pending suitable economic analysis as well as substantive
progress on development of new casino hotel projects in the Marina area by other
companies, appropriate regulatory approvals and adequate resolution of road and
access improvements that have been the subject of discussions among the state,
city and developers. This additional expansion, if completed as currently
envisioned, would include significant additional guest rooms and casino space,
as well as enhancements in convention facilities, restaurant offerings, parking
facilities and other nongaming amenities. At present, because of the
uncertainties relating to this project, there is no assurance this further
expansion will proceed.
The Company also owns approximately 8.45 acres of land adjacent to Harrah's
Atlantic City and 170 acres of wetlands in the Marina area.
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Most of the casino's customers arrive by car from within a 150-mile radius
which includes Philadelphia, New York and northern New Jersey, Harrah's Atlantic
City's primary feeder markets.
LAS VEGAS
Harrah's Las Vegas is located on approximately 17.7 acres on the Las Vegas
Strip and at year end, consisted of a 15-floor hotel tower, a 23-floor hotel
tower, two 35-story hotel towers, and adjacent low-rise buildings which house
the 15,000 square foot convention center and the casino. The hotel has 2,587
regular rooms and 90 suites. The Harrah's Las Vegas complex has approximately
86,700 square feet of casino space, with 1,963 slot machines and 97 table games.
Also included are six restaurants, four snack bars, the 525-seat Commander's
Theatre, a 367-seat cabaret, an arcade, a health club and a heated pool. There
are 2,500 parking spaces available, including a substantial portion in a
self-park garage.
The Company completed a $200 million expansion of Harrah's Las Vegas in
fourth quarter 1997. The expansion, which commenced in 1996, included a new
35-story hotel tower, additional casino space, new restaurant facilities, a
complete renovation of the facade of the casino located on the Strip, as well as
significant additions and improvements to nongaming amenities.
The casino's primary feeder markets are the Midwest, California and Canada.
LAKE TAHOE
Harrah's Lake Tahoe is situated on 22.9 acres near Lake Tahoe and consists
of an 18-story tower and adjoining low-rise building which house a 16,500 square
foot convention center and approximately 63,200 square feet of casino space,
with 1,711 slot machines and 107 table games. The casino hotel, with 79 suites
and 453 luxury rooms, has seven restaurants, two snack bars, the 688-seat South
Shore Showroom, a 197-seat cabaret, a health club, retail shops, a heated pool
and an arcade. The facility has customer parking for 854 cars in a garage and
1,098 additional spaces in an adjoining lot.
Harrah's also operates Bill's Lake Tahoe Casino which is located on a 2.1
acre site adjacent to Harrah's Lake Tahoe. The casino includes approximately
18,000 square feet of casino space, with 547 slot machines and 20 table games,
and one restaurant.
The primary feeder markets for both casinos are California and the Pacific
Northwest.
RENO
Harrah's Reno, situated on approximately 3.7 acres, consists of a casino
hotel complex with a 24-story structure, an approximate 15,450 square foot
convention center and 55,450 square feet of casino space, with 1,581 slot
machines and 65 table games. The facilities include a Harrah's hotel, with 557
rooms and eight suites, the 420-seat Sammy's Showroom, a pool, a health club and
an arcade. The property has six restaurants, including a Planet Hollywood
restaurant and lounge operated by a non-affiliated restaurant company. The
complex can accommodate guest parking for 1,739 cars, including a valet parking
garage, a self-park garage and off-site valet parking.
The Company owns a 408-room, 26-story Hampton Inn hotel adjacent to Harrah's
Reno. The hotel, which is operated by Harrah's pursuant to a license agreement
from Promus Hotels, Inc., provides high-quality, moderately-priced guest rooms
to accommodate Harrah's guests.
The primary feeder markets for Harrah's Reno are northern California, the
Pacific Northwest and Canada.
LAUGHLIN
Harrah's Laughlin is located in Laughlin, Nevada on a 44.9 acre site in a
natural cove on the Colorado River and features a hotel with 1,632 standard
rooms and 58 suites, a 378-seat showroom, a 3,164-seat outdoor amphitheater,
five restaurants and two snack bars, including a McDonald's and a Baskin Robbins
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which are operated by non-affiliated companies. Harrah's Laughlin has
approximately 47,000 square feet of casino space, with 1,291 slot machines and
42 table games, and approximately 7,000 square feet of convention center space.
The facility has customer parking for 2,604 cars, including a covered parking
garage, and a park for recreational vehicles. Other amenities include a health
club, swimming pools, an arcade and retail shops. It is the only property in
Laughlin with a developed beachfront on the River.
The casino's primary feeder markets are the Los Angeles and Phoenix
metropolitan areas where a combined total of more than 17 million people reside.
NEW ZEALAND
Sky City, a casino entertainment facility in Auckland, New Zealand, is owned
by Sky City Limited, a publicly-traded New Zealand corporation in which 12.5%
was owned by the Company until third quarter 1997 when Harrah's sold its
interest in the corporation. Harrah's currently manages the facility for a fee
under a management contract. Harrah's was notified in 1997 that Sky City Limited
would buy out the management contract for a price based upon an agreed upon
formula set forth in the management contract. Harrah's will continue to manage
the Sky City complex until June 30, 1998, at which time the management contract
is expected to terminate.
The facility is located on 3.1 acres of land and has approximately 59,700
square feet of casino space, 1,121 slot machines and 111 table games. It also
features four restaurants, a 100-seat cabaret, several lounges, two snack bars,
retail shops, a health club and a swimming pool. The complex also includes a
hotel with 306 rooms and 38 suites, a 700-seat theater/showroom and
approximately 15,000 square feet of conference space. The facilities also
include customer parking for 2,552 cars, a portion of which is in an underground
parking garage. Valet parking is also available. A special attraction of the
facility is a 1,066-foot Sky Tower, which opened in August 1997. The Sky Tower,
the tallest structure in the southern hemisphere, features two enclosed and one
open-air observation decks and a revolving bar and restaurant.
NEW ORLEANS
A Harrah's subsidiary owns an approximate 47% interest in Harrah's Jazz
Company ("Harrah's Jazz"), a partnership formed for purposes of developing,
owning and operating the exclusive land-based casino entertainment facility (the
"Rivergate Casino") in New Orleans, Louisiana, on the site of the former
Rivergate Convention Center. In November 1995, Harrah's Jazz and its
wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed petitions for relief
under Chapter 11 of the Bankruptcy Code. Harrah's Jazz filed a plan of
reorganization with the Bankruptcy Court in April 1996 and filed several
subsequent amendments to the plan (the "Plan"). In April 1997, the Bankruptcy
Court confirmed and approved the Plan.
The confirmed Plan contemplated, among other things, that a newly formed
corporation, Jazz Casino Corporation, would be responsible for completing
construction of the Rivergate Casino, a subsidiary of the Company would receive
approximately 40% of the equity in the project, and Harrah's would make a $75
million equity investment in the project (less any debtor-in-possession
financing provided to the project), guarantee $120 million of a $180 million
bank credit facility, guarantee timely completion and opening of the Rivergate
Casino and make an additional $20 million subordinated loan to the project to
finance the Rivergate Casino. However, since the Louisiana State Legislature did
not approve a component of the confirmed Plan--a modified casino operating
contract with Louisiana's gaming board--the confirmed Plan was not consummated.
Subsequently, Harrah's Jazz filed a modified plan with the Bankruptcy Court
which contemplated, among other things, the assumption of the existing casino
operating contract and relief from payment of any gaming taxes under the casino
operating contract. This modified plan was withdrawn by Harrah's Jazz.
In November 1997 and again in January 1998, Harrah's Jazz modified the
confirmed Plan. This most recent plan, which is supported by, among others, the
Governor of Louisiana and the Mayor of New Orleans, contemplates that a newly
formed limited liability company, Jazz Casino Company, L.L.C.
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("JCC"), would be responsible for completing construction of the Rivergate
Casino, a subsidiary of the Company would receive approximately 40% of the
equity in JCC's parent, and Harrah's would make a $75 million equity investment
in the project (less any debtor-in-possession financing provided to the
project), guarantee JCC's $100 million annual payment under the casino operating
contract to the State of Louisiana gaming board (the "State Guarantee"),
guarantee up to $154 million of a bank credit facility of up to $224 million,
guarantee timely completion and opening of the Rivergate Casino and make an
additional $10 million subordinated loan to JCC to finance the construction of
the Rivergate Casino. With respect to the State Guarantee, Harrah's would be
obligated to guarantee the first year of JCC's operations and, if certain cash
flow tests and other conditions are satisfied each year, to renew the guarantee
each year for a maximum term of approximately five years. Harrah's obligations
under the State Guarantee would be limited to a guarantee of the $100 million
payment obligation of JCC for the period in which the State Guarantee is in
effect and would be secured by a first priority lien on JCC's assets. JCC's
payment obligation would be $100 million at the commencement of each 12-month
period under the casino operating contract and would decline on a daily basis by
1/365 of $100 million as payments are made each day by JCC to Louisiana's gaming
board.
Final consummation of the plan is subject to numerous approvals, including
approval from the Company's Board of Directors, the Louisiana State Legislature,
the City of New Orleans City Council and others. The plan was confirmed by the
Bankruptcy Court on January 29, 1998 and it is anticipated that the casino
operating contract will be considered by the Louisiana State Legislature in a
special session commencing in late March 1998. There can be no assurance that
these approvals will be obtained and that such plan will be consummated.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Harrah's Jazz, totaling
approximately $32.2 million as of December 31, 1997, to fund certain payments to
the City of New Orleans and other cash requirements of Harrah's Jazz. Harrah's
has committed to provide up to $40 million in debtor-in-possession loans to
Harrah's Jazz, conditioned upon Harrah's Jazz meeting certain monthly milestones
in the bankruptcy. There can be no assurance that such committed
debtor-in-possession financing will be sufficient for Harrah's Jazz to
consummate the Plan. Should additional debtor-in-possession funding be necessary
for the consummation of the Plan, the approval of the Company's Board of
Directors would be necessary for Harrah's to provide any debtor-in-possession
financing in excess of $40 million.
See "Legal Proceedings" herein for a discussion of legal actions filed in
connection with the New Orleans project.
RIVERBOAT CASINOS
JOLIET
Harrah's Joliet is located in downtown Joliet, Illinois, on the Des Plaines
River. The two riverboat casinos, the Harrah's Northern Star, a modern 210-foot
mega-yacht, and the 210-foot Southern Star II, a re-creation of a Mississippi
riverboat, offer a combined total of 37,000 square feet of casino space with 56
table games and 988 slot machines. Each riverboat has the capacity to
accommodate approximately 825 guests per cruise. Harrah's Joliet offers a total
of 18 cruises per day.
The dockside facilities, which are situated on 6.8 acres, include a pavilion
with three restaurants, two snack bars, a lounge, approximately 3,700 square
feet of meeting space and a retail shop. Parking is available for 943 cars,
including a portion in a 4-story parking garage.
A partnership, in which an indirect subsidiary of the Company is the 80
percent general partner, owns the dockside facilities and underlying real
property, the Harrah's Northern Star and the Southern Star II vessels, and the
riverboat businesses. The businesses are operated by Harrah's, as general
partner in the partnership. The partnership also holds long-term rights to the
boat basin/berth.
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The Company is evaluating a proposed expansion project in Joliet to add a
hotel and additional meeting room facilities.
The Chicago metropolitan area is the primary feeder market for Harrah's
Joliet, with Joliet being only 30 miles from downtown Chicago.
TUNICA
Harrah's Tunica is a riverboat casino complex located in Tunica,
Mississippi, approximately 30 miles south of downtown Memphis, Tennessee. The
facilities include a casino constructed on a floating stationary barge with
approximately 50,000 square feet of casino space, 857 slot machines and 44 table
games. Shoreside facilities, which are situated on 88 acres of land, include a
Harrah's hotel, which features 181 rooms, 18 suites and exercise facilities,
three restaurants, a child care facility, an arcade, retail shop, approximately
13,500 square feet of convention area/meeting room space and customer parking
for approximately 2,600 cars.
The riverboat casino facilities are owned by a partnership in which an
indirect subsidiary of the Company is the 83% general partner. In April 1997, a
separate indirect subsidiary of the Company acquired the remaining interest in
the partnership not owned by the Company and accordingly, the Company owns 100%
of the casino and related facilities. The underlying land is held under a
long-term lease to the partnership.
The partnership which owns Harrah's Tunica has entered into agreements with
two nearby competitors for the development of a golf course and related
facilities adjacent to Harrah's Tunica. Construction on the project commenced in
November 1996 with completion expected in fourth quarter 1998. The Company's
investment in the golf course development is not expected to exceed $2 million.
The primary feeder market for Harrah's Tunica is the Memphis metropolitan
area.
The Company also operated another dockside casino in Tunica which closed in
May 1997. The Company is continuing to explore its options with respect to this
property.
VICKSBURG
Harrah's Vicksburg is the Company's dockside casino entertainment complex on
approximately 10.3 acres in Vicksburg, Mississippi. The complex, which is
located in downtown Vicksburg on the Yazoo Diversion Canal of the Mississippi
River, includes a 297-foot stationary riverboat casino designed in the spirit of
a traditional 1800's riverboat with approximately 18,000 square feet of casino
space, 573 slot machines and 31 table games. The casino is docked next to the
Company's shoreside complex which features three restaurants, child care
facilities, an arcade, a retail outlet and an approximate 8,500 square foot
meeting room/convention area. Adjacent to the riverboat is a Harrah's hotel,
with 109 rooms and eight suites, which is owned and operated by the Company. Two
covered parking garages are across the street with combined parking for 996 cars
and additional parking is available for 429 cars. The Company owns the riverboat
and hotel and owns or holds long-term rights to all real property pertaining to
the project.
The casino's primary feeder markets are western and central Mississippi and
eastern Louisiana.
SHREVEPORT
Harrah's Shreveport is the Company's dockside riverboat casino in downtown
Shreveport, Louisiana, which includes a 254-foot 19th-century design
paddlewheeler riverboat, the ShreveStar, with 22,550 square feet of gaming space
with 1,069 slot machines and 40 table games. A pavilion, on 11.2 acres of land,
adjoins the casino on the banks of the Red River and includes two restaurants
and a 5,000 square foot area for private parties and group functions. Parking is
available for 880 cars, including 750 spaces in a parking garage.
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The Company plans to commence construction during second quarter 1998 on
expanded parking facilities at Harrah's Shreveport, and is evaluating a possible
further expansion of the facilities to include a hotel as well as additional
restaurant and meeting facilities.
The casino and related facilities are owned by a partnership which is 100%
owned by the Company. The underlying land is held by the partnership under a
long-term lease from the City of Shreveport.
The primary feeder markets for the casino are northwestern Louisiana and
east Texas, including the Dallas/Fort Worth metropolitan area.
NORTH KANSAS CITY
The Company owns and operates riverboat casino facilities in North Kansas
City, Missouri, which include two riverboat casinos, the North Star, a 295-foot
classic sternwheeler-designed stationary riverboat, and the other, the Mardi
Gras, which is constructed on a floating stationary barge. The facilities offer
a combined total of approximately 62,100 square feet of casino space, 2,029 slot
machines and 82 table games.
Shoreside facilities, which are situated on 55 acres of land that is under a
long-term lease, include a Harrah's hotel which features 181 rooms and 19
suites, a pavilion that houses three restaurants and 10,000 square feet of
meeting space. Additional property amenities include four snack bars, an arcade,
swimming pool and exercise room. The property also has a three-story 1,048-car
parking garage as well as surface parking. Total on-site parking, including
valet parking, is available for 2,942 cars.
The casino's primary feeder market is the Kansas City metropolitan area.
ST. LOUIS-RIVERPORT
On March 11, 1997, the Company opened a riverboat casino complex with
Players International, Inc. ("Players") in Maryland Heights, Missouri, in
northwest St. Louis County, 16 miles from downtown St. Louis. The partnership
formed by Harrah's and Players leases space to both Harrah's and Players in
which to operate their separately branded casinos and specialty restaurants.
Each company operates two riverboat casinos. Harrah's two riverboats offer a
combined total of approximately 60,000 square feet of gaming space, with a total
of approximately 1,300 slot machines and 60 table games.
A shoreside pavilion includes four restaurants (one of which is owned and
managed by Players), a snack bar, an arcade, an entertainment lounge and retail
space. Additional amenities include a 10,000 square foot convention/special
events center and child care facilities. Also included in the shoreside
facilities are an 8-story Harrah's hotel with 275 rooms and 16 suites. Parking
is available for 4,071 cars, including a portion in a parking garage. Harrah's
manages the shoreside pavilion, hotel and parking areas for the partnership for
a fee.
The complex is located on a site comprised of approximately 74 acres which
is owned by the Company and leased to the partnership and approximately 140
acres of additional land which is owned by the partnership. The Company's total
investment in this development was $180 million.
The primary feeder market for Harrah's St. Louis Riverport is the St. Louis
metropolitan area.
INDIAN GAMING
AK-CHIN
Harrah's Phoenix Ak-Chin casino is owned by the Ak-Chin Indian Community and
is located on approximately 20 acres of land on the Community's reservation,
approximately 25 miles south of Phoenix, Arizona. The casino includes 38,000
square feet of casino space with 475 slot machines, 25 poker tables, bingo,
keno, two restaurants, two snack bars, an entertainment lounge, 11,050 square
feet of meeting room space and a retail shop. The complex has customer parking
for approximately 1,200 cars and has valet parking available. Harrah's manages
the casino for a fee under a management contract expiring in
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December 1999. Renewal of the contract would require mutual agreement between
Harrah's and the Ak-Chin Community and approval by the National Indian Gaming
Commission ("NIGC").
The primary feeder markets for the casino are Phoenix and Tucson.
SKAGIT VALLEY
Harrah's Skagit Valley casino is located on approximately ten acres of land
on the Upper Skagit Indian Reservation, approximately 70 miles north of Seattle,
Washington. The casino includes 26,000 square feet of casino space with a
600-seat bingo hall, 50 gaming tables, seven poker tables, keno and pulltabs.
Nongaming amenities include a 68-seat lounge, two restaurants, a snack bar, as
well as an arcade and gift shop. The complex has customer parking for
approximately 1,000 cars with valet service provided. Harrah's manages the
casino for a fee under a management contract expiring in December 2002. Renewal
of the contract would require mutual agreement between Harrah's and the Upper
Skagit Indian Tribe and approval by the NIGC.
The Company has guaranteed the Tribe's repayment of a bank loan, the
proceeds of which were used to construct the Upper Skagit facility. At year end
1997, $16.3 million of the loan was outstanding. In addition, the Company has
made loans to the tribe. At year end 1997, the total amount outstanding under
these loans was $9.2 million.
The primary feeder markets for the casino are northwestern Washington state,
including the Seattle and Bellingham, Washington areas and southwestern Canada,
including the Vancouver, British Columbia metropolitan area.
CHEROKEE
On November 13, 1997, Harrah's Cherokee Smoky Mountains Casino opened.
Harrah's developed the casino for the Eastern Band of Cherokee Indians on 37
acres of land on their reservation in Cherokee, North Carolina. The casino
includes 50,000 square feet of casino space with 1,801 video gaming machines.
Additional facilities consist of a multi-purpose entertainment room with 1,500
theater-style seats, two restaurants, as well as a snack bar, a gift shop and
child care facilities. Parking is available for approximately 1,800 cars.
Harrah's manages the casino for a fee under a management contract expiring in
November 2002. Renewal of the contract would require mutual agreement between
Harrah's and the Cherokee Indian Tribe and approval by the NIGC.
The Company has guaranteed the Tribe's repayment of an $82 million bank
loan, the proceeds of which were used to construct the Cherokee facility. At
year end 1997, $75.5 million of the loan had been drawn and was outstanding.
The casino's primary feeder markets are eastern Tennessee, western North
Carolina, as well as northern Georgia and South Carolina.
PRAIRIE BAND
Harrah's Prairie Band Casino-Topeka, located approximately 17 miles north of
Topeka, Kansas, opened on January 13, 1998. The Company developed the casino for
the Prairie Band of Potawatomi Indians on approximately 80 acres of land owned
by the tribe. The casino facilities include 26,000 square feet of casino space
with 500 slot machines, 40 table games and a 420-seat bingo hall. The complex
also includes a 100-room hotel, a restaurant, two snack bars, an entertainment
lounge, a gift shop and parking for approximately 850 vehicles. The facilities
are managed by the Company for a fee under a management contract expiring in
January 2003. Renewal of the contract would require mutual agreement between
Harrah's and the Prairie Band and approval by the NIGC.
Topeka and Wichita are the primary feeder markets for the casino.
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The Company has guaranteed the Tribe's repayment of a $37 million bank loan,
the proceeds of which were used to construct the Prairie facility. At year end
1997, $19.3 million of the loan had been drawn and was outstanding.
OTHER
The Company has entered into preliminary management and development
agreements with other Indian communities in connection with the proposed
development of casino entertainment facilities on lands owned by the respective
tribes. These agreements are subject to various conditions including approval by
the NIGC and other governmental approvals. Development of the casino facilities,
which would be managed by the Company for a fee, will not commence until NIGC
approval and other required approvals are received. The Company expects the
proposed projects will be financed by bank loans that would be guaranteed by the
Company.
OTHER
SODAK GAMING, INC.
The Company owns approximately 14% of Sodak Gaming, Inc. ("Sodak"), a
publicly-owned corporation. Sodak is a leading distributor of electronic gaming
machines and gaming-related products and systems. Under terms of an agreement
with International Game Technology ("IGT") expiring in May 2001, Sodak is the
exclusive distributor for IGT of its gaming equipment in the states of North
Dakota, South Dakota and Wyoming, and on Native American Reservations in the
United States (except Nevada, New Jersey and Hawaii). This distribution
agreement provides for 2-year renewals after May 2001, until it is cancelled.
Sodak also has an IGT software distribution and license agreement for IGT
product software.
In addition, Sodak also is in the business of financing, developing and
managing Native American and commercial casino businesses in the United States
and abroad. Sodak has announced that it intends to develop, through a joint
venture with other companies, a riverboat casino, hotel and retail complex in
Shreveport, Louisiana.
INTERACTIVE ENTERTAINMENT LIMITED
The Company owns approximately 35.5% of Interactive Entertainment Limited
("IEL"), a publicly-owned corporation. IEL has pioneered development of
sophisticated remote control gaming entertainment software for use in the
international long-haul airline industry. IEL has a multi-year contract with
Singapore Airlines for planned use of the software.
In addition to the above, the Company is actively pursuing a variety of
casino entertainment opportunities in various jurisdictions both domestically
and abroad, including land-based, riverboat casino and Indian gaming projects in
the United States. A number of these projects, if they go forward, could require
significant capital investments by the Company.
TRADEMARKS
The following trademarks used herein are owned by the Company:
Harrah's-Registered Trademark-; Bill's-Registered Trademark-; Total
Gold-Registered Trademark-; WINet(sm); Harrah's Northern Star(sm); North
Star(sm); Harrah's Southern Star II(sm); ShreveStar(sm); Mardi Gras(sm), Sammy's
Showroom(sm) and South Shore Showroom(sm). The name "Harrah's" is registered as
a service mark in the United States and in certain foreign countries, including
New Zealand. The Company considers all of these marks, and the associated name
recognition, to be valuable to its business.
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COMPETITION
Harrah's, which operates land-based, dockside, riverboat and Indian casino
facilities in all of the traditional, and most of the new, U.S. casino
entertainment jurisdictions, and manages a land-based casino in New Zealand,
competes with numerous casinos and casino hotels of varying quality and size in
the market areas where its properties are located, with other non-gaming resorts
and vacation areas, and with various other casino and other entertainment
businesses. The casino entertainment business is characterized by competitors
which vary considerably by their size, quality of facilities, number of
operations, brand identities, marketing and growth strategies, financial
strength and capabilities, level of amenities, management talent and geographic
diversity. In certain areas such as Las Vegas, Harrah's competes with a wide
range of casinos, some of which are significantly larger and offer substantially
more non-gaming activities to attract customers.
In most markets, Harrah's competes directly with other casino facilities
operating in the immediate and surrounding market areas. In major casino
destinations, such as Las Vegas and Atlantic City, Harrah's faces competition
from other markets in addition to direct competition in its market areas.
In recent years, with fewer new markets open for development, competition in
existing markets has intensified. Many casino operators, including Harrah's,
have invested in expanding existing facilities or in the development of new
facilities in existing markets, such as Las Vegas. This expansion of existing
casino entertainment properties, the increase in the number of properties and
the aggressive marketing strategies of many of the Company's competitors has
increased competition in many markets in which the Company competes and this
intense competition can be expected to continue. These competitive pressures
have adversely affected the financial performance of the Company in certain
markets and, the Company believes, has also adversely affected the financial
performance of certain competitors operating in these markets.
Harrah's believes it is well positioned to take advantage of any further
legalization of casino gaming, the continued positive consumer acceptance of
casino gaming as an entertainment activity, and increased visitation to casino
facilities. However, the expansion of casino entertainment into new markets also
presents competitive issues for Harrah's. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effects of Current
Economic and Political Conditions" on pages 31 and 32 and portions of
"Management's Discussion and Analysis--Division Operating Results and
Development Plans" on pages 26 and 28 of the Annual Report, which pages are
incorporated herein by reference.
GOVERNMENTAL REGULATION
GAMING-NEW JERSEY
As a holding company of Marina Associates ("Marina"), which holds a license
to operate Harrah's Atlantic City in New Jersey, Harrah's is subject to the
provisions of the New Jersey Casino Control Act (the "New Jersey Act"). The
ownership and operation of casino hotel facilities in Atlantic City, New Jersey
are the subject of pervasive state regulation under the New Jersey Act and the
regulations adopted thereunder by the New Jersey Casino Control Commission (the
"New Jersey Commission"). The New Jersey Commission is empowered to regulate a
wide spectrum of gaming and non-gaming related activities and to approve the
form of ownership and financial structure of not only the casino licensee,
Marina, but also its intermediary and ultimate holding companies, including
Harrah's and HOC. In addition to taxes imposed by the State of New Jersey on all
businesses, the New Jersey Act imposes certain fees and taxes on casino
licensees, including an 8% gross gaming revenue tax, an investment alternative
obligation of 1.25% (or an investment alternative tax of 2.5%) of gross gaming
revenue (generally defined as gross receipts less payments to customers as
winnings) and various license fees.
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No casino hotel facility may operate unless the appropriate licenses and
approvals are obtained from the New Jersey Commission, which has broad
discretion with regard to the issuance, renewal and revocation or suspension of
the non-transferable casino license (which licenses are issued initially for a
one-year period and renewable for one-year periods for the first two renewals
and four-year periods thereafter), including the power to impose conditions
which are necessary to effectuate the purposes of the New Jersey Act. Each
applicant for a casino license must demonstrate, among other things, its
financial stability (including establishing ability to maintain adequate casino
bankroll, meet ongoing operating expenses, pay all local, state and federal
taxes, make necessary capital improvements and pay, exchange, refinance, or
extend all long and short term debt due and payable during the license term),
its financial integrity and responsibility, its reputation for good character,
honesty and integrity, the suitability of the casino and related facilities and
that it has sufficient business ability and casino experience to establish the
likelihood of creation or maintenance of a successful, efficient casino
operation. With the exception of licensed lending institutions and certain
"institutional investors" waived from the qualification requirements under the
New Jersey Act, each applicant is also required to establish the reputation of
its financial sources including, but not limited to, its financial backers,
investors, mortgagees and bond holders.
The New Jersey Act requires that all officers, directors and principal
employees of the casino licensee be licensed. In addition, each person who
directly or indirectly holds any beneficial interest or ownership of the casino
licensee and any person who in the opinion of the New Jersey Commission has the
ability to control the casino licensee must obtain qualification approval. Each
holding and intermediary company having an interest in the casino licensee must
also obtain qualification approval by meeting essentially the same standards as
that required of the casino licensee. All directors, officers and persons who
directly or indirectly hold any beneficial interest, ownership or control in any
of the intermediary or ultimate holding companies of the casino licensee may
have to seek qualification from the New Jersey Commission. Lenders,
underwriters, agents, employees and security holders of both equity and debt of
the intermediary and holding companies of the casino licensee and any other
person whom the New Jersey Commission deems appropriate may also have to seek
qualification from the New Jersey Commission. Since Harrah's and HOC are
publicly-traded holding companies (as defined by the New Jersey Act), however,
the persons described in the two previous sentences may be waived from
compliance with the qualification process if the New Jersey Commission, with the
concurrence of the Director of the New Jersey Division of Gaming Enforcement,
determines that they are not significantly involved in the activities of Marina
and, in the case of security holders, that they do not have the ability to
control Harrah's (or its subsidiaries) or elect one or more of its directors.
Any person holding 5% or more of a security in an intermediary or ultimate
holding company, or having the ability to elect one or more of the directors of
a company, is presumed to have the ability to control the company and thus may
be required to seek qualification unless the presumption is rebutted.
Notwithstanding this presumption of control, the New Jersey Act permits the
waiver of the qualification requirements for passive "institutional investors"
(as defined by the New Jersey Act), when such institutional holdings are for
investment purposes only and where such securities represent less than 10% of
the equity securities of a casino licensee's holding or intermediary companies
or debt securities of a casino licensee's holding or intermediary companies not
exceeding 20% of a company's total outstanding debt or 50% of an individual debt
issue. The waiver, which is subject to certain specified conditions including,
upon request, the filing of a certified statement that the investor has no
intention of influencing the affairs of the issuer, may be granted to an
"institutional investor" holding a higher percentage of such securities upon a
showing of good cause. If an "institutional investor" is granted a waiver of the
qualification requirements and subsequently changes its investment intent, the
New Jersey Act provides that no action other than divestiture may be taken by
the investor without compliance with the Interim Casino Authorization Act (the
"Interim Act") described below.
In the event a security holder of either equity or debt is required to
qualify under the New Jersey Act, the provisions of the Interim Act may be
triggered requiring, among other things, either: (i) the filing of a completed
application for qualification within 30 days after being ordered to do so, which
application must
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include an approved Trust Agreement pursuant to which all securities of Harrah's
(or its respective subsidiaries) held by the security holder must be placed in
trust with a trustee who has been approved by the New Jersey Commission; or (ii)
the divestiture of all securities of Harrah's (or its respective subsidiaries)
within 120 days after the New Jersey Commission determines that qualification is
required or declines to waive qualification, provided the security holder files
a notice of intent to divest within 30 days after the determination of
qualification. If a security holder files an application under the Interim Act,
during the period the Trust Agreement remains in place, such holder may, through
the approved trustee, continue to exercise all rights incident to the ownership
of the securities with the exception that: (i) the security holder may only
receive a return on its investment in an amount not to exceed the actual cost of
the investment (as defined by the New Jersey Act) until the New Jersey
Commission finds such holder qualified; and (ii) in the event the New Jersey
Commission finds there is reasonable cause to believe that the security holder
may be found unqualified, the Trust Agreement will become fully operative
vesting the trustee with all rights incident to ownership of the securities
pending a determination on such holder's qualifications; provided, however, that
during the period the securities remain in trust, the security holder may
petition the New Jersey Commission to: (a) direct the trustee to dispose of the
trust property; and (b) direct the trustee to distribute proceeds thereof to the
security holder in an amount not to exceed the lower of the actual cost of the
investment or the value of the securities on the date the Trust became
operative. If the security holder is ultimately not found to be qualified, the
trustee is required to sell the securities and to distribute the proceeds of the
sale to the applicant in an amount not exceeding the lower of the actual cost of
the investment or the value of the securities on the date the Trust became
operative (if not already sold and distributed at the direction of the security
holder) and to distribute the remaining proceeds to the Casino Revenue Fund. If
the security holder is found qualified, the Trust Agreement will be terminated.
The New Jersey Commission can find that any holder of the equity or debt
securities issued by Harrah's or its subsidiaries is not qualified to own such
securities. If a security holder of Harrah's or its subsidiaries is found
disqualified, the New Jersey Act provides that it is unlawful for the security
holder to: (i) receive any dividends or interest payment on such securities;
(ii) exercise, directly or indirectly, any rights conferred by the securities;
or (iii) receive any remuneration from the company in which the security holder
holds an interest. To implement these provisions, the New Jersey Act requires,
among other things, casino licensees and their holding companies to adopt
provisions in their certificate of incorporation providing for certain remedial
action in the event that a holder of any security of such company is found
disqualified. The required certificate of incorporation provisions vary
depending on whether such company is a publicly or privately traded company as
defined by the New Jersey Act. The Certificates of Incorporation of Harrah's and
HOC (both "publicly-traded companies" as defined by the New Jersey Act) contain
provisions which provide Harrah's and HOC, respectively, with the right to
redeem the securities of disqualified holders, if necessary, to avoid any
regulatory sanctions, to prevent the loss or to secure the reinstatement of any
license or franchise held by Harrah's or HOC or their affiliates, or if such
holder is determined by any gaming regulatory agency to be unsuitable, has an
application for a license or permit rejected, or has a previously issued license
or permit rescinded, suspended, revoked or not renewed. The Certificates of
Incorporation of Harrah's and HOC also contain provisions defining the
redemption price and the rights of a disqualified security holder. In the event
a security holder is disqualified, the New Jersey Commission is empowered to
propose any necessary action to protect the public interest, including the
suspension or revocation of the casino license of Marina. The New Jersey Act
provides, however, that the New Jersey Commission shall not take action against
a casino licensee or its parent companies with respect to the continued
ownership of the security interest by the disqualified holder, if the New Jersey
Commission finds that: (i) such company has a certificate of incorporation
provision providing for the disposition of such securities as discussed above;
(ii) such company has made a good faith effort to comply with any order
requiring the divestiture of the security interest held by the disqualified
holder; and (iii) the disqualified holder does not have the ability to control
the casino licensee or its parent companies or to elect one or more members to
the board of directors of such company. The Certificate of Incorporation of
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HOC further provides that debt securities issued by HOC are held subject to the
condition that if a holder is found unsuitable by any governmental agency the
corporation shall have the right to redeem the securities.
If, at any time, it is determined that Marina or its holding companies have
violated the New Jersey Act or regulations promulgated thereunder or that such
companies cannot meet the qualification requirements of the New Jersey Act,
Marina could be subject to fines or its license could be suspended or revoked.
If Marina's license is suspended or revoked, the New Jersey Commission could
appoint a Conservator to operate and dispose of the casino hotel facilities of
Marina. A Conservator would be vested with title to the assets of Marina,
subject to valid liens, claims and encumbrances. The Conservator would be
required to act under the general supervision of the New Jersey Commission and
would be charged with the duty of conserving, preserving and, if permitted,
continuing the operation of the casino hotel. During the period of any such
conservatorship, the Conservator may not make any distributions of net earnings
without the prior approval of the New Jersey Commission. The New Jersey
Commission may direct that all or part of such net earnings be paid to the
Casino Revenue Fund, provided, however, that a suspended or former licensee is
entitled to a fair rate of return.
The New Jersey Commission granted Marina a plenary casino license in
connection with Harrah's Atlantic City in November 1981, and it has been renewed
since then. In April 1996, the New Jersey Commission renewed the license for a
four-year period and also found Harrah's and HOC to be qualified as holding
companies of Marina.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of New Jersey.
GAMING-NEVADA
The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local ordinances and
regulations. Harrah's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board"), the Clark County Liquor and
Gaming Licensing Board ("CCLGLB"), the City of Reno ("Reno"), and the Douglas
County Sheriff's Department ("Douglas"). The Nevada Commission, the Nevada State
Gaming Control Board, the CCLGLB, Reno, and Douglas are collectively referred to
as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on Harrah's Nevada gaming operations.
HOC, a direct subsidiary of Harrah's, and Harrah's Las Vegas, Inc. and
Harrah's Laughlin, Inc., each an indirect subsidiary of Harrah's (hereinafter
collectively referred to as the "Gaming Subsidiaries"), are required to be
licensed by the Nevada Gaming Authorities to enable Harrah's to operate casinos
at Harrah's Lake Tahoe, Bill's Lake Tahoe Casino, Harrah's Reno, Harrah's Las
Vegas, and Harrah's Laughlin. The gaming licenses require the periodic payment
of fees and taxes and are not transferable.
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Harrah's is registered with the Nevada Commission as a publicly-traded
corporation ("Registered Corporation"), and as such, it is required periodically
to submit detailed financial and operating reports to the Nevada Commission and
furnish any other information which the Nevada Commission may require. No person
may become a stockholder of, or receive any percentage of profits from, the
Gaming Subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. Harrah's and the Gaming Subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required in order to engage in gaming activities in Nevada.
Harrah's has been found suitable to be the sole shareholder of HOC, which,
in addition to being a gaming licensee, is a Registered Corporation (by virtue
of being the obligor on certain outstanding debt securities) and has been found
suitable to be the sole shareholder of Harrah's Las Vegas, Inc. and Harrah's
Laughlin, Inc. HOC is also licensed as a manufacturer and distributor of gaming
devices. Harrah's may not sell or transfer beneficial ownership of any of HOC's
voting securities without prior approval of the Nevada Commission.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Harrah's or the Gaming
Subsidiaries in order to determine whether such individual is suitable or should
be licensed as a business associate of a gaming licensee. Officers, directors
and certain key employees of the Gaming Subsidiaries (except HOC) must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of Harrah's and HOC who are actively and directly involved in
gaming activities of the Gaming Subsidiaries may be required to be licensed or
found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities
may deny an application for licensing for any cause which they deem reasonable.
A finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with Harrah's or the Gaming Subsidiaries, the companies involved
would have to sever all relationships with such person. In addition, the Nevada
Commission may require Harrah's or the Gaming Subsidiaries to terminate the
employment of any person who refuses to file appropriate applications. According
to the Nevada Act, determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
Harrah's and the Gaming Subsidiaries are required to submit detailed
financial and operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions
by the Gaming Subsidiaries must be reported to, or approved by, the Nevada
Commission.
If it were determined that the Nevada Act was violated by the Gaming
Subsidiaries, the gaming licenses they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Gaming Subsidiaries, Harrah's and the
persons involved could be subject to substantial fines for each separate
violation of the Nevada Act at the discretion of the Nevada Commission. Further,
a supervisor could be appointed by the Nevada Commission to operate Harrah's
gaming properties and, under certain circumstances, earnings generated during
the supervisor's appointment (except for the reasonable rental value of the
Company's gaming properties) could be forfeited to the State of Nevada.
Limitation, conditioning or suspension of any gaming license or the appointment
of a supervisor could (and revocation of any gaming license would) materially
adversely affect Harrah's gaming operations.
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Any beneficial holder of Harrah's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of Harrah's voting securities
determined if the Nevada Commission has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the state of
Nevada. The applicant must pay all costs of investigation incurred by the Nevada
Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of Harrah's
voting securities to report the acquisition to the Nevada Commission. The Nevada
Act requires that beneficial owners of more than 10% of Harrah's voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails the written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Act, which acquires more than 10%, but not more than
15%, of Harrah's voting securities may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
voting securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of Harrah's, any change in Harrah's corporate charter, bylaws, management,
policies or operations of Harrah's, or any of its gaming affiliates, or any
other action which the Nevada Commission finds to be inconsistent with holding
Harrah's voting securities for investment purposes only. Activities which are
not deemed to be inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by stockholders; (ii)
making financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. Harrah's is subject to
disciplinary action if, after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with Harrah's or the Gaming
Subsidiaries, it: (i) pays that person any dividend or interest upon voting
securities of Harrah's; (ii) allows that person to exercise, directly or
indirectly, any voting right conferred through securities held by that person;
(iii) pays remuneration in any form to that person for services rendered or
otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable
person to relinquish his voting securities for cash at fair market value.
Additionally, the CCLGLB requires that any person who is required to be licensed
or found suitable by the Nevada Commission must file a license application with
the CCLGLB.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.
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Harrah's would normally be required to maintain a current stock ledger in
Nevada which may be examined by the Nevada Gaming Authorities at any time, but
instead, it has been required by the Nevada Commission to maintain its stock
ledgers in its executive offices in Memphis, Tennessee which may be examined by
the Nevada Board at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Harrah's
also is required to render maximum assistance in determining the identity of the
beneficial owner. The Nevada Commission has the power to require the Company's
stock certificates to bear a legend indicating that the securities are subject
to the Nevada Act. However, to date, the Nevada Commission has not imposed such
a requirement on Harrah's.
Harrah's and HOC may not make a public offering of their securities without
the prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct, acquire or finance gaming
facilities in Nevada, or to retire or extend obligations incurred for such
purposes. On April 23, 1997, the Nevada Commission granted Harrah's and HOC
prior approval to make offerings for a period of two years, subject to certain
conditions ("Shelf Approval"). The Shelf Approval does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
Changes in control of Harrah's through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
The Nevada Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or involvement with
the entity proposing to acquire control, to be investigated and licensed as part
of the approval process relating to the transaction.
The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Gaming Subsidiaries' respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
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Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees") and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Nevada.
GAMING-NEW ZEALAND
The ownership and operation of casino gaming facilities in New Zealand are
subject to the Casino Control Act of 1990 ("Casino Act") and the regulations
promulgated thereunder. The gaming operations of the Sky City Casino are subject
to the licensing and regulatory control of the Casino Control Authority
("Authority").
Pursuant to the Casino Act: (1) the predecessor of Sky City Limited applied
for and was granted a Casino Premises License by the Authority; (2) Harrah's New
Zealand, Inc., an indirect subsidiary of the Company, applied for and was
granted a Casino Operator's License by the Authority; and (3) Sky City Limited
entered into a Casino Agreement ("Management Agreement") with Harrah's New
Zealand, Inc., which was approved by the Authority. Prior to granting the
Licenses and approving the Management Agreement, the Authority conducted the
relevant inquiries required by the Casino Act, including a thorough
investigation into the honesty, financial stability, business skills and
management structure of Sky City Limited, Harrah's New Zealand, Inc. and their
respective associated persons and entities, and found both companies suitable
for licensure.
The Casino Premises License has a term of 25 years from the commencement of
casino operations and is renewable. The Casino Operator's License has no stated
term, but it can be used only in a facility with a Casino Premises License and
pursuant to an approved Management Agreement. No additional casino premises
licenses can be granted by the Authority for sites on the North Island of New
Zealand (where Auckland is located) for a period of two years after the opening
of the Sky City Casino. In addition, no further casino premises licenses can be
granted within a radius of 100 kilometers of the site of the Sky City Casino for
a period of five years from the commencement of casino operations. Neither the
Casino Premises License, the Casino Operator's License nor the Management
Agreement may be amended, mortgaged, assigned or transferred without the prior
approval of the Authority.
The Casino Act requires that all persons and/or entities which: (1) own a
share of, and are entitled to receive income from, the casino business; (2)
occupy the position of director, manager or other executive position and
secretary of the casino business; or (3) exercise directorial, managerial or
executive power over the casino business (all "Associated Persons"), must be
found suitable by the Authority. No person can become an Associated Person
without prior approval of the Authority. In addition all employees who are to be
employed in a casino in any capacity related to the conduct of gaming, the
movement of money or chips, cashiering, the operation, maintenance, construction
or repair of gaming equipment and the supervision or management of any such
activities must obtain a Certificate of Approval from the Authority prior to
employment.
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Under the Casino Act, the day-to-day regulatory oversight at a casino is
performed by persons designated as inspectors, who may be members of the police,
and who report to the Authority. The inspectors have broad authority to
supervise gaming activities, inspect gaming equipment, supervise casino counts
and investigate customer complaints regarding the conduct of gaming. In the
exercise of their authority, inspectors have the power to enter and remain in
any part of a casino and require the production of documents, information and
gaming equipment or chips to ensure compliance with the Casino Act.
The Casino Act gives the Authority the power to cancel, suspend or vary or
add conditions to a Casino Premises License, a Casino Operator's License or a
Certificate of Approval after appropriate notice and hearing, which actions are
appealable to New Zealand's judicial system. The Authority also can levy fines
for various gaming-related offenses, allowing minors (under 20 years of age) in
the casino, obstructing inspectors and other specified offenses. The costs of
the Authority and the costs of administering and enforcing the Casino Act are
borne by the holders of casino premises licenses.
The Company is currently in material compliance with the Casino Act and all
regulations promulgated thereunder.
GAMING-LOUISIANA (NEW ORLEANS)
On November 22, 1995, Harrah's Jazz Company (referred to in this section as
the "Casino Operator" or "HJC"), the partnership in which an indirect subsidiary
of Harrah's owns an approximate 47% interest, and which has the contract (the
"Casino Operating Contract") with the Louisiana Gaming Control Board ("LGCB")
and previously with the Louisiana Economic Development and Gaming Corporation
("LEDGC") to operate the sole land-based casino (the "Gaming Facilities") in New
Orleans, Louisiana, filed for protection under Chapter 11 of the Bankruptcy Code
and ceased operation of the Basin Street Casino.
See "New Orleans" and "Legal Proceedings" herein for further discussions of
the New Orleans project and the legal proceedings filed in connection with the
New Orleans project.
Under the Casino Operating Contract, the Casino Operator has the authority
to engage a separate indirect subsidiary of Harrah's, Harrah's New Orleans
Management Company (the "Casino Manager or "HNOMC"), to manage the Gaming
Facilities. The ownership and operation of the Rivergate Casino are subject to
pervasive governmental regulation, including regulation by the LEDGC and now by
the LGCB in accordance with the terms of the Louisiana Economic Development and
Gaming Act (the "Gaming Act"), the rules and regulations promulgated thereunder
from time to time (the "Rules and Regulations"), and the Casino Operating
Contract. The LGCB is empowered to regulate a wide spectrum of gaming and
non-gaming related activities.
The Gaming Act authorized the LEDGC and now the LGCB, among other things, to
enter into a casino operating contract with a casino operator for the conduct of
casino gaming operations at a single land-based gaming establishment, having at
least 100,000 square feet of useable space, to be located at the Rivergate site.
The term of the contract is not to exceed a total of 20 years with one ten-year
renewal option. Under the Plan filed in the bankruptcy proceedings, the minimum
compensation payable to the LGCB from gaming operations at the Rivergate Casino
will be 18 1/2% of gross gaming revenues, or $100 million annually, whichever is
greater.
The Gaming Act and the Rules and Regulations establish significant
regulatory requirements with respect to gaming activities and the casino
operator, including, without limitation, requirements with respect to minimum
accounting and financial practices, standards for gaming devices and
surveillance, licensure requirements for vendors and employees, standards for
credit extension and collection, and permissible food services. Failure to
comply with the Gaming Act and the Rules and Regulations could result in
disciplinary action, including fines and suspension or revocation of a license
or suitability. Certain regulatory violations could also constitute an event of
default under the Casino Operating Contract.
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Under the Gaming Act, no person is eligible to receive a license or enter
into a contract to conduct casino gaming operations unless, among other things,
the LGCB is satisfied the applicant is suitable. The Gaming Act and the Rules
and Regulations also require suitability findings for, among others, the casino
manager, anyone with a direct ownership interest or the ability to control the
casino operator or casino manager (as well as their intermediary and holding
companies), certain officers and directors of such companies, and certain
vendors and employees of the casino operator. Suitability requires a
demonstration by each applicant, by clear and convincing evidence, that, among
other things, (i) he is a person of good character, honesty and integrity, (ii)
his prior activities, criminal record, if any, reputation, habits and
associations do not pose a threat to the public interest of the State or the
regulation and control of casino gaming or create or enhance the dangers of
unsuitable, unfair or illegal practices, methods and activities in the conduct
of gaming or the carrying on of the business and financial arrangements
incidental thereto, and (iii) he is capable of and is likely to conduct the
activities for which a license or contract is sought. In addition, to be found
suitable for purposes of the Casino Operating Contract, the casino operator must
demonstrate by clear and convincing evidence that: (i) it has or guarantees
acquisition of adequate business competence and experience in the operation of
casino gaming operations; (ii) the proposed financing is adequate for the
proposed operation and is from suitable sources; and (iii) it has or is capable
of and guarantees the obtaining of a bond or satisfactory financial guarantee of
sufficient amount, as determined by the LGCB, to guarantee successful completion
of and compliance with the Casino Operating Contract or such other projects that
are regulated by the LGCB.
Under the Gaming Act and Rules and Regulations, the LGCB can also require
that the holder of debt securities issued by the casino operator or its
affiliated companies and the holders of equity interests in holding companies of
the casino operator be found suitable. Any person holding or controlling a five
percent or more equity interest in a non-publicly traded, direct or indirect,
holding company of the casino operator or casino manager or ten percent or more
equity interest in a publicly traded direct or indirect holding company of the
casino operator or casino manager, is presumed to have the ability to control
the casino operator or casino manager, as the case may be, requiring a finding
of suitability, unless, among other things: (i) the presumption is rebutted by
clear and convincing evidence; or (ii) the holder is one of several specified
types of passive institutional investors holding a stated minimum amount of
assets and, upon request, such institution files a certification stating that
they do not have an intention to influence the affairs of the casino operator or
casino manager.
Under the Gaming Act and Rules and Regulations, the LGCB has the authority
to deny, revoke, suspend, limit, condition, or restrict any finding of
suitability. Under the Rules and Regulations, the LGCB also has the authority to
take further action on the grounds that the person found suitable is associated
with, or controls, or is controlled by, or is under common control with, an
unsuitable or disqualified person. Under the Rules and Regulations and the
Casino Operating Contract, if at any time the LGCB finds that any person
required to be and remain suitable has failed to demonstrate suitability, the
LGCB may, consistent with the Gaming Act and the Casino Operating Contract, take
any action that the LGCB deems necessary to protect the public interest. Under
the Rules and Regulations, however, if a person associated with the casino
operator or an affiliate, intermediary, or holding company thereof has failed to
be found or remain suitable, the LGCB shall not declare the casino operator or
its affiliate, intermediary, or holding company, as the case may be, unsuitable
if such companies comply with the conditional licensing provisions, take
immediate good faith action and comply with any order of the LGCB to cause such
person to dispose of its interest, and, before such disposition, ensure that the
disqualified person does not receive any ownership benefits. The above safe
harbor protections do not apply if: (i) the casino manager has failed to remain
suitable, (ii) the casino operator is engaged in a relationship with the
unsuitable person and had actual or constructive knowledge of the wrongdoing
causing the LGCB's action, (iii) the casino operator is so tainted by such
person that it affects the suitability of the casino operator under the
standards of the Gaming Act, or (iv) the casino operator cannot meet the
suitability standard contained in the Gaming Act and the Rules and Regulations.
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On July 15, 1994, the LEDGC entered into the Casino Operating Contract with
HJC, which sets forth the general parameters of, among other things, the
location and design and construction requirements of the Rivergate Casino, the
agreed upon compensation requirements due to the LEDGC from gaming operations,
the requirements for financing the Rivergate Casino, and other contractual and
regulatory requirements. In connection with the execution of the Casino
Operating Contract, the LEDGC found HJC, HNOMC and certain related intermediary
and holding companies and certain of their officers and directors to be
suitable. Since the bankruptcy filing by HJC, neither the LEDGC nor the LGCB has
informed HJC or any other person required to be found suitable that it is taking
action to revoke any finding of suitability in accordance with the Gaming Act or
Rules and Regulations, nor has the LEDGC or the LGCB given any notice of default
under the Casino Operating Contract.
Under the Gaming Act, the LGCB has the right to set aside or renegotiate the
provisions of the Casino Operating Contract if the casino operator is
voluntarily or involuntarily placed in bankruptcy, receivership, conservatorship
or similar status. It is believed that certain provisions of this statute may be
unenforceable pursuant to Sections 365(e)(1) and 525 of the Bankruptcy Code.
Nevertheless, the LGCB maintains it has the right to negotiate the Casino
Operating Contract in connection with the Plan. In addition, a law enacted as a
result of the special session of the State legislature purports to provide
authority to the Governor, subject to legislative approval, or to the State
legislature, to set aside or order renegotiation or revocation of the Casino
Operating Contract when the casino operator is placed in bankruptcy.
Under the Plan and subject to certain approvals from the LGCB, the Casino
Operating Contract requirements would be amended in certain respects, including
the elimination of temporary casino operations, alterations of the size and
scope of the Rivergate Casino and permission for a revised opening schedule for
the Rivergate Casino. In addition, in connection with the Plan, certain rulings,
approvals and findings of suitability will be required, including findings of
suitability with respect to any directors of the JCC entities and any persons
having the ability to significantly affect the affairs thereof and certain other
approvals relating to the modified design of the Rivergate Casino and the
revised opening schedule.
GAMING-ILLINOIS
The ownership and operation of a gaming riverboat in Illinois is subject to
extensive regulation under the Illinois Riverboat Gambling Act and the rules and
regulations promulgated thereunder. A five-member Illinois Gaming Board is
charged with such regulatory authority, including the issuance of riverboat
gaming licenses not to exceed 10 in number. The granting of an owner's license
involves a preliminary approval procedure in which the Illinois Gaming Board
issues a finding of preliminary suitability to a license applicant and
effectively reserves a gaming license for such applicant. The Board has issued
all 10 licenses. Des Plaines Development Limited Partnership, of which 80% is
owned by Harrah's Illinois Corporation, an indirect subsidiary of Harrah's,
received an owner's license in 1993.
To obtain an owner's license (and a finding of preliminary suitability),
applicants must submit comprehensive application forms, be fingerprinted and
undergo an extensive background investigation by the Illinois Gaming Board.
Each license granted entitles a licensee to own and operate up to two
riverboats (with a combined maximum of 1,200 gaming positions) and equipment
thereon from a specific location. The duration of the license initially runs for
a period of three years (with a fee of $25,000 for the first year and $5,000 for
the following two years). Thereafter, the license is subject to renewal on an
annual basis upon payments of a fee of $5,000 and a determination by the
Illinois Gaming Board that the licensee continues to be eligible for an owner's
license pursuant to the Illinois legislation and the Illinois Gaming Board's
rules.
An applicant is ineligible to receive an owner's license if the applicant,
any of its officers, directors or managerial employees or any person who
participates in the management or operation of gaming operations: (i) has been
convicted of a felony; (ii) has been convicted of any violation under Article 28
of
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the Illinois Criminal Code or any similar statutes in any other jurisdiction;
(iii) has submitted an application which contains false information; or (iv) is
a member of the Illinois Gaming Board. In addition, an applicant is ineligible
to receive an owners' license if the applicant owns more than a 10% ownership
interest in an entity holding another Illinois owner's license, or if a license
of the applicant issued under the Illinois legislation or a license to own or
operate gaming facilities in any other jurisdiction has been revoked.
In determining whether to grant a license, the Illinois Gaming Board
considers: (i) the character, reputation, experience and financial integrity of
the applicants; (ii) the type of facilities (including riverboat and docking
facilities) proposed by the applicant; (iii) the highest prospective total
revenue to be derived by the state from the conduct of riverboat gaming; (iv)
affirmative action plans of the applicant, including minority training and
employment; and (v) the financial ability of the applicant to purchase and
maintain adequate liability and casualty insurance. Municipal (or county, if an
operation is located outside of a municipality) approval of a proposed applicant
is required, and all documents, resolutions, and letters of support must be
submitted with the initial application.
A holder of a license is subject to the imposition of fines, suspension or
revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the state of Illinois, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rule, order or ruling of the Illinois Gaming Board or
its agents pertaining to gaming; (iii) receiving goods or services from a person
or business entity who does not hold a supplier's license but who is required to
hold such license by the rules; (iv) being suspended or ruled ineligible or
having a license revoked or suspended in any state or gaming jurisdiction; (v)
associating with, either socially or in business affairs, or employing persons
of, notorious or unsavory reputation or who have extensive police records, or
who have failed to cooperate with any official constituted investigatory or
administrative body and would adversely affect public confidence and trust in
gaming; and (vi) employing in any Illinois riverboat's gaming operation any
person known to have been found guilty of cheating or using any improper device
in connection with any game. Fines may be made of up to $5,000 against
individuals and up to the greater of $10,000 or an amount equal to the daily
gross receipts against licensees for each violation.
An ownership interest in a license or in a business entity, other than a
publicly held business entity which holds an owner's license, may not be
transferred without approval of the Illinois Gaming Board. In addition, an
ownership interest in a license or in a business entity, other than a publicly
held business entity, which holds either directly or indirectly an owner's
license, may not be pledged as collateral without approval of the Illinois
Gaming Board.
A person employed at a riverboat gaming operation must hold an occupational
license which permits the holder to perform only activities included within such
holder's level of occupation license or any lower level of occupation license.
In addition, the Illinois Gaming Board issues suppliers licenses which authorize
the supplier licensee to sell or lease gaming equipment and supplies to any
licensee involved in the ownership and management of gaming operations.
Riverboat cruises are limited to a duration of four hours, and no gaming may
be conducted while the boat is docked, with the exceptions: (i) of 30-minute
time periods at the beginning of and at the end of a cruise while the passengers
are embarking and debarking (total gaming time is limited to four hours,
however, including the pre- and post-docking periods); and (ii) when weather or
mechanical problems prevent the boat from cruising. Minimum and maximum wagers
on games are set by the licensee and wagering may be conducted only with a
cashless wagering system, whereby money is converted to tokens, electronic cards
or chips which can only be used for wagering. No person under the age of 21 is
permitted
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to wager, and wagers may only be taken from a person present on a licensed
riverboat. With respect to electronic gaming devices, the payout percentage may
not be less than 80% nor more than 100%.
The Illinois legislature recently amended the legislation to impose an
annual graduated wagering tax on adjusted receipts (generally defined as gross
receipts less payments to customers as winnings) from gambling games, effective
January 1, 1998. The graduated tax rate is as follows: up to $25 million-15%;
$25 to $50 million-20%; $50 to $75 million-25%; $75 to $100 million-30%; in
excess of $100 million-35%. The tax imposed is to be paid by the licensed owner
to the Illinois Gaming Board on the day after the day when the wagers were made.
Of the proceeds of that tax, 25% goes to the local government where the home
dock is located, a small portion goes to the Illinois Gaming Board for
administration and enforcement expenses, and the remainder goes to the state
education assistance fund.
The legislation also requires that licensees pay a $2.00 admission tax for
each person admitted to a gaming cruise. Of this admission tax, the host
municipality or county receives $1.00. The licensed owner is required to
maintain public books and records clearly showing amounts received from
admission fees, the total amount of gross receipts and the total amount of
adjusted gross receipts.
All use, occupancy and excise taxes which apply to food and beverages and
all taxes imposed on the sale or use of tangible property apply to sales aboard
riverboats.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Illinois.
There have been discussions regarding increasing the number of riverboat
gaming licenses. There can be no assurance that legislation increasing the
number of licenses or other legislation will not be introduced in the future,
any of which could have a material adverse effect on the operating results of
the Company's riverboats.
GAMING-MISSISSIPPI
The ownership and operation of a gaming business in the State of Mississippi
is subject to extensive laws and regulations, including the Mississippi Gaming
Control Act (the "Mississippi Act") and the regulations (the "Mississippi
Regulations") promulgated thereunder by the Mississippi Gaming Commission (the
"Mississippi Commission"), which is empowered to oversee and enforce the
Mississippi Act. Gaming in Mississippi can be legally conducted only on vessels
of a certain minimum size in navigable waters within any county bordering the
Mississippi River or in waters of the State of Mississippi which lie adjacent
and to the south (principally in the Gulf of Mexico) of the Counties of Hancock,
Harrison and Jackson, provided that the county in question has not voted by
referendum not to permit gaming in that county. The underlying policy of the
Mississippi Act is to ensure that gaming operations in Mississippi are
conducted: (i) honestly and competitively; (ii) free of criminal and corruptive
influences; and (iii) in a manner which protects the rights of the creditors of
gaming operations.
The Mississippi Act requires that a person (including any corporation or
other entity) be licensed to conduct gaming activities in the State of
Mississippi. A license will be issued only for a specified location which has
been approved in advance as a gaming site by the Mississippi Commission.
Harrah's Vicksburg Corporation, an indirect subsidiary of Harrah's, is licensed
to operate a riverboat casino in Vicksburg, Mississippi. Harrah's Tunica
Corporation, another indirect subsidiary, is the general partner of Tunica
Partners L.P. and Tunica Partners II L.P., each of which is the licensed
operator of a riverboat casino in Tunica, Mississippi. (Harrah's Vicksburg
Corporation is the limited partner of both partnerships.) As stated above, the
casino operated by Tunica Partners L.P. closed in May 1997. In addition, a
parent company of a company holding a license must register under the
Mississippi Act. Harrah's and HOC are registered with the Mississippi
Commission.
The Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who exercises a material degree of control over the
licensee, either directly or indirectly, be found suitable
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by the Mississippi Commission. In addition, any employee of a licensee who is
directly involved in gaming must obtain a work permit from the Mississippi
Commission. The Mississippi Commission will not issue a license or make a
finding of suitability unless it is satisfied, after an investigation paid for
by the applicant, that the persons associated with the gaming licensee or
applicant for a license are of good character, honesty and integrity, with no
relevant or material criminal record. In addition, the Mississippi Commission
will not issue a license unless it is satisfied that the licensee is adequately
financed or has a reasonable plan to finance its proposed operations from
acceptable sources, and that persons associated with the applicant have
sufficient business probity, competence and experience to engage in the proposed
gaming enterprise. The Mississippi Commission may refuse to issue a work permit
to a gaming employee: (i) if the employee has committed larceny, embezzlement or
any crime of moral turpitude, or has knowingly violated the Mississippi Act or
Mississippi Regulations; or (ii) for any other reasonable cause.
There can be no assurance that such persons will be found suitable by the
Mississippi Commission. An application for licensing, finding of suitability or
registration may be denied for any cause deemed reasonable by the issuing
agency. Changes in licensed positions must be reported to the issuing agency. In
addition to its authority to deny an application for a license, finding of
suitability or registration, the Mississippi Commission has jurisdiction to
disapprove a change in corporate position. If the Mississippi Commission were to
find a director, officer or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the licensee, such entity would be
required to suspend, dismiss and sever all relationships with such person. The
licensee would have similar obligations with regard to any person who refuses to
file appropriate applications. Each gaming employee must obtain a work permit
which may be revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship to, or material
involvement with, Harrah's may be required to submit to an investigation in
order to be found suitable or be licensed as a business associate of any
subsidiary holding a gaming license. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of
Harrah's may be deemed to have such a relationship or involvement.
The Mississippi Commission has the power to deny, limit, condition, revoke
and suspend any license, finding of suitability or registration, or to fine any
person, as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any licensee or
person who was found suitable up to $100,000 for each violation of the
Mississippi Act or the Mississippi Regulations which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of any final decision of the Mississippi Commission by petition to a
Mississippi Circuit Court, but the filing of such petition does not necessarily
stay any action taken by the Mississippi Commission pending a decision by the
Circuit Court.
Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings). The license fee equals four percent of gaming
receipts of $50,000 or less per month, six percent of gaming receipts over
$50,000 and up to $134,000 per month, and eight percent of gaming receipts over
$134,000. The foregoing license fees are allowed as a credit against Mississippi
state income tax liability for the year paid. An additional license fee, based
upon the number of games conducted or planned to be conducted on the gaming
premises, is payable to the State of Mississippi annually in advance. Also, up
to a four percent additional tax on gaming revenues may be imposed at the local
level of government.
The Company also is subject to certain audit and record-keeping
requirements, primarily intended to ensure compliance with the Mississippi Act,
including compliance with the provisions relating to the payment of license
fees.
Under the Mississippi Regulations, a person is prohibited from acquiring
control of Harrah's without prior approval of the Mississippi Commission.
Harrah's also is prohibited from consummating a plan of recapitalization
proposed by management in opposition to an attempted acquisition of control of
Harrah's
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and which involves the issuance of a significant dividend to Common Stock
holders, where such dividend is financed by borrowings from financial
institutions or the issuance of debt securities. In addition, Harrah's is
prohibited from repurchasing any of its voting securities under circumstances
(subject to certain exemptions) where the repurchase involves more than one
percent of Harrah's outstanding Common Stock at a price in excess of 110 percent
of the then-current market value of Harrah's Common Stock from a person who owns
and has for less than one year owned more than three percent of Harrah's
outstanding Common Stock, unless the repurchase has been approved by a majority
of Harrah's shareholders voting on the issue (excluding the person from whom the
repurchase is being made) or the offer is made to all other shareholders of
Harrah's.
Under the Mississippi Regulations, a gaming license may not be held by a
publicly held corporation, although an affiliated corporation, such as Harrah's,
may be publicly held so long as Harrah's registers with and gets the approval of
the Mississippi Commission. Harrah's must obtain prior approval from the
Mississippi Commission for any subsequent public offering of the securities of
Harrah's if any part of the proceeds from that offering are intended to be used
to pay for or reduce debt used to pay for the construction, acquisition or
operation of any gaming facility in Mississippi. In addition, in order to
register with the Mississippi Commission as a publicly held holding corporation,
Harrah's must provide further documentation which is satisfactory to the
Mississippi Commission, which includes all documents filed with the Securities
and Exchange Commission.
Any person who, directly or indirectly, or in association with others,
acquires beneficial ownership of more than five percent of the Common Stock of
Harrah's must notify the Mississippi Commission of this acquisition. Regardless
of the amount of securities owned, any person who has any beneficial ownership
in the Common Stock of Harrah's may be required to be found suitable if the
Mississippi Commission has reason to believe that such ownership would be
inconsistent with the declared policies of the State of Mississippi. Any person
who is required to be found suitable must apply for a finding of suitability
from the Mississippi Commission within 30 days after being requested to do so,
and must deposit a sum of money which is adequate to pay the anticipated
investigatory costs associated with such finding. Any person who is found not to
be suitable by the Mississippi Commission shall not be permitted to have any
direct or indirect ownership in Harrah's Common Stock. Any person who is
required to apply for a finding of suitability and fails to do so, or who fails
to dispose of his or her interest in Harrah's Common Stock if found unsuitable,
is guilty of a misdemeanor. If a finding of suitability with respect to any
person is not applied for where required, or if it is denied or revoked by the
Mississippi Commission, Harrah's is not permitted to pay such person for
services rendered, or to employ or enter into any contract with such person.
Harrah's is required to maintain current stock ledgers in the State of
Mississippi which may be examined by a representative of the Mississippi
Commission at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Mississippi Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Harrah's
also is required to render maximum assistance in determining the identity of the
beneficial owner.
Because Harrah's is licensed to conduct gaming in the State of Mississippi,
neither Harrah's nor any subsidiary may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Commission. The Mississippi Commission has
approved the conduct of gaming in all jurisdictions in which Harrah's has
ongoing operations or approved projects. There can be no assurance that any
future approvals will be obtained. The failure to obtain such approvals could
have a materially adverse effect on Harrah's.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Mississippi.
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GAMING-LOUISIANA (RIVERBOAT)
The ownership and operation of a gaming riverboat in Louisiana is subject to
extensive regulation under Louisiana Riverboat Economic Development and Gaming
Control Act and the rules and regulations promulgated thereunder. A seven-member
Louisiana Gaming Control Board ("LGCB") and the Riverboat Gaming Enforcement
Division ("Division"), a part of the Louisiana State Police, are charged with
such regulatory authority, including the issuance of riverboat gaming licenses.
The number of licenses to conduct gaming on a riverboat is limited by statute to
15. No more than six licenses may be granted for the operation of gaming
activities on riverboats in any one parish (county). In general, riverboat
gaming in Louisiana can be conducted legally only on approved riverboats that
cruise with certain exceptions including exceptions for certain portions of the
Red River where riverboats can be continuously docked. Harrah's Shreveport
Investment Company, Inc. an indirect subsidiary of Harrah's, is the general
partner of, and owns 99% of, Red River Entertainment of Shreveport Partnership
in Commendam, a Louisiana partnership which was granted a gaming license in
April 1994, to operate a continuously docked gaming riverboat. Harrah's
Shreveport Management Company, Inc., another subsidiary, owns the remaining one
percent of the Partnership and manages the riverboat, pursuant to an agreement
with the Partnership.
To obtain a gaming license, applicants must obtain certain Certificates of
Approval from the LGCB and submit comprehensive application forms, be
fingerprinted and undergo an extensive background investigation by the Division.
An applicant is ineligible to receive a gaming license if the applicant has not
established good character, honesty and integrity. Each license granted entitles
a licensee to operate a riverboat and equipment thereon from a specific
location. The duration of the license initially runs for five years; renewals
are for one year terms. In determining whether to grant a license, the Division
considers: (i) the good character, honesty and integrity of the applicant; (ii)
the applicant's ability to conduct gaming operations; (iii) the adequacy and
source of the applicant's financing; (iv) the adequacy of the design documents
submitted; (v) the docking facilities to be used; (vi) applicant's plan to
recruit, train, and upgrade minorities in employment and to provide for
minority-owned business participation.
A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Louisiana, or that violates the gaming laws and regulations.
The transfer of a license or an interest in a license is prohibited. In
addition, an ownership interest of five percent or more in a business entity
which holds a gaming license may not be sold, assigned, transferred or pledged
without the Division's approval.
No person may be employed as a gaming employee unless such person holds a
gaming employee permit issued by the Division. In addition, the Division issues
suppliers licenses which authorize the supplier licensee to sell or lease gaming
equipment and supplies to any licensee.
Minimum and maximum wagers on games are set by the licensee and wagering may
be conducted only with a cashless wagering system, whereby all money is
converted to tokens, electronic cards, or chips used only for wagering in the
gaming establishment. No person under the age of 21 is permitted to wager, and
wagers may only be taken from a person present on a licensed riverboat.
The legislation imposes a franchise fee for the right to operate on
Louisiana waterways of 15% of net gaming proceeds and a license fee of $50,000
(first year) and $100,000 (subsequent years) plus three and one-half percent of
net gaming proceeds. All fees are paid to the Division. In addition, the
legislation authorizes local governing authorities the power to levy an
admission fee for each person boarding the riverboat. Currently that amount is
paid by the license holder. The Company's operation is currently paying an
admission fee of $3.00 per person, but in the future the Company expects to make
a payment in lieu of such admission fee of 4.75% of net gaming proceeds.
The Company is currently in material compliance with all applicable gaming
laws, rules and regulations promulgated by the State of Louisiana with respect
to riverboat casinos.
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GAMING-MISSOURI
The ownership and operation of a gaming riverboat in Missouri is subject to
extensive regulation under the Missouri Riverboat Gambling Act and the rules and
regulations promulgated thereunder. A five-member Missouri Gaming Commission
("Commission") is charged with such regulatory authority, including the issuance
of riverboat gaming licenses. Harrah's-North Kansas City Corporation, an
indirect subsidiary of Harrah's, has been issued two licenses by the Commission
to conduct riverboat gaming at its North Kansas City location. Harrah's Maryland
Heights LLC, also an indirect subsidiary of the Company, has been issued two
licenses by the Commission to conduct riverboat gaming at its Maryland Heights
location. Gaming in Missouri can be conducted legally only on either excursion
gambling boats or floating facilities approved by the Commission on the
Mississippi and Missouri Rivers. Unless permitted to be continuously docked by
the Commission for certain stated reasons, including safety, excursion gambling
boats must cruise. The Commission has approved dockside gaming for the Company's
riverboats in North Kansas City and Maryland Heights.
To obtain a gaming license, applicants must submit comprehensive application
forms, be fingerprinted and undergo an extensive background investigation by the
Commission. An applicant is ineligible to receive an owner's license if the
applicant has not established good reputation and moral character or if the
applicant, any of its officers, directors or managerial employees or any person
who participates in the management or operation of gaming operations has been
convicted of a felony. There are separate licenses for owners and operators of
riverboat gambling operations, which can be applied for and held concurrently.
Each license granted entitles a licensee to own and/or operate an excursion
gambling boat and equipment thereon from a specific location. The duration of
the license initially runs for two one-year terms followed by two-year terms.
The Commission also licenses the serving of alcoholic beverages on riverboats
and adjacent facilities. All local income, earnings, use, property and sales
taxes are applicable to licensees.
In determining whether to grant a license, the Commission considers: (i) the
integrity of the applicants; (ii) the types and variety of games to be offered;
(iii) the quality of the physical facility, together with improvements and
equipment, and how soon the project will be completed; (iv) the financial
ability of the applicant to develop and operate the facility successfully; (v)
the status of governmental actions required for the facility; (vi) management
ability of the applicant; (vii) compliance with applicable laws, rules,
charters, and ordinances; (viii) the economic, ecological and social impact of
the facility as well as the cost of public improvements; (ix) the extent of
public support or opposition; (x) the plan adopted by the home dock city or
county; and (xi) effects on competition.
A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Missouri, or that would discredit or tend to discredit the Missouri gaming
industry or the state of Missouri, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rules, order or ruling of the Commission or its
agents pertaining to gaming; (iii) receiving goods or services from a person or
business entity who does not hold a supplier's license but who is required to
hold such license by the legislation or the rules; (iv) being suspended or ruled
ineligible or having a license revoked or suspended in any state or gaming
jurisdiction; (v) associating with, either socially or in business affairs, or
employing persons of notorious or unsavory reputation or who have extensive
police records, or who have failed to cooperate with any official constituted
investigatory or administrative body and would adversely affect public
confidence and trust in gaming; (vi) employing in any Missouri gaming operation
any person known to have been found guilty of cheating or using any improper
device in connection with any game; (vii) use of fraud, deception,
misrepresentation or bribery in securing any license or permit issued pursuant
to the legislation; (viii) obtaining any fee, charge, or other
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compensation by fraud, deception or misrepresentation; and (ix) incompetence,
misconduct, gross negligence, fraud, misrepresentation or dishonesty in the
performance of the functions or duties regulated by the legislation.
An ownership interest in a license or in a business entity, other than a
publicly held business entity which holds an owner's license, may not be
transferred without the approval of the Commission. In addition, an ownership
interest in a license or in a business entity, other than a publicly held
business entity, which holds either directly or indirectly an owner's license,
may not be pledged as collateral to other than a regulated bank or saving and
loan association without the Commission's approval.
Every employee participating in a riverboat gaming operation must hold an
occupational license which permits the holder to perform only activities
included within such holder's level of occupation license or any lower level of
occupation license. In addition, the Commission will issue suppliers licenses
which authorize the supplier licensee to sell or lease gaming equipment and
supplies to any licensee involved in the ownership and management of gaming
operations.
Even if continuously docked, licensed riverboats must establish and abide by
a cruise schedule. Riverboat cruises are required to be a minimum of two hours
and a maximum of four hours. For the Company's riverboats in North Kansas City
and Maryland Heights, which are continuously docked, passengers may board the
riverboats for a 45-minute period at the beginning of a cruise. They may
disembark at any time. There is a maximum loss per person per cruise of $500.
Minimum and maximum wagers on games are set by the licensee and wagering may be
conducted only with a cashless wagering system, whereby money is converted to
tokens, electronic cards or chips which can only be used for wagering. No person
under the age of 21 is permitted to wager, and wagers may only be taken from a
person present on a licensed excursion gambling boat.
The legislation imposes a 20% wagering tax on adjusted gross receipts
(generally defined as gross receipts less payments to customers as winnings)
from gambling games. The tax imposed is to be paid by the licensed owner to the
Commission on the day after the day when the wagers were made. Of the proceeds
of that tax, 10% goes to the local government where the home dock is located,
and the remainder goes to the state education assistance fund.
The legislation also requires that licensees pay a $2.00 admission tax for
each person admitted to a gaming cruise. The licensed owner is required to
maintain public books and records clearly showing amounts received from
admission fees, the total amount of gross receipts and the total amount of
adjusted gross receipts.
It is the Company's opinion that it is currently in material compliance with
all applicable gaming laws, rules and regulations promulgated by the State of
Missouri. For a discussion of the Missouri Supreme Court's decision in AKIN V.
MISSOURI GAMING COMMISSION and matters related thereto, see "Legal Proceedings"
herein.
INDIAN GAMING
The terms and conditions of management contracts and the operation of
casinos and all gaming on Indian land in the United States are subject to the
Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by the
NIGC. IGRA is subject to interpretation by the Secretary of the Interior (the
"Secretary") and NIGC and may be subject to judicial and legislative
clarification or amendment.
IGRA requires NIGC approval of management contracts for Class II and Class
III gaming as well as the review of all agreements collateral to the management
contracts. All contracts relating to Harrah's Phoenix Ak-Chin, Harrah's Skagit
Valley, Harrah's Cherokee and Harrah's Prairie Band casinos were approved by the
NIGC. The NIGC will not approve a management contract if a director or a 10%
shareholder of the management company: (i) is an elected member of the Indian
tribal government which owns the facility purchasing or leasing the games; (ii)
has been or is convicted of a felony gaming offense;
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(iii) has knowingly and willfully provided materially false information to the
NIGC or the tribe; (iv) has refused to respond to questions from the NIGC; or
(v) is a person whose prior history, reputation and associations pose a threat
to the public interest or to effective gaming regulation and control, or create
or enhance the chance of unsuitable activities in gaming or the business and
financial arrangements incidental thereto. In addition, the NIGC will not
approve a management contract if the management company or any of its agents
have attempted to unduly influence any decision or process of tribal government
relating to gaming, or if the management company has materially breached the
terms of the management contract or the tribe's gaming ordinance, or a trustee,
exercising due diligence, would not approve such management contract. A
management contract can be approved only after NIGC determines that the contract
provides, among other things, for: (i) adequate accounting procedures and
verifiable financial reports, which must be furnished to the tribe; (ii) tribal
access to the daily operations of the gaming enterprise, including the right to
verify daily gross revenues and income; (iii) minimum guaranteed payments to the
tribe, which must have priority over the retirement of development and
construction costs; (iv) a ceiling on the repayment of such development and
construction costs and (v) a contract term not exceeding five years and a
management fee not exceeding 30% of net revenues (as determined by the NIGC);
provided that the NIGC may approve up to a seven year term and a management fee
not to exceed 40% of net revenues if NIGC is satisfied that the capital
investment required, and the income projections for the particular gaming
activity require the larger fee and longer term. There is no periodic or ongoing
review of approved contracts by the NIGC. The only post-approval action which
could result in possible modification or cancellation of a contract would be as
the result of an enforcement action taken by the NIGC based on a violation of
the law or an issue affecting suitability.
IGRA established three separate classes of tribal gaming--Class I, Class II
and Class III. Class I includes all traditional or social games solely for
prizes of minimal value played by a tribe in connection with celebrations or
ceremonies. Class II gaming includes games such as bingo, pulltabs, punchboards,
instant bingo and non-banked card games (those that are not played against the
house), such as poker. Class III gaming is casino-style gaming and includes
banked table games such as blackjack, craps and roulette, and gaming machines
such as slots, video poker, lotteries and parimutuel wagering. Harrah's Phoenix
Ak-Chin, Harrah's Skagit Valley, Harrah's Cherokee and Harrah's Prairie Band
provide Class II gaming and, as limited by the tribal-state compact, Class III
gaming.
IGRA prohibits all forms of Class III gaming unless the tribe has entered
into a written agreement with the state that specifically authorizes the types
of Class III gaming the tribe may offer (a "tribal-state compact"). IGRA
requires states to negotiate in good faith with tribes that seek tribal-state
compacts and grants Indian tribes the right to seek a federal court order to
compel such negotiations. Some states have refused to enter into such
negotiations. Tribes in several states sought federal court orders to compel
such negotiations. The U. S. Supreme Court in the case of SEMINOLE V. STATE OF
FLORIDA AND LAWTON CHILES, determined that this provision of IGRA is
unconstitutional as a violation of the Eleventh Amendment to the United States
Constitution which immunizes states from suit without the state's consent. The
Court did not address, however, the possibility that IGRA allows the Secretary
of the Department of the Interior to prescribe Class III gaming procedures where
states refuse to enter into compacts with Indian tribes. Subsequent to this
decision, the Secretary of the Interior issued proposed rules related to Class
III gaming which are out for public comment until April 1998. The issue of
whether the Secretary has the authority to issue such regulations either
generally or under IGRA can be expected to be litigated.
These compacts provide among other things the manner and extent to which
each state will conduct background investigations and certify the suitability of
the manager, its officers, directors, and key employees to conduct gaming on
tribal lands. The Company received temporary certification pending completion of
its background check from the Arizona gaming authorities prior to opening the
Phoenix Ak-Chin casino (and since has received its permanent certification) and
certification from the Washington and Kansas gaming authorities prior to the
opening of the Skagit Valley and Prairie Band casinos, respectively. The
certification for Cherokee was provided by the Tribal Gaming Commission.
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Title 25, Section 81 of the United States Code states that "no agreement
shall be made by any person with any tribe of Indians, or individual Indians not
citizens of the United States, for the payment or delivery of any money or other
thing of value . . . in consideration of services for said Indians relative to
their lands . . . unless such contract or agreement be executed and approved" by
the Secretary or his or her designee. An agreement or contract for services
relative to Indian lands which fails to conform with the requirements of Section
81 is void and unenforceable. All money or other thing of value paid to any
person by any Indian or tribe for or on his or their behalf, on account of such
services, in excess of any amount approved by the Secretary or his or her
authorized representative will be subject to forfeiture. The Company believes
that it has complied with the requirements of section 81 with respect to its
management contracts for Harrah's Phoenix Ak-Chin, Harrah's Skagit Valley,
Harrah's Cherokee and Harrah's Prairie Band and intends to comply with Section
81 with respect to any other contract to manage casinos located on Indian land
in the United States.
Indian tribes are sovereign with their own governmental systems, which have
primary regulatory authority over gaming on land within the tribes'
jurisdiction. Therefore, persons engaged in gaming activities, including the
Company, are subject to the provisions of tribal ordinances and regulations on
gaming. These ordinances are subject to review by the NIGC under certain
standards established by IGRA. The NIGC may determine that some or all of the
ordinances require amendment, and that additional requirements, including
additional licensing requirements, may be imposed on the Company. The Company
has received no such notification regarding the Ak-Chin, Skagit Valley, Cherokee
and/or Prairie Band casinos. The possession of valid licenses from the Ak-Chin
Indian Community, the Upper Skagit Indian Tribe, the Eastern Band of Cherokee
Indians and the Prairie Band of Potawatomi Nation are ongoing conditions of the
Company's agreements with these tribes.
The Company is in present material compliance with IGRA and all applicable
rules and regulations promulgated by the NIGC and all tribal and state
regulations.
OTHER REGULATIONS
The Company's businesses are subject to various federal, state and local
laws and regulations in addition to gaming laws. These laws and regulations
include, but are not limited to, restrictions and conditions concerning
alcoholic beverages, environmental matters, employees, currency transactions,
taxation, zoning and building codes, and marketing and advertising. Such laws
and regulations could change or could be interpreted differently in the future,
or new laws and regulations could be enacted. Material changes, new laws or
regulations, or material differences in interpretations by courts or
governmental authorities could adversely affect the operating results of the
Company.
FUEL SHORTAGES AND COSTS; WEATHER
Although gasoline supplies are now in relative abundance, gasoline shortages
and price increases may have adverse effects on the casino business of Harrah's.
Access to several Harrah's casino entertainment facilities, including the Lake
Tahoe and Reno areas of northern Nevada and Atlantic City, New Jersey, may be
restricted from time to time during the winter months by bad weather which can
cause road closures. Such closures have at times adversely affected operating
results at Harrah's Lake Tahoe, Harrah's Reno, Bill's Lake Tahoe Casino and
Harrah's Atlantic City.
EMPLOYEE RELATIONS
Harrah's, through its subsidiaries, has approximately 23,400 employees.
Labor relations with employees are good.
Harrah's subsidiaries have collective bargaining agreements covering
approximately 3,100 employees. These agreements relate to certain casino, hotel
and restaurant employees at Harrah's Atlantic City and Harrah's Las Vegas.
Approximately 1,800 of these 3,100 employees are covered by a collective
bargaining
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agreement which expired but which remains in effect while negotiations for a
successor agreement continue.
ITEM 3. LEGAL PROCEEDINGS.
NEW ORLEANS
On September 26, 1995, Harrah's New Orleans Investment Company ("HNOIC"), an
indirect subsidiary of the Company, filed in the United States District Court
for the Eastern District of Louisiana a suit styled HARRAH'S NEW ORLEANS
INVESTMENT COMPANY V. NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION, Civil No.
95-3166. At issue in the suit is the percentage of ownership that New
Orleans/Louisiana Development Corporation ("NOLDC") holds in Harrah's Jazz
Company ("HJC"), a Louisiana partnership whose general partners are HNOIC, NOLDC
and Grand Palais Casino, Inc. This declaratory judgment action seeks to confirm
that, as of September 26, 1995, NOLDC's percentage interest in the Harrah's Jazz
Company partnership was only 13.73% and, therefore, NOLDC is not a "Material
Partner" in HJC. This case was put on "administrative hold" after the filing by
NOLDC of a Chapter 11 bankruptcy petition on November 21, 1995. Should it be put
back on the active list, HNOIC or the appropriate post-bankruptcy entity would
vigorously prosecute it. At the time the case was put on "administrative hold,"
no discovery on the merits had been taken and no answer had been filed by NOLDC.
On September 28, 1995, NOLDC filed suit against the Company and various of
its corporate affiliates in NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION V.
HARRAH'S ENTERTAINMENT, FORMERLY D/B/A THE PROMUS COMPANIES, HARRAH'S NEW
ORLEANS INVESTMENT COMPANY, HARRAH'S NEW ORLEANS MANAGEMENT COMPANY, HARRAH'S
JAZZ COMPANY, AND PROMUS HOTELS, FORMERLY D/B/A EMBASSY SUITES, INC., Civil No.
95-14653, filed in the Civil District Court for the Parish of Orleans. The case
was subsequently removed by defendants to the United States District Court for
the Eastern District of Louisiana. In this suit, NOLDC seeks to realign
ownership interests in HJC among HNOIC and NOLDC. NOLDC also seeks an
unspecified dollar amount of damages sufficient to compensate it for the losses
it alleges it has suffered as a result of actions of defendants. NOLDC has
indicated that it intends to seek to remand the suit to the Civil District
Court. The case was also put on "administrative hold" by the District Court
Judge as a result of NOLDC's bankruptcy filing. The Company and other defendants
intend to vigorously defend the action should it be put back on the active case
list. At the time it was put on "administrative hold," no answer had been filed
by any defendant and no discovery had been taken.
Beginning on November 28, 1995, eight separate class action suits were filed
against the Company and various of its corporate affiliates, officers and
directors in the United States District Court for the Eastern District of
Louisiana. They are BEN F. D'ANGELO, TRUSTEE FOR BEN F. D'ANGELO REVOCABLE TRUST
V. HARRAH'S ENTERTAINMENT CORP., MICHAEL D. ROSE, PHILIP G. SATRE AND RON
LENCZYCKI; MAX FENSTER V. HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW ORLEANS
INVESTMENT COMPANY, GRAND PALAIS CASINO, INC., PHILIP G. SATRE, COLIN V. REED,
MICHAEL N. REGAN, CHRISTOPHER B. HEMMETER, DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION, SALOMON BROTHERS, INC., AND BT SECURITIES CORP.; GOLDIE
ROSENBLOOM V. HARRAH'S ENTERTAINMENT CORP., MICHAEL D. ROSE, PHILIP G. SATRE AND
RON LENCZYCKI; BARRY ROSS V. HARRAH'S NEW ORLEANS INVESTMENT COMPANY, PHILIP G.
SATRE, COLIN V. REED, LAWRENCE L. FOWLER, MICHAEL N. REGAN, CEZAR M. FROELICH,
ULRIC HAYNES, JR., WENDELL GAUTHIER, T. GEORGE SOLOMON, JR., DUPLAIN W. RHODES,
III, HARRAH'S ENTERTAINMENT, INC., DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION, SALOMON BROTHERS INC., AND BT SECURITIES CORP.; LOUIS SILVERMAN V.
HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW ORLEANS INVESTMENT COMPANY, GRAND
PALAIS CASINO, INC., PHILIP G. SATRE, COLIN V. REED, MICHAEL N. REGAN,
CHRISTOPHER B. HEMMETER, AND DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION; FLORENCE KESSLER V. PHILIP G. SATRE, COLIN V. REED, CHARLES A.
LEDSINGER, JR., MICHAEL N. REGAN, LAWRENCE L. FOWLER, CHRISTOPHER B. HEMMETER,
CEZAR M. FROELICH, ULRIC HAYNES, JR., WENDELL H. GAUTHIER, T. GEORGE SOLOMON,
JR., DUPLAIN W. RHODES, III, DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION, SALOMON BROTHERS INC., AND BT SECURITIES CORPORATION; WARREN
ZEILLER AND JUDITH M.R. ZEILLER V. HARRAH'S ENTERTAINMENT CORP., MICHAEL D.
ROSE, PHILIP G. SATRE, AND RON LENCZYCKI; AND CHARLES ZWERVING AND HELENE
ZWERVING V. HARRAH'S ENTERTAINMENT CORP., PHILIP G. SATRE, COLIN V. REED,
CHRISTOPHER B.
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HEMMETER, AND DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION. Per Court
Order of January 26, 1996, the above plaintiffs filed a consolidated complaint
in the action numbered 95-3925 IN RE HARRAH'S ENTERTAINMENT, INC. SECURITIES
LITIGATION. The consolidated complaint alleges that various misstatements and
omissions were made in connection with the sale of Harrah's Jazz Company 14.25%
First Mortgage Notes and thereafter, and seeks unspecified damages, as well as
costs of legal proceedings. On April 25, 1997, the United States District Court
preliminarily approved a settlement of this matter, which settlement is
contingent upon the consummation of a Plan of Reorganization for HJC. A final
fairness hearing was held on June 26, 1997. On July 31, 1997, the Court ruled
that the settlement was fair to class members.
On December 6, 1995 Centex Landis, the general contractor for the permanent
casino being developed by HJC, filed suit against the Company, among others, in
the Civil District Court for The Parish of Orleans in CENTEX LANDIS CONSTRUCTION
CO., INC. V. HARRAH'S ENTERTAINMENT, INC. FORMALLY D/B/A THE PROMUS COMPANIES,
INC.; AND RONALD A. LENCZYCKI, Civil No. 95-18101. Defendants removed the case
to the United States District Court for the Eastern District of Louisiana and it
was subsequently transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for remand is pending. This suit seeks to collect more than
$40 million allegedly owed to Centex Landis by HJC from the Company under
guarantee, fraud, fraudulent advertising and unfair trade practice theories. The
Company and the other defendant intend to vigorously defend the action and have
filed an answer denying all of plaintiff's allegations. No discovery has been
taken in the action.
RUSSELL M. SWODY, ET AL. V. HARRAH'S NEW ORLEANS MANAGEMENT COMPANY AND
HARRAH'S ENTERTAINMENT, INC., Civil No. 95-4118, was filed against the Company
on December 13, 1995 in the United States District Court for the Eastern
District of Louisiana, and subsequently amended. SWODY is a class action lawsuit
under the Worker Adjustment and Retraining Notification Act ("WARN Act") and
seeks damages for alleged failure to timely notify workers terminated by
Harrah's New Orleans Management Company at the time of the HJC bankruptcy.
Plaintiffs seek unspecified damages, as well as costs of legal proceedings, for
themselves and all members of the class. An answer has been filed denying all of
plaintiffs' allegations.
SWODY was consolidated with SUSAN N. POIRIER, DARLENE A. MOSS, ET AL. V.
HARRAH'S ENTERTAINMENT, INC., HARRAH'S NEW ORLEANS MANAGEMENT COMPANY, AND
HARRAH'S OPERATING COMPANY, Civil No. 96-0215, which was filed in the United
States District Court for the Eastern District of Louisiana on January 17, 1996,
and subsequently amended. POIRIER seeks not only damages under the WARN Act, but
also under the Employee Retirement Income Security Act ("ERISA") for the alleged
wrongful failure to provide severance to those terminated. Similar proofs of
claims were filed by Ms. Poirier in the Bankruptcy Court for the Eastern
District of Louisiana in the HJC, HNOIC and Harrah's Jazz Finance Corp.
bankruptcy cases.
A settlement has been reached with the SWODY and POIRIER plaintiffs, which
calls for a payment to be made by HJC in exchange for the dismissal of all
actions, which settlement is contingent on the consummation of the Plan of
Reorganization for HJC. That settlement has already been determined to be fair
to all class members by the Bankruptcy Court.
On December 29, 1995 in the Civil District Court for The Parish of Orleans,
the City of New Orleans filed suit against the Company and others in CITY OF NEW
ORLEANS AND RIVERGATE DEVELOPMENT CORPORATION V. HARRAH'S ENTERTAINMENT, INC.
(F/K/A THE PROMUS COMPANIES, INC.), GRAND PALAIS CASINO, INC., EMBASSY SUITES,
INC., FIRST NATIONAL BANK OF COMMERCE AND RONALD A. LENCZYCKI, Civil No.
95-19285. This suit seeks to require the Company, among others, to complete
construction of the permanent casino being developed by HJC under theories of
breach of completion guarantee contract, breach of implied duty of good faith,
detrimental reliance, misrepresentation, and false advertising. Plaintiff seeks
unspecified damages, as well as costs of legal proceedings. Defendants have
removed the suit to the United States District Court for the Eastern District of
Louisiana and it was then transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for remand is pending. The Company and the other defendants
have filed an answer denying all of plaintiffs' allegations and intend to
vigorously defend the action.
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<PAGE>
LOUISIANA ECONOMIC DEVELOPMENT AND GAMING CORPORATION V. HARRAH'S
ENTERTAINMENT, INC. AND HARRAH'S OPERATING COMPANY, INC., Civil No. 424328, was
filed on January 23, 1996 in the Nineteenth Judicial Court of the State of
Louisiana, Parish of East Baton Rouge. On February 21, 1996, the Company and the
other defendants removed the case to the Federal District Court for the Middle
District of Louisiana and asked that it be transferred to the Bankruptcy Court
handling the HJC bankruptcy. The case has been transferred. A motion for
reconsideration has been filed by LEDGC. In this suit LEDGC seeks to require the
Company and Harrah's Operating Company to complete construction of the permanent
casino being developed by HJC under theories of breach of completion guarantee
contract, breach of implied duty of good faith, detrimental reliance,
misrepresentation and, in the alternative, seeks damages. The Company has filed
an answer and counterclaim against LEDGC. LEDGC has moved to have that
counterclaim dismissed and/or for summary judgment. No ruling has yet been made
by the court. The defendants intend to vigorously defend the action and
prosecute their counterclaim.
On November 21, 1997 in the IN RE HARRAH'S JAZZ COMPANY bankruptcy
proceeding, HJC filed an adversary proceeding styled HARRAH'S JAZZ COMPANY V.
A&D MAINTENANCE SERVICES, ET AL., 97-1174, which names the Company and various
of its subsidiaries as defendants. As HJC noted at the time of the filing, the
action was filed "against numerous defendants, including the principal parties
in interest in the bankruptcy case, to preserve various causes of action." HJC
has not effected service on any defendant therein. This adversary proceeding
purports to state claims against the Company and its subsidiaries for
preferential transfers, insider preferential transfers, avoidance transfers,
violations of La. Civil Code Arts. 1978 ET SEQ., violations of La. Civil Code
Arts. 2315, 1953 as well as Arts., 1983, 1989, 1994, 1995, 1996, 1997 and 2000,
violations of La. Civil Code Arts. 1953, 1997, 2315, damage to its creditors as
a result of the projections in the 1994 offering of HJC bonds, and breach of
fiduciary duty and fair dealing. If the action is ever served on the Company,
the Company intends to defend the action vigorously.
On November 21, 1997 IN RE NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION
matter, NOLDC filed an adversary proceeding styled NEW ORLEANS LOUISIANA
DEVELOPMENT CORPORATION V. BANKERS TRUST COMPANY, 97-1176. et al., which names
the Company and several of its subsidiaries as defendants. NOLDC has not
effected service on any defendant therein. This adversary proceeding purported
to state claims for breach of fiduciary duty, negligent and fraudulent
misrepresentation, Stipulation Pour Autrui and violations of La. Civil Code Art.
1953 ET SEQ. If the action is ever served on the Company, the Company intends to
defend the action vigorously.
On November 21, 1997, Eddie Sapir and Eddie Sapir Inter Vivos Trust No. 1
filed suit against certain individuals and entities, including the Company. The
action is styled EDDIE SAPIR V. BANKER'S TRUST COMPANY, ET AL. and was filed in
the Civil District Court for the Parish of Orleans, No. 97-20643. The complaint
has not yet been served on the Company. Nonetheless, the Company removed the
action and asked that it be transferred to the Bankruptcy Court for the Eastern
District of Louisiana for consolidation with the IN RE HARRAH'S JAZZ COMPANY
bankruptcy proceeding. The complaint purports to state claims for detrimental
reliance, civil law equity, negotiorum guestro, unjust enrichment, breach of
covenant, quantum meruit, anticipatory breach of contract, abuse of right,
intentional interference with contract and negligent misrepresentation. If the
action is ever served on the Company, the Company intends to defend the action
vigorously.
MISSOURI
On November 25, 1997, the Missouri Supreme Court issued a ruling in AKIN V.
MISSOURI GAMING COMMISSION that defined the state constitutional requirements
for floating casino facilities in artificial basins. Subsequently, the Missouri
Gaming Commission (the "Commission") attempted to issue disciplinary resolutions
that effectively would have amended the gaming licenses of the Company's
Missouri casinos, and numerous other floating casino facilities in the
Commission's jurisdiction, to preclude games of chance, subject to evidentiary
hearings that were to be held if the licensees filed appeals to prove compliance
with the Supreme Court's ruling. Prior to the Commission's action, Harrah's and
other
32
<PAGE>
licensees filed petitions in the Circuit Court of Cole County, Missouri, and
succeeded in having the Court issue an order restraining the Commission from
taking any such disciplinary action. The Commission has appealed to the Missouri
Supreme Court to permit it to proceed with its intended actions. The Supreme
Court will hear the appeal in May 1998, but the Circuit Court order restraining
the Commission remains in effect pending the Supreme Court's decision on the
appeal. Harrah's has also filed suit seeking declaratory judgment that its
gaming facilities meet the state constitutional mandates as established by the
Missouri Supreme Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
33
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Philip G. Satre (48)................. Director since 1989, Chairman of the Board since January 1997, President
since April 1991 and Chief Executive Officer since April 1994 of
Harrah's. Chief Operating Officer of Harrah's (1991-1994). President
(1984-1995) of Harrah's Gaming Group. He is a member of the Executive
Committee of Harrah's Jazz Company and a director and President of
Harrah's Jazz Finance Corp., both of which filed petitions under Chapter
11 of the United States Bankruptcy Code in November 1995. He is also a
director and President of Harrah's New Orleans Investment Company which
filed a petition under Chapter 11 of the United States Bankruptcy Code
in December 1995.
Colin V. Reed (50)................... Executive Vice President of Harrah's since September 1995. Chief Financial
Officer of Harrah's since April 1997. Senior Vice President, Corporate
Development of Harrah's from May 1992 to September 1995. He is also a
director of Sodak Gaming, Inc. He is a member of the Executive Committee
of Harrah's Jazz Company and a director and a Senior Vice President of
Harrah's Jazz Finance Corp., both of which filed petitions under Chapter
11 of the United States Bankruptcy Code in November 1995. He is a
director and Senior Vice President of Harrah's New Orleans Investment
Company which filed a petition under Chapter 11 of the United States
Bankruptcy Code in December 1995.
John M. Boushy (43).................. Senior Vice President, Information Technology and Marketing Services of
Harrah's since June 1993. Vice President, Strategic Marketing of
Harrah's from April 1989 to June 1993. He is a director of Interactive
Entertainment Limited.
Thomas J. Carr, Jr. (55)............. Senior Vice President, Brand Operations of Harrah's since July 1997.
Gaming Division Senior Vice President, Brand Strategy from February 1997
to July 1997. Senior Vice President and Managing Director, Harrah's Sky
City Casino from November 1994 to February 1997. Division Senior Vice
President, Indian Gaming from October 1992 to November 1994.
Ben C. Peternell (52)................ Senior Vice President, Corporate Human Resources and Communications of
Harrah's since November 1989.
E. O. Robinson, Jr. (58)............. Senior Vice President and General Counsel of Harrah's since April 1993 and
Secretary of Harrah's from November 1989 to October 1995. Vice President
and Associate General Counsel of Harrah's from November 1989 to April
1993.
</TABLE>
34
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange and
traded under the ticker symbol "HET". The stock is also listed on the Chicago
Stock Exchange, the Pacific Exchange and the Philadelphia Stock Exchange.
The following table sets forth the high and low price per share of the
Company's Common Stock for the last two years:
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1996
First Quarter....................... 30 1/4 24
Second Quarter...................... 38 7/8 27
Third Quarter....................... 28 3/8 17 1/4
Fourth Quarter...................... 21 3/4 16 3/8
1997
First Quarter....................... 20 3/4 17
Second Quarter...................... 20 1/4 15 1/2
Third Quarter....................... 22 15/16 17 5/16
Fourth Quarter...................... 22 7/16 16 15/16
</TABLE>
The approximate number of holders of record of the Company's Common Stock as
of January 30, 1998, is as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
TITLE OF CLASS OF HOLDERS OF RECORD
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Common Stock, Par Value $0.10 per share.................................. 12,530
</TABLE>
The Company does not presently intend to declare cash dividends. The terms
of the Company's bank facility substantially limit the Company's ability to pay
cash dividends on Common Stock and limitations are also contained in agreements
covering other debt of the Company. See "Management's Discussion and
Analysis-Intercompany Dividend Restriction" on page 33 of the Annual Report,
which page is incorporated herein by reference. When permitted under the terms
of the bank facility and the other debt, the declaration and payment of
dividends is at the discretion of the Board of Directors of the Company. In
October 1996, the Board of Directors of the Company approved a stock repurchase
plan which authorized the purchase of up to ten percent of the Company's
outstanding common stock. The repurchase of stock under this plan, which expired
December 31, 1997, was treated as a dividend for purposes of the Company's debt
agreements. The Board of Directors of the Company intends to reevaluate its
dividend policy in the future in light of the Company's results of operations,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1993 through 1997 set forth under
"Financial and Statistical Highlights" on pages 4 and 5 of the Annual Report,
which pages are incorporated herein by reference.
35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information set forth on pages 25 through 33 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth on pages 34 through 50 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
See the information regarding the names, ages, positions and prior business
experience of the directors of the Company set forth in the section entitled
"Board of Directors" of the Proxy Statement, which information is incorporated
herein by reference.
EXECUTIVE OFFICERS
See "Executive Officers of the Registrant" on page in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
See the information set forth in the sections of the Proxy Statement
entitled "Compensation of Directors," "Summary Compensation Table," "Option
Grants in the Last Fiscal Year," "Aggregated Option Exercises in 1997 and
December 31, 1997 Option Values" and "Certain Employment Arrangements" which
sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information set forth in the sections of the Proxy Statement
entitled "Ownership of Harrah's Entertainment Securities" and "Certain
Stockholders," which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information set forth in the section of the Proxy Statement entitled
"Certain Transactions," which section is incorporated herein by reference.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements (including related notes to consolidated
financial statements)* filed as part of this report are listed below:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.
2. Schedules for the years ended December 31, 1997, 1996 and 1995, are
as follows:
NO.
I -Condensed financial information of registrant
II-Consolidated valuation and qualifying accounts
Schedules III, IV, and V are not applicable and have therefore been
omitted.
3. Exhibits (footnotes appear on pages 43 through 45)
<TABLE>
<CAPTION>
NO.
- --------
<C> <S>
2(1)- Agreement and Plan of Merger, dated as of December 18, 1997, by
and among Harrah's Entertainment, Inc., HEI Acquisition Corp., and
Showboat, Inc. (19)
3(1)- Certificate of Incorporation of The Promus Companies Incorporated;
Certificate of Amendment of Certificate of Incorporation of The
Promus Companies Incorporated dated April 29, 1994; Certificate of
Amendment of Certificate of Incorporation of The Promus Companies
Incorporated dated May 26, 1995; and Certificate of Amendment of
Certificate of Incorporation of The Promus Companies Incorporated
dated June 30, 1995, changing its name to Harrah's Entertainment,
Inc. (25)
**3(2)- Bylaws of the Company, as amended December 12, 1997.
4(1)- Rights Agreement dated as of October 5, 1996, between Harrah's
Entertainment, Inc. and The Bank of New York, which includes the
form of Certificate of Designations of Series A Special Stock of
Harrah's Entertainment, Inc. as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase
Special Shares as Exhibit C. (3)
4(2)- First Amendment, dated as of February 21, 1997, to Rights
Agreement between Harrah's Entertainment, Inc. and The Bank of New
York. (27)
4(3)- Second Amendment, dated as of April 25, 1997, to Rights Agreement,
dated as of October 25, 1996, between Harrah's Entertainment, Inc.
and The Bank of New York. (5)
</TABLE>
- ------------------------
* Incorporated by reference from pages 34 through 49 of the Annual Report.
** Filed herewith.
37
<PAGE>
<TABLE>
<C> <S>
4(4)- Letter to Stockholders dated July 23, 1997 regarding Summary of
Rights To Purchase Special Shares As Amended Through April 25,
1997. (18)
4(5)- Certificate of Elimination of Series B Special Stock of Harrah's
Entertainment, Inc., dated February 21, 1997. (27)
4(6)- Certificate of Designations of Series A Special Stock of Harrah's
Entertainment, Inc., dated February 21, 1997. (27)
4(7)- Indenture dated as of August 1, 1993, with respect to the 8 3/4%
Senior Subordinated Notes due 2000, among The Bank of New York, as
trustee, The Promus Companies Incorporated, as guarantor, and
Embassy Suites, Inc., as issuer; Form of Note for 8 3/4% Senior
Subordinated Notes due 2000. (6)
4(8)- First Supplemental Indenture dated as of June 2, 1995, with
respect to the 8 3/4% Senior Subordinated Notes due 2000, among
Embassy Suites, Inc., as issuer, The Promus Companies
Incorporated, as guarantor, and The Bank of New York, as trustee.
(2)
4(9)- Interest Swap Agreement between Bank of America National Trust and
Savings Association and Embassy Suites, Inc. dated May 14, 1993.
(6)
4(10)- Interest Swap Agreement between NationsBank of North Carolina, N.
A. and Embassy Suites, Inc. dated May 18, 1993. (6)
4(11)- Interest Swap Agreement between Bank of America National Trust and
Savings Association and Harrah's Operating Company, Inc. dated
December 21, 1995. (25)
4(12)- Interest Swap Agreement between NationsBank, N. A. (Carolinas) and
Harrah's Entertainment, Inc. dated December 21, 1995. (25)
4(13)- Interest Swap Agreement between The Bank of Nova Scotia and
Embassy Suites, Inc. dated January 25, 1995 and amended February
2, 1995. (7)
4(14)- Interest Swap Agreement between Bankers Trust Company and Embassy
Suites, Inc. dated May 16, 1995. (10)
4(15)- Interest Swap Agreement between The Sumitomo Bank, Limited and
Embassy Suites, Inc. dated June 5, 1995. (10)
4(16)- Interest Swap Agreement between Bankers Trust Company and Embassy
Suites, Inc. dated June 6, 1995. (10)
4(17)- Consent to Credit Agreements dated as of April 11, 1997, among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
Marina Associates, various lending institutions, and Bankers Trust
Company, The Bank of New York, CIBC Inc., Credit Lyonnais, Atlanta
Agency, Wells Fargo Bank, N.A., The Long-Term Credit Bank of
Japan, Limited, New York Branch, NationsBank, N.A. (South),
Societe Generale, The Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent. (18)
4(18)- Consent dated April 10, 1997 to Credit Agreement dated June 9,
1995, among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc., Marina Associates, various lenders, and Bankers
Trust Company, The Bank of New York, CIBC Inc., Credit Lyonnais,
Atlanta Agency, Wells Fargo Bank, N.A., The Long-Term Credit Bank
of Japan, Limited, New York Branch, NationsBank, N.A. (South),
Societe Generale, The Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent. (18)
</TABLE>
38
<PAGE>
<TABLE>
<C> <S>
10(1)- Credit Agreement, dated as of July 22, 1993 and amended and
restated as of June 9, 1995, among The Promus Companies
Incorporated, Embassy Suites, Inc., certain subsidiaries of
Embassy Suites, Inc., various banks, Bankers Trust Company, The
Bank of New York, CIBC, Inc., Credit Lyonnais, Atlanta Agency,
First Interstate Bank of California, The Long-Term Credit Bank of
Japan, Limited, New York Branch, NationsBank of Georgia, N.A.,
Societe Generale and Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent. (2)
10(2)- Credit Agreement, dated as of June 9, 1995, among The Promus
Companies Incorporated, Embassy Suites, Inc., certain subsidiaries
of Embassy Suites, Inc., various banks, Bankers Trust Company, The
Bank of New York, CIBC, Inc., Credit Lyonnais, Atlanta Agency,
First Interstate Bank of California, The Long-Term Credit Bank of
Japan, Limited, New York Branch, NationsBank of Georgia, N.A.,
Societe Generale and The Sumitomo Bank, Limited, New York Branch,
as Agents, and Bankers Trust Company, as Administrative Agent. (2)
10(3)- Second Amendment to Credit Agreement, dated as of October 15,
1996, among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc., Marina Associates, various lending institutions,
Bankers Trust Company, The Bank of New York, CIBC, Inc., Credit
Lyonnais, Atlanta Agency, First Interstate Bank of Nevada, N.A.,
The Long-Term Credit Bank of Japan, Limited, New York Branch,
NationsBank of Georgia, N.A., Societe Generale and The Sumitomo
Bank, Limited, New York Branch, as Agents, and Bankers Trust
Company, as Administrative Agent. (27)
10(4)- Consent dated as of April 17, 1996 to Credit Agreement, dated as
of June 9, 1995, among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., Marina Associates, various banks, Bankers
Trust Company, The Bank of New York, CIBC, Inc., Credit Lyonnais,
Atlanta Agency, First Interstate Bank of Nevada, N.A., The
Long-Term Credit Bank of Japan, Limited, New York Branch,
NationsBank of Georgia, N.A., Societe Generale and The Sumitomo
Bank, Limited, New York Branch, as Agents, and Bankers Trust
Company, as Administrative Agent. (11)
10(5)- Plan of Reorganization and Distribution Agreement, dated June 30,
1995, between The Promus Companies Incorporated and Promus Hotel
Corporation. (10)
10(6)- Risk Management Allocation Agreement, dated June 30, 1995, between
The Promus Companies Incorporated and Promus Hotel Corporation.
(10)
10(7)- Tax Sharing Agreement, dated June 30, 1995, between The Promus
Companies Incorporated and Promus Hotel Corporation. (10)
+10(8)- Form of Indemnification Agreement entered into by The Promus
Companies Incorporated and each of its directors and executive
officers. (1)
+10(9)- Financial Counseling Plan of Harrah's Entertainment, Inc. as
amended January 1996. (25)
+10(10)- The Promus Companies Incorporated 1996 Non-Management Director's
Stock Incentive Plan dated April 5, 1995. (9)
+10(11)- Amendment dated February 20, 1997 to 1996 Non-Management
Director's Stock Incentive Plan. (5)
**+10(12)- Trust Agreement dated November 7, 1997 between Harrah's
Entertainment, Inc. and NationsBank concerning the Non-Management
Director's Stock Incentive Plan.
</TABLE>
- ------------------------
** Filed herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
39
<PAGE>
<TABLE>
<C> <S>
+10(13)- The Promus Companies Incorporated Key Executive Officer Annual Incentive Plan
dated February 24, 1995. (10)
+10(14)- Summary Plan Description of Executive Term Life Insurance Plan. (27)
+10(15)- Form of Harrah's Entertainment, Inc.'s Annual Management Bonus Plan, as amended
1995. (25)
**+10(16)- Amendment dated as of December 12, 1997 to Harrah's Entertainment, Inc.'s Annual
Management Bonus Plan.
**+10(17)- Amended and Restated Severance Agreement dated as of October 31, 1997 entered
into with Philip G. Satre.
**+10(18)- Form of Amended and Restated Severance Agreement dated as of October 31, 1997
entered into with John M. Boushy, Thomas J. Carr, Jr., Ben C. Peternell, Colin V.
Reed and E. O. Robinson, Jr.
+10(19)- Employment Agreement dated as of February 25, 1994, and effective April 29, 1994,
between The Promus Companies Incorporated and Philip G. Satre including exhibits
thereto. (17)
+10(20)- Amendment, dated May 5, 1997, to Employment Agreement of Philip G. Satre dated as
of February 25, 1994. (5)
+10(21)- The Promus Companies Incorporated 1990 Stock Option Plan. (12)
+10(22)- The Promus Companies Incorporated 1990 Stock Option Plan (as amended as of April
30, 1993). (20)
+10(23)- The Promus Companies Incorporated 1990 Stock Option Plan, as amended April 29,
1994. (8)
+10(24)- The Promus Companies Incorporated 1990 Stock Option Plan, as amended July 29,
1994. (21)
+10(25)- Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990 Stock
Option Plan as adjusted on December 12, 1996. (27)
+10(26)- Revised Form of Stock Option (1990 Stock Option Plan). (25)
+10(27)- Revised Form of Stock Option with attachments (1990 Stock Option Plan). (27)
+10(28)- Form of memorandum agreement dated July 2, 1991, eliminating stock appreciation
rights under stock options held by Ben C. Peternell and Philip G. Satre. (14)
+10(29)- The Promus Companies Incorporated 1990 Restricted Stock Plan. (12)
+10(30)- Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990
Restricted Stock Plan. (9)
+10(31)- Revised Forms of Restricted Stock Award (1990 Restricted Stock Plan). (25)
+10(32)- Revised Form of Restricted Stock Award (1990 Restricted Stock Plan). (27)
+10(33)- Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan
and Stock Option Plan) dated October 27, 1995. (25)
+10(34)- Amendment to Administrative Regulations, Long Term Compensation Plan (Restricted
Stock Plan and Stock Option Plan) dated December 12, 1996. (27)
+10(35)- Deferred Compensation Plan dated October 16, 1991. (15)
</TABLE>
- ------------------------
** Filed herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
40
<PAGE>
<TABLE>
<C> <S>
+10(36)- Amendment, dated May 26, 1995, to The Promus Companies Incorporated Deferred Com-
pensation Plan. (2)
+10(37)- Forms of Deferred Compensation Agreement. (25)
+10(38)- Amended and Restated Executive Deferred Compensation Plan dated as of October 27,
1995. (25)
+10(39)- Amendment dated April 24, 1997 to Harrah's Entertainment, Inc.'s Executive
Deferred Compensation Plan. (18)
+10(40)- Description of Amendments to Executive Deferred Compensation Plan. (22)
+10(41)- Restated Amendment, dated July 18, 1996, to Harrah's Entertainment, Inc.
Executive Deferred Compensation Plan. (27)
+10(42)- Forms of Executive Deferred Compensation Agreement. (25)
+10(43)- Amendment dated April 24, 1997, to Harrah's Entertainment, Inc.'s Deferred
Compensation Plan. (18)
+10(44)- Escrow Agreement dated February 6, 1990 between The Promus Companies
Incorporated, certain subsidiaries thereof, and Sovran Bank, as escrow agent.
(12)
+10(45)- First Amendment to Escrow Agreement dated January 31, 1990 among Holiday
Corporation, certain subsidiaries thereof and Sovran Bank, as escrow agent. (12)
+10(46)- Amendment to Escrow Agreement dated as of October 29, 1993 among The Promus
Companies Incorporated, certain subsidiaries thereof, and NationsBank, formerly
Sovran Bank. (24)
+10(47)- Amendment, dated as of June 7, 1995, to Escrow Agreement among The Promus
Companies Incorporated, certain subsidiaries thereof and NationsBank. (2)
+10(48)- Amendment, dated as of July 18, 1996, to Escrow Agreement between Harrah's
Entertainment, Inc. and NationsBank. (26)
+10(49)- Time Accelerated Restricted Stock Award Plan ("TARSAP") program dated December
12, 1996. (27)
+10(50)- Form of TARSAP Award. (27)
+10(51)- Form of Agreement, dated October 30, 1996, regarding cancellation and reissue of
stock options, entered into with Philip G. Satre, Colin V. Reed, Ben C.
Peternell, E.O. Robinson, Jr. and John M. Boushy; and Form of Reissued Stock
Option. (27)
10(52)- Amended and Restated Partnership Agreement of Harrah's Jazz Company, dated as of
March 15, 1994, among Harrah's New Orleans Investment Company, New
Orleans/Louisiana Development Corporation and Grand Palais Casino, Inc.; First
Amendment to the Amended and Restated Partnership Agreement of Harrah's Jazz
Company, effective as of March 15, 1994. (24)
10(53)- Second Amendment dated March 31, 1994 to the Amended and Restated Partnership
Agreement of Harrah's Jazz Company. (8)
10(54)- Amended and Restated Third Amendment to the Amended and Restated Partnership
Agreement of Harrah's Jazz Company. (16)
</TABLE>
- ------------------------
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
41
<PAGE>
<TABLE>
<C> <S>
10(55)- Fourth Amendment to the Amended and Restated Partnership Agreement of Harrah's
Jazz Company. (16)
10(56)- Indenture dated as of November 15, 1994 between Harrah's Jazz Company, Harrah's
Jazz Finance Corp. and First National Bank of Commerce as Trustee for the First
Mortgage Notes including form of First Mortgage Note. (16)
10(57)- Cash Collateral and Disbursement Agreement among First National Bank of Commerce
as Trustee, First National Bank of Commerce as Collateral Agent, Harrah's Jazz
Company and Harrah's Jazz Finance Corp., dated November 16, 1994. (16)
10(58)- Collateral Mortgage Note by Harrah's Jazz Company dated November 15, 1994. (16)
10(59)- Act of Collateral Mortgage and Collateral Assignment of Proceeds by Harrah's Jazz
Company dated November 15, 1994. (16)
10(60)- Act of Collateral Assignment of Leases and Rents between Harrah's Jazz Company
and First National Bank of Commerce as Collateral Agent dated November 15, 1994.
(16)
10(61)- Act of Security Agreement and Pledge between Harrah's Jazz Company and First
National Bank of Commerce as Collateral Agent dated November 15, 1994. (16)
10(62)- Pledge Agreement between Harrah's Jazz Company, Harrah's Jazz Finance Corp. and
First National Bank of Commerce as Collateral Agent dated as of November 16,
1994. (16)
10(63)- Security Agreement among Harrah's Jazz Company, Harrah's Jazz Finance Corp. and
First National Bank of Commerce as Collateral Agent dated as of November 16,
1994. (16)
10(64)- Security Agreement (Cash Collateral) among Harrah's Jazz Company, Harrah's Jazz
Finance Corp. and First National Bank of Commerce as Trustee dated November 16,
1994. (16)
10(65)- Manager Subordination Agreement (First Mortgage Notes) among Harrah's Jazz
Company, Harrah's New Orleans Management Company and First National Bank of
Commerce as Trustee dated as of November 16, 1994. (16)
10(66)- Amended Lease Agreement between the Rivergate Development Corporation, as
Landlord and Harrah's Jazz Company, as Tenant and City of New Orleans, as
Intervenor dated March 15, 1994. (13)
10(67)- Amended General Development Agreement between Rivergate Development Corporation
and Harrah's Jazz Company and City of New Orleans, as Intervenor dated March 15,
1994. (4)
10(68)- Amendment to Amended Lease Agreement between Rivergate Development Corporation,
as Landlord and Harrah's Jazz Company, as Tenant and City of New Orleans, as
Intervenor dated October 5, 1994. (13)
10(69)- Agreement among the Rivergate Development Corporation, the City of New Orleans
and Embassy Suites, Inc. and Harrah's Jazz Company, as intervenor, dated October
5, 1994 (the "Embassy Access Agreement"). (13)
10(70)- Casino Operating Contract between the Louisiana Economic Development and Gaming
Corporation and Harrah's Jazz Company dated July 15, 1994. (4)
10(71)- First Amendment to Casino Operating Contract between the Louisiana Economic
Development and Gaming Corporation and Harrah's Jazz Company dated August 31,
1994. (13)
10(72)- Amended and Restated Management Agreement between Harrah's New Orleans Manage-
ment Company and Harrah's Jazz Company dated March 14, 1994. (4)
</TABLE>
42
<PAGE>
<TABLE>
<C> <S>
10(73)- Construction Agreement between Harrah's Jazz Company and Centex Landis
Construction Co., Inc. dated October 10, 1994, for the construction of the
Permanent Casino. (13)
10(74)- Design and Construction Agreement between Harrah's Jazz Company and Broadmoor
dated October 10, 1994, for the construction of the parking structure. (13)
10(75)- Owner's Policy issued March 16, 1994 by First American Title Insurance Company to
Harrah's Jazz Company with attachments. (16)
10(76)- Lender's Title Insurance Policy issued November 16, 1994 by First American Title
Insurance Company together with reinsurance agreements. (16)
10(77)- Construction Lien Indemnity Obligation Agreement between Harrah's Jazz Company
and Embassy Suites, Inc. dated October 12, 1994. (23)
10(78)- First Amendment to the Construction Lien Indemnity Obligation Agreement. (16)
10(79)- Specimen form of 14 1/4% First Mortgage Note Due 2001 of Harrah's Jazz Company
and Harrah's Jazz Finance Corp. (16)
10(80)- Limited Partnership Agreement of Des Plaines Limited Partnership between Harrah's
Illinois Corporation and John Q. Hammons, dated February 28, 1992; First
Amendment to Limited Partnership Agreement of Des Plaines Limited Partnership
dated as of October 5, 1992. (24)
**10(81)- Fifth Amendment to Limited Partnership Agreement of Des Plaines Limited
Partnership dated as of April 1, 1997.
**+10(82)- Amendment, dated as of October 30, 1997, to Escrow Agreement between Harrah's
Entertainment, Inc., Harrah's Operating Company, Inc. and NationsBank.
**10(83)- Third Amendment to Credit Agreements dated as of November 22, 1997, among
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., Marina
Associates, various lending institutions, Bankers Trust Company, The Bank of New
York, CIBC, Inc., Credit Lyonnais, Atlanta Agency, Wells Fargo Bank, N.A., The
Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank, N.A.
(South), Societe Generale and The Sumitomo Bank, Limited, New York Branch, as
Agents, and Bankers Trust Company, as Administrative Agent.
**11- Computations of per share earnings.
**12- Computations of ratios.
**13- Portions of Annual Report to Stockholders for the year ended December 31, 1997.
(28)
**21- List of subsidiaries of Harrah's Entertainment, Inc.
**27- Financial Data Schedule.
</TABLE>
- ------------------------
** Filed herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of Form 10-K.
FOOTNOTES
(1) Incorporated by reference from the Company's Registration Statement on Form
10, File No. 1-10410, filed on December 13, 1989.
(2) Incorporated by reference from the Company's Current Report on Form 8-K,
filed June 15, 1995, File No. 1-10410.
43
<PAGE>
(3) Incorporated by reference from the Company's Current Report on Form 8-K,
filed August 9, 1996, File No. 1-10410.
(4) Incorporated by reference from Amendment No. 3 to Form S-1 Registration
Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No.
33-73370, filed August 4, 1994.
(5) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, filed May 13, 1997, File No. 1-10410.
(6) Incorporated by reference from the Company's and Embassy Suites, Inc.'s
Amendment No. 2 to Form S-4 Registration Statement, File No. 33-49509-01,
filed July 16, 1993.
(7) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, filed March 21, 1995, File No.
1-10410.
(8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994, filed May 12, 1994, File No. 1-10410.
(9) Incorporated by reference from the Company's Proxy Statement for the May 26,
1995 Annual Meeting of Stockholders, filed April 25, 1995.
(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, filed August 14, 1995, File No.
1-10410.
(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, filed August 13, 1996, File No.
1-10410.
(12) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1989, filed March 28, 1990, File No.
1-10410.
(13) Incorporated by reference from Amendment No. 4 to Form S-1 Registration
Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No.
33-73370, filed October 12, 1994.
(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1991, filed November 8, 1991, File No.
1-10410.
(15) Incorporated by reference from Amendment No. 2 to the Company's and
Embassy's Registration Statement on Form S-1, File No. 33-43748, filed March
18, 1992.
(16) Incorporated by reference from Harrah's Jazz Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, filed December 21, 1994,
File No. .
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, filed November 14, 1994, File No.
1-10410.
(18) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, filed August 13, 1997, File No.
1-10410.
(19) Incorporated by reference from the Company's Current Report on Form 8-K
filed December 24, 1997, File No. 1-10410.
(20) Incorporated by reference from Post-Effective Amendment No. 1 to the
Company's Form S-8 Registration Statement, File No. 33-32864-01, filed July
22, 1993.
(21) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, filed August 11, 1994, File No.
1-10410.
(22) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, filed November 13, 1997, File No.
1-10410.
44
<PAGE>
(23) Incorporated by reference from Amendment No. 5 to Form S-1 Registration
Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File No.
33-73370, filed October 26, 1994.
(24) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, filed March 28, 1994, File No.
1-10410.
(25) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, filed March 6, 1996, File No.
1-10410.
(26) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, filed November 12, 1996, File No.
1-10410.
(27) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, filed March 11, 1997, File No.
1-10410.
(28) Filed herewith to the extent portions of such report are specifically
included herein by reference.
(b) The following reports on Form 8-K were filed by the Company during the
fourth quarter of 1997 and thereafter through March 1, 1998: December 24,
1997-Reports the proposed acquisition of Showboat, Inc.
45
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HARRAH'S ENTERTAINMENT, INC.
BY: /S/ PHILIP G. SATRE
-----------------------------------------
(Philip G. Satre, Chairman, President
DATED: MARCH 10, 1998 and Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ SUSAN CLARK-JOHNSON Director
- ------------------------------ March 10, 1998
(Susan Clark-Johnson)
/s/ JAMES B. FARLEY Director
- ------------------------------ March 10, 1998
(James B. Farley)
/s/ JOE M. HENSON Director
- ------------------------------ March 10, 1998
(Joe M. Henson)
/s/ RALPH HORN Director
- ------------------------------ March 10, 1998
(Ralph Horn)
/s/ R. BRAD MARTIN Director
- ------------------------------ March 10, 1998
(R. Brad Martin)
/s/ WALTER J. SALMON Director
- ------------------------------ March 10, 1998
(Walter J. Salmon)
/s/ PHILIP G. SATRE Director, Chairman,
- ------------------------------ President and Chief March 10, 1998
(Philip G. Satre) Executive Officer
/s/ BOAKE A. SELLS Director
- ------------------------------ March 10, 1998
(Boake A. Sells)
/s/ EDDIE N. WILLIAMS Director
- ------------------------------ March 10, 1998
(Eddie N. Williams)
/s/ COLIN V. REED Chief Financial Officer
- ------------------------------ March 10, 1998
(Colin V. Reed)
/s/ JUDY T. WORMSER Controller and Principal
- ------------------------------ Accounting Officer March 10, 1998
(Judy T. Wormser)
46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harrah's Entertainment, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in the Harrah's Entertainment, Inc. 1997
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 3, 1998. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedules listed under Item 14(a)2 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements, and in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
February 3, 1998.
<PAGE>
SCHEDULE I
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
ASSETS
Cash...................................................................................... $ - $ -
Investments in and advances to subsidiaries (eliminated in consolidation)................. 735,491 719,821
---------- ----------
$ 735,491 $ 719,821
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued taxes, including federal income taxes............................................. $ (12) $ 75
---------- ----------
Commitments and contingencies (Notes 2, 3, 6 and 7)
Stockholders' equity (Note 4)
Common stock, $0.10 par value, authorized-360,000,000 shares, outstanding-101,035,898
and 102,969,699 shares (net of 3,001,568 and 771,571 held in treasury)................ 10,104 10,297
Capital surplus......................................................................... 388,925 385,941
Retained earnings....................................................................... 349,386 290,797
Unrealized gain on marketable equity securities held by a subsidiary.................... 2,884 51,394
Deferred compensation related to restricted stock....................................... (15,796) (18,683)
---------- ----------
735,503 719,746
---------- ----------
$ 735,491 $ 719,821
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these balance sheets.
S-1
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ----------
Revenues....................................................................... $ - $ - $ -
Costs and expenses............................................................. 144 150 182
---------- --------- ----------
Loss before income taxes and equity in subsidiaries' continuing earnings....... (144) (150) (182)
Income tax benefit............................................................. 50 57 64
---------- --------- ----------
Loss before equity in subsidiaries' continuing earnings........................ (94) (93) (118)
Equity in subsidiaries' continuing earnings.................................... 107,616 98,990 78,928
---------- --------- ----------
Income from continuing operations.............................................. 107,522 98,897 78,810
Discontinued operations (Note 1)
Equity in subsidiaries' income from discontinued operations.................. - - 21,230
Spin-off transaction expenses, net of tax benefit of $5,134.................. - - (21,194)
---------- --------- ----------
Income before extraordinary loss............................................... 107,522 98,897 78,846
Extraordinary loss, net of tax benefit of $4,477 (Note 3)...................... (8,134) - -
---------- --------- ----------
Net income..................................................................... $ 99,388 $ 98,897 $ 78,846
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
S-2
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1997 1996 1995
----------- ---------- ----------
Cash flows from operating activities
Net income................................................................. $ 99,388 $ 98,897 $ 78,846
Adjustment to reconcile net income to cash flows from operating activities
Equity in undistributed continuing earnings of subsidiaries............ (107,616) (98,990) (78,928)
Extraordinary loss..................................................... 12,611 - -
Amortization........................................................... - - 31
Discontinued operations
Equity in subsidiaries' income from discontinued operations.......... - - (21,230)
Spin-off transaction expenses, before income taxes................... - - 26,328
Other noncash activity................................................. (4,383) 93 (5,047)
----------- ---------- ----------
Cash flows from operating activities................................. - - -
----------- ---------- ----------
Cash flows from financing activities
Distributions from subsidiary.............................................. 41,022 13,014 -
Treasury stock purchases................................................... (41,022) (13,014) -
----------- ---------- ----------
Cash flows from financing activities................................. - - -
----------- ---------- ----------
Net change in cash........................................................... - - -
Cash, beginning of period.................................................... - - -
----------- ---------- ----------
Cash, end of period.......................................................... $ - $ - $ -
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
S-3
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BASIS OF ORGANIZATION
Harrah's Entertainment, Inc. ("Harrah's" or the "Company"), a Delaware
corporation, is a holding company, the principal assets of which are the capital
stock of two subsidiaries, Harrah's Operating Company, Inc. ("HOC") and Aster
Insurance Ltd. ("Aster"). These condensed financial statements should be read in
conjunction with the consolidated financial statements of Harrah's and
subsidiaries.
On June 30, 1995, the Company completed a spin-off of its hotel business
(the "PHC Spin-off") with the distribution to its stockholders on a one-for-two
basis of the stock of a new entity, Promus Hotel Corporation ("PHC"). The
Company had transferred its hotel operations to PHC prior to the PHC Spin-off.
Through its subsidiaries, Harrah's, formerly The Promus Companies Incorporated,
retained ownership of the casino entertainment business. As a result of the PHC
Spin-off, Harrah's statements of income and cash flows for periods prior to the
PHC Spin-off reflect the hotel business as discontinued operations.
NOTE 2--INVESTMENT IN ASTER
The value of Harrah's investment in Aster has been reduced below zero.
Harrah's negative investment in Aster at December 31, 1997 and 1996 was $8.1
million and $10.4 million, respectively, and is included in investments in and
advances to subsidiaries on the balance sheet. In addition, Harrah's has
guaranteed the future payment by Aster of certain insurance-related liabilities.
NOTE 3--LONG-TERM DEBT
Harrah's has no long-term debt obligations. Harrah's has guaranteed certain
long-term debt obligations of HOC. During second quarter 1997, HOC redeemed its
$200 million 10 7/8% Senior Subordinated Notes due 2002 (the "Notes"). As a
result of the early extinguishment of the Notes, an $8.1 million extraordinary
loss, net of tax benefit, was recorded.
NOTE 4--STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, $1.125 par value, 5,000,000 shares authorized
Series A Special Stock, 2,000,000 shares designated
Harrah's Board of Directors 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
Company's 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 of
Series A Special Stock of the Company at an initial price of $130 per Right. If
a person acquires 15% or more of the Company's outstanding common stock, each
Right entitles its holder to purchase common stock of the Company 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% holder will become void. The
Rights will expire on October 5, 2006, unless earlier redeemed by the Board at
one cent per Right.
S-4
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 4--STOCKHOLDERS' EQUITY (CONTINUED)
Pursuant to a plan approved by Harrah's Board of Directors in October 1996
and which expired on December 31, 1997, the Company repurchased 2,993,700 shares
of its common stock at an average price of $18.05 per share. The repurchased
shares are held in treasury.
On June 30, 1995, the PHC Spin-off was completed and the Company distributed
to its stockholders the stock of PHC as a dividend on a one-for-two basis. To
reflect this distribution, the $139.6 million value of the net assets of
discontinued operations as of the PHC Spin-off date was charged against the
Company's retained earnings.
NOTE 5--INCOME TAXES
Harrah's files a consolidated tax return with its subsidiaries.
NOTE 6--COMMITMENTS AND CONTINGENCIES
A Harrah's subsidiary owns an approximate 47% interest in a partnership
named Harrah's Jazz Company ("Harrah's Jazz"). In November 1995, Harrah's Jazz
and its wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed petitions
for relief under Chapter 11 of the Bankruptcy Code. Harrah's Jazz filed a plan
of reorganization with the Bankruptcy Court in April 1996 and has filed several
subsequent amendments to the plan (the Plan). In April 1997, the Bankruptcy
Court confirmed and approved the Plan. However, since the Louisiana State
Legislature did not approve a component of the confirmed Plan - a modified
casino operating contract with Louisiana's gaming board - the confirmed Plan was
not consummated.
In November 1997 and again in January 1998, Harrah's Jazz modified the
confirmed Plan. This most recent plan, which is supported by, among others, the
Governor of Louisiana and the Mayor of New Orleans, contemplates that a newly
formed limited liability company, Jazz Casino Company, L.L.C. ("JCC"), would be
responsible for completing construction of the exclusive New Orleans land-based
casino entertainment facility (the "Rivergate Casino"), a subsidiary of the
Company would receive approximately 40% of the equity in JCC's parent, and
Harrah's would make a $75 million equity investment in the project (less any
debtor-in-possession financing provided to the project), guarantee JCC's $100
million annual payment under the casino operating contract to the State of
Louisiana gaming board (the "State Guarantee"), guarantee up to $154 million of
a bank credit facility of up to $224 million, guarantee timely completion and
opening of the Rivergate Casino and make an additional $10 million subordinated
loan to JCC to finance the Rivergate Casino. With respect to the State
Guarantee, Harrah's would be obligated to guarantee the first year of JCC's
operations and, if certain cash flow tests and other conditions are satisfied
each year, to renew the guarantee each year for a maximum term of approximately
five years. Harrah's obligations under the guarantee would be limited to a
guarantee of the $100 million payment obligation of JCC for the period in which
the guarantee is in effect and would be secured by a first priority lien on
JCC's assets. JCC's payment obligation would be $100 million at the commencement
of each twelve month period under the casino operating contact and would decline
on a daily basis by 1/365 of $100 million as payments are made each day by JCC
to Louisiana's gaming board.
Consummation of the plan is subject to numerous approvals, including
approval from the Company's Board of Directors, the Louisiana State Legislature,
the City of New Orleans City Council and others. The plan was confirmed by the
Bankruptcy Court on January 29, 1998, and it is anticipated that the casino
S-5
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
operating contract will be considered by the Louisiana State Legislature in a
special session commencing in late March 1998. There can be no assurance that
these approvals will be obtained and that such plan will be consummated.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Harrah's Jazz, totaling
approximately $32.2 million as of December 31, 1997, to fund certain payments to
the City of New Orleans and other cash requirements of Harrah's Jazz. Harrah's
has committed to provide up to $40 million in debtor-in-possession loans to
Harrah's Jazz, conditioned upon Harrah's Jazz meeting certain monthly milestones
in the bankruptcy. There can be no assurance that such committed
debtor-in-possession financing will be sufficient for Harrah's Jazz to
consummate the plan. Should additional debtor-in-possession funding be necessary
for the consummation of the plan, the approval of the Company's Board of
Directors would be necessary for Harrah's to provide any debtor-in-possession
financing in excess of $40 million.
NOTE 7--LITIGATION
Harrah's and certain of its subsidiaries have been named as defendants in a
number of lawsuits arising from the suspension of development of a land-based
casino, and the closing of the temporary gaming facility, in New Orleans,
Louisiana, by Harrah's Jazz. The ultimate outcomes of these lawsuits cannot be
predicted at this time, and no provisions for the claims are included in the
accompanying consolidated financial statements. The Company intends to defend
these actions vigorously. In the event a bankruptcy reorganization plan is not
consummated, the Company anticipates that such lawsuits, which are presently
inactive, would become active, and additional lawsuits would be filed.
In November 1997, the Missouri Supreme Court issued a ruling that defined
the state constitutional requirements for floating casino facilities in
artificial basins. Subsequently, the Missouri Gaming Commission (the
"Commission") attempted to issue disciplinary resolutions that effectively would
have amended the gaming licenses of the Company's Missouri casinos, and numerous
other floating casino facilities in the Commission's jurisdiction, to preclude
games of chance, subject to evidentiary hearings that were to be held if the
licensees filed appeals to prove compliance with the Supreme Court's ruling.
Prior to the Commission's action, Harrah's Missouri casinos and other licensees
filed petitions in the Circuit Court of Cole County, Missouri, and succeeded in
having the Court issue an order restraining the Commission from taking any such
disciplinary action. The Commission has appealed to the Missouri Supreme Court
to permit it to proceed with its intended actions. The Supreme Court has not
indicated when it will hear the appeal. Harrah's Missouri casinos have also
filed suit seeking declaratory judgment that its gaming facilities meet the
state constitutional mandates as established by the Missouri Supreme Court.
Management is unable to predict at this time the final outcome of this matter or
whether that outcome could materially affect the Company's results of
operations, cash flows or financial position of its Missouri casinos.
NOTE 8--AGREEMENT TO ACQUIRE SHOWBOAT, INC.
During December 1997, Harrah's and Showboat, Inc. ("Showboat") entered into
a definitive agreement whereby Harrah's agreed to acquire Showboat for $30.75
per share in an all-cash transaction valued at $519 million (net of options
proceeds), and assume $635 million in Showboat debt. The transaction is expect
to be completed during second quarter 1998, subject to various conditions
including regulatory approvals, Showboat stockholder approval and other third
party approvals.
S-6
<PAGE>
SCHEDULE II
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
-------------------
COLUMN B ADDITIONS
--------- ------------------- COLUMN D COLUMN E
BALANCE CHARGED ---------- ---------
COLUMN A AT TO COSTS CHARGED DEDUCTIONS BALANCE
- --------------------------------------------------------------- BEGINNING AND TO OTHER FROM AT CLOSE
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- --------------------------------------------------------------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts
Current...................................................... $14,064 $ 5,332 $ 27 $ (7,961)(A) $11,462
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Long-term.................................................... $ 4,628 $ 1,118 $ - $ 4,675 $10,421
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for debtor-in-possession loans to nonconsolidated
subsidiary................................................... $ - $ 13,000 - - $13,000
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for impairment of long-lived assets.................... $33,369 $ - $ - $ - $33,369
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for contingent liability exposure...................... $ 9,481 $ - $ - $ (4,675) $ 4,806
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Insurance allowances and reserves.............................. $49,590 $ 54,198 $ - $(56,918) $46,870
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
Current...................................................... $10,910 $ 7,814 $ - $ (4,660)(A) $14,064
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Long-term.................................................... $ 75 $ - $ - $ 4,553 $ 4,628
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for impairment of long-lived assets.................... $ - $ 33,369 $ - $ - $33,369
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Reserve for contingent liability exposure...................... $ - $ 14,034 $ - $ (4,553) $ 9,481
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Insurance allowances and reserves.............................. $49,821 $ 39,829 $ - $(40,060) $49,590
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts
Current...................................................... $ 9,551 $ 5,910 $ - $ (4,551)(A) $10,910
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Long-term.................................................... $ 75 $ - $ - $ - $ 75
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Allowance for losses on property dispositions.................. $11,231 $ - $ - $(11,231)(B) $ -
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
Insurance allowances and reserves.............................. $49,448 $ 40,412 $ - $(40,039) $49,821
--------- -------- -------- ---------- ---------
--------- -------- -------- ---------- ---------
</TABLE>
- ------------------------
(A) Uncollectible accounts written off, net of amounts recovered.
(B) Reduction of reserve due to disposition of subject property.
S-7
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 3, 1998, included in this Form 10-K for the year ended
December 31, 1997, into the Company's previously filed Registration Statements
File Nos. 33-32863, 33-32864, 33-32865, 33-59991, 33-59969, 33-59975 and
33-59971.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 9, 1998.
<PAGE>
EX-3(2)
BYLAWS
OF
HARRAH'S ENTERTAINMENT, INC.
(Amended December 12, 1997)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Harrah's
Entertainment, Inc. (the "Corporation") shall be at 1013 Centre Road, in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors of the Corporation (the "Board of Directors") may from time to
time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. The annual meeting of stockholders shall
be held on the first Friday in May in each year or on such other date and at
such time as may be fixed by the Board of Directors and stated in the notice
of the meeting, for the purpose of electing directors and for the transaction
of only such other business as is properly brought before the meeting in
accordance with these Bylaws.
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Written notice of an annual meeting stating the place, date and
hour of the meeting, shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of
the meeting.
To be properly brought before the annual meeting, business must be
either (i) specified in the notice of annual meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors,
(ii) otherwise brought before the annual meeting by or at the direction of
the Board of Directors, or (iii) otherwise properly brought before the annual
meeting by a stockholder. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the meeting, provided, however, that in the event that
less than seventy (70) days notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by a stockholder,
to be timely, must be received no later than the close of business on the
tenth (10th) day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever first
occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
and (ii) any material interest of the stockholder in such business, and (b)
as to the stockholder giving the notice (i) the name and record address of
the stockholder and (ii) the class, series and number of shares of capital
stock of the Corporation which are beneficially owned by the stockholder.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures
set forth in this Article II, Section 2. The officer of the Corporation
presiding at an annual meeting shall, if the facts warrant, determine and
declare to the annual meeting that business was not properly brought before
the annual meeting in accordance with the provisions of this Article II,
Section 2, and if such officer should so determine, such officer shall so
declare to the annual meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 3. Special Meetings. Unless otherwise prescribed by law
or by the Certificate of Incorporation, special meetings of stockholders, for
any purpose or purposes, may only be called by a majority of the entire Board
of Directors or by the Chairman or the President.
Written notice of a special meeting stating the place, date and
hour of the meeting, shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of
the meeting.
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SECTION 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the holders
of a majority of the votes entitled to be cast by the stockholders entitled
to vote thereat, present in person or represented by proxy may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder entitled
to vote at the meeting.
SECTION 5. Voting. Unless otherwise required by law, the Certificate
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat, excluding any shares that are
voted "Abstain" on such question, so that abstentions shall not be counted in
the decision. Each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock
entitled to vote thereat held by such stockholder, unless otherwise provided
by the Certificate of Incorporation. Such votes may be cast in person or by
proxy but no proxy shall be voted after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such
meeting shall be cast by written ballot.
SECTION 6. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
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SECTION 7. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. Nomination of Directors. Nominations of persons for
election to the Board of Directors of the Corporation at the annual meeting
may be made at such meeting by or at the direction of the Board of Directors,
by any committee or persons appointed by the Board of Directors or by any
stockholder of the Corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Article III, Section 1. Such nominations by any stockholder shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
sixty (60) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than seventy (70) days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder, to be timely, must be received no
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to
the Secretary shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, (a) the name,
age, business address and residence address of the person, (b) the principal
occupation or employment of the person, (c) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the person,
and (d) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to
the stockholder giving the notice (a) the name and record address of the
stockholder and (b) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person
shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth herein. The officer of
the Corporation presiding at an annual meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the
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meeting and the defective nomination shall be disregarded. The directors
shall be elected at the annual meeting of the stockholders, except as
provided in the Certificate of Incorporation, and each director elected shall
hold office until his successor is elected and qualified; provided, however,
that unless otherwise restricted by the Certificate of Incorporation or by
law, any director or the entire Board of Directors may be removed, either
with or without cause, from the Board of Directors at any meeting of
stockholders by a majority of the stock represented and entitled to vote
thereat.
SECTION 2. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined
by the Board of Directors. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President or a majority of the
entire Board of Directors. Notice thereof stating the place, date and hour
of the meeting shall be given to each director either by mail not less than
forty-eight (48) hours before the date of the meeting, by telephone or
telegram on twenty-four (24) hours' notice, or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in
the circumstances.
SECTION 3. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, a majority of the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
SECTION 4. Actions of Board of Directors. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all the members
of the Board of Directors or committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
SECTION 5. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the
Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant
to this Section 5 of Article III shall constitute presence in person at such
meeting.
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SECTION 6. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member. Any committee, to the extent allowed by law and provided in the
resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation. Each committee shall keep regular
minutes and report to the Board of Directors when required.
SECTION 7. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
SECTION 8. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholder
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof or the
shareholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
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ARTICLE IV
OFFICERS
SECTION 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director) and one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these
Bylaws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board of
Directors, need such officers be directors of the Corporation.
SECTION 2. Election. The Board of Directors at its first meeting
held after each annual meeting of stockholders shall elect the officers of
the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time
to time by the Board of Directors; and all officers of the Corporation shall
hold office until their successors are chosen and qualified, or until their
earlier resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers who are directors of the Corporation shall be fixed by the Board of
Directors.
SECTION 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed
in the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name and on behalf of the
Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any
corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident
to the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
SECTION 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the
signature of the President is required, the Chairman of the Board of
Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of
the President,
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the Chairman of the Board of Directors shall exercise all the powers and
discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
SECTION 5. President. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and
other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign
and execute documents when so authorized by these Bylaws, the Board of
Directors or the President. In the absence or disability of the Chairman of
the Board of Directors, or if there be none, the President shall preside at
all meetings of the stockholders and the Board of Directors. The President
shall also perform such other duties and may exercise such other powers as
from time to time may be assigned to him by these Bylaws or by the Board of
Directors.
SECTION 6. Vice Presidents. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the
Board of Directors shall designate the officer of the Corporation who, in the
absence of the President or in the event of the inability or refusal of the
President to act, shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President.
SECTION 7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under whose supervision he shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and if there be no Assistant Secretary, then either the Board of Directors or
the President may choose another officer to cause such notice to be given.
The Secretary shall have custody of the seal of the Corporation and the
Secretary
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or any Assistant Secretary, if there be one, shall have authority to affix
the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to
be kept or filed are properly kept or filed, as the case may be.
SECTION 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all his transactions as Treasurer and of the financial condition
of the Corporation. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 9. Assistant Secretaries. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall
perform such duties and have such powers as from time to time may be assigned
to them by the Board of Directors, the President, any Vice President, if
there be one, or the Secretary, and in the absence of the Secretary or in the
event of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
SECTION 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform
the duties of the Treasurer, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the Treasurer. If required by
the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
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SECTION 11. Controller. The Controller shall establish and maintain
the accounting records of the Corporation in accordance with generally
accepted accounting principles applied on a consistent basis, maintain proper
internal control of the assets of the Corporation and shall perform such
other duties as the Board of Directors, the President or any Vice President
of the Corporation may prescribe.
SECTION 12. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
SECTION 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of
the Corporation (i) by the Chairman of the Board of Directors, the President
or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by him in the Corporation.
SECTION 2. Signatures. Any or all of the signatures on the
certificate may be a facsimile, including, but not limited to, signatures of
officers of the Corporation and countersignatures of a transfer agent or
registrar. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued
by the Corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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SECTION 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these Bylaws. Transfers of stock
shall be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty days
nor less than ten days before the date of such meeting, nor more than sixty
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VI
NOTICES
SECTION 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
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SECTION 2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation,
or for any proper purpose, and the Board of Directors may modify or abolish
any such reserve.
SECTION 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall end
on December 31 and the following fiscal year shall commence on January 1,
unless the fiscal year is otherwise fixed by affirmative resolution of the
entire Board of Directors.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
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EX-10(12)
TRUST AGREEMENT
------------------------------
This Agreement made this 7th day of November, 1997 by and between Harrah's
Entertainment, Inc., 1023 Cherry Road, Memphis, TN, 38117 (the "Company") and
NationsBank, 1 NationsBank Plaza, Nashville, TN 37239-1697 (the "Trustee");
RECITALS
---------------
(a) WHEREAS, the Company has adopted the Non-Management Directors Stock
Incentive Plan (the "Plan") attached hereto as Exhibit A.
(b) WHEREAS, the Company has incurred or expects to incur liability under
the terms of the Plan with respect to the individuals and their beneficiaries
covered by the Plan ("Participants");
(c) WHEREAS, the Company wishes to establish a trust pursuant to this
Agreement (the "Trust") and to contribute assets to the Trust that will be held
in the Trust, subject to the claims of the Company's creditors in the event of
the Company's Insolvency, as herein defined, until either paid to Participants
or returned to the Company in such manner and at such times as specified in
this Agreement;
<PAGE>
(d) WHEREAS, it is the intention of the parties that the Trust shall not
affect the status of the deferred provisions of the Plan as an unfunded
arrangement;
(e) WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide a source of funds to assist meeting its liabilities under
the Plan; and
(f) WHEREAS, references to the "Company" herein include Harrah's
Entertainment, Inc., and any successor to its obligations under the Plan.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. ESTABLISHMENT OF TRUST
(a) The Company hereby deposits, with the Trustee in trust, 26,164 shares
of the Company's Common Stock, which shall become the initial principal of the
Trust to be held, administered and disposed of by the Trustee as provided in
this Agreement. The Trust will become effective upon the Trustee's receipt of
this deposit.
(b) The Trust hereby established shall be irrevocable except as provided
herein.
<PAGE>
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of Subpart E, Part I, Subchapter J, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of Participants and general creditors as
herein set forth except when this Agreement permits or requires such funds to
be returned to the Company. Participants shall have no preferred claim on, or
any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plan and this Agreement shall be mere unsecured contractual
rights of Participants against the Company. Any assets held by the Trust will
be subject to the claims of the Company's general creditors under federal and
state law in the event of Insolvency, as defined in Section 3(a) herein.
(e) Within ninety (90) days following the end of each plan quarter
starting the quarter ending September 30, 1997, the Company shall be required
to irrevocably deposit additional cash or other property into the Trust (which
may include the Company's Common Stock or other securities) so that the Trust
has an amount sufficient to distribute to each Participant the benefits payable
pursuant to the terms of the Plan as of the close of such quarter assuming such
benefits were then payable in full.
<PAGE>
Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR
BENEFICIARIES.
(a) Within 60 days following the execution of this Agreement, the Company
shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates
the amounts payable in respect of each Participant or that provides a formula
or other instructions acceptable to the Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as provided for or
available under the Plan), and the time of commencement for payment of such
amounts. The Payment Schedule will be updated periodically as necessary, but
not less than annually, by the Company.
(b) If the Company does not make payment or deliver stock or securities
sufficient to satisfy any distribution obligation under the Plan to a
Participant when due, the Participant will be entitled to deliver to the
Trustee a written notice (the "Participant's Notice") setting forth
instructions for the distribution obligation the Participant believes is due
under the Plan. The Trustee will deliver a copy of the Participant's Notice to
the Company within ten (10) business days of receipt thereof. If the Company
does not, within ten (10) business days after receiving a copy of the
Participant's Notice, deliver written notice to the Trustee objecting to the
payment instructions contained in the Participant's Notice on the grounds that
such distribution is not due under the Plan, the
<PAGE>
Trustee shall make the distribution referred to in the Participant's Notice.
Such distribution shall be such amount of Company stock or other securities or
trust assets as the Trustee deems reasonably appropriate to satisfy the
instructions in the Participant's Notice. The Trustee will use its best
efforts to deliver Company stock or successor securities in satisfaction of the
Plan's obligations. If it is necessary to liquidate or sell any securities in
Trust for this purpose, the Trustee may undertake such liquidation or sale as
soon as possible in order to obtain the necessary assets for the distribution.
(c) If the Company delivers timely written notice to the Trustee
objecting to the distribution to the Participant on the grounds that such
distribution is not due under the Plan, the Trustee shall deliver a copy of
such notice to the Participant within five (5) business days of the Trustee's
receipt thereof. The Trustee shall then make the distribution to cover the
obligation set forth in the Participant's Notice (unless the Company objects on
the grounds that the distribution has already been made or has already been
fully satisfied in which event the procedures at the end of this section 2(c)
shall apply) within five (5) business days after receipt from the Participant
of a written undertaking, in the form attached hereto as Exhibit B, to
indemnify and hold harmless the Escrow Agent and the Company from and against
all losses or claims which may result from any incorrect distribution which is
made to the Participant pursuant to the Participant's Notice.
<PAGE>
If the Company gives written notice to the Trustee objecting on the grounds
that the requested distribution has already been made or has been fully
satisfied, the Trustee shall not make the distribution from the Trust upon
confirming such fact. If the Trustee does not, within ten (10) business days
after receipt of such notice from the Company, confirm that such distribution
has been made or has been fully satisfied by the Company, then the Trustee
shall make the required distribution to the Participant sufficient to satisfy,
as reasonably determined by the Trustee, the obligation described in the
Participant's Notice after receiving from the Participant the written
undertaking in the form attached as Exhibit B.
(d) It is understood that the Plan requires distributions to Participants
in the form of the Company's Common Stock or successor securities. The Trustee
will value such benefit obligations based on the market value (as defined
herein) of the Company's Common Stock (or the successor security) as of the
business day preceding the date the Trustee prepares the distribution which
will be delivered to the Participant. It is the intention of this Agreement
that the Company's obligation to issue stock or securities under the Plan will
be satisfied by an equivalent distribution by the Trustee if the Company (or
its successor) does not issue the required stock or securities when due to a
Participant or Participants.
<PAGE>
(e) It is understood the Company is required to distribute benefits
directly to Participants as they become due under the terms of the Plan. To
the extent the Company from time to time makes distributions under the Plan
which the Trust is intended to protect, the Trustee shall, upon written request
of the Company's Controller, promptly reimburse the Company for any such
distribution by returning Trust assets to the Company equal in value to the
distribution or equal to the amount of securities that were distributed to
Participants. Such reimbursement shall be made within ten (10) days after a
written notice is delivered by the Company's Controller to the Trustee setting
forth the specific distribution made by the Company, who received the
distribution and the date thereof, and the form and amount of assets to be
returned to the Company (cash and/or securities).
(f) The entitlement of a Participant to benefits under the Plan
shall be determined in accordance with the terms of the Plan, and any claim for
such benefits shall be considered and reviewed under the procedures set out in
the Plan.
(g) If at the end of any quarter the principal of the Trust, and any
earnings thereon, will not be sufficient to make payments of Plan benefits as
if they were then payable in full as determined by the Trustee or by the
Company, the Company shall within ninety (90) days after the end of the quarter
deposit additional cash or other assets or securities (which may include
Company stock) into the Trust to the extent
<PAGE>
necessary to keep the Trust fully funded so it will have the capability of
distributing to all Participants their benefits valued at the end of such
quarter. The Trustee shall exercise its best efforts to notify the Company when
the principal and earnings are not sufficient and of the additional amount that
must be deposited to keep the Trust fully funded. The failure of the Trustee to
give this notice will not result in any liability to the Trustee and will not
excuse the Company from insuring the Trust is fully funded. The Trustee is
under no duty to compel contributions to the Trust.
Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN COMPANY IS INSOLVENT.
(a) The Trustee shall cease distributions to Participants if the
Company is Insolvent. The Company shall be considered "Insolvent" for purposes
of this Agreement if (i) the Company is unable to pay its debts as they become
due, or (ii) the Company is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1 hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below:
<PAGE>
(1) The Board of Directors of the Company or the Chief
Executive Officer of the Company will have the duty to notify the Trustee in
writing of the Company's Insolvency. If such a writing is given to the Trustee,
the determination of Insolvency shall be deemed made on the date the Trustee
receives such written notice. In addition, if three or more persons claiming
to be creditors of the Company allege in writing to the Trustee that the
Company has become Insolvent, the Trustee shall, within a reasonable time,
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to Participants. If the Trustee
does not determine that the Company is Insolvent within thirty (30) business
days after receiving written notice from three persons claiming to be creditors
of the Company alleging such Insolvency, then the Company will be deemed
solvent on the 30th day after the receipt of such notice unless and until a
determination is subsequently made by the Trustee that the Company is
Insolvent.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received written notice from the Chief Executive Officer of
the Company or from the Company's Board of Directors or from three persons
claiming to be creditors stating or alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that provides the Trustee with
a reasonable basis for making a determination concerning the Company's
solvency.
<PAGE>
(3) If at any time the Trustee has determined that the Company
is Insolvent, the Trustee shall discontinue distributions to Participants,
shall notify the Company in writing of such determination, and shall hold the
assets of the Trust for the benefit of the Company's general creditors. Nothing
in this Trust Agreement shall in any way diminish any rights of Participants to
pursue their rights as general creditors of the Company with respect to
benefits due under the Plan or otherwise.
(4) If the Trustee determines the Company is Insolvent, the
Trustee shall resume the distribution of benefits to Participants in accordance
with Section 2 of this Agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent). If the Trustee receives
written notice from the Company's Chief Executive Officer or Board of Directors
that the Company is not Insolvent (or is no longer Insolvent), then the Trustee
will make reasonable inquiry as to the Company's solvency. If the Trustee does
not determine the Company is Insolvent within thirty (30) days after receiving
such written notice, then the Trustee's determination of solvency shall be
deemed made as of the 30th day following receipt of such notice.
(c) Provided that there are sufficient assets in the Trust, if the
Trustee discontinues the distribution of benefits from the Trust pursuant to
Section 3(b) hereof and subsequently resumes such payments, the first
distribution to any Participant following such discontinuance shall include
the aggregate amount of all distributions
<PAGE>
due to the Participant under the terms of the Plan for the period of such
discontinuance less the aggregate amount of any distributions made to the
Participant by the Company under the Plan during any such period of
discontinuance.
Section 4. PAYMENTS TO THE COMPANY.
Except as provided in this Agreement, the Company shall have no right or
power to direct the Trustee to return to the Company or to divert to others any
of the Trust assets before all payment of benefits have been made to
Participants pursuant to the terms of the Plan.
Section 5. INVESTMENT AUTHORITY.
(a) The Trustee may, and is expressly authorized to, invest in
securities (including stock or rights to acquire stock) or obligations issued
by the Company. All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Participants, except that all voting
and decisional rights including but not limited to rights to decide whether to
tender such shares in a tender offer with respect to trust assets including the
Company's Common Stock will be exercised by the Company. The Trustee will
follow the Company's instructions in this regard. The Company shall have
<PAGE>
the right at anytime, and from time to time in its sole discretion, to
substitute assets of equal fair market value for any asset held by the Trust.
This right is exercisable by the Company in a nonfiduciary capacity without the
approval or consent of any person in a fiduciary capacity.
(b) Since distributions from the Trust to Participants will be in
the form of the Company's Common Stock or successor securities or will be
directly based on the value of the Company's Common Stock (or successor
securities), the Company hereby requests the Trustee to invest all cash
deposits (or other non-Company stock deposits) in Common Stock of the Company
as soon as possible after such deposits are made by the Company into the Trust.
The Trustee may also invest in (without having any liability to Participants or
the Company for doing so or not doing so): (1) direct obligations of the
United States or its agencies (or obligations unconditionally and fully
guaranteed as to principal and interest by the United States or its agencies)
in each case maturing within one year from date of acquisition; (2) negotiable
certificates of deposit issued by any commercial bank (including NationsBank)
organized and existing under U.S. Laws or the laws of any state having combined
capital and surplus of at least $500 million; (3) money market funds
including, but not limited to, any money market fund maintained by NationsBank.
No investments other than those described in Section 5(a) or 5(b) herein will
be made by the Trustee unless otherwise agreed in writing by the Company and
the Trustee.
<PAGE>
(c) The Trustee will not be liable for any failure to maximize the
income earned on funds in the Trust nor for any losses due to liquidation of
any investment which the Trustee, in its sole discretion, believes necessary to
make any distribution under the terms of the Trust. The Trustee will have no
liability if Trust assets are insufficient to satisfy any obligation to
Participants unless such insufficiency is directly caused by a breach of this
Agreement by the Trustee.
Section 6. CERTAIN FUNDING PROVISIONS
(a) All interest, income and appreciation in value of investments
shall constitute part of the Trust assets. Any dividends, interest or income
shall be reinvested and the Company requests that such reinvestments be in the
Company's Common Stock (or successor securities). All losses of income or
principal including any expenses of the Trustee charged against the Trust will
be the responsibility of the Company and in the event of such losses the
Company shall, upon written request of the Trustee, promptly deposit sufficient
assets into the Trust to insure it is fully funded. The Trustee has no duty to
compel contributions to the Trust.
<PAGE>
(b) The Trust shall be fully funded if the market value of the Trust
assets is equal to or greater than the value of the stock rights of
Participants in the Plan as measured by the market value of the Company's
Common Stock (or successor securities) on the day the assets are valued.
(c) The market value of the Company's Common Stock shall be based on
the average of the high and low of such stock on the New York Stock Exchange on
the relevant business day. If the Company's Common Stock is converted or
changed to a different security or securities (or a combination of cash or
securities), the market value shall be based on the average of the high and low
trading price for such security or securities (together with securities
purchased using any such cash) on the New York Stock Exchange on that day. If a
stock or security is not traded on the New York Stock Exchange, then the market
value will be based on the average of the high and low prices on the principal
exchange where the stock or security is traded that day. If not traded on a
principal exchange, the Trustee will determine such market value in such manner
as it deems appropriate in its sole discretion.
Section 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such
<PAGE>
specific records as shall be agreed upon in writing between the Company and the
Trustee. Within 90 days following the close of each calendar year and within 30
days after the removal or resignation of the Trustee, the Trustee shall deliver
to the Company a written account of its administration of the Trust during such
year or during the period from the close of the last preceding year to the date
of such removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a description of
all securities and investments purchased and sold with the cost or net proceeds
of such purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year or as of the date of such removal or resignation,
as the case may be.
Section 8. RESPONSIBILITY OF TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plan or this Trust and
<PAGE>
is given in writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of competent jurisdiction
to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
reasonable attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments. If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee may obtain payment from
the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company or the Trustee generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, attorneys, actuaries,
investment advisors, financial consultants or other professionals to assist it
in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred
on the Trustees by applicable law, unless expressly provided otherwise herein.
<PAGE>
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Agreement or under applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
Section 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses as well as the expenses of any third parties hired by the Trustee to
assist it in performing any of its duties or obligations hereunder. If not so
paid, the fees and expenses shall be paid from the Trust. The fees payable to
the Trustee are described in Exhibit C.
Section 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective 90 days after receipt of such notice unless
the Company and the Trustee agree otherwise in writing.
(b) The Trustee may be removed and replaced by the Company on 90
days notice or upon shorter notice accepted by the Trustee.
<PAGE>
(c) If the Trustee resigns or is removed, and if a successor trustee
has not been appointed, the Trustee shall select a successor trustee pursuant
to the procedures of section 11(b) hereof prior to the effective date of the
Trustee's resignation or removal.
(d) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after the
resignation or removal unless the Company extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal. If no such appointment has been made, the Trustee may
apply to a court of competent jurisdiction for appointment of a successor or
for instructions. All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the Trust and shall be payable
by the Company..
Section 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with section
10 hereof, the Company shall appoint a third party, such as a bank trust
department or other party
<PAGE>
that may be granted corporate trustee powers under state law, as a successor to
replace the Trustee upon such resignation or removal. The appointment shall be
effective when accepted in writing by the new Trustee, who shall have all of
the rights and powers of the former Trustee under this Agreement, including
ownership rights in the trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
(b) If the Trustee resigns or is removed pursuant to the provisions
of section 10 hereof and the Company fails to appoint a successor trustee, the
Trustee shall then select a successor Trustee. The Trustee may, in selecting a
successor Trustee, appoint any third party such as a bank trust department or
other party that may be granted corporate trustee powers under state law. The
appointment of a successor trustee shall be effective when accepted in writing
by the new Trustee. The new Trustee shall have all the rights and powers of the
former Trustee under this agreement, including ownership rights in trust
assets. The former Trustee shall execute any instrument necessary or reasonably
requested by the successor Trustee to evidence the transfer.
(c) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing trust assets, subject
to this Agreement.
<PAGE>
The successor Trustee shall not be responsible for, and the Company shall
indemnify and defend the successor Trustee from, any claim or liability
resulting from any action or inaction of any prior Trustee or from any other
past event or any condition existing at the time it becomes successor Trustee.
Section 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan, shall make the Trust
revocable without the written consent of all Participants, nor shall materially
and adversely affect the substantive rights of Participants without the written
consent of all Participants.
(b) The Trust shall not terminate until the date on which
Participants are no longer entitled to benefits pursuant to the terms of the
Plan unless sooner revoked in accordance with section 12(a) hereof. The
Trustee may rely on instructions from the Company that all benefits have been
paid pursuant to the Plan. However, upon written consent of all Participants
who are entitled to benefits at any time pursuant to the terms of the Plan, the
Company may terminate this Trust prior to the time all benefit payments under
the Plan have been made. All assets in the Trust at termination shall be
returned to the Company.
<PAGE>
Section 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Participants under this Trust Agreement may
not be anticipated, assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution or other
legal or equitable process, except upon death. In the event of a Participant's
death, the Participant's estate or legal beneficiary shall be entitled to
Participant's rights. Counsel for Trustee shall make this determination after
reviewing appropriate documentation relating to the Participant's death, estate
and/or legal beneficiary.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Tennessee.
(d) Any notice, demand, waiver or other communication required or
permitted under this Agreement will be in writing and will be given personally,
by Fax, certified mail, or by Federal Express or other overnight courier
service, will be deemed given when received, and will be addressed as follows:
<PAGE>
If to the Company: Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117
Attn: Secretary
Fax: (901) 762-8735
If to the Trustee: NationsBank
Private Client Group
1 NationsBank Plaza
Nashville, TN 38239-1697
Fax: (615) 749-3637
Any notice to a Participant will be sent by certified mail or by Federal
Express or other overnight courier service to the Participant's last known
address.
(e) Each Participant will be a third party beneficiary of this
Agreement and will be entitled to enforce the Agreement as it applies to such
Participant as if the Participant were a party hereto.
(f) This Agreement is the complete agreement of the parties with
respect to the subject matter hereof and supersedes any prior agreements or
understandings relating thereto.
(g) This Agreement is binding on the parties hereto and their
respective successors and legal representatives.
<PAGE>
(h) The Company and the Trustee will, at any time and from time to
time, upon the reasonable request of the other party, execute and deliver such
further instruments and do such further acts as may be necessary or proper to
effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the date written
above.
HARRAH'S ENTERTAINMENT, INC.
By: /s/ Neil F. Barnhart
-------------------------
Title: Vice President
-------------------------
NATIONSBANK
By: /s/ R. Otis Goodin
--------------------------
Title: Vice President
--------------------------
<PAGE>
Exhibit A
THE PROMUS COMPANIES INCORPORATED
1996 NON-MANAGEMENT DIRECTORS STOCK INCENTIVE PLAN
1. Purpose. The purpose of The Promus Companies Incorporated 1996
Non-Management Directors Stock Incentive Plan (the "Plan") is to attract, retain
and compensate highly-qualified individuals who are not employees of The Promus
Companies Incorporated, a Delaware corporation (the "Company") or any of its
subsidiaries or affiliates for service as members of the Board of Directors
("Non-Management Directors") by providing them with an ownership interest in the
common stock of the Company ("Common Stock"). The Company intends that the Plan
will benefit the Company and its stockholders by allowing Non-Management
Directors to have a personal financial stake in the Company through an ownership
interest in the Common Stock and will closely associate the interest of
Non-Management Directors with that of Promus's stockholders.
2. Administration. The Plan shall be administered by a committee
appointed by the Board of Directors of the Company and consisting of Directors
who are not eligible to participate in the Plan (the "Committee"). Subject to
the provisions of the Plan, the Committee shall be authorized to interpret the
Plan, to establish, amend and rescind any rules and regulations relating to the
Plan, and to make all other determinations necessary or advisable for the
administration of the Plan; provided, however, that the Committee shall have no
discretion with respect to the eligibility or selection of Non-Management
Directors to receive awards under the Plan, the number of shares of stock
subject to any such awards or the time at which any such awards are to be
granted; and provided further, that the Committee shall not have the authority
to take any action or make any determination that would materially increase the
benefits accruing to participants under the Plan. The Committee's interpretation
of the Plan, and all actions taken and determinations made by the Committee
pursuant to the powers vested in it hereunder, shall be conclusive and binding
upon all parties concerned including the Company, its stockholders and persons
granted awards under the Plan.
3. Shares Subject to Plan. The shares issued under the Plan shall not
exceed in the aggregate 150,000 shares of Common Stock. Such shares may be
authorized and unissued shares or treasury shares.
4. Participants. All active members of the Company's Board of Directors
who are not as of the date of any award employees of the Company or any of its
subsidiaries or affiliates shall be eligible to participate in the Plan.
<PAGE>
5. Awards.
(a) Grant Dates and Formula for Automatic Grants. Shares of Common
Stock shall be automatically granted on May 1, August 1, November 1 and
February 1 of each plan year (each such date is hereinafter referred to as
a "Grant Date") to each eligible Non-Management Director commencing with
the August 1, 1996 Grant Date. The total number of shares included in each
grant under this Section 5(a) shall be determined by dividing Fifty Percent
(50%) of the amount of meeting and retainer fees (the "50% of Fees") earned
by the Non-Management Director during the three-month period immediately
preceding the Grant Date (the "Grant Period") by the fair market value per
share of the Common Stock on the Grant Date (or the immediately preceding
trading day if the Grant Date is not a trading day). The fair market value
per share shall be the average of the high and low price of the Common
Stock based upon its consolidated trading as generally reported for the
principal securities exchange on which the Common Stock is listed.
Fractions will be rounded to the next highest share. The shares or rights
to which a participant is entitled under this Section 5(a) shall be in lieu
of the payment in cash of the 50% of Fees.
(b) Grant Dates and Requirements for Elective Grants. Commencing
with the August 1, 1996 Grant Date, shares of Common Stock shall be
automatically granted on each Grant Date to each eligible Non-Management
Director who elects to receive shares under this Plan in lieu of the
portion of the amount of meeting and retainer fees earned by the
Non-Management for any period which is in excess of the 50% of Fees (the
"Additional 50% of Fees"). Such election must be made prior to the
commencement of the first Grant Period to which such election applies and
such election shall be irrevocable with respect to all future Grant
Periods. Individuals who are nominated to become Non-Management Directors
may make such election after such nomination but prior to the time that
they are elected to the Board. The total number of shares included in each
grant under this Section 5(b) shall be determined by dividing the
Additional 50% of Fees earned by the Non-Management Director during the
Grant Period by the fair market value per share of the Common Stock on the
Grant Date (or the immediately preceding trading day if the Grant Date is
not a trading day). The fair market value per share shall be the average of
the high and low price of the Common Stock based upon its consolidated
trading as generally reported for the principal securities exchange on
which the Common Stock is listed. Fractions will be rounded to the next
highest share. The shares or rights to which a participant is entitled
under this Section 5(b) shall be in lieu of the payment in cash of the
Additional 50% of Fees.
<PAGE>
(c) Restrictions Upon Transfer. Shares awarded, and the right to
vote such shares and to receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered until at
least six months after the date of the grant (the "Restriction Period"). During
the Restriction Period the participant shall have all other rights of a
stockholder, including, but not limited to, the right to vote and to receive
dividends on such shares. If as a result of a stock dividend (whether in
securities of the Company or of any other company), stock split, spin-off,
recapitalization, other adjustment in the stated capital of the Company, or as
the result of a merger, consolidation, reclassification or other reorganization,
or any other corporate transaction, Common Stock is increased, reduced, or
otherwise changed, and by virtue thereof the participant shall be entitled to
new or additional or different shares or if the participant receives new or
additional or different shares pursuant to any action by the Committee pursuant
to Section 10, such shares shall be subject to the same terms, conditions and
restrictions as the original shares.
(d) Certificates. Each stock certificate issued in respect of shares
awarded to a participant may bear an appropriate legend disclosing the
restrictions on transferability imposed on such shares by the Plan or by
law.
(e) Termination of Service During Grant Period. In the event of
termination of service on the Board by any participant during a Grant
Period, such participant's award for the Grant Period shall be determined
in accordance with Sections 5(a) and 5(b) of the Plan based upon the amount
of meeting and retainer fees earned during such Grant Period as of the date
of termination of service, provided, that the grant date shall be the date
of termination of service unless the grant has been deferred.
6. Withholding. Whenever the Company issues shares of Common Stock under
the Plan, the Company shall have the right to withhold from sums due the
recipient, or to require the recipient to remit to the Company, any amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificate for such shares.
7. Deferral. Each participant will have the right to elect, pursuant to a
written election form delivered to the Company prior to the commencement of each
plan year (i.e., each May 1 through April 30), to defer until after the
participant's termination of service the grant of the shares that would
otherwise be granted to the participant during the next ensuing plan year.
Pursuant to this election form, the participant will elect whether all of the
deferred grant will be (a) granted within 30 days after termination of service
or (b) granted in approximately equal annual installments of shares over a
period of two to ten years (as the participant may elect) after the termination
of service, each such annual grant to be made within 30 days after the
anniversary of the
<PAGE>
termination of service. The deferral election form signed by the executive prior
to the plan year will be irrevocable except in case of hardship (as defined in
Section 8) as determined in good faith by the Committee pursuant to Section 8.
No shares of stock will be issued until the grant date as so deferred (the
"Deferred Grant Date") at which time the Company agrees to issue the shares to
the participant. The participant will have no rights as a stockholder with
respect to the deferred rights to shares and the rights to such shares will be
unsecured.
If any dividends or other rights or distributions of any kind
("Distributions") are distributed to holders of Common Stock during the period
from the applicable Grant Date until the applicable Deferred Grant Date (the
"Deferral Period") but prior to the participant's termination of service, an
amount equal to the cash value of such Distributions on their distribution date,
as such value is determined by the Committee, will be credited to a deferred
dividend account for the participant as follows: the account will be credited
with the right to shares of Common Stock equal in value to the cash value of the
Distribution with such values determined by the Committee as of the date of the
Distribution. The Company will issue shares of stock equal to the cumulative
total of rights to the shares in such account within 30 days after the
participant's termination of service. If a Distribution is distributed to
holders of Common Stock after the participant's termination of service but
during the Deferral Period, an amount equal to the cash value of such dividends
or other rights or distributions pertaining to any share rights still deferred
shall be converted into shares of Common Stock equivalent in value to the
Distribution (with such values measured as of the date of Distribution) and such
shares will be issued to the participant as soon as practical after the date of
the Distribution. No right or interest in the deferred dividend account shall be
subject to liability for the debts, contracts or engagements of the participant
or shall be subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 7 shall prevent transfers by
will or by the applicable laws of descent and distribution. The Committee will
have the right to adopt other regulations and procedures to govern deferral of
grants.
8. Hardship. The Committee may accelerate the distribution of all or a
portion of a participant's deferred grants on account of his Hardship, subject
to the following requirements: (i) the value of such accelerated distribution
shall not exceed the amount which is necessary to satisfy the Hardship, less the
amount which can be satisfied from other resources which are reasonably
available to the participant, (ii) the denial of the participant's request for a
Hardship acceleration would result in severe financial hardship to the
participant, and (iii) the participant has not received an accelerated
distribution on account of Hardship within the 12-month period preceding the
acceleration.
<PAGE>
For purposes of this Plan, "Hardship" of a participant, as determined by
the Committee in its discretion on the basis of all relevant facts and
circumstances and in accordance with the following nondiscriminatory and
objective standards uniformly interpreted and consistently applied, shall mean a
severe financial hardship to the participant resulting from a sudden and
unexpected illness or accident of the participant or of his dependent, loss of
the participant's property due to casualty, or other extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the participant. A financial need shall not constitute a Hardship unless it is
for at least $1,000.00 or the entire value of the principal amount of the
participant's deferred grants.
9. Section 83(b) Election. Participants shall have the right to make an
election under Section 83(b) of the Internal Revenue Code, if applicable, with
regard to taxation of grants under the Plan.
10. Adjustments.
(a) Subject to Section 10(c) but notwithstanding any other term of
this Plan, in the event that the Committee determines that any dividend or
other distribution (whether in the form of cash, Common Stock, other
securities, or other property, recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, or exchange of Common Stock
or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event, in the Committee's sole
discretion, affects the Common Stock such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to an award or awards, then the
Committee shall, in such manner as it may deem equitable, adjust the
number and type of shares of Common Stock (or other securities
or property) which may be granted under the Plan (including, but not
limited to, adjustments of the maximum number and kind of shares which may
be issued).
(b) Subject to Section 10(c) but notwithstanding any other term of
this Plan, in the event of any corporate transaction or event described in
paragraph (a) which results in shares of Common Stock being exchanged for
or converted into cash, securities or other property (including securities
of another corporation), the Committee will have the right to terminate
this Plan as of the date of the transaction or event, in which case all
stock grants deferred under Section 7 shall become the right to receive
such cash, securities or other property.
<PAGE>
(c) No adjustment or action under this Section 10 or any other
provision of this Plan shall be authorized to the extent such adjustment or
action would violate Section 16 or Rule 16b-3. The number of shares finally
granted under this Plan shall always be rounded to the next whole number.
(d) Any decision of the Committee pursuant to the terms of this
Section 10 shall be final, binding and conclusive upon the participants,
the Company and all other interested parties.
11. Amendment. The Committee may terminate, modify or amend the Plan in
such respect as it shall deem advisable, without obtaining approval from the
Company's stockholders except as such approval may be required pursuant to Rule
16b-3 under the Securities Exchange Act of 1934, as amended, or Section 16 of
such act, provided that the provisions of Sections 4 and 5 of the Plan may not
be amended more than once every six months, other than to comport with changes
in the Internal Revenue Code, the Employee Retirement Income Security Act of
1974, as amended from time to time, or rules thereunder. No termination,
modification or amendment of the Plan may, without the consent of a participant,
adversely affect a participant's rights under an award granted prior thereto.
12. Indemnification. Each person who is or has been a member of the
Committee or who otherwise participates in the administration or operation of
this Plan shall be indemnified by the Company against, and held harmless from,
any loss, cost, liability, or expense that may be imposed upon or incurred by
him or her in connection with or resulting from any claim, action, suit, or
proceeding in which such person may be involved by reason of any action taken or
failure to act under the Plan and shall be fully reimbursed by the Company for
any and all amounts paid by such person in satisfaction of judgment against him
or her in any such action, suit, or proceeding, provided he or she will give the
Company an opportunity, by written notice to the Committee, to defend the same
at the Company's own expense before he or she undertakes to defend it on his or
her own behalf. This right of indemnification shall not be exclusive of any
other rights of indemnification.
The Committee and the Board may rely upon any information furnished by the
Company, its public accountants and other experts. No individual will have
personal liability by reason of anything done or omitted to be done by the
Company, the Committee or the Board in connection with the Plan.
13. Duration of the Plan. The Plan shall remain in effect for a period of
five (5) years from the Effective Date.
<PAGE>
14. Expenses of the Plan. The expenses of administering the Plan shall be
borne by the Company.
15. Effective Date. The Plan was originally adopted by Promus's Board of
Directors on April 5, 1995 and by the stockholders of Promus on May 26, 1995.
The Plan will become effective as of the date of the 1996 annual stockholders
meeting (the "Effective Date").
THE PROMUS COMPANIES INCORPORATED
By: /s/ Neil F. Barnhart
------------------------------------------------
Neil F. Barnhart
Vice President
<PAGE>
Amendment (this "Amendment") to the
Harrah's Entertainment, Inc.
1996 Non-Management Directors Stock Incentive Plan
(the "Plan")
This Amendment is effective February 20, 1997, pursuant to approval by the
Committee under the Plan and by the Human Resources Committee of the Board of
Directors of Harrah's Entertainment, Inc. ("Company").
1. Section 2 of the Plan is hereby amended to add the following sentence
to the end of such section:
Notwithstanding the foregoing, the Human Resources Committee of the Board
of Directors of the Company (the "HRC") shall exercise any and all rights,
duties and powers of the Committee under the Plan to the extent required by the
applicable exemptive conditions of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended ("Rule 16b-3"), as determined by the HRC in its sole
discretion.
2. The third sentence of the first paragraph of Section 7 of the Plan is
hereby amended to read in its entirety:
The deferral election form signed by the participant prior to the plan year
will be irrevocable except in case of hardship (as defined in Section 8) as
determined in good faith by the HRC pursuant to Section 8, provided, however,
that a participant may, prior to January 1 of the year preceding the year that
the participant's termination of service occurs, submit an amended election form
to the HRC for HRC approval indicating a requested change in the participant's
elected method for the grant of the deferred shares upon termination of service
(i.e., as to either a lump sum of shares within 30 days after termination of
service or approximately equal annual installments over a period of two to ten
years), and upon the HRC's approval of the requested change within 90 days after
submission of the requested change, such change shall be effective. If the HRC
does not approve the change, the participant's original election will remain in
effect.
3. Section 8 is hereby amended to add the following sentence to the end
of such section:
For purposes of this Section 8, the Committee shall be the HRC.
<PAGE>
4. Section 10(a) of the Plan is hereby amended to add the following
proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such adjustment shall be subject to
approval by the HRC.
5. Section 10(b) of the Plan is hereby amended to add the following
proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such termination shall be subject to
approval by the HRC.
6. Section 10(c) of the Plan is hereby amended to provide in its entirety
as follows:
(c) No adjustment or action under this Section 10 or any other provision
of this Plan shall be authorized to the extent such adjustment or action would
violate Section 16 of the Securities Exchange Act of 1934, as amended, or the
applicable exemptive conditions of Rule 16b-3. The number of shares finally
granted under this Plan shall always be rounded to the next whole number.
7. Section 10(d) of the Plan is hereby amended to add the following
proviso to the end of such section:
; provided, however, that to the extent required by the applicable
exemptive conditions of Rule 16b-3, any such decision shall be subject to
approval by the HRC.
8. Section 11 of the Plan is hereby amended to read in its entirety as
follows:
Amendment. The Committee may terminate, modify or amend the Plan in such
respect as it shall deem advisable, without obtaining approval from the
Company's stockholders or the HRC except as such approval may be required
pursuant to the applicable exemptive conditions of Rule 16b-3 or Section 16 of
the Securities Exchange Act of 1934, as amended. No
<PAGE>
termination, modification or amendment of the Plan may, without the consent of a
participant, adversely affect a participant's rights under an award granted
prior thereto.
* * * *
Executed and approved this 20th day of February, 1997.
/s/ Philip G. Satre
---------------------------------------------
Philip G. Satre, Chairman, President and
Chief Executive Officer and Sole Member of the Committee
under the Plan
<PAGE>
Exhibit B
Indemnity Agreement
-----------------------------
The undersigned, [ ], in consideration
of receiving certain disputed benefit payments pursuant to an Escrow Agreement
dated November 7, 1997, between Harrah's Entertainment, Inc. (the "Company") and
NationsBank ("Escrow Agent"), hereby agrees to indemnify and hold harmless the
Company and the Escrow Agent from and against any and all losses, damages,
expenses, or claims which may result from any incorrect payment or incorrect
benefit which is made to the undersigned pursuant to a notice delivered by the
undersigned to the Escrow Agent.
Dated:
--------------------------- ------------------------------
Participant
<PAGE>
Exhibit C
Private Client Group
1 NationsBank Plaza
Nashville, TN 37239-1697
NationsBank
November 24, 1997
Mr. Vince DeYoung
General Counsel
Harrah's Entertainment
1023 Cherry Road
Memphis, TN 38117-5423
Re: Harrah's Entertainment Rabbi Trust
Dear Vince:
In consideration of the limitation on our duties as Trustee of the
proposed Harrah's Entertainment Rabbi Trust, we agree to modify the
enclosed fee schedule by applying a 30% discount to the overall fee.
This discount will remain in effect until such time as we are called
upon to perform additional duties such as calculation of distributions
to beneficiaries. At that time we will charge such additional fees as
are mutually agreed upon between Harrah's and NationsBank, but at no
time will our fees exceed those contained in the attached fee
schedule.
We thank you for this opportunity to be of service to Harrah's, and
please feel free to contact me if you have any questions.
Sincerely,
/s/ R. Otis Goodin
R. Otis Goodin
Vice President
615/749-4406
<PAGE>
Trust Services
Schedule of Fees
As your trustee, NationsBank will provide trust management services in addition
to portfolio management, safekeeping of securities, collection and distribution
of interest and dividends, execution of the purchase of sale of securities,
daily cash investment, and periodic investment reports and transaction
statements. These services will be provided to you by one of our professional
advisors in your local office.
Annual Fees on Market Value of Financial Assets
<TABLE>
<CAPTION>
Rate Current Market Value
------ --------------------
<S> <C>
1.20% on the first................... $1,000,000
.90% on the next..................... 2,000,000
.70% on the next..................... 2,000,000
.50% on the next..................... 5,000,000
.40% on the balance over............. 10,000,000
</TABLE>
The minimum annual market value fee for all assets included in these trust
services is $5,000.
Additional fees, in accordance with published schedules, will apply for tax
return preparation, management and valuation of closely-held business interests,
oil and gas services, note and mortgage services, real estate property
management and distributions. Charges for asset distributions and terminations
will reflect the time, effort and costs involved.
When special or unusual services are required, outside of the published fee
schedules, our fee will include reasonable additional compensation and/or
out-of-pocket expenses based upon the nature of service and the extent of the
duties and responsibility assumed.
Fees are subject to change and are computed and charged monthly.
<PAGE>
EX-10(16)
Amendment dated December 12, 1997 to the
Harrah's Entertainment, Inc.
Annual Management Bonus Plan ("Plan")
Pursuant to approval by the Human Resources Committee of the Harrah's
Entertainment, Inc. Board of Directors, the following paragraph is added to the
Plan at the end of the section entitled "Prorations/Transfers":
"Notwithstanding the above, effective as of January 1, 1997, for transfers
of a bonus eligible employee after March 31 and before October 1 during any
Plan year, the bonus will be pro rated as provided above but will not be
less than the bonus that would have been earned if the employee had stayed
at the first Operating Unit. For transfers during the last three months of
a Plan year, the bonus will be equal to the bonus that would have been
earned if the employee had stayed at the first Operating Unit. The Chief
Executive Officer will have authority to interpret and make exceptions to
the bonus provisions concerning transferred and new employees."
IN WITNESS WHEREOF, this Amendment has been executed as of the date written
above.
Harrah's Entertainment, Inc.
By: /s/ Neil F. Barnhart
-------------------------------------
Title: Vice President
-------------------------------------
<PAGE>
EX-10(17)
HARRAH'S ENTERTAINMENT, INC.
October 31, 1997
Mr. Philip G. Satre
c/o Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Amended and Restated Severance Agreement
Dear Mr. Satre:
Harrah's Entertainment, Inc. (the "Company") considers it essential to
the best interest of its stockholders to foster the continuous employment of
key management personnel. In this connection, the Board of Directors of the
Company (the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from
the possibility of a change in control of the Company, although no such change
is now contemplated.
In order to induce you to remain in the employ of the Company or its
subsidiaries and in consideration of your agreements set forth in Subsection
2(b) hereof, the Company agrees that you shall receive the severance benefits
set forth in this letter agreement ("this Agreement") in the event your
employment with the Company or its subsidiaries terminates subsequent to a
"Change in Control of the Company" (as defined in Section 2 hereof) under the
circumstances described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on November 1, 1997
and shall continue in effect through December 31, 1998; provided, however, that
commencing on January 1, 1999 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; provided, further, if a
Change in Control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall automatically continue in
effect for a period of twenty-four months beyond the month in which such Change
in Control occurred.
2. Change in Control.
(a) No benefit shall be payable to you hereunder unless there shall have
been a Change in Control of the Company, as set forth below. For purposes of
this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than an employee benefit plan of the Company, or a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 25% or more of the
Company's then outstanding voting securities carrying the right to vote in
elections of persons to the Board, regardless of comparative voting power
of such voting securities, and regardless of whether or not the Board
shall have approved the acquisition of such securities by the acquiring
person; or
(ii) During any period of two consecutive years, individuals who, at
the beginning of such period, constitute the Board together with any new
director(s) (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this Subsection) whose election by
the Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two year period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) The holders of securities of the Company entitled to vote
thereon approve the following:
<PAGE>
(A) A merger or consolidation of the Company with any other
corporation regardless of which entity is the surviving company,
other than a merger or consolidation which would result in the
voting securities of the Company carrying the right to vote in
elections of persons to the Board outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity)
at least 80% of (a) the Company's then outstanding voting
securities carrying the right to vote in elections of persons to
the Board, or (b) the voting securities of such surviving entity
outstanding immediately after such merger or consolidation, or
(B) A plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iv) Notwithstanding the definition of a "Change in Control" of the
Company as set forth in this Section 2(a), the Human Resources Committee
of the Board (the "Committee") shall have full and final authority, which
shall be exercised in its discretion, to determine conclusively whether a
Change in Control of the Company has occurred, and the date of the
occurrence of such Change in Control and any incidental matters relating
thereto, with respect to a transaction or series of transactions which
have resulted or will result in a substantial portion of the assets or
business of the Company (as determined, prior to the transaction or series
of transactions, by the Committee in its sole discretion which
determination as to whether a substantial portion is involved shall be
final and conclusive) being held by a corporation at least 80% of whose
voting securities are held, immediately following such transaction or
series of transactions, by holders of the voting securities of the Company
(as determined by the Committee in its sole discretion prior to such
transaction or series of transactions which determination as to whether
the 80% amount will be satisfied shall be final and conclusive). The
Committee may exercise any such discretionary authority without regard to
whether one or more of the transactions in such series of transactions
would otherwise constitute a Change in Control of the Company under the
definition set forth in this Section 2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of the
Company" shall be deemed to have occurred if the following occur:
(i) The Company enters into a written agreement or letter of intent,
the consummation of which would result in the occurrence of a Change in
Control of the Company;
<PAGE>
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control of the Company;
(iii) Any person (other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing
9.5% or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board increases such
beneficial ownership of such securities by an additional five percentage
points or more thereby beneficially owning 14.5% or more of such
securities; or
(iv) The Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control of the Company has
occurred.
You agree that, subject to the terms and conditions of this Agreement, in
the event of a Potential Change in Control of the Company, you will remain in
the employ of the Company (or the subsidiary thereof by which you are employed
at the date such Potential Change in Control occurs) until the earliest of (x)
a date which is six months from the occurrence of such Potential Change in
Control of the Company, (y) the termination by you of your employment by
reasons of Disability or Retirement (at your normal retirement age), as defined
in Subsection 3(a), or (z) the occurrence of a Change in Control of the
Company.
3. Termination Following Change in Control. If any of the events
described in Subsection 2(a) hereof constituting a Change in Control of the
Company shall have occurred, you shall be entitled to the benefits provided in
Subsection 4(c) hereof upon the subsequent termination of your employment
(whether or not such termination is voluntary) during the term of this
Agreement unless such termination is (y) because of your death or (z) by the
Company for Cause.
(a) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
<PAGE>
(b) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties with
the Company (other than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental to the business and
operations of the Company, provided that you shall have received written notice
of such failure or misconduct and shall have continued to engage in such
failure or misconduct after 30 days following receipt of such notice from the
Board, which notice specifically identifies the manner in which the Board
believes that you have engaged in such failure or misconduct. For purposes of
this Subsection, no act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith and
without your reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
failure to substantially perform your duties or of misconduct in accordance
with the first sentence of this Subsection, and of continuing such failure to
substantially perform your duties or misconduct as aforesaid after notice from
the Board, and specifying the particulars thereof in detail.
(c) Voluntary Resignation. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given
at any time during the two years following the occurrence of a Change in
Control of the Company hereunder. Such resignation shall not be deemed a
breach of any employment contract between you and the Company.
(d) Notice of Termination. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(e) Date of Termination, Etc. "Date of Termination" shall mean:
(i) If your employment is terminated for Disability, thirty days
after Notice of Termination is given (provided that you shall not have
returned to the full-time performance of your duties during such thirty
day period), and
<PAGE>
(ii) If your employment is terminated pursuant to Subsection (b) or
(c) above or for any other reason (other than Disability), the date
specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (b) above shall not be less than
thirty days, and in the case of a termination pursuant to Subsection (c)
above shall not be less than fifteen nor more than sixty days,
respectively, from the date such Notice of Termination is given);
provided that if within fifteen days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard to
this provision), the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, bonus, benefit and insurance plans in
which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. Compensation Upon Termination Following a Change of Control.
Following a Change in Control of the Company, as defined in Subsection 2(a),
upon termination of your employment, you shall be entitled to the following
benefits:
(a) Deleted.
(b) If your employment shall be terminated by the Company for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus the Company
shall pay all other amounts and honor all rights to which you are entitled
under any compensation plan of the Company at the time such payments are due,
and the Company shall have no other obligations to you under this Agreement.
(c) If your employment by the Company shall be terminated (y) by the
Company other than for Cause or (z) by you by voluntary Resignation, then you
shall be entitled to the benefits provided below:
<PAGE>
(i) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled
under any compensation or benefit plan of the Company, at the time such
payments are due;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to you a lump sum severance payment (the "Severance Payment") equal to
3.0 times the average of the Annual Compensation (as defined below)
payable to you by the Company or any corporation affiliated with the
Company within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "Code"). Annual Compensation is defined to consist
of two components: (a) Your annual salary in effect immediately prior to
the Change in Control or in effect as of the Date of Termination,
whichever annual salary is higher. Your annual salary for this purpose
will be determined without any reduction for deferrals of such salary
under any deferred compensation plan (qualified or unqualified) and
without any reduction for any salary reductions used for making
contributions to any group insurance plan of the Company or its affiliates
and also without reduction for any other deductions from salary for any
reason; plus (b) The average of your annual bonuses under the Company's
Annual Management Bonus Plan, or any substitute or successor plan
including the Key Executive Officer Annual Incentive Plan, for the three
highest calendar years, in terms of annual bonus paid to you in such
years, during the five calendar years preceding the calendar year in which
the Change in Control occurred. Your annual bonuses for this purpose will
be determined without any reduction for deferrals under any deferred
compensation plan (qualified or unqualified) and without any reduction for
salary reductions used for making contributions to any group insurance
plan of the Company or its affiliates and also without reduction for any
other deductions from bonus for any reason. If you were not employed by
the Company or its affiliates for a sufficient period of time to receive
annual bonuses during each of the five calendar years before the Change in
Control occurred, then the average bonus will be measured using the three
highest calendar years, in terms of annual bonus paid to you, in all the
consecutive calendar years immediately preceding the date the Change in
Control occurred. If you were not eligible for three years of bonuses
paid during the calendar years immediately preceding the date the Change
in Control occurred, then the average bonus will be the average of the
annual bonuses that were paid to you during such time under such Plan. If
you were not eligible for any bonus during such time because of not being
employed by the Company for a sufficient period of time to qualify for a
previous bonus payment, then Annual Compensation will only consist of the
salary component as provided above and will not include a bonus component.
<PAGE>
(iii) The Company shall also pay to you a pro rata amount of
your target bonus (the bonus amount for your grade level assuming 100
bonus points are earned) as shown on the matrix for the Annual
Management Bonus Plan (or any substitute or successor plan) attributable
to the bonus plan year which contains your Date of Termination,
regardless of whether or not any bonus is determined to be actually
earned for such year, provided that the target bonus for calculating
this pro rata payment will not be less than the target bonus under such
Plan for the Plan year that contains the day immediately prior to the
Change in Control (which target bonus will be the one that applies to
your grade level at that time) regardless of whether or not any bonus
was payable for such year. The pro-rata amount will be based on the
percentage of days of your employment in the calendar year of the Date
of Termination. For example, if the Date of Termination is October 1 in
a year with 365 days, with October 1 counted as the last day of
employment for a total of 274 days of employment that year, then the
pro-rata amount will be 75.06849% of target bonus (274 days _ 365 days).
In addition, the Company shall pay to you the amounts of any
compensation or awards payable to you or due to you under any incentive
compensation plan of the Company including, without limitation, the
Company's Restricted Stock Plan, Stock Option Plan (the "Option Plan")
and Annual Management Bonus Plan (or any substitute or successor plan
including the Key Executive Officer Annual Incentive Plan) and under any
agreements with you in connection therewith, and shall make any other
payments and take any other actions and honor such rights you may have
accrued under such plans and agreements including any rights you may
have to payments after the Date of Termination, which will include the
payment to you of any bonus earned during the bonus year fully completed
prior to the Date of Termination if such Date of Termination occurs
prior to the payment date for such bonus, it being understood, however,
that the pro-rata payment provided for in the first sentence of this
paragraph 4(c)(iii) is in lieu of any bonus earned for the bonus plan
year during which occurred the Date of Termination.
(iv) In lieu of shares of common stock of the Company or any
securities of a successor company which shall have replaced such common
stock ("Company Shares") issuable upon exercise of outstanding and
unexercised options (whether or not they are fully exerciseable or
"vested"), if any, granted to you under the Option Plan including options
granted under the plan of any successor company that replaced or assumed
the options under said Option Plan ("Options") (which Options shall be
cancelled upon the making of the payment referred to below), you shall
receive an amount in cash equal to the product of (y) the excess of the
higher of the closing price of Company Shares as reported on the New York
Stock Exchange on or nearest the Date of Termination (or, if not listed on
such exchange, on a nationally recognized exchange or quotation system on
which trading volume in Company Shares is highest) or the
<PAGE>
highest per share price (including cash, securities and any other
consideration) for Company Shares actually paid in connection with any
change in control of the Company, over the per share exercise price of
each Option held by you (whether or not then fully exercisable or
"vested"), times (z) the number of Company Shares covered by each such
option.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999
of the Code to any payment or benefit provided hereunder).
(vi) In the event that you become entitled to the payments (the
"Severance Payments") provided under paragraphs (ii), (iii), and (iv),
above (and Subsections (d) and (e), below), and if any of the Severance
Payments will be subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code, the Company shall pay to you at the time specified in
paragraph (vii), below, an additional amount (the "Gross-Up Payment") such
that the net amount retained by you (such net amount to be the amount
remaining after deducting any Excise Tax on the Severance Payments and any
federal, state and local income tax and Excise Tax payable on the payment
provided for by this paragraph), shall be equal to the amount of the
Severance Payments after deducting normal and ordinary taxes but not
deducting (a) the Excise Tax and (b) any federal, state and local income
tax and Excise tax payable on the payment provided for by this paragraph.
For example, if the Severance Payments are $1,000,000 and if you are
subject to the Excise Tax, then the Gross-Up Payment will be such that you
will retain an amount of $1,000,000 less only any normal and ordinary
taxes on such amount. (The Excise Tax and federal, state and local taxes
and any Excise Tax on the payment provided by this paragraph will not be
deemed normal and ordinary taxes). For purposes of determining whether
any of the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, the following will apply:
(A) Any other payments or benefits received or to be received
by you in connection with a Change in Control of the Company or your
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control of
the Company or any person affiliated with the Company or such person)
shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the
<PAGE>
meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of Section 280G(b)(3) of
the Code, or are otherwise not subject to the Excise Tax;
(B) The amount of the Severance Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (y) the
total amount of the Severance Payments or (z) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) (after
applying clause (A), above); and
(C) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors
in accordance with proposed, temporary or final regulations under
Sections 280G(d)(3) and (4) of the Code or, in the absence of such
regulations, in accordance with the principles of Section 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay Federal income taxes at
the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state
and locality of your residence on the Date of Termination, net of the
maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the
amount of Excise Tax attributable to Severance Payments is
subsequently determined to be less than the amount taken into account
hereunder at the time of termination of your employment, you shall
repay to the Company, at the time that the amount of such reduction
in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax and Federal (and
state and local) income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax
and/or a Federal (and state and local) income tax deduction) plus
interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
attributable to Severance Payments is determined to exceed the amount
taken into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or
amount of which cannot be
<PAGE>
determined at the time of the Gross-Up Payment), the Company shall
make an additional gross-up payment to you in respect of such excess
(plus any interest payable with respect to such excess) at the time
that the amount of such excess is finally determined.
(vii) The payments provided for in paragraphs (ii), (iii), (iv) and
(vi) above, shall be made not later than the fifth day following the
Date of Termination, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the Company
shall pay to you on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the thirtieth day after the
Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to you payable on the
fifth day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(d) If your employment shall be terminated (y) by the Company other than
for Cause, or (z) by you voluntarily, then for a twenty-four month period after
such termination, the Company shall arrange to provide you with life,
disability, accident and health insurance benefits substantially similar to
those which you are receiving immediately prior to the Notice of Termination.
Benefits otherwise receivable by you pursuant to this Subsection 4(d) shall be
reduced to the extent comparable benefits are actually received by you during
the twenty-four month period following your termination, and any such benefits
actually received by you shall be reported to the Company.
(e) In the event a Change in Control of the Company occurs while you are
employed with the Company or its affiliates but after you and the Company have
executed an agreement that expressly provides for your subsequent retirement
including an agreement that expressly provides for your early retirement, then
the present value, computed using a discount rate of 8% per annum, of (i) the
total amount of all unpaid deferred payments as payable to you in accordance
with the payment schedule that you elected when the deferral was agreed to and
using the plan interest rate applicable to your situation, including, without
limitation, any unpaid deferred payments to be paid to you under the Company's
Executive Deferred Compensation Plan and the Company's other deferred
compensation plans, and (ii) the total amount of all other payments payable or
to become payable to you or your estate or beneficiary under such retirement
agreement (other than payments payable pursuant to a plan qualified under
Section 401(a) of the Internal Revenue Code) shall be accelerated and paid to
you (or your estate or beneficiary if applicable) in a lump sum cash payment
within five business days after the occurrence of the Change in Control of the
<PAGE>
Company. In addition, if you and the Company or its affiliates have executed
such a retirement agreement and if the Change in Control of the Company occurs
before the effective date of your retirement, then you shall receive the
Severance Payment payable under Subsection 4(c)(ii) herein in addition to the
lump sum cash payment of the present value of your total unpaid deferred
payments and other payments under the retirement agreement as aforesaid. All
benefits (other than the payments accelerated and paid out to you in a lump sum
as provided above) to which you or your estate or any beneficiary are entitled
under such retirement agreement shall continue in effect notwithstanding the
Change in Control of the Company. This Subsection 4(e) shall survive your
retirement.
(f) Notwithstanding that a Change in Control shall not have yet occurred,
if you so elect, by written notice to the Company given at any time after the
date hereof and prior to the time such amounts are otherwise payable to you:
(i) The Company shall deposit with an escrow agent, pursuant to an
escrow agreement between the Company and such escrow agent, a sum of
money, or other property permitted by such escrow agreement, which are
substantially sufficient in the opinion of the Company's management to
fund payment of the following amounts to you, as such amounts become
payable (provided such deposit will not be necessary to the extent the
escrow already contains funds or other assets which are substantially
sufficient in the opinion of the Company's management to fund such
payments):
(A) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate under the Company's Executive Deferred
Compensation Plan and under any agreements related thereto in
existence at the time of your election to make the deposit into
escrow.
(B) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate by reason of your deferral of payments
payable to you prior to the date of your election to make the deposit
into escrow under any other deferred compensation agreements between
you and the Company in existence at the time of your election to make
the deposit into escrow, including but not limited to deferred
compensation agreements relating to the deferral of salary or
bonuses.
(C) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate under any executed agreement that
expressly provides for your retirement from the Company (including
payments described under Subsection 4(e) above) which agreement is in
existence at the time of your election to make the deposit into
escrow, other than amounts payable by a plan qualified under Section
401(a) of the Code.
<PAGE>
(D) Subject to the approval of the Committee, amounts then due
and payable to you, but not yet paid, under any other benefit plan or
incentive compensation plan of the Company (whether such amounts are
stock or cash) other than amounts payable to you under a plan
qualified under Section 401(a) of the Code.
(ii) Within 5 days after the occurrence of a Potential Change of
Control, the Company shall deposit with an escrow agent (which shall be
the same escrow agent, if one exists, acting pursuant to clause (i) of
this Subsection 4(f)), pursuant to an escrow agreement between the Company
and such escrow agent, a sum of money, or other property permitted by such
escrow agreement, substantially sufficient in the opinion of Company
management to fund the payment to you of the amounts specified in
Subsection 4(c) of this Agreement.
(iii) It is intended that any amounts deposited in escrow
pursuant to the provisions of clause (i) or (ii) of this Subsection 4(f),
shall be subject to the claims of the Company's creditors, as set forth in
the form of such escrow agreement.
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by you to the Company, or otherwise (except as specifically provided
in this Section 4).
(h) In addition to all other amounts payable to you under this Section 4,
you shall be entitled to receive all benefits payable to you under any benefit
plan of the Company in which you participate to the extent such benefits are
not paid under this Agreement.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled to hereunder if you terminate your
employment voluntarily following a Change in Control of the Company, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of
<PAGE>
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
6. Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid, by FAX
if available, or by overnight courier service, addressed as follows:
To the Company:
Secretary
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117
FAX: 901-762-8735
To you:
Addressed to your name at your office address (or FAX number)
with the Company or its affiliates (or any successor thereto) at
the time the notice is sent and your home address at that time;
and if you are not employed by the Company at the time of the
notice, your home address as shown on the records of the Company
or its affiliates (or any successor thereto) on the date of the
notice.
To such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or
<PAGE>
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that you shall be entitled
to seek specific performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
11. Similar Provisions in Other Agreement. The Severance Payment under
this Agreement supersedes and replaces any previous severance agreement and any
other severance payment to which you may be entitled under any previous
agreement between you and the Company or its affiliates.
<PAGE>
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
HARRAH'S ENTERTAINMENT, INC.
By: /s/ E.O. Robinson, Jr.
------------------------------------------
E. O. Robinson, Jr.
Senior Vice President
Agreed:
/s/ Philip G. Satre
- ----------------------------------
Philip G. Satre
<PAGE>
EX-10(18)
HARRAH'S ENTERTAINMENT, INC
October 31, 1997
[Name of Executive Officer]
c/o Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Amended and Restated Severance Agreement
Dear Mr. [ ]:
Harrah's Entertainment, Inc. (the "Company") considers it essential to
the best interest of its stockholders to foster the continuous employment of
key management personnel. In this connection, the Board of Directors of the
Company (the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
the Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from
the possibility of a change in control of the Company, although no such change
is now contemplated.
In order to induce you to remain in the employ of the Company or its
subsidiaries and in consideration of your agreements set forth in Subsection
2(b) hereof, the Company agrees that you shall receive the severance benefits
set forth in this letter agreement ("this Agreement") in the event your
employment with the Company or its subsidiaries terminates subsequent to a
"Change in Control of the Company" (as defined in Section 2 hereof) under the
circumstances described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on November 1, 1997
and shall continue in effect through December 31, 1998; provided, however, that
commencing on January 1, 1999 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; provided, further, if a
Change in Control of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall automatically continue in
effect for a period of twenty-four months beyond the month in which such Change
in Control occurred.
2. Change in Control.
(a) No benefit shall be payable to you hereunder unless there shall have
been a Change in Control of the Company, as set forth below. For purposes of
this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than an employee benefit plan of the Company, or a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of 25% or more of the
Company's then outstanding voting securities carrying the right to vote in
elections of persons to the Board, regardless of comparative voting power
of such voting securities, and regardless of whether or not the Board
shall have approved the acquisition of such securities by the acquiring
person; or
(ii) During any period of two consecutive years, individuals who, at
the beginning of such period, constitute the Board together with any new
director(s) (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this Subsection) whose election by
the Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two year period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) The holders of securities of the Company entitled to vote
thereon approve the following:
<PAGE>
(A) A merger or consolidation of the Company with any other
corporation regardless of which entity is the surviving company,
other than a merger or consolidation which would result in the voting
securities of the Company carrying the right to vote in elections of
persons to the Board outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of (a)
the Company's then outstanding voting securities carrying the right
to vote in elections of persons to the Board, or (b) the voting
securities of such surviving entity outstanding immediately after
such merger or consolidation, or
(B) A plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iv) Notwithstanding the definition of a "Change in Control" of the
Company as set forth in this Section 2(a), the Human Resources Committee
of the Board (the "Committee") shall have full and final authority, which
shall be exercised in its discretion, to determine conclusively whether a
Change in Control of the Company has occurred, and the date of the
occurrence of such Change in Control and any incidental matters relating
thereto, with respect to a transaction or series of transactions which
have resulted or will result in a substantial portion of the assets or
business of the Company (as determined, prior to the transaction or series
of transactions, by the Committee in its sole discretion which
determination as to whether a substantial portion is involved shall be
final and conclusive) being held by a corporation at least 80% of whose
voting securities are held, immediately following such transaction or
series of transactions, by holders of the voting securities of the Company
(as determined by the Committee in its sole discretion prior to such
transaction or series of transactions which determination as to whether
the 80% amount will be satisfied shall be final and conclusive). The
Committee may exercise any such discretionary authority without regard to
whether one or more of the transactions in such series of transactions
would otherwise constitute a Change in Control of the Company under the
definition set forth in this Section 2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of the
Company" shall be deemed to have occurred if the following occur:
(i) The Company enters into a written agreement or letter of intent,
the consummation of which would result in the occurrence of a Change in
Control of the Company;
<PAGE>
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change in Control of the Company;
(iii) Any person (other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing
9.5% or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board increases such
beneficial ownership of such securities by an additional five percentage
points or more thereby beneficially owning 14.5% or more of such
securities; or
(iv) The Board adopts a resolution to the effect that, for purposes
of this Agreement, a Potential Change in Control of the Company has
occurred.
You agree that, subject to the terms and conditions of this Agreement, in
the event of a Potential Change in Control of the Company, you will remain in
the employ of the Company (or the subsidiary thereof by which you are employed
at the date such Potential Change in Control occurs) until the earliest of (x)
a date which is six months from the occurrence of such Potential Change in
Control of the Company, (y) the termination by you of your employment by
reasons of Disability or Retirement (at your normal retirement age), as defined
in Subsection 3(a), or (z) the occurrence of a Change in Control of the
Company.
(c) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Company, of any of the following circumstances unless, in the
case of paragraphs (i), (v), (vi), (vii) or (viii), such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as such terms are defined in Subsections 3(e) and 3(d),
respectively, given in respect thereof:
(i) The assignment to you of any duties inconsistent with your
status as an executive officer of the Company (or your status in the
position held by you immediately prior to the Change in Control) or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the Change in
Control of the Company;
(ii) A reduction by the Company in your annual base salary as in
effect on the date hereof or as the same may be increased from time to
time except for an across-the-board salary reduction of a specific
percentage applied to all individuals at grade levels 26 and above and all
individuals in similar grade levels of any person in control of the
Company;
<PAGE>
(iii) The relocation of the Company's principal executive offices
where you are working immediately prior to the Change in Control of the
Company to a location more than 50 miles from the location of such
offices immediately prior to the Change in Control of the Company or the
Company's requiring you to be based anywhere other than the location of
the Company's principal executive offices where you were working
immediately prior to the Change in Control of the Company except for
required travel on the Company's business to an extent substantially
consistent with your business travel obligations during the year prior
to the Change in Control;
(iv) The failure by the Company, without your consent, to pay to you
any portion of your current compensation except pursuant to an
across-the-board compensation deferral of a specific percentage applied to
all individuals in grade levels 26 or above and all individuals in similar
grades of any person in control of the Company, or to pay to you any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within thirty days of the date such
compensation is due;
(v) The failure by the Company to continue in effect any
compensation plan in which you are participating immediately prior to the
Change in Control of the Company which is material to your total
compensation, including but not limited to, the Company's Bonus Plan,
Executive Deferred Compensation Plan, Deferred Compensation Plan,
Restricted Stock Plan, Stock Option Plan, or any substitute plans adopted
prior to the Change in Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect
to such plan, or the failure by the Company to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed immediately prior to the Change in Control of the
Company;
(vi) The failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's pension, savings and retirement plan, life insurance, medical,
health and accident, or disability plans in which you were participating
at the time of the Change in Control of the Company, the taking of any
action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive you of any material fringe benefit enjoyed
by you at the time of the Change in Control of the Company, or the failure
by the Company to provide you with the number of paid vacation or PTO days
to which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy and/or PTO
policy in effect at the time of the Change in Control of the Company;
<PAGE>
(vii) The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof; or
(viii) Any purported termination of your employment by the Company
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Subsection 3(d) hereof and the requirements of
Subsection 3(b) above; for purposes of this Agreement, no such purported
termination shall be effective.
Your right to terminate your employment pursuant to this Agreement for
Good Reason shall not be affected by your incapacity due to physical or mental
illness. Your continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
3. Termination Following Change in Control. If any of the events
described in Subsection 2(a) hereof constituting a Change in Control of the
Company shall have occurred, you shall be entitled to the benefits provided in
Subsection 4(c) hereof upon the subsequent termination of your employment if
such termination is (y) by the Company, other than for Cause, within 24 months
after the end of the month in which such Change in Control occurred or (z) by
you for Good Reason as provided in Subsection 3(c)(i) hereof or by your
Voluntary Termination as provided in Subsection 3(c)(ii) hereof.
(a) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
(b) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties with
the Company (other than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental to the business and
operations of the Company, provided that you shall have received written notice
of such failure or misconduct and shall have continued to engage in such
failure or misconduct after 30 days following receipt of such notice from the
Board, which notice specifically identifies the manner in which the Board
believes that you have engaged in such failure or misconduct. For purposes of
this Subsection, no act, or failure to act, on your part shall be deemed
<PAGE>
"willful" unless done, or omitted to be done, by you not in good faith and
without your reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
failure to substantially perform your duties or of misconduct in accordance
with the first sentence of this Subsection, and of continuing such failure to
substantially perform your duties or misconduct as aforesaid after notice from
the Board, and specifying the particulars thereof in detail.
(c) Voluntary Resignation. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given
at any time during the two years following the occurrence of a Change in
Control of the Company hereunder, provided such resignation is (i) by you for
Good Reason or (ii) by you voluntarily without the necessity of asserting or
establishing Good Reason and regardless of your age or any disability and
regardless of any grounds that may exist for the termination of your employment
if such voluntary termination occurs by written notice given by you to the
Company during the thirty days immediately following the one year anniversary
of the Change in Control (your "Voluntary Termination"), provided, however, for
purposes of this Subsection 3(c)(ii) only, the language "25% or more" in
Subsection 2(a)(i) hereof is changed to "a majority". Such resignation shall
not be deemed a breach of any employment contract between you and the Company.
(d) Notice of Termination. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(e) Date of Termination, Etc. "Date of Termination" shall mean:
(i) If your employment is terminated for Disability, thirty days
after Notice of Termination is given (provided that you shall not have
returned to the full-time performance of your duties during such thirty
day period), and
<PAGE>
(ii) If your employment is terminated pursuant to Subsection (b) or
(c) above or for any other reason (other than Disability), the date
specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (b) above shall not be less than thirty
days, and in the case of a termination pursuant to Subsection (c) above
shall not be less than fifteen nor more than sixty days (thirty days in
case of your Voluntary Termination), respectively, from the date such
Notice of Termination is given);
provided that if within fifteen days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard to
this provision), the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, bonus, benefit and insurance plans in
which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. Compensation Upon Termination Following a Change of Control.
Following a Change in Control of the Company, as defined in Subsection 2(a),
upon termination of your employment, you shall be entitled to the following
benefits:
(a) Deleted.
(b) If your employment shall be terminated by the Company for Cause, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus the Company
shall pay all other amounts and honor all rights to which you are entitled
under any compensation plan of the Company at the time such payments are due,
and the Company shall have no other obligations to you under this Agreement.
(c) If your employment by the Company shall be terminated (y) by the
Company other than for Cause or (z) by you for Good Reason or by your Voluntary
Termination as provided in Subsection 3(c)(ii), then you shall be entitled to
the benefits provided below:
<PAGE>
(i) The Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of Termination is
given, plus all other amounts to which you are entitled under any
compensation or benefit plan of the Company, at the time such payments are
due;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance
pay to you a lump sum severance payment (the "Severance Payment") equal to
3.0 times the average of the Annual Compensation (as defined below)
payable to you by the Company or any corporation affiliated with the
Company within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "Code"). Annual Compensation is defined to consist
of two components: (a) Your annual salary in effect immediately prior to
the Change in Control or in effect as of the Date of Termination,
whichever annual salary is higher. Your annual salary for this purpose
will be determined without any reduction for deferrals of such salary
under any deferred compensation plan (qualified or unqualified) and
without any reduction for any salary reductions used for making
contributions to any group insurance plan of the Company or its affiliates
and also without reduction for any other deductions from salary for any
reason; plus (b) The average of your annual bonuses under the Company's
Annual Management Bonus Plan, or any substitute or successor plan
including the Key Executive Officer Annual Incentive Plan, for the three
highest calendar years, in terms of annual bonus paid to you in such
years, during the five calendar years preceding the calendar year in which
the Change in Control occurred. Your annual bonuses for this purpose will
be determined without any reduction for deferrals under any deferred
compensation plan (qualified or unqualified) and without any reduction for
salary reductions used for making contributions to any group insurance
plan of the Company or its affiliates and also without reduction for any
other deductions from bonus for any reason. If you were not employed by
the Company or its affiliates for a sufficient period of time to receive
annual bonuses during each of the five calendar years before the Change in
Control occurred, then the average bonus will be measured using the three
highest calendar years, in terms of annual bonus paid to you, in all the
consecutive calendar years immediately preceding the date the Change in
Control occurred. If you were not eligible for three years of bonuses
paid during the calendar years immediately preceding the date the Change
in Control occurred, then the average bonus will be the average of the
annual bonuses that were paid to you during such time under such Plan. If
you were not eligible for any bonus during such time because of not being
employed by the Company for a sufficient period of time to qualify for a
previous bonus payment, then Annual Compensation will only consist of the
salary component as provided above and will not include a bonus component.
<PAGE>
(iii) The Company shall also pay to you a pro rata amount of your
target bonus (the bonus amount for your grade level assuming 100 bonus
points are earned) as shown on the matrix for the Annual Management Bonus
Plan (or any substitute or successor plan) attributable to the bonus plan
year which contains your Date of Termination, regardless of whether or not
any bonus is determined to be actually earned for such year, provided that
the target bonus for calculating this pro rata payment will not be less
than the target bonus under such Plan for the Plan year that contains the
day immediately prior to the Change in Control (which target bonus will be
the one that applies to your grade level at that time) regardless of
whether or not any bonus was payable for such year. The pro-rata amount
will be based on the percentage of days of your employment in the calendar
year of the Date of Termination. For example, if the Date of Termination
is October 1 in a year with 365 days, with October 1 counted as the last
day of employment for a total of 274 days of employment that year, then
the pro-rata amount will be 75.06849% of target bonus (274 days _ 365
days). In addition, the Company shall pay to you the amounts of any
compensation or awards payable to you or due to you under any incentive
compensation plan of the Company including, without limitation, the
Company's Restricted Stock Plan, Stock Option Plan (the "Option Plan") and
Annual Management Bonus Plan (or any substitute or successor plan
including the Key Executive Officer Annual Incentive Plan) and under any
agreements with you in connection therewith, and shall make any other
payments and take any other actions and honor such rights you may have
accrued under such plans and agreements including any rights you may have
to payments after the Date of Termination, which will include the payment
to you of any bonus earned during the bonus year fully completed prior to
the Date of Termination if such Date of Termination occurs prior to the
payment date for such bonus, it being understood, however, that the
pro-rata payment provided for in the first sentence of this paragraph
4(c)(iii) is in lieu of any bonus earned for the bonus plan year during
which occurred the Date of Termination.
(iv) In lieu of shares of common stock of the Company or any
securities of a successor company which shall have replaced such common
stock ("Company Shares") issuable upon exercise of outstanding and
unexercised options (whether or not they are fully exerciseable or
"vested"), if any, granted to you under the Option Plan including options
granted under the plan of any successor company that replaced or assumed
the options under said Option Plan ("Options") (which Options shall be
cancelled upon the making of the payment referred to below), you shall
receive an amount in cash equal to the product of (y) the excess of the
higher of the closing price of Company Shares as reported on the New York
Stock Exchange on or nearest the Date of Termination (or, if not listed on
such exchange, on a nationally recognized exchange or quotation system on
which trading volume in Company Shares is highest) or the
<PAGE>
highest per share price (including cash, securities and any other
consideration) for Company Shares actually paid in connection with any
change in control of the Company, over the per share exercise price of
each Option held by you (whether or not then fully exercisable or
"vested"), times (z) the number of Company Shares covered by each such
option.
(v) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such fees
and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section 4999
of the Code to any payment or benefit provided hereunder).
(vi) In the event that you become entitled to the payments (the
"Severance Payments") provided under paragraphs (ii), (iii), and (iv),
above (and Subsections (d) and (e), below), and if any of the Severance
Payments will be subject to the tax (the "Excise Tax") imposed by Section
4999 of the Code, the Company shall pay to you at the time specified in
paragraph (vii), below, an additional amount (the "Gross-Up Payment") such
that the net amount retained by you (such net amount to be the amount
remaining after deducting any Excise Tax on the Severance Payments and any
federal, state and local income tax and Excise Tax payable on the payment
provided for by this paragraph), shall be equal to the amount of the
Severance Payments after deducting normal and ordinary taxes but not
deducting (a) the Excise Tax and (b) any federal, state and local income
tax and Excise tax payable on the payment provided for by this paragraph.
For example, if the Severance Payments are $1,000,000 and if you are
subject to the Excise Tax, then the Gross-Up Payment will be such that you
will retain an amount of $1,000,000 less only any normal and ordinary
taxes on such amount. (The Excise Tax and federal, state and local taxes
and any Excise Tax on the payment provided by this paragraph will not be
deemed normal and ordinary taxes). For purposes of determining whether
any of the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, the following will apply:
(A) Any other payments or benefits received or to be received
by you in connection with a Change in Control of the Company or your
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control of
the Company or any person affiliated with the Company or such person)
shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute payments"
within the
<PAGE>
meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in
excess of the base amount within the meaning of Section 280G(b)(3) of
the Code, or are otherwise not subject to the Excise Tax;
(B) The amount of the Severance Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (y) the
total amount of the Severance Payments or (z) the amount of excess
parachute payments within the meaning of Section 280G(b)(1) (after
applying clause (A), above); and
(C) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors
in accordance with proposed, temporary or final regulations under
Sections 280G(d)(3) and (4) of the Code or, in the absence of such
regulations, in accordance with the principles of Section 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay Federal income taxes at
the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state
and locality of your residence on the Date of Termination, net of the
maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the
amount of Excise Tax attributable to Severance Payments is
subsequently determined to be less than the amount taken into account
hereunder at the time of termination of your employment, you shall
repay to the Company, at the time that the amount of such reduction
in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of the
Gross-Up Payment attributable to the Excise Tax and Federal (and
state and local) income tax imposed on the Gross-Up Payment being
repaid by you if such repayment results in a reduction in Excise Tax
and/or a Federal (and state and local) income tax deduction) plus
interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax
attributable to Severance Payments is determined to exceed the amount
taken into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or
amount of which cannot be
<PAGE>
determined at the time of the Gross-Up Payment), the Company shall
make an additional gross-up payment to you in respect of such excess
(plus any interest payable with respect to such excess) at the time
that the amount of such excess is finally determined.
(vii) The payments provided for in paragraphs (ii), (iii), (iv) and
(vi) above, shall be made not later than the fifth day following the
Date of Termination, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the Company
shall pay to you on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can
be determined but in no event later than the thirtieth day after the
Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to you payable on the
fifth day after demand by the Company (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code).
(d) If your employment shall be terminated (y) by the Company other than
for Cause, or (z) by you voluntarily for Good Reason or by your Voluntary
Termination, then for a twenty-four month period after such termination, the
Company shall arrange to provide you with life, disability, accident and health
insurance benefits substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits otherwise receivable
by you pursuant to this Subsection 4(d) shall be reduced to the extent
comparable benefits are actually received by you during the twenty-four month
period following your termination, and any such benefits actually received by
you shall be reported to the Company.
(e) In the event a Change in Control of the Company occurs while you are
employed with the Company or its affiliates but after you and the Company have
executed an agreement that expressly provides for your subsequent retirement
including an agreement that expressly provides for your early retirement, then
the present value, computed using a discount rate of 8% per annum, of (i) the
total amount of all unpaid deferred payments as payable to you in accordance
with the payment schedule that you elected when the deferral was agreed to and
using the plan interest rate applicable to your situation, including, without
limitation, any unpaid deferred payments to be paid to you under the Company's
Executive Deferred Compensation Plan and the Company's other deferred
compensation plans, and (ii) the total amount of all other payments payable or
to become payable to you or your estate or beneficiary under such retirement
agreement (other than payments payable pursuant to a plan qualified under
Section 401(a) of the Internal Revenue Code) shall be accelerated and paid to
you (or your estate or beneficiary if applicable) in a lump sum cash payment
<PAGE>
within five business days after the occurrence of the Change in Control of the
Company. In addition, if you and the Company or its affiliates have executed
such a retirement agreement and if the Change in Control of the Company occurs
before the effective date of your retirement, then you shall receive the
Severance Payment payable under Subsection 4(c)(ii) herein in addition to the
lump sum cash payment of the present value of your total unpaid deferred
payments and other payments under the retirement agreement as aforesaid. All
benefits (other than the payments accelerated and paid out to you in a lump sum
as provided above) to which you or your estate or any beneficiary are entitled
under such retirement agreement shall continue in effect notwithstanding the
Change in Control of the Company. This Subsection 4(e) shall survive your
retirement.
(f) Notwithstanding that a Change in Control shall not have yet occurred,
if you so elect, by written notice to the Company given at any time after the
date hereof and prior to the time such amounts are otherwise payable to you:
(i) The Company shall deposit with an escrow agent, pursuant to an
escrow agreement between the Company and such escrow agent, a sum of
money, or other property permitted by such escrow agreement, which are
substantially sufficient in the opinion of the Company's management to
fund payment of the following amounts to you, as such amounts become
payable (provided such deposit will not be necessary to the extent the
escrow already contains funds or other assets which are substantially
sufficient in the opinion of the Company's management to fund such
payments):
(A) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate under the Company's Executive Deferred
Compensation Plan and under any agreements related thereto in
existence at the time of your election to make the deposit into
escrow.
(B) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate by reason of your deferral of payments
payable to you prior to the date of your election to make the deposit
into escrow under any other deferred compensation agreements between
you and the Company in existence at the time of your election to make
the deposit into escrow, including but not limited to deferred
compensation agreements relating to the deferral of salary or
bonuses.
(C) Amounts payable, or to become payable, to you or to your
beneficiaries or your estate under any executed agreement that
expressly provides for your retirement from the Company (including
payments described under Subsection 4(e) above) which agreement is in
existence at the time of your election to make the deposit into
escrow, other than amounts payable by a plan qualified under Section
401(a) of the Code.
<PAGE>
(D) Subject to the approval of the Committee, amounts then due
and payable to you, but not yet paid, under any other benefit plan or
incentive compensation plan of the Company (whether such amounts are
stock or cash) other than amounts payable to you under a plan
qualified under Section 401(a) of the Code.
(ii) Within 5 days after the occurrence of a Potential Change of
Control, the Company shall deposit with an escrow agent (which shall be
the same escrow agent, if one exists, acting pursuant to clause (i) of
this Subsection 4(f)), pursuant to an escrow agreement between the Company
and such escrow agent, a sum of money, or other property permitted by such
escrow agreement, substantially sufficient in the opinion of Company
management to fund the payment to you of the amounts specified in
Subsection 4(c) of this Agreement.
(iii) It is intended that any amounts deposited in escrow pursuant
to the provisions of clause (i) or (ii) of this Subsection 4(f), shall
be subject to the claims of the Company's creditors, as set forth in the
form of such escrow agreement.
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by you to the Company, or otherwise (except as specifically provided
in this Section 4).
(h) In addition to all other amounts payable to you under this Section 4,
you shall be entitled to receive all benefits payable to you under any benefit
plan of the Company in which you participate to the extent such benefits are
not paid under this Agreement.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled to hereunder if you terminate your
employment voluntarily for Good Reason following a Change in Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed
<PAGE>
the Date of Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
6. Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid, by FAX
if available, or by overnight courier service, addressed as follows:
To the Company:
Secretary
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117
FAX: 901-762-8735
To you:
Addressed to your name at your office address (or FAX number)
with the Company or its affiliates (or any successor thereto) at
the time the notice is sent and your home address at that time;
and if you are not employed by the Company at the time of the
notice, your home address as shown on the records of the Company
or its affiliates (or any successor thereto) on the date of the
notice.
To such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or
<PAGE>
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that you shall be entitled
to seek specific performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
11. Similar Provisions in Other Agreement. The Severance Payment under
this Agreement supersedes and replaces any previous severance agreement and any
other severance payment to which you may be entitled under any previous
agreement between you and the Company or its affiliates.
<PAGE>
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
HARRAH'S ENTERTAINMENT, INC.
By:
------------------------------
Agreed:
- ------------------------------
[Name of Executive Officer]
<PAGE>
EX-10(81)
FIFTH AMENDMENT TO
LIMITED PARTNERSHIP AGREEMENT OF
DES PLAINES DEVELOPMENT LIMITED PARTNERSHIP
This Fifth Amendment (this "Amendment") to Limited Partnership Agreement of Des
Plaines Development Limited Partnership is made as of this 1st day of April,
1997 by and between Harrah's Illinois Corporation, a Nevada corporation, and
Des Plaines Development Corporation.
Recitals
-----------
A. The parties hereto are parties to that certain Limited Partnership
Agreement of Des Plaines Development Limited Partnership, dated as of February
28, 1992 (as amended by the First, Third and Fourth Amendments, there being no
second amendment, to Limited Partnership Agreement and as amended hereby, the
"Partnership Agreement"). Capitalized terms used herein and not defined herein
shall have the meaning given to them in the Partnership Agreement.
B. The Illinois Gaming Board has requested that the General Partner
terminate its revenue based management fee contained in the Management
Agreement between the Partnership and the General Partner.
C. The parties hereto desire to modify Article 4 of the Partnership
Agreement in recognition of the General Partner's elimination of its Management
Fee as provided in that certain Management Agreement entered into between the
Partnership and Harrah's Illinois Corporation dated as of February 28, 1992,
(the "Management Agreement").
D. The parties hereto desire to enter into certain other agreements with
respect to the Partnership, and to amend certain provisions of the Partnership
Agreement, all as more fully set forth herein.
Agreement
--------------
NOW, THEREFORE, in consideration of the mutual agreements of the parties
hereto and subject to the terms and conditions hereof, the parties hereto agree
as follows:
1. Amendment to Definitions. The Partnership Agreement shall be amended
as follows:
<PAGE>
a. The following definition is hereby added to Article I of the
Partnership Agreement:
"Gross Gaming Revenue" means the net win from gaming activities,
which is the difference between gaming wins and losses before
deducting costs and expenses.
2. Amendment to Section 4.01. Section 4.01 of the Partnership Agreement
is hereby deleted in its entirety and the following is hereby substituted
therefor:
Section 4.01 Allocations of Taxable Income. Except as provided
herein and in Section 4.07 hereof, taxable income of the Partnership shall
be allocated among the Partners in accordance with their Percentage
Shares:
a. So long as Harrah's is the Manager pursuant to the
Management Agreement and receives no other Management Fee pursuant to
the Management Agreement, then in any fiscal year in which
Partnership Gross Gaming Revenues are $160 million or greater,
taxable income (excluding any gain realized in a Major Capital Event)
shall be allocated 83.25 percent to General Partner and 16.75 percent
to Limited Partner;
b. So long as Harrah's is the Manager pursuant to the
Management Agreement and receives no other Management Fee pursuant to
the Management Agreement, then in any fiscal year in which
Partnership Gross Gaming Revenues are less than $160 million, taxable
income (excluding any gain realized in a Major Capital Event) shall
be allocated 83.5 percent to General Partner and 16.5 percent to
Limited Partner.
c. Gain realized in a Major Capital Event shall be allocated
among the Partners in accordance with their Percentage Shares.
3. Amendment to Section 4.04. Section 4.04 of the Partnership Agreement
is hereby amended to delete the word "and" from the end of subsection (d) and
adding the following subsections (e) and (f):
(e) Fifth, to any Partner whose capital account is greater than
its Percentage Share of the Partnership's combined capital accounts
until that Partner's capital account is equal to its Percentage Share
of the Partnership's combined capital accounts; and
(f) Sixth, the balance, if any, to the Partners in accordance
with their Percentage Shares.
<PAGE>
4. Amendment to Section 4.05. Section 4.05 of the Partnership Agreement
is hereby amended to delete the word "and" from the end of subsection (b) and
adding the following as subsections (c) and (d):
(c) Third, to any Partner whose capital account is greater than
its Percentage Share of the Partnership's combined capital accounts
until that Partner's capital account is equal to its Percentage Share
of the Partnership's combined capital accounts; and
(d) Fourth, the balance, if any, to and among the Partners in
accordance with their Percentage Shares.
5. Amendment to Section 5.05. Section 5.05 of the Partnership Agreement
is hereby amended by adding the following text at the end of the Section:
Notwithstanding the foregoing, the terms of the Management
Agreement, which is attached hereto as Exhibit A, are incorporated by
reference as though set forth herein verbatim. However, Article 10
shall have no application so long as Harrah's continues as Manager
pursuant to the Management Agreement and receives the allocation set
forth at Section 4.01 a. or b. of the Fifth Amendment to Limited
Partnership Agreement.
6. Amendment to Section 11.08. Section 11.08 is hereby amended to
change the reference to "The Promus Companies Incorporated" found at two places
in the Section, to "Harrah's Entertainment, Inc." and by adding the following
text at the end of the Section:
Anything herein to the contrary notwithstanding, the Limited
Partner's Percentage Share shall in no way be affected by any change
in the ownership of the outstanding stock of the General Partner,
including any change in control of the ownership of the common stock
of Harrah's Entertainment, Inc.
7. Amendment to Section 12.03. Section 12.03(a) is hereby amended by
deleting the reference to "(c)" in the second line of (ii) and replacing it
with "(f)" and deleting (iii) in its entirety.
8. Amendment to Section 13.14. Section 13.14 is deleted in its entirety
as the Amended and Restated Loan Agreement has been repaid in full.
9. References. All references to the Partnership Agreement contained
therein shall be deemed to refer to the Partnership Agreement as previously
amended and as amended hereby.
<PAGE>
10. Modification. Except as previously modified and as modified hereby,
the Partnership Agreement and the First through Fourth Amendments thereto
remain in full force and effect. In the case of any inconsistency between this
Fifth Amendment and the Partnership Agreement or any of the First through
Fourth Amendments, this Amendment shall control.
11. Counterparts. This Amendment may be executed in one or more
counterparts, each of which is an original and all of which constitute one
agreement.
12. Gaming Approval. The parties hereto confirm that the Partnership
Agreement, as amended hereby, is subject to all statutes and regulations
regulating gaming in the state of Illinois, including without limitation, any
applicable approval of the Illinois Gaming Board.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
GENERAL PARTNER:
HARRAH'S ILLINOIS CORPORATION,
By: /s/ Patrick Dennehy
--------------------------------
Name: Patrick Dennehy
------------------------------
Title: Vice President
-----------------------------
LIMITED PARTNER:
DES PLAINES DEVELOPMENT
CORPORATION
By: /s/ John Q. Hammons
------------------------------
Name: John Q. Hammons
------------------------------
Title: President
------------------------------
<PAGE>
I hereby consent to the foregoing Amendment, and confirm and ratify my
guarantee contained in the Partnership Agreement in all respects.
/s/ Mrs. Juanita Hammons
------------------------------
Mrs. Juanita Hammons
Guarantor
<PAGE>
CONSENT OF SECURED PARTY
-----------------------------------------------
The undersigned, First Midwest Bank, National Association, formerly known as
First Midwest Bank/Illinois, N.A., as holder of a security interest in the
limited partnership interest of Des Plaines Development Corporation in Des
Plaines Development Limited Partnership under the Partnership Agreement
evidenced by that certain UCC-1 Financing Statement recorded with the Office of
the Secretary of State for the State of Illinois on August 18, 1994, as Filing
No. 3295940, consents to the foregoing Amendment.
First Midwest Bank, National
Association, f/k/a First Midwest
Bank/Illinois, N.A.
By: Vincent A. Benigni
------------------------------
Its: Vice President
------------------------------
Date: 4/9/97
------------------------------
<PAGE>
EX-10(82)
Amendment to Escrow Agreement
----------------------------------------------
Amendment, dated as of October 30, 1997, to Escrow Agreement, as amended,
among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., and
NationsBank ("Escrow Agreement");
Whereas, Section 5.02 of the Escrow Agreement provides that the Escrow
Agreement may be amended by written agreement of the parties thereto without
obtaining the consent of the Participants if the amendment does not adversely
affect the rights of the Participants;
Whereas, the Human Resources Committee of the Board of Directors of
Harrah's Entertainment, Inc. approved an amendment to the Escrow Agreement on
October 30, 1997, concerning the appointment of an EDCP Investment Committee,
and said amendment does not adversely affect the rights of Participants;
Whereas, the parties to the Escrow Agreement desire to amend the Escrow
Agreement as authorized by the Human Resources Committee.
NOW THEREFORE, the parties to the Escrow Agreement hereby agree to amend
the Escrow Agreement as follows:
1. The following subsection (d) is added following 2.02(c) of the Escrow
Agreement:
"(d) The Human Resources Committee of the Company's Board of
Directors may appoint an Investment Committee consisting of four
corporate officers of the Company (the "EDCP Committee").
Notwithstanding anything herein to the contrary, the EDCP Committee
shall, by majority vote which may include action by a majority of
such Committee members acting by written consent, have authority to
determine investment guidelines and procedures and to select and
approve the various investments of any assets held in the Escrow
Fund including cash and any assets or investments contained within
or held under insurance policies in the Escrow Fund. The Escrow
Agent may rely upon a letter from the Secretary or Assistant
Secretary of the Company or from Management Compensation Group
(MCG) that reports any decision
<PAGE>
made by the EDCP Committee, and the Escrow Agent agrees to carry
out such decision as soon as reasonably practicable after receipt
of any such letter. The Escrow Agent and the Company may designate
MCG or the Company's Controller to deal directly with any insurance
carriers for purposes of implementing these investment decisions.
All such investments shall be held by the Escrow Agent pursuant to
this Escrow Agreement and subject to the terms hereof, as amended.
The Escrow Agent shall act only as an administrative agent in
carrying out directed investment transactions in accordance with
this paragraph and shall not be responsible for any investment
decision. If a directed investment transaction violates any duty to
diversify, to maintain liquidity or to meet any other investment
standard or other requirement under this Escrow Agreement or
applicable law, the entire responsibility shall rest upon the
Company. The Escrow Agent shall be fully protected in acting upon
or complying with any restrictions or directions provided in
accordance with this paragraph."
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date written above.
HARRAH'S ENTERTAINMENT, INC.
By: /s/ Neil F. Barnhart
------------------------------
Title:
------------------------------
HARRAH'S OPERATING COMPANY, INC.
By: /s/ Neil F. Barnhart
------------------------------
Title:
------------------------------
NATIONSBANK
By: /s/ R. Otis Goodin
------------------------------
Title: Vice President
------------------------------
<PAGE>
Harrah's Entertainment, Inc.
-------------------------------------
Certified Resolution
-------------------------
I, Assistant Secretary of Harrah's Enteratinment, Inc., (the "Company")
hereby certify that the attached resolution was adopted by the Human Resources
Committee of the Company's Board of Director on October 30, 1997 and said
resolution is still in full force and effect.
February 9, 1998 /s/ Vincent G. DeYoung
-----------------------------------
Vincent G. DeYoung
Assistant Secretary,
Harrah's Entertainment, Inc.
<PAGE>
EDCP -
Appointment of
Investment RESOLVED, that an EDCP Investment Committee is hereby
Committee established to determine investment guidelines and
procedures and to select or approve investments related to
the Executive Deferred Compensation Plan including, but not
limited to, investments of variable insurance policies and
other assets held in escrow under the Escrow Agreement with
NationsBank, such committee to have authority to secure
professional investment advice, and the committee will
further report annually to the Human Resources Committee
concerning its decisions and the results of the
investments;
RESOLVED, that the EDCP Investment Committee will consist
of four corporate officers appointed by the Human Resources
Committee, and that Colin V. Reed, Neil F. Barnhart, Ben C.
Peternell, and Charles L. Atwood, be, and they hereby are,
appointed as the initial members of such Investment
Committee;
RESOLVED, that the EDCP Investment Committee shall, by
majority vote of the members, be authorized to establish
procedures for its meetings and actions including, but not
limited to, voting and quorum requirements;
RESOLVED, that any amendments and other actions related to
the Escrow Agreement with NationsBank that may be necessary
or appropriate to implement the EDCP Investment Committee
be, and such amendments and actions hereby are, approved;
RESOLVED, that each of the officers of the Company (the
"Officers"), or their designees appointed in writing be,
and each of them hereby is, authorized to take any action
to execute and deliver, on behalf of the Company, and to
perform the Company's obligations under, any and all
documents, agreements, contracts, and other instruments
that any one or more of the Officers deem necessary or
desirable to evidence or give effect to the action
contemplated in the foregoing resolutions, all upon such
terms and conditions, not inconsistent with the aforesaid
resolutions, as any one or more of the Officers or their
designees may approve; and
<PAGE>
RESOLVED, that this Committee hereby adopts the form and
content of any resolutions that any one or more of the
Officers, or their designees, deem necessary to evidence
the approval by the Company of, or carry into effect, the
actions contemplated by the foregoing resolutions if (1) in
the opinion of such Officer, or such Officer's designee, so
acting, the adoption of such resolutions is necessary or
advisable, and (2) the Secretary of the Company evidences
such adoption by filing with the minutes of this meeting
copies of such resolutions which shall thereupon be deemed
to be adopted by this Committee and incorporated in the
minutes as a part of this resolution with the same force
and effect as if presented and approved at this meeting.
<PAGE>
EX - 10(83)
THIRD AMENDMENT TO CREDIT AGREEMENTS
------------------------------------
THIRD AMENDMENT TO CREDIT AGREEMENTS (this "Amendment"), dated as of
November 22, 1997, among HARRAH'S ENTERTAINMENT, INC. ("Parent"), HARRAH'S
OPERATING COMPANY, INC. (the "Company"), MARINA ASSOCIATES ("Marina"), the
various lending institutions party to the Credit Agreements referred to below
(the "Banks"), BANKERS TRUST COMPANY, THE BANK OF NEW YORK, CIBC INC., CREDIT
LYONNAIS, ATLANTA AGENCY, WELLS FARGO BANK, N.A., THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED, NEW YORK BRANCH, NATIONSBANK, N.A. (SOUTH), SOCIETE
GENERALE and THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH, as Agents (the
"Agents"), and BANKERS TRUST COMPANY, as Administrative Agent (the
"Administrative Agent"). Unless otherwise defined herein, all capitalized
terms used herein shall have the respective meanings provided such terms in
the 5-Year Credit Agreement or the 364-Day Credit Agreement, as the case may
be, referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Parent, the Company, Marina, the Banks, the Agents and the
Administrative Agent are parties to an Amended and Restated Credit Agreement,
dated as of July 22, 1993 and amended and restated as of June 9, 1995 (as
amended, modified or supplemented through the date hereof, the "5-Year Credit
Agreement");
WHEREAS, Parent, the Company, Marina, the Banks, the Agents and the
Administrative Agent are parties to a Credit Agreement, dated as of June 9,
1995 (as amended, modified or supplemented through the date hereof, the
"364-Day Credit Agreement," and together with the 5-Year Credit Agreement,
the "Credit Agreements"); and
WHEREAS, the parties hereto wish to amend the Credit Agreements as
herein provided;
NOW, THEREFORE, it is agreed:
<PAGE>
1. Section 9.04(xvi) of the 5-Year Credit Agreement is hereby
amended by inserting the text ", the Jazz Casino Minimum Payment Guaranty"
immediately after the words "the Jazz Casino Loan Guaranty" appearing therein.
2. Section 8.04(xvi) of the 364-Day Credit Agreement is hereby
amended by inserting the text ", the Jazz Casino Minimum Payment Guaranty"
immediately after the words "the Jazz Casino Loan Guaranty" appearing therein.
3. Section 9.05(iii) of the 5-Year Credit Agreement is hereby
deleted in its entirety and the following new Section 9.05(iii) is inserted
in lieu thereof:
"(iii) on and after the Jazz Casino Trigger Date, Parent and/or
the Company may enter into (x) the Jazz Casino Completion Guaranties, the
Jazz Casino Bank Guaranties, the Jazz Casino Loan Guaranty and the Jazz
Casino Indemnity Arrangements and perform their respective obligations
thereunder, and make (or deemed to make) Jazz Casino Completion
Obligation Loans to Jazz Casino as a result of such performance and (y)
the Jazz Casino Minimum Payment Guaranty and perform their respective
obligations thereunder so long as their aggregate exposure thereunder
(including the amount of any unreimbursed guarantee drawings thereunder)
does not exceed $100,000,000 (plus any applicable interest and attorneys'
fees) at any time outstanding; and".
4. Section 8.05(iii) of the 364-Day Credit Agreement is hereby
deleted in its entirety and the following new Section 8.05(iii) is inserted
in lieu thereof:
"(iii) on and after the Jazz Casino Trigger Date, Parent and/or
the Company may enter into (x) the Jazz Casino Completion Guaranties, the
Jazz Casino Bank Guaranties, the Jazz Casino Loan Guaranty and the Jazz
Casino Indemnity Arrangements and perform their respective obligations
thereunder, and make (or deemed to make) Jazz Casino Completion
Obligation Loans to Jazz Casino as a result of such performance and (y)
the Jazz Casino Minimum Payment Guaranty and perform their respective
obligations thereunder so long as their aggregate exposure thereunder
(including the amount of any unreimbursed guarantee drawings thereunder)
does not exceed $100,000,000 (plus any applicable interest and attorneys'
fees) at any time outstanding; and".
2
<PAGE>
5. Section 11.01 of the 5-Year Credit Agreement is hereby amended
by inserting the following new definition in the appropriate alphabetical
order:
"Jazz Casino Minimum Payment Guaranty" shall mean the guaranty to be
issued by Parent and/or the Company in favor of the Louisiana Gaming
Control Board guaranteeing Jazz Casino's minimum payment obligation to
the Louisiana Gaming Control Board of $100,000,000 per year.
6. Section 10.01 of the 364-Day Credit Agreement is hereby amended
by inserting the following new definition in the appropriate alphabetical
order:
"Jazz Casino Minimum Payment Guaranty" shall mean the guaranty to be
issued by Parent and/or the Company in favor of the Louisiana Gaming
Control Board guaranteeing Jazz Casino's minimum payment obligation to
the Louisiana Gaming Control Board of $100,000,000 per year.
7. In order to induce the Banks to enter into this Amendment,
Parent and each Borrower hereby represent and warrant that:
(x) no Default or Event of Default exists on the Third Amendment
Effective Date (as defined below), both before and after giving effect to
this Amendment; and
(y) all of the representations and warranties contained in each
Credit Agreement shall be true and correct in all material respects on
and as of the Third Amendment Effective Date, both before and after
giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Third
Amendment Effective Date (it being understood that any representation or
warranty made as of a specified date shall be required to be true and
correct in all material respects only as of such specific date).
3
<PAGE>
8. This Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreements or any other Credit Document.
9. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with Parent, the Company and the
Administrative Agent.
10. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of
the State of New York.
11. This Amendment shall become effective on the date (the "Third
Amendment Effective Date") when Parent, the Borrowers and the Required Banks
under, and as defined in, each Credit Agreement shall have signed a
counterpart hereof (whether the same or different counterparts) and shall
have delivered (including by way of telecopier) the same to the
Administrative Agent at the Notice Office.
12. From and after the Third Amendment Effective Date, all
references in the Credit Agreements and the other Credit Documents to each
Credit Agreement shall be deemed to be references to each such Credit
Agreement as amended hereby.
* * *
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the
date first above written.
HARRAH'S ENTERTAINMENT, INC.
By Charles L. Atwood
----------------------------------------
Title: Vice President
HARRAH'S OPERATING COMPANY, INC.
By Charles L. Atwood
----------------------------------------
Title: Vice President
MARINA ASSOCIATES
By: HARRAH'S ATLANTIC CITY, INC.,
a general partner
By Stephen H. Brammell
----------------------------------------
Title: Assistant Secretary
By: HARRAH'S NEW JERSEY, INC.,
a general partner
By Stephen H. Brammell
----------------------------------------
Title: Assistant Secretary
5
<PAGE>
BANKERS TRUST COMPANY,
Individually,
as Administrative Agent
and as an Agent
By /s/ Mary Kay Coyle
----------------------------------------
Title: Managing Director
THE BANK OF NEW YORK,
Individually and as an
Agent
By /s/ Ann Marie Hughes
----------------------------------------
Title: ANN MARIE HUGHES
Assistant Vice President
CIBC INC., Individually and
as an Agent
By /s/ Cheryl L. Root
----------------------------------------
Title: CHERYL ROOT
EXECUTIVE DIRECTOR
CIBC Oppenheimer Corp.,
AS AGENT
CREDIT LYONNAIS, ATLANTA AGENCY,
Individually and as an Agent
By /s/ David M. Caurse
----------------------------------------
Title:
6
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/ David M. Caurse
----------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH,
Individually and as an Agent
By /s/ Philip Marsden
----------------------------------------
Title: SVP
NATIONSBANK, N.A. (SOUTH),
Individually and as an Agent,
By /s/ Mark D. Halmrast
----------------------------------------
Title: Vice President
SOCIETE GENERALE, Individually and
as an Agent
By /s/ Donald L. Schubert
----------------------------------------
Title: Donald L. Schubert
Vice President
7
<PAGE>
THE SUMITOMO BANK, LIMITED,
ATLANTA AGENCY, Individually
and as an Agent
By /s/ Masayuki Fukushima
----------------------------------------
Title: MASAYUKI FUKUSHIMA
JOINT GENERAL MANAGER
WELLS FARGO BANK, N.A.,
Individually and as Agent
By /s/ Sue Fuller
----------------------------------------
Title: Vice President
ABN AMRO BANK N.V., SAN FRANCISCO
BRANCH
By: ABN AMRO NORTH AMERICA,
INC., AS ITS AGENT
By /s/ Jeffrey A. French
----------------------------------------
Title: Jeffrey A. French
Group Vice President &
Director
By /s/ Michael Tolentino
----------------------------------------
Title: Michael Tolentino
Assistant Vice President
& Credit Analyst
8
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVING ASSOCIATION
By /s/ Scott Faber
----------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ F. C. H. Ashby
----------------------------------------
Title: F.C.H. Ashby
Senior Manager
Loan Operations
COMMERZBANK AG, LOS ANGELES BRANCH
By /s/ John Korthuis
----------------------------------------
Title: John Korthuis, Vice President
By /s/ Karla Wirth
----------------------------------------
Title: Karla Wirth, Asst. Treasurer
THE DAI-ICHI KANGYO BANK, LTD.
By
----------------------------------------
Title:
9
<PAGE>
DEPOSIT GUARANTY NATIONAL BANK
By /s/ Larry C. Ratzlaff
----------------------------------------
Title: SENIOR VICE PRESIDENT
FIRST AMERICAN NATIONAL BANK
By
----------------------------------------
Title:
FIRST NATIONAL BANK OF COMMERCE
By /s/ Louis Ballero
----------------------------------------
Title: LOUIS BALLERO
SENIOR VICE PRESIDENT
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By /s/ James H. Moore, Jr.
----------------------------------------
Title: Vice President
FLEET BANK, N.A.
By /s/ John F. Cullinan
----------------------------------------
Title: SVP
10
<PAGE>
HIBERNIA NATIONAL BANK
By
----------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/ Kazuo Iida
----------------------------------------
Title: KAZUO IIDA
General Manager
THE MITSUBISHI TRUST & BANKING
CORP.
By /s/ T. Hayashi
----------------------------------------
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
(Successor by merger to Midlantic
Bank, N.A.)
By /s/ Lawrence F. Zema, VP
----------------------------------------
Title: Lawrence F. Zema
Vice President
11
<PAGE>
THE SANWA BANK, LIMITED,
ATLANTA AGENCY
By
----------------------------------------
Title:
SUNTRUST BANK, NASHVILLE, N.A.
By /s/ Renee D. Drake
----------------------------------------
Title: Renee D. Drake
Vice President
THE TOKAI BANK, LIMITED,
NEW YORK BRANCH
By
----------------------------------------
Title:
UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Dale Parshall
----------------------------------------
Title: Vice President
12
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By /s/ Alan S. Bookspan
----------------------------------------
Title: Alan S. Bookspan
Vice President
By /s/ James C. Veneau
----------------------------------------
Title: Analyst
FIRST SECURITY BANK OF UTAH
By
----------------------------------------
Title:
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG (f/k/a/ GIROCREDIT BANK
AG DER SPARKASSEN)
By /s/ John Redding /s/ John Runnion
----------------------------------------
Title: John Redding John Runnion
VP FVP
13
<PAGE>
EXHIBIT 11
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Income from continuing operations............................... $ 107,522,000 $ 98,897,000 $ 78,810,000
Discontinued operations
Earnings from hotel operations, net........................... - - 21,230,000
Spin-off transaction expenses, net............................ - - (21,194,000)
Extraordinary loss, net......................................... (8,134,000) - -
-------------- -------------- --------------
Net income...................................................... $ 99,388,000 $ 98,897,000 $ 78,846,000
-------------- -------------- --------------
-------------- -------------- --------------
BASIC EARNINGS PER SHARE
Weighted average number of common shares outstanding............ 100,618,139 102,598,281 102,340,763
-------------- -------------- --------------
-------------- -------------- --------------
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations............................... $ 1.07 $ 0.96 $ 0.77
Discontinued operations
Earnings from hotel operations, net........................... - - 0.21
Spin-off transaction expenses, net............................ - - (0.21)
Extraordinary loss, net......................................... (0.08) - -
-------------- -------------- --------------
Net income................................................ $ 0.99 $ 0.96 $ 0.77
-------------- -------------- --------------
-------------- -------------- --------------
DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding............ 100,618,139 102,598,281 102,340,763
Additional shares based on average market price for period
applicable to:
Restricted stock.......................................... 86,827 88 90,996
Stock options............................................. 549,101 1,137,792 756,364
-------------- -------------- --------------
Average number of common and common equivalent shares
outstanding................................................... 101,254,067 103,736,161 103,188,123
-------------- -------------- --------------
-------------- -------------- --------------
DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Income from continuing operations............................... $ 1.06 $ 0.95 $ 0.76
Discontinued operations
Earnings from hotel operations, net........................... - - 0.21
Spin-off transaction expenses, net............................ - - (0.21)
Extraordinary loss, net......................................... (0.08) - -
-------------- -------------- --------------
Net income................................................ $ 0.98 $ 0.95 $ 0.76
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
<PAGE>
Exhibit 12
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(In thousands, except ratio amounts)
<TABLE>
<CAPTION>
1997(A) 1996(B) 1995(C) 1994(D) 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RETURN ON REVENUES-CONTINUING
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Revenues...................................... 1,619,210 1,586,020 1,578,795 1,349,941 1,020,645
Return...................................... 6.6% 6.2% 5.0% 3.7% 7.3%
RETURN ON AVERAGE INVESTED CAPITAL
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Add: Interest expense after tax............... 48,233 43,187 56,650 46,993 43,848
----------- ----------- ----------- ----------- -----------
$ 155,755 $ 142,084 $ 135,460 $ 96,977 $ 118,715
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Average invested capital...................... $ 1,815,869 $ 1,619,880 $ 1,377,354 $ 1,229,524 $ 1,060,641
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Return...................................... 8.6% 8.8% 9.8% 7.9% 11.2%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RETURN ON AVERAGE EQUITY(E)
Income before extraordinary items and
cumulative effect of change in accounting
policy...................................... $ 107,522 $ 98,897 $ 78,846 $ 86,303 $ 91,793
Average equity................................ 722,298 682,489 618,778 606,009 474,733
Return...................................... 14.9% 14.5% 12.7% 14.2% 19.3%
CURRENT RATIO
Current assets................................ $ 212,310 $ 201,587 $ 188,836 $ 171,835 $ 139,842
Current liabilities........................... 210,950 204,642 201,566 295,083 188,258
Ratio....................................... 1.0 1.0 0.9 0.6 0.7
RATIO OF BOOK EQUITY TO DEBT(E)
Book equity as of December 31................. $ 735,503 $ 719,746 $ 585,549 $ 623,427 $ 536,037
Total debt(f)................................. 926,234 891,379 755,743 919,727 841,964
Ratio....................................... 0.8 0.8 0.8 0.7 0.6
RATIO OF MARKET EQUITY TO DEBT(E)
Market equity as of December 31............... $ 1,907,053 $ 2,046,523 $ 2,489,840 $ 3,161,681 $ 4,678,304
Total debt(f)................................. 926,234 891,379 755,743 919,727 841,964
Ratio....................................... 2.1 2.3 3.3 3.4 5.6
</TABLE>
<PAGE>
EXHIBIT 12 (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
1997(A) 1996(B) 1995(C) 1994(D) 1993
----------- ----------- ----------- ----------- -----------
COMPUTATION OF ADJUSTED EBITDA
<S> <C> <C> <C> <C> <C>
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Add/(less):
Income tax provision........................ 68,746 67,316 60,677 75,391 59,394
Interest expense............................ 79,071 69,968 73,890 76,363 73,080
Depreciation and amortization............... 122,396 102,338 95,388 86,644 70,207
Deferred finance charge amortization........ (3,021) (3,151) (3,626) (2,844) (3,261)
Amortization of debt discounts and
premiums.................................. (12) (21) (53) (176) (172)
----------- ----------- ----------- ----------- -----------
Earnings before interest, taxes, depreciation
and amortization............................ 374,702 335,347 305,086 285,362 274,115
Add/(less):
Write-downs and reserves.................... 13,806 52,188 93,348 - -
Project opening costs....................... 19,518 5,907 450 15,313 -
Venture restructuring costs................. 6,944 14,601 - - -
Gains on sales of equity interests in New
Zealand subsidiary........................ (37,388) - (11,773) - -
Provision for settlement of litigation and
related costs............................. - - - 53,449 400
----------- ----------- ----------- ----------- -----------
Adjusted EBITDA(g)............................ $ 377,582 $ 408,043 $ 387,111 $ 354,124 $ 274,515
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
COMPUTATION OF ADJUSTED EBITDA TO
INTEREST PAID
Adjusted EBITDA............................... $ 377,582 $ 408,043 $ 387,111 $ 354,124 $ 274,515
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Interest expense.............................. $ 79,071 $ 69,968 $ 73,890 $ 76,363 $ 73,080
Add/(less):
Deferred finance charge amortization........ (3,021) (3,151) (3,626) (2,844) (3,261)
Amortization of debt discounts and
premiums.................................. (12) (21) (53) (176) (172)
Capitalized interest........................ 6,860 11,025 3,636 3,764 3,107
----------- ----------- ----------- ----------- -----------
Interest paid................................. $ 82,898 $ 77,821 $ 73,847 $ 77,107 $ 72,754
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Ratio of Adjusted EBITDA to interest paid... 4.6 5.2 5.2 4.6 3.8
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIO OF DEBT TO ADJUSTED EBITDA
Total debt.................................... $ 926,234 $ 891,379 $ 755,743 $ 728,529 $ 666,161
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Adjusted EBITDA(g)............................ $ 377,582 $ 408,043 $ 387,111 $ 354,124 $ 274,515
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Ratio of total debt to Adjusted EBITDA...... 2.5 2.2 2.0 2.1 2.4
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<PAGE>
</TABLE>
EXHIBIT 12 (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
1997(A) 1996(B) 1995(C) 1994(D) 1993
----------- ----------- ----------- ----------- -----------
RATIO OF EARNINGS TO FIXED CHARGES (H)
<S> <C> <C> <C> <C> <C>
Income from continuing operations............. $ 107,522 $ 98,897 $ 78,810 $ 49,984 $ 74,867
Add:
Provision for income taxes.................. 68,746 67,316 60,677 75,391 59,394
Interest expense............................ 79,071 69,968 73,890 76,363 73,080
Interest included in rental expense......... 7,692 7,663 6,738 5,244 7,207
Amortization of capitalized interest........ 606 763 580 628 892
(Income) or loss from equity investments.... (473) (473) - - (89)
Adjustment to include 100% of
nonconsolidated, majority-owned
subsidiary(i)............................. - - (34,775) (7,438) -
----------- ----------- ----------- ----------- -----------
Earnings as defined........................... $ 263,164 $ 244,134 $ 185,920 $ 200,172 $ 215,351
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Fixed charges:
Interest expense............................ $ 79,071 $ 69,968 $ 73,890 $ 76,363 $ 73,080
Capitalized interest........................ 6,860 11,025 3,636 3,764 3,107
Interest included in rental expense......... 7,692 7,663 6,738 5,244 7,207
Adjustment to include 100% of
nonconsolidated, majority-owned
subsidiary(i)............................. - - 56,652 17,069 -
----------- ----------- ----------- ----------- -----------
Total fixed charges........................... $ 93,623 $ 88,656 $ 140,916 $ 102,440 $ 83,394
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Ratio of earnings to fixed charges.......... 2.8 2.8 1.3 2.0 2.6
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
- --------------------------
(a) 1997 includes $13.8 million in pretax charges for write-downs and reserves
and a $37.4 million gain on the sale of equity in New Zealand subsidiary.
(b) 1996 includes $52.2 million in pretax charges for write-downs and reserves.
(c) 1995 includes $93.3 million in pretax charges for write-downs.
(d) 1994 includes a $53.4 million provision for settlement of all claims and
related cost related to the Merger Agreement and Tax sharing Agreement
arising from the 1990 spin-off of the Company and acquisition of the Holiday
Inn business by Bass PLC.
(e) Amounts for periods prior to the June 30, 1995, dividend of PHC common stock
to the Company's stockholders reflect the impact of the financial position
and results of operations for the discontinued hotel business in those
periods.
(f) For purposes of computing these ratios, total debt includes debt allocated
to discontinued hotel operations for periods prior to the PHC Spin-off.
(g) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) consists of Income from continuing operations before
write-downs and reserves, project opening costs, venture restructuring
costs, gains on sales of equity interests in New Zealand subsidiary and
provision for settlement of litigation and related costs, plus interest
expense, taxes, depreciation and amortization. EBITDA is a supplemental
financial measurement used by management, as well as by industry analysts,
to evaluate Harrah's operations. However, 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 the Company's Consolidated Financial
Statements.
(h) As discussed in Note 12 to the Consolidated Financial Statements in the 1997
Harrah's Entertainment Annual Report, the Company has guaranteed certain
third party loans in connection with its casino development activities. The
above ratio computation excludes estimated fixed charges associated with
these guarantees as follows: 1997, $7.8 million; 1996, $5.2 million; 1995,
$6.8 million; 1994, $5.5 million; and 1993, $3.1 million.
(i) Prior to November 1995, the Company owned a majority interest in Harrah's
Jazz Company. However, voting control was shared equally among three
partners. As a result, Harrah's Jazz was not consolidated into the Company's
financial statements. As required by Item 503(d)(2), the Company's ratio of
earnings to fixed charges ratio computation for 1995 and 1994 has been
adjusted to include Harrah's Jazz financial results as if this entity were
consolidated.
<PAGE>
Financial and Statistical Highlights
(In millions, except stock data and statistical data)
(See Notes 1 and 10)
<TABLE>
<CAPTION>
COMPOUND
GROWTH
1997(a) 1996(b) 1995(c) 1994(d) 1993 RATE
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Continuing operations
Revenues..................................... $ 1,619.2 $ 1,586.0 $ 1,578.8 $ 1,349.9 $ 1,020.6 12.2%
Income from operations....................... 213.5 236.9 209.4 267.2 210.0 0.4%
Income before income taxes and minority
interest................................... 183.6 172.1 151.6 139.3 139.0 7.2%
Income from continuing operations............ 107.5 98.9 78.8 50.0 74.9 9.5%
Net income (e)................................. 99.4 98.9 78.8 78.4 86.3 3.6%
Adjusted EBITDA (f)............................ 377.6 408.0 387.1 354.1 274.5 8.3%
Common Stock Data
Earnings per share-basic
Continuing operations........................ $ 1.07 $ 0.96 $ 0.77 $ 0.49 $ 0.74 9.7%
Discontinued hotel operations................ - - - 0.36 0.17 N/M
Net income (e)............................... 0.99 0.96 0.77 0.77 0.86 3.6%
Earnings per share-diluted
Net income (e)............................... 0.98 0.95 0.76 0.76 0.84 3.9%
Market price of common stock at December 31
(e).......................................... 18.88 19.88 24.25 30.88 45.75 (19.9)%
Common shares outstanding at year-end (in
thousands)................................... 101,036 102,970 102,674 102,403 102,258 (0.3)%
Financial Position
Total assets (e)............................... $ 2,005.5 $ 1,974.1 $ 1,636.7 $ 1,738.0 $ 1,528.0 7.0%
Total assets of continuing operations.......... 2,005.5 1,974.1 1,636.7 1,595.0 1,347.5 10.5%
Current portion of long-term debt.............. 1.8 1.8 2.0 1.0 1.0 15.8%
Long-term debt................................. 924.4 889.5 753.7 727.5 665.2 8.6%
Stockholders' equity (e)....................... 735.5 719.7 585.5 623.4 536.0 8.2%
</TABLE>
- ------------------------
(a) 1997 includes $13.8 million in pretax charges for write-downs and reserves
(see Note 8) and a $37.4 million gain on the sale of equity in New Zealand
subsidiary.
(b) 1996 includes $52.2 million in pretax charges for write-downs and reserves
(see Note 8).
(c) 1995 includes $93.3 million in pretax charges for write-downs (see Note 8).
(d) 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 the Company and acquisition of the Holiday
Inn business by Bass PLC.
(e) Amounts for periods prior to the June 30, 1995, dividend of PHC common stock
to the Company's stockholders reflect the impact of the financial position
and results of operations for the discontinued hotel business in those
periods.
(f) Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) consists of Income from continuing operations before
write-downs and reserves, project opening costs, venture restructuring
costs, gains on sales of New Zealand subsidiary equity interests and
provision for settlement of litigation and related costs, plus interest
expense, taxes, depreciation and amortization. EBITDA is a supplemental
financial measurement used by management, as well as by industry
4
<PAGE>
<TABLE>
<CAPTION>
COMPOUND
GROWTH
1997(a) 1996(b) 1995(c) 1994(d) 1993 RATE
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Flows
Provided by (used in)
Operating activities......................... $ 255.1 $ 285.7 $ 213.7 $ 227.3 $ 198.2 6.5%
Investing activities......................... (221.0) (383.7) (209.2) (331.4) (225.8) (0.5)%
Financing activities......................... (23.3) 107.2 47.7 69.8 (7.0) 35.1%
Capital expenditures........................... 290.5 390.0 231.8 301.8 234.5 5.5%
Financial Percentages and Ratios
Return on revenues-continuing.................. 6.6% 6.2% 5.0% 3.7% 7.3%
Return on average invested capital (g)......... 8.6% 8.8% 9.8% 7.9% 11.2%
Return on average equity (g)................... 14.9% 14.5% 12.7% 14.2% 19.3%
Ratio of earnings to fixed charges............. 2.8 2.8 1.3 2.0 2.6
Current ratio.................................. 1.0 1.0 0.9 0.6 0.7
Ratio of book equity to total debt (h)......... 0.8 0.8 0.8 0.7 0.6
Ratio of market equity to total debt (h)....... 2.1 2.3 3.3 3.4 5.6
Ratio of Adjusted EBITDA to interest paid...... 4.6 5.2 5.2 4.6 3.8
Ratio of debt to Adjusted EBITDA............... 2.5 2.2 2.0 2.1 2.4
Selected Statistical Data as of Year-end (i)
Casino square footage.......................... 774,500 701,200 547,200 521,400 436,400
Number of slot machines........................ 19,835 19,011 15,335 14,808 12,504
Number of table games.......................... 934 941 801 789 641
Number of hotel rooms (j)...................... 8,197 6,478 5,736 5,367 5,348
Gaming win (in millions)....................... $ 1,609.3 $ 1,572.0 $ 1,498.8 $ 1,145.3 $ 812.1
</TABLE>
- ------------------------
analysts, to evaluate Harrah's operations. However, 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 the
accompanying Consolidated Financial Statements. EBITDA after write-downs
and reserves, project opening costs, venture restructuring costs and
provision for settlement of litigation and related costs for the years
presented was as follows: 1997, $374.7 million; 1996, $335.3 million;
1995, $305.1 million; 1994, $285.4 million and 1993, $274.1 million.
(g) Ratio computed based on Income before extraordinary items and cumulative
effect of change in accounting policy.
(h) For purposes of computing these ratios, total debt includes debt allocated
to discontinued hotel operations for periods prior to the PHC Spin-off.
(i) Includes both owned and managed properties.
(j) Excludes rooms operated by the Company's discontinued hotel operations for
periods prior to the PHC Spin-off.
5
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Harrah's Entertainment, Inc. (referred to in this discussion, together with
its subsidiaries where appropriate, as "Harrah's" or the "Company") is the most
recognized brand name in the casino entertainment industry. Contributing to this
recognition are the Company's longevity, 1997 being its 60th year of operations,
and its unparalleled geographic distribution of casino offerings, now totaling
16 facilities in ten states.
By most financial measures, 1997 was a disappointing year for the Company.
The continued intensity of industry competition in many markets, the impact of
construction disruptions in certain markets as key properties were enhanced, and
weather-related business interruptions in other markets all contributed to these
financial results. However, the events of 1997 also included numerous strategic
actions which are expected to positively impact the Company's operating results
in future periods.
The common threads of these strategic actions are a more narrow focus on
serving target customers and a better position to build on the foundation of a
recognition program, which is already in place. In September 1997, Harrah's
introduced Total Gold (U.S. Patent Pending), the casino industry's first
national player rewards program. Total Gold allows customers to earn points for
slot play and redeem those points for cash, merchandise, food, lodging or show
tickets at any Harrah's casino across the country. The ability to redeem points
across all properties makes this program uniquely attractive to the multi-market
player.
Underpinning the Total Gold program is Harrah's powerful and proprietary
database management system, which was also introduced in 1997. The Winner's
Information Network, or WINet (U.S. Patent Pending), allows Harrah's to build a
national database of its customers. WINet enables the Company to more
efficiently communicate with its customers and to better target promotions and
offers to the appropriate customer segment.
To further enhance the Company's distribution and access to its target
customers, in December 1997 Harrah's announced an agreement to acquire Showboat,
Inc. (See Capital Spending and Development-Showboat Acquisition.)
OVERALL RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Percentage
Increase/ (Decrease)
(In millions, except ------------------------
earnings per share) 1997 1996 1995 97 Vs 96 96 Vs 95
- ---------------------------------------------------------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 1,619.2 $ 1,586.0 $ 1,578.8 2.1 % 0.5 %
Operating profit.......................................... 258.7 284.7 289.0 (9.1)% (1.5)%
Income from operations.................................... 213.5 236.9 209.4 (9.9)% 13.1 %
Income from continuing operations......................... 107.5 98.9 78.8 8.7 % 25.5 %
Net income................................................ 99.4 98.9 78.8 0.5 % 25.5 %
Earnings per share-basic
Continuing operations................................... 1.07 0.96 0.77 11.5 % 24.7 %
Net income.............................................. 0.99 0.96 0.77 3.1 % 24.7 %
Operating margin.......................................... 13.2% 14.9% 13.3% (1.7)pts 1.6 pts
</TABLE>
Given the various special charges and credits included in each of the
years presented, comparisons of the financial data contained in the table
above are difficult. The table below reflects pro forma comparisons of the
Company's operating results, adjusted to exclude write-downs and reserves,
project opening costs, equity in income (losses) of nonconsolidated
affiliates, venture restructuring costs, gains on sales of the Company's
ownership interests in a New Zealand subsidiary and discontinued operations.
For the amounts and a discussion of these items, please see the Other Factors
Affecting Net Income section.
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
(In millions, except ----------------------
Earnings per share) 1997 1996 1995 97 Vs 96 96 Vs 95
- ----------------------------------------------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 1,619.2 $ 1,586.0 $ 1,578.8 2.1 % 0.5 %
Operating profit........................................... 290.1 342.8 382.8 (15.4)% (10.4)%
Income from operations..................................... 263.0 308.4 352.4 (14.7)% (12.5)%
Income from continuing operations.......................... 114.9 141.4 153.0 (18.7)% (7.6)%
Earnings per share-basic
Continuing operations.................................... 1.14 1.38 1.49 (17.4)% (7.4)%
Operating margin........................................... 16.2% 19.4% 22.3% (3.2)pts (2.9)pts
</TABLE>
The trends depicted by these pro forma results reflect the increasingly
competitive operating environment faced by Harrah's over this three year period
in many of the markets in which it operates and the further impact on 1997
results of construction and weather-related disruptions.
25
<PAGE>
DIVISION OPERATING RESULTS AND
DEVELOPMENT PLANS
Riverboat Division
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
--------------------
(In millions) 1997 1996 1995 97 VS 96 96 VS 95
- --------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Casino revenues................................................ $614.8 $596.0 $557.2 3.2 % 7.0 %
Total revenues................................................. 656.2 629.1 593.5 4.3 % 6.0 %
Operating profit............................................... 124.2 141.2 172.2 (12.0)% (18.0)%
Operating margin............................................... 18.9% 22.4% 29.0% (3.5)pts (6.6)pts
</TABLE>
Riverboat Division year-over-year revenue increases resulted from new and
expanded casino facilities. 1997 included the March opening of Harrah's St.
Louis-Riverport. During 1996, a larger Tunica facility opened in April, and
both Shreveport and North Kansas City increased gaming capacity. However,
Division operating profit and margin declined over this three year period due to
new and increased competition in all riverboat markets.
Illinois. Revenues, operating profit and margin at Harrah's Joliet in
Illinois declined in 1997 compared to the prior year due to the addition of
riverboat casinos in neighboring Indiana beginning in June 1996, continuing
the trend noted in the 1996 versus 1995 comparison. Although full year 1997
gaming volume at Harrah's Joliet declined 15.5% from the prior year, gaming
volume for the last half of 1997 was down only 0.3% from the last half of
1996. Operating profit and margin at Joliet were further impacted by higher
marketing and promotional expenses that resulted from the increased
competition. Though management believes that the property's operating results
have stabilized, revenues and operating profit at Harrah's Joliet are not
expected to return to the levels achieved prior to the entrance of the
Indiana riverboats into the regional market.
The Company began construction during fourth quarter 1997 on certain
elements of a $29.5 million expansion at the Joliet property. Construction of a
major element of the expansion project, a 204-suite hotel, was delayed for
further study after the passage in December 1997 of a gaming tax increase by the
Illinois State Legislature. A decision regarding this project will be made after
an analysis has been completed of the expected impact of this tax increase on
the property's operations.
The Company believes that its overall position in the Chicago market will
be enhanced with the addition of Showboat's East Chicago, Indiana, property,
located to the southeast of downtown, which will complement Harrah's Joliet's
position on the southwest side of the city. (See Capital Spending and
Development-Showboat Acquisition.)
Louisiana. Although Harrah's Shreveport's 1997 revenues declined 1.9% as
compared to 1996, operating profit increased 2.5%, despite the entrance in
third quarter 1996 of a new competitor into the market. This performance
follows the approximately 12% increases in revenues and operating profit by
Harrah's Shreveport in 1996 versus 1995.
The Company plans to commence construction by second quarter 1998 on
expanded parking facilities at Harrah's Shreveport and is evaluating a
possible further expansion of the facilities to include a hotel as well as
additional restaurant and meeting facilities. Any expansion project is
subject to the receipt of necessary regulatory approvals.
Mississippi. During second quarter 1997, Harrah's closed its original
Tunica property in order to focus its efforts in the market on the newer
Tunica property, which opened in April 1996. Combined Tunica revenues
increased 5.9% in 1997 over 1996, while operating income increased $6.0
million despite construction disruptions at the newer Tunica property during
fourth quarter 1997 as a result of a project to further enhance the
property's offerings to meet the needs of the Company's target customers. For
1996, the combined Tunica properties had posted an operating loss, despite a
51.2% increase in revenues over 1995 due to the opening of the second Tunica
facility.
The Company is continuing to explore its options for the original Tunica
property. A reserve for the impairment of the property was recorded in fourth
quarter 1996 and the Company believes such reserve remains adequate. However,
the Company will continue to periodically review the adequacy of this
reserve. During second quarter 1997, the Company acquired its minority
partner's interest in both Tunica properties. The cost of this acquisition
was not material to Harrah's.
Harrah's Vicksburg reported 1997 revenues and operating profit which were
virtually even with the prior year, despite continued intense competition in
this market. As a result of this competition, 1996 revenues and operating profit
declined 3.6% and 19.9%, respectively, as compared to 1995.
Missouri. Harrah's North Kansas City achieved higher revenues in 1997,
due primarily to the Company's addition of a second riverboat casino in May
1996. However, operating profit for 1997 declined 24.9% from 1996, which
follows a 17.5% decline in 1996 versus 1995, due to increased marketing and
promotional costs as a result of additional competition, including a major
new property that opened in January 1997. Also contributing to the decline
for 1997 and 1996 was the decision during first quarter 1996 to discontinue
the property's admission charge.
The Company's newest riverboat casino, Harrah's St. Louis-Riverport,
reported an operating loss of approximately $1.4 million for 1997 as the Company
slowly builds its market position. The St. Louis-Riverport casino entertainment
complex
26
<PAGE>
in Maryland Heights, Missouri, a suburb of St. Louis, opened on March 11,
1997. The facility includes four riverboat casinos, two of which are owned
and operated by Harrah's, and shoreside facilities jointly-owned with another
casino company. Harrah's pro rata share of the operating losses of the
shoreside facilities joint venture is included in Equity in income (losses)
of nonconsolidated affiliates, which is reported separately in the
Consolidated Statements of Income (see Other Factors Affecting Net Income).
Atlantic City
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
--------------------
(In millions) 1997 1996 1995 97 Vs 96 96 Vs 95
- ---------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Casino revenues................................................. $314.9 $310.1 $314.7 1.5 % (1.5)%
Total revenues.................................................. 349.5 338.6 341.5 3.2 % (0.8)%
Operating profit................................................ 73.3 75.0 85.6 (2.3)% (12.4)%
Operating margin................................................ 21.0% 22.2% 25.1% (1.2)pts (2.9)pts
</TABLE>
Although Harrah's Atlantic City achieved record revenues in 1997,
operating profit and margin decreased from the prior year as continued
competition in the market resulted in higher than historical complimentary
and promotional expenses. These results continue the trend experienced in
1996, when high complimentary and marketing expenses resulted in
disproportionate declines in operating profit and margin, as compared to
revenues, versus 1995.
A new 416-room hotel tower was opened in late second quarter 1997. The tower
was the final component of an expansion and enhancement project that also added
13,500 square feet of casino space and 500 slot machines in June 1996 and a new
marine-themed buffet restaurant in fourth quarter 1996. No decisions regarding a
possible second phase of the Atlantic City expansion have been made. Such
decisions are dependent, in part, upon substantive progress on development of
new casino hotel projects in the Marina area of Atlantic City by other
companies.
The Atlantic City Showboat, located on the Boardwalk, will provide a strong
additional brand that offers the Company's target customers a second destination
in Atlantic City. The Showboat property's location on the Boardwalk and the
existing Harrah's Atlantic City location in the Marina district well position
the Company in the two strategically critical growth locations in Atlantic City.
(See Capital Spending and Development-Showboat Acquisition.)
Southern Nevada Division
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
----------------------
(In millions) 1997 1996 1995 97 Vs 96 96 Vs 95
- ---------------------------------------------------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Casino revenues................................................. $191.0 $190.8 $198.3 0.1 % (3.8)%
Total revenues.................................................. 288.2 289.8 297.2 (0.6)% (2.5)%
Operating profit................................................ 41.9 68.0 72.8 (38.4)% (6.6)%
Operating margin................................................ 14.5% 23.5% 24.5% (9.0)pts (1.0)pt
</TABLE>
1997 results in Southern Nevada were impacted by construction disruptions at
Harrah's Las Vegas, where a $200 million expansion and renovation project was
completed in the fourth quarter. The construction activity, which began in
mid-1996, often impeded access to the Las Vegas property, and operating profit
and margin were further impacted due to the difficulty in adjusting certain
operating costs proportionately with the revenue fluctuations, as well as by
higher operating costs associated with the construction disruptions. With
completion of the renovations, Harrah's Las Vegas now offers 86,700 square feet
of casino space and 2,677 hotel rooms. The property's fourth quarter 1997
revenues were at a record high, but were offset by high operating costs
associated with completing construction and reopening the renovated areas.
Harrah's Laughlin continues to be affected by competition from neighboring
Arizona and California Indian casinos and from high profile new Las Vegas area
casino developments. 1997 gaming volume declined 4.9% from the 1996 level, which
follows a 5.1% decline in gaming volume in 1996 as compared to 1995. These
volume declines resulted in lower revenues, operating profit and margin for the
Laughlin property.
No definitive plans have been announced related to Harrah's previously
announced interest in the construction or acquisition of an additional Las Vegas
property, and there is no assurance the Company will construct or acquire such a
property. The Showboat Las Vegas property is a non-strategic asset and will not
fulfill the Company's objectives for this additional property.
Northern Nevada Division
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
----------------------
(In millions) 1997 1996 1995 97 vs 96 96 vs 95
- ---------------------------------------------------------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Casino revenues................................................. $217.3 $226.5 $243.6 (4.1)% (7.0)%
Total revenues.................................................. 287.8 299.2 315.6 (3.8)% (5.2)%
Operating profit................................................ 44.5 59.8 66.4 (25.6)% (9.9)%
Operating margin................................................ 15.5% 20.0% 21.0% (4.5)pts (1.0)pt
</TABLE>
In Northern Nevada, operating results for 1997 were significantly impacted
by weather conditions occurring during first quarter 1997, when flooding in the
region twice closed the primary access road to Lake Tahoe for a combined total
of forty-five days, and closed Harrah's Reno for one day. Additionally, during
September and October, 1997, Route 50, the preferred and most direct route from
California to Lake Tahoe, was closed for repairs on weekdays.
1996 results of the Division declined from 1995 levels due to a 6% decrease
in gaming volume. Although all three properties in the Division experienced
declines, the largest decrease occurred in Reno, where a major new competitor
opened in July 1995.
27
<PAGE>
Managed Casinos-Indian Lands
Revenues and operating profit contributions resulting from Harrah's
management of three casinos on Indian lands increased in 1997, due primarily to
higher management fees from Harrah's Phoenix Ak-Chin casino and the addition of
fees from Harrah's Cherokee casino, which opened in November 1997 in Cherokee,
North Carolina.
On January 13, 1998, a fourth Harrah's managed casino on Indian lands opened
near Topeka, Kansas. The casino facility is owned by the Prairie Band of
Potawatomi Indians and includes approximately 26,000 square feet of casino space
and a 100-room hotel.
Harrah's has also previously announced agreements with other Indian tribes,
which are in various stages of negotiation and are subject to certain
conditions, including approval from appropriate government agencies. If the
necessary approvals for these projects are received, Harrah's would likely
guarantee the related bank financing for the projects, which could be
significant.
The agreements under which Harrah's manages casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled repayments of
borrowings for development costs. In the event that insufficient cash flow is
generated by the operations to fund this payment, Harrah's must pay the
shortfall to the tribe. Such advances, if any, would be repaid to Harrah's in
future periods in which operations generate cash flow in excess of the required
minimum payment. These commitments will terminate upon the occurrence of certain
defined events, including termination of the management contract. The aggregate
monthly commitment pursuant to the contracts for the four Indian-owned
facilities now open, which extend for periods of up to 60 months from December
31, 1997, is $1.2 million.
See Debt and Liquidity section for further discussion of Harrah's guarantees
of debt related to Indian projects.
Other Gaming Operations
The Company manages for a fee the Sky City casino complex in Auckland, New
Zealand. During second quarter 1997, Harrah's announced that Sky City Limited,
owner of the Sky City facility, will buy-out Harrah's management contract.
Harrah's will continue to manage the facility under its fee agreement until June
1998, when it will receive a termination fee computed in accordance with the
terms of the contract. During third quarter 1997, Harrah's sold its remaining
12.5% equity interest in Sky City Limited (see Other Factors Affecting Net
Income).
During 1997, the Company received $2.3 million in nonrecurring income from
Interactive Entertainment Limited ("IEL") in consideration for the termination
of Harrah's management contract with that entity. The termination of the
management contract occurred in conjunction with IEL's reorganization and
transformation into a publicly-traded company.
On March 31, 1997, Harrah's discontinued its management of two limited
stakes casinos in Colorado. Harrah's also completed the sale of its ownership
interest in these non-strategic assets during 1997. These actions did not have a
material impact on Harrah's 1997 financial statements.
OTHER FACTORS AFFECTING NET INCOME
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
----------------------
(In millions) 1997 1996 1995 97 Vs 96 96 Vs 95
- -------------------------------------------------------------------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Development costs................................................... $10.5 $12.0 $17.4 (12.5)% (31.0)%
Write-downs and reserves............................................ 13.8 52.2 93.3 N/M N/M
Project opening costs............................................... 17.6 5.9 0.5 N/M N/M
Equity in (income) losses of nonconsolidated affiliates............. 11.1 (1.2) 49.2 N/M N/M
Corporate expense................................................... 27.2 34.3 30.3 (20.7)% 13.2 %
Venture restructuring costs......................................... 6.9 14.6 - (52.7)% N/M
Interest expense, net............................................... 79.1 70.0 73.9 13.0% (5.3)%
Gains on sales of equity interests in New Zealand subsidiary........ (37.4) - (11.8) N/M N/M
Other income........................................................ (11.8) (5.2) (4.3) 126.9% 20.9 %
Effective tax rate.................................................. 37.4% 39.1% 40.0% (1.7)pts (0.9)pts
Minority interests.................................................. $ 7.4 $ 5.9 $ 12.1 25.4% (51.2)%
Discontinued operations
Hotel earnings, net of tax........................................ - - (21.2) - N/M
Spin-off transaction costs, net of tax............................ - - 21.2 - N/M
Extraordinary loss, net of tax...................................... 8.1 - - N/M -
</TABLE>
Development costs have decreased over the years presented due to the
decrease in new casino development opportunities. Write-downs and reserves for
1997 were primarily related to a $13 million reserve recorded during third
quarter 1997 against debtor-in-possession financing provided to the casino
project in New Orleans in which Harrah's is a minority partner. 1996 write-downs
and reserves included write-downs for the impairment of certain long-lived
assets, primarily the Company's original Tunica,
28
<PAGE>
Mississippi, casino property, as well as the accrual of reserves for certain
contingent obligations. Write-downs and reserves recorded in 1995 related to
Harrah's write-offs of investments in and advances to nonconsolidated
affiliates, including Harrah's investment in Harrah's Jazz Company, and the
write-down of impaired and abandoned assets.
Project opening costs for 1997 include costs incurred in connection with the
first quarter 1997 opening of Harrah's St. Louis-Riverport casino property,
costs related to expansions at Harrah's Las Vegas and Harrah's Tunica and the
costs incurred in connection with an initiative to develop and implement the
strategies and employee training programs designed to better focus the Company
on serving its targeted customers. 1996 project opening costs related to the
second quarter opening of the newer Tunica property and an expansion at Harrah's
North Kansas City. 1995 project opening costs related to the opening of the
Hampton Inn hotel tower in Reno.
Equity in (income) losses of nonconsolidated affiliates for 1997 consists
primarily of Harrah's pro rata share of the losses incurred by the joint venture
portion of the St. Louis development, including its $1.9 million share of the
joint venture's preopening costs, and Harrah's share of losses incurred by the
reorganized IEL entity, which is 35.5% owned by the Company. These losses are
partially offset by Harrah's share of income from a restaurant affiliate. 1996
included Harrah's pro rata share of income from the restaurant affiliate. 1995
included primarily Harrah's share of losses from the New Orleans joint venture.
In prior years, Harrah's reported its share of joint venture pre-interest
operating results in Revenues-other, and its share of joint venture interest
expense as Interest expense, net, from nonconsolidated affiliates. Prior year
amounts have been restated to conform to the current year's presentation.
Corporate expense decreased in 1997 versus 1996 due primarily to cost
savings efforts. Corporate expense increased in 1996 over 1995 as a result of
higher information technology, legal and corporate relations costs. Venture
restructuring costs for 1997 and 1996 represent Harrah's costs, including
legal fees, associated with the on-going development of a reorganization plan
for the New Orleans casino (see Harrah's Jazz Company). Interest expense
increased in 1997 over 1996, primarily as a result of higher debt levels
incurred to fund a stock repurchase program (see Equity Transactions) and
expansion projects. Other income increased in 1997 due to higher interest
income earned by the Company on the cash surrender value of certain life
insurance policies, the inclusion in 1997 of dividend income from Harrah's
New Zealand subsidiary and gains on sales of nonoperating property.
During third quarter 1997, Harrah's sold its remaining equity interest in
Sky City Limited, and recorded a pretax gain on the sale of $37.4 million. In
1995, Harrah's sold a portion of its interest in Sky City and recognized a
pretax gain on the sale of $11.8 million.
The Company sold its ownership interest in Station Square, an entertainment,
business and retail center in Pittsburgh, Pennsylvania, to its partner for cash
during fourth quarter 1997. Under the terms of the sale agreement, Harrah's
retains certain rights to pursue development of a casino entertainment facility
at the Station Square site if casino gaming is legalized in the jurisdiction. No
gain or loss was recognized by the Company as a result of this transaction.
The effective tax rates for all years are higher than the federal statutory
rate primarily due to state income taxes. Minority interests reflect joint
venture partners' shares of income at joint venture riverboat casinos.
Discontinued operations includes the operating results of the Company's
hotel operations prior to its June 30, 1995, spin-off date. 1995's results also
include the $21.2 million charge, net of taxes, for the expenses to complete the
spin-off. (See Note 10 to the accompanying Consolidated Financial Statements.)
The extraordinary loss reported in second quarter 1997 is due to the early
extinguishment of debt and includes the premium paid to holders of the debt
retired and the write-off of related unamortized deferred finance charges. (See
Debt and Liquidity-Early Extinguishment of Debt.)
Harrah's has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," which defines the computation
of, and requires the presentation of, "Basic" and "Diluted" earnings per share.
Prior year earnings per share amounts have been restated to conform with the
provisions of SFAS No. 128.
HARRAH'S JAZZ COMPANY
Efforts to reorganize Harrah's Jazz Company ("Harrah's Jazz"), which
filed a petition for relief under Chapter 11 of the Bankruptcy Code on
November 22, 1995, are continuing. If the current reorganization plan, which
has been confirmed by the Bankruptcy Court, is consummated, the Company will
make an additional $75 million equity investment in the project (less any
debtor-in-possession financing previously provided), guarantee the project's
$100 million annual payment to the State of Louisiana Gaming Board, guarantee
up to $154 million of a bank credit facility of up to $224 million, guarantee
timely completion and opening of the casino and make an additional $10
million subordinated loan to the project to finance the casino's completion.
Harrah's will receive various fees for providing the various
29
<PAGE>
guarantees and will earn a fee for managing the casino after it opens. Final
consummation of the plan is subject to numerous approvals, including approval
from the Company's Board of Directors, the Louisiana State Legislature, the
City of New Orleans City Council and others.
For additional information regarding the status of the efforts to reorganize
Harrah's Jazz, see Note 15 to the accompanying Consolidated Financial
Statements.
CAPITAL SPENDING AND DEVELOPMENT
Showboat Acquisition
During December 1997, Harrah's announced an agreement to buy Showboat,
Inc. ("Showboat"), creating the world's largest gaming company. Under the
terms of the agreement, Harrah's will acquire Showboat for $30.75 per share
in an all-cash transaction valued at $519 million, net of options proceeds,
and assume $635 million in Showboat debt. The Company intends to finance the
cash portion of the Showboat acquisition using proceeds from an expanded bank
facility of the Company, which is currently being negotiated. Showboat owns
and operates casinos in Atlantic City, New Jersey, and Las Vegas, Nevada. It
manages and is the largest single shareholder of the Star City casino in
Sydney, New South Wales, Australia, and beneficially owns 55% of the Showboat
Mardi Gras Casino in East Chicago, Indiana. The acquisition will strengthen
the Company's presence in the Atlantic City and Chicago gaming markets.
Although not a strategic asset in the context of the Company's target
customer, Star City is a world class casino entertainment facility that can
benefit from the Company's expertise and systems, and can be a major source
of stockholder value creation. The Las Vegas Showboat is a non-strategic
asset to Harrah's and the Company is currently evaluating its fit.
The transaction is expected to be completed in second quarter 1998, subject
to various conditions including regulatory approvals, Showboat stockholder
approval and other third party approvals.
Year 2000
During 1997, Harrah's evaluated its various systems to determine whether or
not those systems were year 2000 compliant. Based upon this review, the Company
has identified those systems which are not compliant and has implemented a plan
to update those systems. The cost to update the affected systems is not expected
to be material.
Summary
In addition to the Showboat acquisition and the specific development and
expansion projects discussed in the Division Operating Results and Development
Plans section, Harrah's performs on-going refurbishment and maintenance at its
casino entertainment facilities in order to maintain the Company's quality
standards. Harrah's also continues to pursue development and acquisition
opportunities for additional casino entertainment facilities that meet its
strategic and return on investment criteria. Prior to the receipt of necessary
regulatory approvals, the costs of pursuing development projects are expensed as
incurred. Construction-related costs incurred after the receipt of necessary
approvals are capitalized and depreciated over the estimated useful life of the
resulting asset. Project opening costs incurred during the construction period
are deferred and expensed at the respective property's opening.
The Company's planned development projects, if they go forward, will
require, individually and in the aggregate, significant capital commitments and,
if completed, may result in significant additional revenues. The commitment of
capital, the timing of completion and the commencement of operations of casino
entertainment development projects are contingent upon, among other things,
negotiation of final agreements and receipt of approvals from the appropriate
political and regulatory bodies. Cash needed to finance projects currently under
development as well as additional projects being pursued by Harrah's are
expected to be made available from operating cash flows, the Bank Facility (see
Debt and Liquidity--Bank Facility), joint venture partners, specific project
financing, guarantees by Harrah's of third party debt and, if necessary,
additional Harrah's debt and/or equity offerings. Harrah's capital spending for
1997 totaled approximately $290.5 million. Estimated total capital expenditures
for 1998 are expected to be $180 million to $200 million, excluding the planned
purchase of Showboat, the possible purchase or construction of an additional Las
Vegas property and the possible second phase of Harrah's Atlantic City
expansion.
DEBT AND LIQUIDITY
Early extinguishment of Debt
On May 27, 1997, Harrah's principal operating subsidiary, Harrah's
Operating Company, Inc. ("HOC"), redeemed its $200 million 10 7/8% Senior
Subordinated Notes due 2002 (the "Notes") at a call price of 104.833%, plus
accrued and unpaid interest through the redemption date. The Company retired
the Notes using proceeds from its revolving credit facility. An extraordinary
charge, net of tax, of approximately $8.1 million was recorded during second
quarter 1997 in conjunction with this early extinguishment of debt.
30
<PAGE>
In connection with the early extinguishment of the Notes, the Company
terminated certain interest rate swap agreements which had been associated with
the debt. The gain realized upon the termination of these swap agreements was
not material.
Bank Facility
As of December 31, 1997, $720.5 million in borrowings, including the funds
drawn to retire the Notes, were outstanding under the Company's $1.1 billion
reducing revolving and letter of credit facility (the "Bank Facility"), with an
additional $28.4 million committed to back letters of credit. After
consideration of these borrowings, $351.1 million of additional borrowing
capacity was available to the Company as of December 31, 1997. Pursuant to the
terms of the Bank Facility, the available capacity is scheduled to be reduced by
$50 million in July 1998.
The Company is currently negotiating certain amendments to the Bank Facility
in connection with its planned acquisition of Showboat.
Interest Rate Agreements
To manage the relative mix of its debt between fixed and variable rate
instruments, Harrah's has entered into interest rate swap agreements to modify
the interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. The differences to be paid or received by the
Company under the terms of its interest rate swap agreements are accrued as
interest rates change and recognized as an adjustment to interest expense for
the related debt. Changes in the variable interest rates to be paid or received
by Harrah's pursuant to the terms of its interest rate swap agreements will have
a corresponding effect on its future cash flows.
These agreements contain a credit risk that the counterparties may be unable
to meet the terms of the agreements. Harrah's minimizes that risk by evaluating
the creditworthiness of its counterparties, which are limited to major banks and
financial institutions, and does not anticipate nonperformance by the
counterparties.
For more information regarding the Company's interest rate swap agreements
as of December 31, 1997, please see Note 6 to the accompanying Consolidated
Financial Statements.
Guarantees of Third Party Debt
As part of a transaction whereby Harrah's has retained an option to a site
for a potential casino, Harrah's guaranteed a third party's $22.9 million
variable rate bank loan which matures on February 28, 1998. Harrah's also agreed
to fund the monthly interest payments to the lender on behalf of the third
party, and is to be repaid from the proceeds from the sale of certain assets of
the third party. Discussions with the third party regarding a possible
restructuring of the loan and/or the guarantee are currently underway. The
guaranty contains an element of risk that, should the borrower be unable to
perform, the Company could become responsible for repayment of at least a
portion of the obligation. Harrah's has reduced this exposure by obtaining a
security interest in certain assets of the third party.
As described in the Division Operating Results and Development
Plans-Managed Casinos-Indian Lands section, in connection with its
management contracts, Harrah's may guarantee all or part of the debt incurred
by Indian tribes to fund development of casinos on the Indian lands. For all
existing guarantees of Indian debt, Harrah's has obtained a first lien on
certain personal property (tangible and intangible) of the casino enterprise.
There can be no assurance, however, the value of such property would satisfy
Harrah's obligations in the event these guarantees were enforced. Additionally,
Harrah's has received limited waivers from the Indian tribes of their sovereign
immunity to allow Harrah's to pursue its rights under the contracts between the
parties and to enforce collection efforts as to any assets in which a security
interest is taken. The aggregate outstanding balance of such debt as of
December 31, 1997, was $111.1 million.
EQUITY TRANSACTIONS
Pursuant to a plan approved by Harrah's Board of Directors, which expired on
December 31, 1997, the Company purchased 2,993,700 shares of its common shares
at an aggregate cost of approximately $54.0 million. The repurchased shares are
held in treasury.
EFFECTS OF CURRENT ECONOMIC AND
POLITICAL CONDITIONS
Competitive Pressures
As compared to the early 1990s, the number of new markets opening for
development in recent years has been much more limited, and existing markets
have become much more competitive. The focus of many casino operators has
shifted to investing in existing markets, in an effort both to attract new
customers and to gain a greater market share of existing customers. As companies
have completed these expansion projects, supply has grown at a faster pace than
demand in some markets and competition has increased significantly. Furthermore,
several operators, including Harrah's, have announced plans for additional
developments or expansions in some markets. The impact that these projects will
have on Harrah's operations, if they are completed, cannot be determined at this
time.
31
<PAGE>
Harrah's properties in the long-established gaming markets of Nevada and New
Jersey have generally reacted less significantly to the changing competitive
conditions, as the amount of supply change within these markets has represented
a smaller percentage change than that experienced in some riverboat markets. In
Las Vegas, several major developments have opened within the past few years and
numerous new developments and property expansions are underway. Historically,
the Las Vegas market has grown sufficiently to absorb these additions to its
supply, but there can be no assurance that such growth will continue. In the
Atlantic City market, additional casino space and hotel rooms have opened within
the past year and several major developments are proposed. This activity has
intensified competition during the last year, increasing promotional costs and
reducing margins.
In riverboat markets, the recent additions to supply have had a more
noticeable impact, due to the fact that competition was limited in the early
stages of many of these markets. In Joliet, the opening in late second quarter
1996 of Indiana riverboats more than doubled the Chicago area capacity and has
resulted in a significant decline in Harrah's gaming volume from 1996 levels. In
Tunica, a major new property opened in June 1996 and several existing
properties, including Harrah's, added hotel rooms and other amenities and more
are planned. In response to competitive pressures in this market and in order to
focus its efforts on Harrah's newer Tunica casino, Harrah's closed its original
Tunica property in May 1997 and continues to evaluate its options for the
property. In October 1996, a fourth casino entered the Shreveport market, and in
January 1998, a competitor completed a major expansion of an existing property.
Thus far, these Shreveport developments have not significantly impacted Harrah's
operating results. In January 1997, a major new development opened in the Kansas
City market. Harrah's North Kansas City's operating profit declined 24.9% in
1997 versus the prior year as a result of the increasing competition in that
market.
Over the past several years, there has also been a significant increase in
the number of casinos on Indian lands, made possible by the Indian Gaming
Regulatory Act of 1988. Harrah's manages four such facilities. The future growth
potential from Indian casinos is uncertain, however.
Although the short-term effect of these competitive developments on the
Company has been negative, Harrah's is not able to determine the long-term
impact, whether favorable or unfavorable, that these trends and events will have
on its current or future markets. Management believes that the geographic
diversity of Harrah's operations, its multi-market customer base and the
Company's continuing efforts to establish Harrah's as a premier brand name have
well-positioned Harrah's to face the challenges present within the industry.
Harrah's has introduced WINet, a sophisticated nationwide customer database, and
its Total Gold Card, a nationwide frequent-player card, both of which it
believes provide competitive advantages, particularly with players who visit
more than one market.
Industry Consolidation
As evidenced by a number of recent public announcements by casino
entertainment companies of plans to acquire or be acquired by other companies,
including Harrah's December 1997 announcement of its plans to acquire Showboat,
consolidation in the gaming industry is now underway. The Company believes it is
well-positioned to pursue additional strategic acquisitions to further enhance
its distribution, strengthen its access to target customers and leverage its
technological and centralized services infrastructure.
Political Uncertainties
The casino entertainment industry is subject to political and regulatory
uncertainty. In 1996, the U.S. government formed a federal commission to study
gambling in the United States, including the casino gaming industry. At this
time, the role of the commission and the ultimate impact that it will have on
the industry is uncertain. From time to time, individual jurisdictions have also
considered legislation which could adversely impact Harrah's operations, and the
likelihood or outcome of similar legislation in the future is difficult to
predict.
The casino entertainment industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate. From time to
time, various state and federal legislators and officials have proposed changes
in tax laws (such as the recent passage of a gaming tax increase by the Illinois
State Legislature) or in the administration of such laws, which would affect the
industry. It is not possible to determine with certainty the scope or likelihood
of possible future changes in tax laws or in the administration of such laws. If
adopted, such changes could have a material adverse effect on Harrah's financial
results.
32
<PAGE>
EFFECTS OF INFLATION
Inflation has had little effect on Harrah's historical operations.
Generally, Harrah's has not experienced any significant negative impact on
gaming volume or on wagering propensity of its customers as a result of
inflationary pressures. Further, Harrah's has been successful in increasing the
amount of wagers and playing time of its casino customers through effective
marketing programs. Casino management has also, from time to time, adjusted its
required minimum bets at table games and changed the relative mix of slot
machines in favor of machines with higher denominations. These strategies,
supplemented by effective cost management programs, have offset the impact of
inflation on Harrah's operations. Inflation tends to increase the value of
Harrah's casino entertainment properties.
INTERCOMPANY DIVIDEND RESTRICTION
Agreements governing the terms of its debt require Harrah's to abide by
covenants which, among other things, limit HOC's ability to pay dividends and
make other restricted payments, as defined, to Harrah's. The amount of HOC's
restricted net assets, as defined, computed in accordance with the most
restrictive of these covenants regarding restricted payments, was approximately
$729.7 million at December 31, 1997. Harrah's principal asset is the stock of
HOC, a wholly-owned subsidiary which holds, directly and through subsidiaries,
the principal assets of Harrah's businesses. Given this ownership structure,
these restrictions should not impair Harrah's ability to conduct its business
through its subsidiaries or to pursue its development plans.
RECENTLY ISSUED ACCOUNTING
STANDARDS
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for the reporting
and display of comprehensive income and its components in a company's financial
statements. It requires that a company classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately in the balance sheet. SFAS No.
130 is effective for years beginning after December 15, 1997.
The FASB has also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is also effective for years beginning
after December 15, 1997, and establishes standards by which a company will
report information about its reportable operating segments in both its annual
and interim financial statements. The Company will adopt these new standards in
1998. However, such adoption will not impact the Company's results of operations
or financial position.
PRIVATE SECURITIES LITIGATION
REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in Harrah's
Annual Report on Form 10-K and other materials filed or to be filed by the
Company with the Securities and Exchange Commission ("SEC") (as well as
information included in oral statements or other written statements made or to
be made by the Company) contains statements that are forward looking. These
include statements relating to the following activities, among others: (A)
operations and expansions of existing properties, including future performance,
anticipated scope and opening dates of expansions; (B) planned development of
casinos that would be owned or managed by the Company and the pursuit of
strategic acquisitions; (C) the proposed plan of reorganization and its various
facets for New Orleans; (D) planned capital expenditures for 1998 and beyond;
(E) the possible acquisition or construction of an additional property in Las
Vegas; (F) the impact of the WINet and Total Gold Card Programs; and (G)
completion of the acquisition of Showboat and any plans or future impact with
respect to the Showboat acquisition. These activities involve important factors
that could cause actual results to differ materially from those expressed in any
forward looking statements made by or on behalf of the Company. These include,
but are not limited to, the following factors as well as other factors described
from time to time in the Company's reports filed with the SEC: construction
factors, including zoning issues, environmental restrictions, soil and water
conditions, weather and other hazards, site access matters and building permit
issues; access to available and feasible financing; regulatory, licensing and
other governmental approvals, third party consents and approvals, and relations
with partners, owners and other third parties; conditions of credit markets and
other business and economic conditions; litigation, judicial actions and
political uncertainties, including gaming legislative action and taxation; and
the effects of competition including locations of competitors and operating and
marketing competition. Any forward looking statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of
the date made.
33
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents.......................................................... $ 116,443 $ 105,594
Receivables, less allowance for doubtful accounts of $11,462 and $14,064........... 43,767 41,203
Deferred income taxes (Note 9)..................................................... 17,436 25,551
Prepayments and other.............................................................. 21,653 18,401
Inventories........................................................................ 13,011 10,838
---------- ----------
Total current assets.............................................................. 212,310 201,587
---------- ----------
Land, buildings, riverboats and equipment
Land, and land improvements........................................................ 218,703 232,721
Buildings, riverboats and improvements............................................. 1,334,279 1,248,792
Furniture, fixtures and equipment.................................................. 600,358 496,447
---------- ----------
2,153,340 1,977,960
Less: accumulated depreciation..................................................... (675,286) (588,066)
---------- ----------
1,478,054 1,389,894
Investments in and advances to nonconsolidated affiliates (Note 15)................. 152,401 215,539
Deferred costs and other (Note 5)................................................... 162,741 167,053
---------- ----------
$2,005,506 $1,974,073
---------- ----------
---------- ----------
Liabilities and stockholders' equity
Current liabilities
Accounts payable................................................................... $ 45,233 $ 44,934
Construction payables.............................................................. 7,186 17,975
Accrued expenses (Note 5).......................................................... 156,694 139,892
Current portion of long-term debt (Note 6)......................................... 1,837 1,841
---------- ----------
Total current liabilities........................................................ 210,950 204,642
Long-term debt (Note 6)............................................................. 924,397 889,538
Deferred credits and other.......................................................... 98,177 97,740
Deferred income taxes (Note 9)...................................................... 22,361 45,443
---------- ----------
1,255,885 1,237,363
---------- ----------
Minority interests.................................................................. 14,118 16,964
---------- ----------
Commitments and contingencies (Notes 7 and 12 through 15)
Stockholders' equity (Notes 4, 14 and 15)
Common stock, $0.10 par value, authorized--360,000,000 shares,
outstanding--101,035,898 and 102,969,699 shares
(net of 3,001,568 and 771,571 shares held in treasury)............................ 10,104 10,297
Capital surplus.................................................................... 388,925 385,941
Retained earnings.................................................................. 349,386 290,797
Unrealized gain on marketable equity securities.................................... 2,884 51,394
Deferred compensation related to restriced stock................................... (15,796) (18,683)
---------- ----------
735,503 719,746
---------- ----------
$2,005,506 $1,974,073
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated balance sheets.
34
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Casino..................................... $1,338,003 $1,323,466 $1,313,910
Food and beverage.......................... 196,765 188,081 181,312
Rooms...................................... 128,354 115,456 109,036
Management fees............................ 24,566 16,227 12,762
Other...................................... 78,954 78,729 115,877
Less: casino promotional
allowances................................ (147,432) (135,939) (154,102)
---------- ---------- ----------
Total revenues........................... 1,619,210 1,586,020 1,578,795
---------- ---------- ----------
Operating expenses
Direct
Casino.................................... 685,942 649,720 620,438
Food and beverage......................... 103,604 95,909 91,495
Rooms..................................... 39,719 35,460 32,915
Depreciation of buildings,
riverboats and equipment.................. 103,670 92,130 80,416
Development costs.......................... 10,524 12,021 17,428
Write-downs and reserves (Note 8).......... 13,806 52,188 93,348
Project opening costs...................... 17,631 5,907 450
Other...................................... 385,630 358,000 353,318
---------- ---------- ----------
Total operating expenses................. 1,360,526 1,301,335 1,289,808
---------- ---------- ----------
Operating profit........................ 258,684 284,685 288,987
Corporate expense.......................... (27,155) (34,348) (30,347)
Equity in income (losses) of
nonconsolidated affiliates (Note
15)....................................... (11,053) 1,182 (49,245)
Venture restructuring costs................ (6,944) (14,601) -
---------- ---------- ----------
Income from operations...................... 213,532 236,918 209,395
Interest expense, net of interest
capitalized (Note 3)....................... (79,071) (69,968) (73,890)
Gains on sales of equity interests in New
Zealand subsidiary (Note 15)............... 37,388 - 11,773
Other income, including interest income..... 11,799 5,160 4,305
---------- ---------- ----------
Income before income taxes and minority
interests.................................. 183,648 172,110 151,583
Provision for income taxes (Note 9)......... (68,746) (67,316) (60,677)
Minority interests.......................... (7,380) (5,897) (12,096)
---------- ---------- ----------
Income from continuing operations........... 107,522 98,897 78,810
Discontinued operations (Note 10)
Earnings from hotel operations, net of
tax provision of $15,434.................. - - 21,230
Spin-off transaction expenses, net of
tax benefit of $5,134..................... - - (21,194)
---------- ---------- ----------
Income before extraordinary loss............ 107,522 98,897 78,846
Extraordinary loss, net of tax benefit of
$4,477 (Note 6)............................ (8,134) - -
---------- ---------- ----------
Net income.................................. $ 99,388 $ 98,897 $ 78,846
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per share-basic
Continuing operations...................... $ 1.07 $ 0.96 $ 0.77
Discontinued operations
Earnings from hotel operations,
net...................................... - - 0.21
Spin-off transaction expenses, net........ - - (0.21)
Extraordinary loss, net..................... (0.08) - -
---------- ---------- ----------
Net income.............................. $ 0.99 $ 0.96 $ 0.77
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per share-diluted
Continuing operations...................... $ 1.06 $ 0.95 $ 0.76
Discontinued operations
Earnings from hotel operations,
net...................................... - - 0.21
Spin-off transaction expenses, net. - - (0.21)
Extraordinary loss, net.................... (0.08) -
---------- ---------- ----------
Net income.............................. $ 0.98 $ 0.95 $ 0.76
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding.. 100,618 102,598 102,341
---------- ---------- ----------
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding........... 101,254 103,736 103,188
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
35
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Notes 4, 14 and 15)
(In thousands)
<TABLE>
<CAPTION>
Unrealized Deferred
Common Stock Gain on Compensation
---------------------- Marketable Related to
Shares Capital Retained Equity Restricted
Outstanding Amount Surplus Earnings Securities Stock Total
------------ ------ ------- -------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-December 31, 1994................ 102,403 $10,240 $350,196 $ 265,574 $ - $ (2,573) $ 623,437
Net income............................. 78,846 78,846
Spin-off of Promus Hotel Corporation
(Notes 1 and 10)..................... (139,582) (139,582)
Unrealized gain on available-for-sale
securities, less deferred tax
provision of $6,746.................. 10,552 10,552
Net shares issued under incentive
compensation plans, including income
tax benefit of $6,616................ 271 27 12,587 (318) 12,296
--------- ------- -------- -------- -------- --------- ---------
Balance-December 31, 1995................ 102,674 10,267 362,783 204,838 10,552 (2,891) 585,549
Net income............................. 98,897 98,897
Unrealized gain on available-for-sale
securities, less deferred tax
provision of $26,112................. 40,842 40,842
Treasury stock purchases............... (759) (76) (12,938) (13,014)
Net shares issued under incentive
compensation plans, including income
tax benefit of $1,576................ 1,055 106 23,158 (15,792) 7,472
--------- ------- -------- -------- -------- --------- ---------
Balance-December 31, 1996................ 102,970 10,297 385,941 290,797 51,394 (18,683) 719,746
Net income............................. 99,388 99,388
Realization of gain due to sale of
equity interest in New Zealand
subsidiary, net of deferred taxes
of $14,653........................... (22,735) (22,735)
Decline in market value of other
available-for-sale securities, less
deferred tax provision of $16,362.... (25,775) (25,775)
Treasury stock purchases............... (2,234) (223) (40,799) (41,022)
Net shares issued under incentive
compensation plans, including income
tax benefit of $702.................. 300 30 2,984 2,887 5,901
--------- ------- -------- -------- -------- --------- ---------
Balance-December 31, 1997................ 101,036 $10,104 $388,925 $ 349,386 $ 2,884 $(15,796) $735,503
--------- ------- -------- -------- -------- --------- ---------
--------- ------- -------- -------- -------- --------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
36
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................................................... $ 99,388 $ 98,897 $ 78,846
Adjustments to reconcile net income to cash flows from operating activities
Extraordinary loss, before income taxes...................................... 12,611 - -
Depreciation and amortization................................................ 122,396 102,338 95,388
Write-downs and reserves..................................................... 13,806 52,188 93,348
Other noncash items.......................................................... 27,712 27,985 17,088
Minority interests' share of net income...................................... 7,380 5,897 12,096
Equity in losses (income) of nonconsolidated affiliates...................... 11,053 (1,182) 51,182
Realized gains from sales of equity interests in New Zealand subsidiary...... (37,388) - (11,773)
Net gains from asset sales................................................... (4,117) - (1,383)
Net change in long-term accounts............................................. (1,452) (375) (18,144)
Net change in working capital accounts....................................... 3,713 (14) (36,576)
Net change in accrued litigation settlement and related costs................ - - (43,438)
Tax indemnification payments to Bass......................................... - - (28,000)
Discontinued operations
Earnings from hotel operations............................................. - - (21,230)
Spin-off transaction expenses, before income taxes......................... - - 26,328
----------- ----------- -----------
Cash flows provided by operating activities.............................. 255,102 285,734 213,732
----------- ----------- -----------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions............................ (229,529) (314,465) (186,233)
(Decrease) increase in construction payables................................... (10,789) 13,257 (6,161)
Proceeds from sales of equity interests in New Zealand subsidiary.............. 53,755 - 20,745
Proceeds from other asset sales................................................ 26,570 1,355 10,850
Investments in and advances to nonconsolidated affiliates...................... (54,477) (75,553) (45,603)
Other.......................................................................... (6,483) (8,255) (2,844)
----------- ----------- -----------
Cash flows used in investing activities.................................. (220,953) (383,661) (209,246)
----------- ----------- -----------
Cash flows from financing activities
Net borrowings under Revolving Credit Facilities,
net of financing costs of $982 in 1996 and $2,322 in 1995.................... 239,500 133,518 274,172
Debt retirements............................................................... (202,115) (2,488) (219,614)
Purchases of treasury stock.................................................... (41,022) (13,014) -
Minority interests' distributions, net of contributions........................ (9,952) (10,840) (6,360)
Premium paid on early extinguishment of debt................................... (9,666) - -
Other.......................................................................... (45) - (543)
----------- ----------- -----------
Cash flows (used in) provided by financing activities.................... (23,300) 107,176 47,655
----------- ----------- -----------
Cash flows from discontinued hotel operations
Net transfers to discontinued hotel operations................................. - - (14,840)
Payment of spin-off transaction expenses....................................... - - (25,924)
----------- ----------- -----------
Cash flows used in discontinued operations............................... - - (40,764)
----------- ----------- -----------
Net increase in cash and cash equivalents........................................ 10,849 9,249 11,377
Cash and cash equivalents, beginning of year..................................... 105,594 96,345 84,968
----------- ----------- -----------
Cash and cash equivalents, end of year........................................... $ 106,443 $ 105,594 $ 96,345
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements
37
<PAGE>
Harrah's Entertainment, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, unless otherwise stated)
1) BASIS OF PRESENTATION AND ORGANIZATION
Harrah's Entertainment, Inc., ("Harrah's" or the "Company" and including its
subsidiaries where the context requires), a Delaware corporation, is one of
America's leading casino entertainment companies, operating 15 casinos in nine
states under the Harrah's brand name as of December 31, 1997. Harrah's casino
entertainment facilities include casino hotels in all five major Nevada and New
Jersey gaming markets: Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada; and
Atlantic City, New Jersey. Harrah's riverboat and dockside casinos are in
Joliet, Illinois; Shreveport, Louisiana; Tunica and Vicksburg, Mississippi; and
North Kansas City and St. Louis, Missouri. The Company also manages tribal-owned
casinos on Indian lands near Phoenix, Arizona; Cherokee, North Carolina; and
Seattle, Washington. On January 13, 1998, the Company opened a fourth managed
casino on Indian lands near Topeka, Kansas.
Harrah's also manages a casino in Auckland, New Zealand, under terms of an
agreement expected to be terminated in June 1998 (see Note 15). Harrah's
discontinued management of two limited stakes casinos in Colorado at the end of
first quarter 1997.
During December 1997, Harrah's announced the planned acquisition of
Showboat, Inc. (see Note 2).
On June 30, 1995, Harrah's completed a spin-off (the "PHC Spin-off") that
split the Company into two independent public corporations. Harrah's retained
ownership of the casino entertainment business and the Company's hotel
business was transferred to a new entity, Promus Hotel Corporation ("PHC").
For periods prior to the PHC Spin-off, Harrah's financial statements reflect
the hotel business as discontinued operations (see Note 10).
2) AGREEMENT TO ACQUIRE SHOWBOAT, INC.
During December 1997, Harrah's and Showboat, Inc. ("Showboat") entered into
a definitive agreement whereby Harrah's agreed to acquire Showboat for $30.75
per share in an all-cash transaction valued at $519 million (net of options
proceeds), and assume $635 million in Showboat debt. The acquisition will be
accounted for as a purchase. Accordingly, the purchase price will be allocated
to the underlying assets and liabilities based upon their estimated fair values
at the date of acquisition. The transaction is expected to be completed during
second quarter 1998, subject to various conditions including regulatory
approvals, Showboat stockholder approval and other third party approvals.
Showboat owns and operates casinos in Atlantic City, New Jersey, and Las
Vegas, Nevada. It manages and is the largest single shareholder of the Star City
casino in Sydney, New South Wales, Australia. Showboat also beneficially owns
55% of the Showboat Mardi Gras Casino in East Chicago, Illinois.
3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The Consolidated Financial Statements include
the accounts of Harrah's and its majority-owned subsidiaries after elimination
of all significant intercompany accounts and transactions. Investments in 20% to
50% owned companies and joint ventures are accounted for using the equity method
(see Note 15).
CASH AND CASH EQUIVALENTS. Cash includes the minimum cash balances required
to be maintained by certain state gaming commissions, which totaled
approximately $8.3 million and $5.6 million at December 31, 1997 and 1996,
respectively. Cash equivalents are highly liquid investments with a maturity of
less than three months and are stated at the lower of cost or market value.
INVENTORIES. Inventories, which consist primarily of food, beverage and
operating supplies, are stated at average cost.
LAND, BUILDINGS, RIVERBOATS AND EQUIPMENT. Land, buildings, riverboats
and equipment are stated at cost. Land includes land held for future
development or disposition which totaled $31.2 million and $32.5 million at
December 31, 1997 and 1996, respectively. Improvements and extraordinary
repairs that extend the life of the asset are capitalized. Maintenance and
repairs are expensed as incurred. Interest expense is capitalized on
internally constructed assets at Harrah's overall weighted average borrowing
rate of interest. Capitalized interest amounted to $6.9 million, $11.0
million, and $3.6 million in 1997, 1996 and 1995, respectively.
Depreciation of buildings, riverboats and equipment is calculated using the
straight-line method over the shorter of the estimated useful life of the asset
or the related lease term, as follows:
<TABLE>
<S> <C>
Buildings and improvements................................................... 10 to 40 years
Riverboats................................................................... 30 years
Furniture, fixtures and equipment............................................ 2 to 15 years
</TABLE>
TREASURY STOCK. Shares of Harrah's common stock held in treasury are
reflected in the Consolidated Balance Sheets and Consolidated Statements of
Stockholders' Equity as if they were retired.
REVENUE RECOGNITION. Casino revenues consist of net gaming wins. Food and
beverage and rooms revenues include the aggregate amounts generated by those
departments at all company-owned casinos and casino hotels.
38
<PAGE>
Casino promotional allowances consist principally of the retail value of
complimentary food and beverages, accommodations, admissions and entertainment
provided to casino patrons. The estimated costs of providing such complimentary
services, classified as casino expenses through interdepartmental allocations,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Food and beverage.............................................................. $ 83,491 $ 81,857 $ 72,400
Rooms.......................................................................... 19,290 15,673 15,098
Other.......................................................................... 3,768 4,491 10,856
---------- ---------- ---------
$ 106,549 $ 102,021 $ 98,354
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
AMORTIZATION. The excess of costs over net assets of businesses acquired
and other intangibles are amortized on a straight-line basis over periods up to
40 years. Deferred financing charges are amortized using the interest method
over the term of the related debt agreement.
PROJECT OPENING COSTS. Project opening costs, representing primarily direct
salaries and other operating costs, incurred prior to the opening of new
facilities are deferred as incurred and expensed upon the opening of the related
facility. Project opening costs incurred in connection with the expansion of
existing facilities, as well as those costs incurred in connection with an
initiative to develop and implement strategies and employee training programs
designed to better focus the Company on serving its targeted customers, are
expensed as incurred.
EARNINGS PER SHARE. In accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," basic
earnings per share is computed by dividing Net income by the number of weighted
average common shares outstanding during the year. Diluted earnings per share is
computed by dividing Net income by the number of weighted average common shares
outstanding during the year, including common stock equivalents, which for each
of the three years ended December 31, 1997, consisted solely of net restricted
shares and stock options outstanding under the Company's employee stock benefit
plans (see Note 14).
RECLASSIFICATIONS. Certain amounts for prior years have been reclassified
to conform with the presentation for 1997.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4) STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, $1.125 par value, 5,000,000 shares authorized
Series A Special Stock, 2,000,000 shares authorized
Harrah's Board of Directors 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
Company's 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 of
Series A Special Stock of the Company at an initial price of $130 per Right. If
a person acquires 15% or more of the Company's outstanding common stock, each
Right entitles its holder to purchase common stock of the Company 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% holder will become void. The
Rights will expire on October 5, 2006, unless earlier redeemed by the Board at
one cent per Right.
Pursuant to a plan approved by Harrah's Board of Directors in October 1996
and which expired on December 31, 1997, the Company repurchased 2,993,700 shares
of its common stock at an average price of $18.05 per share. The repurchased
shares are held in treasury.
On June 30, 1995, the PHC Spin-off was completed and the Company distributed
to its stockholders the stock of PHC as a dividend on a one-for-two basis. To
reflect this distribution, the $139.6 million value of the net assets of
discontinued operations as of the PHC Spin-off date was charged against the
Company's retained earnings (see Note 10).
Under the terms of employee compensation programs previously approved by its
stockholders, Harrah's has reserved shares of its common stock for issuance
under the Restricted Stock and Stock Option Plans. (See Note 14 for a
description of the plans.) The following table summarizes the total number of
shares authorized for issuance under each of these plans and the remaining
unissued shares as of December 31, 1997:
<TABLE>
<CAPTION>
RESTRICTED STOCK
STOCK PLAN OPTION PLAN
----------- ------------
<S> <C> <C>
Total shares authorized for issuance under the plans.................................. 5,300,000 10,350,000
Shares issued and options granted, net of cancellations............................... (5,277,408) (9,030,287)
----------- ------------
Shares held in reserve for issuance or grant under the plans as of December 31,
1997................................................................................ 22,592 1,319,713
----------- ------------
----------- ------------
</TABLE>
39
<PAGE>
5) DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Deferred costs and other consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash surrender value of life insurance (Note 14)................................ $ 45,835 $ 43,613
Excess of cost over net assets of businesses acquired, net of amortization of
$33,580 and $31,741........................................................... 43,363 45,202
Deposits........................................................................ 15,944 15,944
Deferred finance charges, net of amortization of $11,471 and $11,775............ 6,056 11,983
Other........................................................................... 51,543 50,311
---------- ----------
$ 162,741 $ 167,053
---------- ----------
---------- ----------
</TABLE>
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Insurance claims and reserves............................................................. $ 46,870 $ 49,590
Payroll and other compensation............................................................ 45,413 34,243
Accrued interest payable.................................................................. 9,287 11,786
Taxes, including income taxes............................................................. 3,106 2,475
Other accruals............................................................................ 52,018 41,798
---------- ----------
$ 156,694 $ 139,892
---------- ----------
---------- ----------
</TABLE>
6) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revolving Credit Facilities 5.41%--8.50% at December 31, 1997, maturities to 2000......... $ 720,500 $ 481,000
Unsecured Senior Subordinated Notes
8 3/4%, maturity 2000................................................................... 200,000 200,000
10 7/8%, redeemed in 1997............................................................... - 200,000
Unsecured Notes Payable...................................................................
10.00%--12.67%, maturities to 2001...................................................... 5,326 6,864
Capitalized Lease Obligations.............................................................
4.9%--7.2%, maturities to 2001.......................................................... 408 3,515
---------- ----------
926,234 891,379
Current portion of long-term debt......................................................... (1,837) (1,841)
---------- ----------
$ 924,397 $ 889,538
---------- ----------
---------- ----------
</TABLE>
Harrah's outstanding corporate debt, comprised primarily of the Revolving
Credit Facilities and Unsecured Senior Subordinated Notes, has been issued by
its wholly-owned subsidiary, Harrah's Operating Company, Inc. ("HOC").
As of December 31, 1997, aggregate annual principal maturities for the four
years subsequent to 1997 were: 1998, $1.8 million; 1999, $1.4 million; 2000,
$922.1 million; and 2001, $0.9 million.
REVOLVING CREDIT FACILITIES. Harrah's bank financing consists of a $950
million reducing revolving and letter of credit facility maturing July 31, 2000,
and a separate $150 million revolving credit facility which is renewable
annually, at the lenders' option, through the July 31, 2000, maturity date
(collectively, the "Facility"). Of the $1.1 billion total borrowing capacity
available to the Company under the Facility, there is a sub-limit of $50 million
for letters of credit. Scheduled reductions of the borrowing capacity available
under the $950 million facility are as follows: $50 million, July 1998; $75
million, January 1999; $75 million, July 1999; $100 million, January 2000; and
$650 million, July 2000. At December 31, 1997, the Facility provided for
borrowings at a base rate of either Eurodollar plus 50 basis points or the prime
lending rate. The weighted-average annual fees on letters of credit and
commitment fees on the unutilized portion under the Facility, at December 31,
1997, were 0.63% and 0.13%, respectively.
The Facility is unsecured. The Facility agreement contains financial
covenants requiring Harrah's to maintain a specific tangible net worth and to
meet other financial ratios. Its covenants limit Harrah's ability to pay
dividends and to repurchase its outstanding shares.
As of December 31, 1997, Harrah's borrowings under the Facility were
$720.5 million and an additional $28.4 million was committed to back certain
letters of credit. After consideration of these borrowings, $351.1 million of
the Facility was available to Harrah's at December 31, 1997.
EARLY EXTINGUISHMENT OF 10 7/8% NOTES. During second quarter 1997, the
Company redeemed its $200 million 10 7/8% Senior Subordinated Notes due 2002
(the "Notes") using proceeds from the Facility. As a result of the early
extinguishment of the Notes, the Company recorded an $8.1 million
extraordinary loss, net of tax benefit, which included a premium paid to
holders of the Notes and the write-off of related deferred finance charges.
INTEREST RATE AGREEMENTS. To manage the relative mix of its debt between
fixed and variable rate instruments, Harrah's enters into interest rate swap
agreements to modify the interest characteristics of its outstanding debt
without an exchange of the underlying principal amount. At December 31, 1997 and
1996, Harrah's was a party to the interest rate swap agreements set forth below
pursuant to which it pays a variable interest rate in exchange for receiving a
fixed interest rate. The average variable rate paid by Harrah's was 5.9% and
5.7% at December 31, 1997 and 1996, respectively. The average fixed interest
rate received was 5.4%
40
<PAGE>
and 5.9% at December 31, 1997 and 1996, respectively. The impact of these
interest rate swap agreements on the effective interest rates of the
associated debt was as follows:
<TABLE>
<CAPTION>
EFFECTIVE
RATE AT NEXT SEMI-
SWAP DECEMBER 31, ANNUAL RATE
ASSOCIATED RATE -------------------- ADJUSTMENT SWAP
DEBT (LIBOR+) 1997 1996 DATE MATURITY
- ------------- ----------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
8 3/4% Notes
$50 million 3.42% 9.45% 8.99% May 15 May 1998
$50 million 3.22% 9.19% 9.25% January 15 July 1998
</TABLE>
In accordance with the terms of the interest rate swap agreements, the
effective interest rate on $50 million of the 8 3/4% Notes was adjusted on
January 15, 1998 to 8.85%.
Harrah's also maintains seven additional interest rate swap agreements to
effectively convert a total of $350 million in variable rate debt to a fixed
rate. Pursuant to the terms of these swaps, Harrah's receives variable
payments tied to LIBOR in exchange for its payments at a fixed interest rate.
The fixed rates to be paid by Harrah's and variable rates to be received by
Harrah's are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
SWAP RATE RECEIVED
PAID (VARIABLE) AT SWAP
NOTIONAL AMOUNT (FIXED) DEC. 31, 1997 MATURITY
- ---------------- ----------- ------------- ---------------
<C> <C> <C> <S>
$50 million 7.910% 5.813% January 1998
$50 million 6.985% 5.906% March 2000
$50 million 6.951% 5.906% March 2000
$50 million 6.945% 5.906% March 2000
$50 million 6.651% 5.777% May 2000
$50 million 5.788% 5.938% June 2000
$50 million 5.785% 5.938% June 2000
</TABLE>
The above $50 million swap which matured in January 1998 was not renewed. In
accordance with the terms of the above $50 million swap which matures in May
2000, the variable interest rate was adjusted on February 10, 1998 to 5.625%.
The differences to be paid or received under the terms of the interest rate
swap agreements are accrued as interest rates change and recognized as an
adjustment to interest expense for the related debt. Changes in the variable
interest rates to be paid or received by Harrah's pursuant to the terms of its
interest rate agreements will have a corresponding effect on its future cash
flows. These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. Harrah's minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
FAIR MARKET VALUE. Based on the borrowing rates currently available for
debt with similar terms and maturities and market quotes of its publicly traded
debt, the fair value of Harrah's long-term debt, including the interest rate
swap agreements, at December 31, 1997 and 1996, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
-------------------- --------------------
CARRYING MARKET CARRYING MARKET
(In millions) VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding debt....................................................... $ (926.2) $ (930.9) $ (891.4) $ (904.7)
Interest rate swap agreements (used for hedging purposes).............. (0.4) (4.6) (0.3) (4.8)
</TABLE>
The amounts reflected as the "Carrying Value" of the interest rate swap
agreements represent the accrual balance as of the date reported. The "Market
Value" of the interest rate swap agreements represents the estimated amount,
considering the prevailing interest rates, that Harrah's would pay to terminate
the agreements as of the date reported.
7) LEASES
Harrah's leases both real estate and equipment used in its operations and
classifies those leases as either operating or capital leases following the
provisions of SFAS No. 13, "Accounting for Leases." The remaining lives of the
Company's real estate operating leases range from one to six years with various
automatic extensions totaling up to 45 years. The average remaining term for
other operating leases, which generally contain renewal options, extends
approximately five years.
Rental expense associated with operating leases is charged to expense in the
year incurred and was included in the Consolidated Statements of Income as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Noncancelable
Minimum......................................................................... $ 16,455 $ 14,774 $ 17,097
Contingent...................................................................... 2,929 2,032 --
Sublease........................................................................ (294) (313) (53)
Other............................................................................ 3,584 3,435 2,001
--------- --------- ---------
$ 22,674 $ 19,928 $ 19,045
--------- --------- ---------
--------- --------- ---------
</TABLE>
41
<PAGE>
The future minimum rental commitments as of December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
NONCANCELABLE
OPERATING
LEASES
-------------
<S> <C>
1998............................................................................................... $ 12,888
1999............................................................................................... 10,336
2000............................................................................................... 9,630
2001............................................................................................... 9,489
2002............................................................................................... 9,071
Thereafter......................................................................................... 84,283
------------
Total minimum lease payments....................................................................... $ 135,697
------------
------------
</TABLE>
In addition to these minimum rental commitments, certain of these operating
leases provide for contingent rentals based on a percentage of revenues in
excess of specified amounts.
8) WRITE-DOWNS AND RESERVES
Harrah's operating results include various pretax charges to record asset
impairments, contingent liability reserves and project write-offs. Included in
the Company's 1997 results was a reserve against the debtor-in-possession
financing provided to Harrah's Jazz Company, reflecting a possible shortfall in
the realizable value of the collateral for the loans. During 1996, in
recognition of changing economic conditions and competitive environments in
which certain long-lived assets are deployed, the Company re-evaluated the
recoverability of its original Tunica, Mississippi, casino facility and of an
idle riverboat casino and recorded write-downs of the carrying values of those
assets in accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The original Tunica casino facility was closed during 1997. The Company also
recorded a reserve during 1996 pursuant to the provisions of SFAS No. 5,
"Accounting for Contingencies," in recognition of its estimated liability
arising from the guarantee of third party debt. Management believes that the
estimates used to evaluate the amounts of such write-downs and reserves were
reasonable. However, actual results could differ from the estimates made for
purposes of these evaluations. The 1995 charges related primarily to the
Company's New Orleans casino development project. (See Note 15 for additional
discussion regarding Harrah's Jazz Company.)
Write-downs and reserves reported by the Company were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Harrah's Jazz-related
Reserve for debtor-in-possession loans.......................................... $ 13,000 $ - $ -
Write-off of investment in and advances to affiliate............................ - - 54,349
Acquisition of partner loan..................................................... - - 16,000
Estimated legal and severance costs............................................. - - 5,100
--------- --------- ---------
13,000 - 75,449
Impairment of long-lived assets.................................................. 806 33,369 -
Reserve for contingent liability exposure........................................ - 14,034 -
Write-off of investment in and advances to nonconsolidated affiliates............ - 2,141 9,638
Write-off of abandoned design and other costs.................................... - 2,644 8,261
--------- --------- ---------
$ 13,806 $ 52,188 $ 93,348
--------- --------- ---------
--------- --------- ---------
</TABLE>
9) INCOME TAXES
Harrah's federal and state income tax provision (benefit) allocable to
identified income statement and balance sheet line items was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes and minority interests................................ $ 68,746 $ 67,316 $ 60,677
Extraordinary loss............................................................... (4,477) - -
Stockholders' equity
Unrealized gain on marketable equity securities................................. (16,362) 26,112 6,746
Compensation expense for tax purposes in excess of amounts recognized for
financial reporting purposes.................................................. (702) (1,576) (6,616)
Other........................................................................... - 1,045 -
Discontinued operations
Earnings from hotel operations.................................................. - - 15,434
Spin-off transaction costs, including $3,956 of deferred tax benefit............ - - (5,134)
--------- --------- ---------
$ 47,205 $ 92,897 $ 71,107
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense attributable to Income before income taxes and minority
interests consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal......................................................................... $ 78,306 $ 42,003 $ 60,850
State........................................................................... 5,407 6,622 9,987
Deferred......................................................................... (14,967) 18,691 (10,160)
--------- --------- ---------
$ 68,746 $ 67,316 $ 60,677
--------- --------- ---------
--------- --------- ---------
</TABLE>
42
<PAGE>
The differences between the statutory federal income tax rate and the
effective tax rate expressed as a percentage of Income before income taxes and
minority interests were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate.......................................................................... 35.0% 35.0% 35.0%
Increases (decreases) in tax resulting from:
State taxes, net of federal tax benefit.................................................... 2.2 2.5 4.3
Minority interests in partnership earnings................................................. (1.4) (1.2) (2.8)
Other...................................................................................... 1.6 2.8 3.5
----- ----- ----
37.4% 39.1% 40.0%
----- ----- ----
----- ----- ----
</TABLE>
The components of Harrah's net deferred tax balance included in the
Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Deferred tax assets
Compensation.............................................................................. $ 10,381 $ 24,858
Self-insurance reserves................................................................... 5,838 7,562
Bad debt reserve.......................................................................... 4,281 5,089
Project opening expenses.................................................................. 2,400 4,699
Deferred income........................................................................... 1,114 1,108
Debt consent costs........................................................................ 902 3,237
Other..................................................................................... 19,865 12,979
--------- ----------
44,781 59,532
--------- ----------
Deferred tax liabilities
Property.................................................................................. (45,806) (53,068)
Investment in nonconsolidated affiliates.................................................. (3,900) (26,356)
--------- ----------
(49,706) (79,424)
--------- ----------
Net deferred tax liability............................................................ $ (4,925) $ (19,892)
--------- ----------
--------- ----------
</TABLE>
10) DISCONTINUED OPERATIONS
As discussed in Note 1, on June 30, 1995, Harrah's, formerly The Promus
Companies Incorporated ("Promus"), completed a spin-off of its hotel operations
to PHC. Accordingly, results of operations and cash flows of the Company's hotel
business have been reported as discontinued operations for the period prior to
the PHC Spin-off. Earnings from discontinued operations for the six months ended
June 30, 1995, were as follows:
<TABLE>
<S> <C>
Revenues.......................................................................... $ 132,785
Costs and expenses................................................................ (79,652)
----------
Operating income.................................................................. 53,133
Interest expense.................................................................. (16,742)
Other income...................................................................... 273
----------
Income before income taxes........................................................ 36,664
Provision for income taxes........................................................ (15,434)
----------
Earnings from discontinued hotel operations....................................... $ 21,230
----------
----------
</TABLE>
For periods prior to the PHC Spin-off, interest expense was allocated to
discontinued hotel operations based on the percentage of Promus' existing
corporate debt which was expected to be retired using proceeds from a new PHC
Bank Facility. Interest expense of $9.5 million was allocated to discontinued
hotel operations for the six months ended June 30, 1995.
11) SUPPLEMENTAL CASH FLOW INFORMATION
The increase (decrease) in cash and cash equivalents due to the changes in
long-term and working capital accounts was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Long-term accounts
Deferred costs and other assets................................................ $ (1,746) $ (2,279) $ (4,746)
Deferred credits and other long-term liabilities............................... 294 1,904 (13,398)
---------- --------- ----------
Net change in long-term accounts............................................ $ (1,452) $ (375) $ (18,144)
---------- --------- ----------
---------- --------- ----------
Working capital accounts
Receivables................................................................... $ (12,062) $ 8,088 $ (27,616)
Inventories................................................................... (565) 1,202 (565)
Prepayments and other......................................................... (3,454) 2,888 (94)
Other current assets.......................................................... 27 14 --
Accounts payable.............................................................. 5,606 (18,373) (10,279)
Accrued expenses.............................................................. 14,161 6,167 1,978
---------- --------- ----------
Net change in working capital accounts.......................................... $ 3,713 $ (14) $ (36,576)
---------- --------- ----------
---------- --------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR INTEREST AND TAXES. The following
table reconciles Harrah's Interest expense, net of interest capitalized, per the
Consolidated Statements of Income, to cash paid for interest:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest expense, net of amount capitalized...................................... $ 79,071 $ 69,968 $ 73,890
Adjustments to reconcile to cash paid for interest
Net change in accruals......................................................... (5,961) (8,664) 10,739
Amortization of deferred finance charges....................................... (3,021) (3,151) (3,626)
Net amortization of discounts and premiums..................................... (12) (21) (53)
--------- --------- ---------
Cash paid for interest, net of amount capitalized................................ $ 70,077 $ 58,132 $ 80,950
--------- --------- ---------
--------- --------- ---------
</TABLE>
Cash payments, net of refunds, for income taxes, including amounts paid on
behalf of the discontinued hotel operations, amounted to $36,479, $34,578 and
$85,001 for 1997, 1996 and 1995, respectively (see Note 9).
43
<PAGE>
12) COMMITMENTS AND CONTINGENCIES
CONTRACTUAL COMMITMENTS. Harrah's is pursuing additional casino development
opportunities that may require, individually and in the aggregate, significant
commitments of capital, up-front payments to third parties, guarantees by
Harrah's of third party debt and development completion guarantees. As of
December 31, 1997, Harrah's has guaranteed third party loans and leases of $136
million, which are secured by certain assets, and has contractual commitments,
primarily construction-related, of $60 million.
The agreements under which Harrah's manages casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe which payment has priority over the retirement of development
costs. In the event that insufficient cash is generated by the operations to
fund this payment, Harrah's must pay the shortfall to the tribe. Such advances,
if any, will be repaid to Harrah's in a future period or periods in which
operations generate cash in excess of the required minimum payment. These
commitments will terminate upon the occurrence of certain defined events,
including termination of the management contract. The aggregate monthly
commitment pursuant to these contracts, which extend for periods of up to 60
months from December 31, 1997, was $1.2 million, including the commitment for a
project which opened subsequent to year-end.
In addition to the amounts described above, as part of a transaction whereby
Harrah's effectively secured an option to a site for a potential casino,
Harrah's has guaranteed a $22.9 million third-party variable rate bank loan
pursuant to an agreement which expires February 28, 1998. The guaranty contains
an element of risk that, should the borrower be unable to perform, the Company
could become responsible for repayment of at least a portion of the obligation.
Harrah's has reduced this exposure by obtaining a security interest in certain
assets of the third party.
See Note 15 for discussion of the completion guarantees issued by Harrah's
related to development of the New Orleans casino.
SEVERANCE AGREEMENTS. Harrah's has severance agreements with 38 of its
senior executives which provide for payments to the executives in the event of
their termination after a change in control, as defined. These agreements
provide, among other things, for a compensation payment of 1.5 times or 3.0
times the executive's annual compensation, as defined, as well as for
accelerated payment or accelerated vesting of any compensation or awards payable
to the executive under any of Harrah's incentive plans.
The estimated amount, computed as of December 31, 1997, that would be
payable under the agreements to these executives based on earnings and stock
options aggregated approximately $34.7 million.
GUARANTEE OF INSURANCE CONTRACT. Harrah's has guaranteed the value of a
guaranteed investment contract with an insurance company held by Harrah's
defined contribution savings plan. Harrah's has also agreed to provide
non-interest-bearing loans to the plan to fund, on an interim basis, withdrawals
from this contract by retired or terminated employees. Harrah's maximum exposure
on this guarantee as of December 31, 1997, was $6.0 million.
TAX SHARING AGREEMENTS. In connection with the PHC Spin-off, Harrah's
entered into a Tax Sharing Agreement with PHC wherein each company is obligated
for those taxes associated with their respective businesses. Additionally,
Harrah's is obligated for all taxes of Promus for periods prior to the PHC
Spin-off date which are not specifically related to PHC operations and/or PHC
hotel locations. Harrah's obligations under this agreement are not expected to
have a material adverse effect on its consolidated financial position or results
of operations.
SELF-INSURANCE. Harrah's is self-insured for various levels of general
liability, workers' compensation and employee medical coverage. Insurance claims
and reserves include accruals of estimated settlements for known claims, as well
as accruals of actuarial estimates of incurred but not reported claims.
13) LITIGATION
Harrah's and certain of its subsidiaries have been named as defendants in a
number of lawsuits arising from the suspension of development of a land-based
casino, and the closing of the temporary gaming facility, in New Orleans,
Louisiana, by Harrah's Jazz Company, a partnership in which the Company owns
an approximate 47% interest and which has filed for protection under Chapter 11
of the U.S. Bankruptcy Code (see Note 15). The ultimate outcomes of these
lawsuits cannot be predicted at this time, and no provisions for the claims are
included in the accompanying consolidated financial statements. The Company
intends to defend these actions vigorously. In the event a bankruptcy
reorganization plan is not consummated, the Company anticipates that such
lawsuits, which are presently inactive, would become active, and additional
lawsuits would be filed.
On November 25, 1997, the Missouri Supreme Court issued a ruling that
defined the state constitutional requirements for floating casino facilities in
artificial basins. Subsequently, the Missouri Gaming Commission (the
"Commission") attempted to issue disciplinary resolutions that effectively would
have amended the gam-
44
<PAGE>
ing licenses of the Company's Missouri casinos, and numerous other floating
casino facilities in the Commission's jurisdiction, to preclude games of
chance, subject to evidentiary hearings that were to be held if the licensees
filed appeals to prove compliance with the Supreme Court's ruling. Prior to
the Commission's action, Harrah's and other licensees filed petitions in the
Circuit Court of Cole County, Missouri, and succeeded in having the Court
issue an order restraining the Commission from taking any such disciplinary
action. The Commission has appealed to the Missouri Supreme Court to permit
it to proceed with its intended actions. The Supreme Court has not indicated
when it will hear the appeal. Harrah's has also filed suit seeking
declaratory judgment that its gaming facilities meet the state constitutional
mandates as established by the Missouri Supreme Court. Management is unable
to predict at this time the final outcome of this matter or whether that
outcome could materially affect the Company's results of operations, cash
flows or financial position of its Missouri casinos.
In addition to the matters described above, Harrah's is involved in various
inquiries, administrative proceedings and litigation relating to contracts,
sales of property and other matters arising in the normal course of business.
While any proceeding or litigation has an element of uncertainty, management
believes that the final outcome of these other matters will not have a material
adverse effect upon Harrah's consolidated financial position or its results of
operations.
14) EMPLOYEE BENEFIT PLANS
Harrah's has established a number of employee benefit programs for purposes
of attracting, retaining and motivating its employees. The following is a
description of the basic components of these programs.
STOCK OPTION PLAN. Employees may be granted options to purchase shares of
Harrah's common stock under the Harrah's Stock Option Plan ("SOP"). An SOP grant
typically vests in equal installments over a four-year period and allows the
option holder to purchase stock over specified periods of time, generally ten
years from the date of grant, at a fixed price equal to the market value at the
date of grant. No options may be granted under the SOP after November 1999.
A summary of SOP activity for 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED NUMBER OF
AVERAGE COMMON SHARES
EXERCISE ------------------------
PRICE OPTIONS AVAILABLE
(PER SHARE) OUTSTANDING FOR GRANT
------------- ----------- -----------
<S> <C> <C> <C>
Balance-December 31, 1994.............................................. $ 19.80 2,268,294 2,491,965
Granted............................................................... 36.53 1,473,290 (1,473,290)
Exercised............................................................. 10.43 (111,807) -
Canceled.............................................................. 11.21 (843,700) 843,700
----------- -----------
Balance-June 30, 1995.................................................. 26.74 2,786,077 1,862,375
Adjustment to reflect
PHC Spin-off......................................................... N/A 1,136,463 (1,136,463)
----------- -----------
Adjusted balance--
June 30, 1995........................................................ 19.03 3,922,540 725,912
Additional shares authorized.......................................... N/A - 4,500,000
Granted............................................................... 26.05 1,836,563 (1,836,563)
Exercised............................................................. 8.14 (81,752) -
Canceled.............................................................. 26.54 (258,525) 258,525
- ----------- -----------
Balance-December 31, 1995.............................................. 21.21 5,418,826 3,647,874
Granted............................................................... 18.71 3,706,759 (3,706,759)
Exercised............................................................. 9.97 (225,510) -
Canceled.............................................................. 27.59 (2,927,557) 2,927,557
----------- -----------
Balance-December 31, 1996.............................................. 16.95 5,972,518 2,868,672
Granted............................................................... 18.93 2,495,903 (2,495,903)
Exercised............................................................. 7.70 (196,905) -
Canceled.............................................................. 19.29 (946,944) 946,944
----------- -----------
Balance-December 31, 1997.............................................. 17.57 7,324,572 1,319,713
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Options exercisable at December 31........................................... 1,536,964 1,079,125 725,961
Weighted average fair value per share of options granted during year......... $ 9.98 $ 9.13 $ 10.76
</TABLE>
As reflected in the table, the option price and number of shares of all
options outstanding on June 30, 1995, were adjusted in connection with the PHC
Spin-off to preserve their approximate value to the employee immediately before
the PHC Spin-off.
Options granted and canceled during 1996 include the activity resulting from
a special program approved by the Company during that year to restore the
intended incentive offered to employees by SOP grants. Given the competitive
environment in which Harrah's operates and the need to retain and provide
incentives for key management, the Company was concerned by the large number of
outstanding options with an exercise price above the current market price of the
stock. This special program enabled
45
<PAGE>
option holders to consent to the cancellation of certain outstanding stock
options, whether vested or unvested, in exchange for a grant of new unvested
stock options with an option price based on the current market price of the
Company's stock. For each three options canceled, the consenting option
holder received two new stock options. The new options vest in four equal
annual installments commencing January 1, 1998. In total, 2,755,291 options
with an average exercise price of $27.71 per share were canceled in exchange
for 1,830,951 new options with an exercise price of $16.875 per share.
The following table summarizes additional information regarding those
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ -----------------------
<C> <C> <S> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACT EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ---------- ----------- ---------- -----------
$2.80--$13.34 1,220,053 4.3 years $ 8.76 1,089,399 $ 8.44
15.88--20.50 5,502,378 9.4 years 18.81 145,510 17.27
22.55--29.72 579,756 7.3 years 23.75 281,475 23.60
33.27--35.59 22,385 6.0 years 34.90 20,580 34.87
----------- ----------
7,324,572 1,536,964
----------- ----------
----------- ----------
</TABLE>
As allowed under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," Harrah's applies the provisions of Accounting Principles Board
Opinion No. 25 and related interpretations to account for the SOP and,
accordingly, does not recognize compensation expense. Had compensation expense
for the SOP been determined in accordance with SFAS No. 123, Harrah's Net income
and Earnings per share would have been reduced to the pro forma amounts
indicated in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
--------- --------- --------- --------- --------- ---------
Net income............................................... $ 99,388 $ 89,570 $ 98,897 $ 93,787 $ 78,846 $ 76,247
Earnings per share
Basic.................................................. 0.99 0.89 0.96 0.91 0.77 0.75
Diluted................................................ 0.98 0.88 0.95 0.90 0.76 0.74
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield..................................................................... 0.0% 0.0% 0.0%
Expected stock price volatility............................................................. 41.0% 39.0% 31.0%
Risk-free interest rate..................................................................... 5.8% 6.2% 5.4%
Expected average life of options (years).................................................... 7 6 6
</TABLE>
Because the provisions of SFAS No. 123 have not been applied to options
granted prior to January 1, 1995, and due to the issuance in 1996 of a large
option grant under the special program discussed above, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
RESTRICTED STOCK PLAN. Employees may be granted shares of common stock
under the Harrah's Restricted Stock Plan ("RSP"). Shares granted under the RSP
are restricted as to transfer and subject to forfeiture during a specified
period or periods prior to vesting. The shares generally vest in equal
installments over a period of four years. No awards of RSP shares may be made
under the current plan after November 1999. The compensation arising from an RSP
grant is based upon the market price at the grant date. Such expense is deferred
and amortized to expense over the vesting period.
Harrah's has issued time accelerated restricted stock ("TARSAP") awards
to certain key executives which will fully vest on January 1, 2002, if the
executive continues in active employment until that date. However, the
vesting of some or all of these shares can be accelerated into the years
1999, 2000 and 2001 on the basis of the Company's financial performance. The
expense arising from the TARSAP awards is being amortized to expense over the
periods in which the restrictions lapse.
The number and weighted-average grant-date fair value of RSP shares granted,
and the amortization expense recognized, during 1997, 1996 and 1995, including
the TARSAP awards, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Number of shares................................................................. 309,833 825,406 140,070
Weighted-average price per share................................................. $ 19.46 $ 20.52 $ 24.87
Amortization expense (in millions)............................................... 4.5 0.9 1.2
</TABLE>
SAVINGS AND RETIREMENT PLAN. Harrah's maintains a defined contribution
savings and retirement plan, which, among other things, allows pretax and
after-tax contributions to be made by employees to the plan. Under the plan,
participating employees may elect to contribute up to 16 percent of their
eligible earnings, the first six percent of which Harrah's will match fully.
Amounts contributed to the plan are invested, at the participant's direction, in
46
<PAGE>
a Harrah's company stock fund, a diversified stock fund, an aggressive stock
fund, a long-term bond fund, an income fund and/or a treasury fund. Participants
become vested in Harrah's matching contribution over seven years of credited
service. Harrah's contribution expense for this plan was $14.6 million, $14.1
million and $12.9 million in 1997, 1996 and 1995, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN. Harrah's has an employee stock ownership
plan, which is a noncontributory stock bonus plan covering employees of Harrah's
and its affiliates. Harrah's contributions to the plan are discretionary and are
made only if approved by the Human Resources Committee of Harrah's Board of
Directors. A contribution was approved for the 1995 plan year. The expense
recognized as a result of this contribution was not material.
DEFERRED COMPENSATION PLANS. Harrah's maintains deferred compensation plans
under which certain employees may defer a portion of their compensation. Amounts
deposited into these plans are unsecured liabilities of Harrah's and earn
interest at rates approved by the Human Resources Committee of the Board of
Directors. The total liability included in Deferred credits and other
liabilities for these plans at December 31, 1997 and 1996 was $46.7 million and
$45.2 million, respectively. In connection with the administration of one of
these plans, Harrah's has purchased company-owned life insurance policies
insuring the lives of certain directors, officers and key employees.
MULTI-EMPLOYER PENSION PLAN. Approximately 3,000 of Harrah's employees are
covered by union sponsored, collectively bargained multi-employer pension plans.
Harrah's contributed and charged to expense $2.4 million, $2.1 million and $1.9
million in 1997, 1996 and 1995, respectively, for such plans. The plans'
administrators do not provide sufficient information to enable Harrah's to
determine its share, if any, of unfunded vested benefits.
15) NONCONSOLIDATED AFFILIATES
HARRAH'S JAZZ COMPANY. A Harrah's subsidiary owns an approximate 47%
interest in Harrah's Jazz Company ("Harrah's Jazz"), a partnership formed for
purposes of developing, owning and operating the exclusive land-based casino
entertainment facility (the "Rivergate Casino") in New Orleans, Louisiana, on
the site of the former Rivergate Convention Center. In November 1995, Harrah's
Jazz and its wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed
petitions for relief under Chapter 11 of the Bankruptcy Code. Harrah's Jazz
filed a plan of reorganization with the Bankruptcy Court in April 1996 and filed
several subsequent amendments to the plan (the "Plan"). In April 1997, the
Bankruptcy Court confirmed and approved the Plan.
The confirmed Plan contemplated, among other things, that a newly formed
corporation, Jazz Casino Corporation, would be responsible for completing
construction of the Rivergate Casino, a subsidiary of the Company would receive
approximately 40% of the equity in the project, and Harrah's would make a $75
million equity investment in the project (less any debtor-in-possession
financing provided to the project), guarantee $120 million of a $180 million
bank credit facility, guarantee timely completion and opening of the Rivergate
Casino and make an additional $20 million subordinated loan to the project to
finance the Rivergate Casino. However, since the Louisiana State Legislature did
not approve a component of the confirmed Plan--a modified casino operating
contract with Louisiana's gaming board--the confirmed Plan was not consummated.
Subsequently, Harrah's Jazz filed a modified plan with the Bankruptcy Court
which contemplated, among other things, the assumption of the existing casino
operating contract and relief from payment of any gaming taxes under the casino
operating contract. This modified plan was withdrawn by Harrah's Jazz.
In November 1997 and again in January 1998, Harrah's Jazz modified the
confirmed Plan. This most recent plan, which is supported by, among others, the
Governor of Louisiana and the Mayor of New Orleans, contemplates that a newly
formed limited liability company, Jazz Casino Company, L.L.C. ("JCC"), would be
responsible for completing construction of the Rivergate Casino, a subsidiary of
the Company would receive approximately 40% of the equity in JCC's parent, and
Harrah's would make a $75 million equity investment in the project (less any
debtor-in-possession financing provided to the project), guarantee JCC's $100
million annual payment under the casino operating contract to the State of
Louisiana gaming board (the "State Guarantee"), guarantee up to $154 million of
a bank credit facility of up to $224 million, guarantee timely completion and
opening of the Rivergate Casino and make an additional $10 million subordinated
loan to JCC to finance the Rivergate Casino. With respect to the State
Guarantee, Harrah's would be obligated to guarantee the first year of JCC's
operations and, if certain cash flow tests and other conditions are satisfied
each year, to renew the guarantee each year for a maximum term of approximately
five years. Harrah's obligations under the guarantee would be limited to a
guarantee of the $100 million payment obligation of JCC for the period in which
the guarantee is in effect and would be secured by a first priority lien on
JCC's assets. JCC's payment obligation would be
47
<PAGE>
$100 million at the commencement of each twelve month period under the casino
operating contract and would decline on a daily basis by 1/365 of $100
million as payments are made each day by JCC to Louisiana's gaming board.
Final consummation of the plan is subject to numerous approvals, including
approval from the Company's Board of Directors, the Louisiana State Legislature,
the City of New Orleans City Council and others. The plan was confirmed by the
Bankruptcy Court on January 29, 1998, and it is anticipated that the casino
operating contract will be considered by the Louisiana State Legislature in a
special session commencing in late March 1998. There can be no assurance that
these approvals will be obtained and that such plan will be consummated.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Harrah's Jazz, totaling
approximately $32.2 million as of December 31, 1997, to fund certain payments to
the City of New Orleans and other cash requirements of Harrah's Jazz. Harrah's
has committed to provide up to $40 million in debtor-in-possession loans to
Harrah's Jazz, conditioned upon Harrah's Jazz meeting certain monthly milestones
in the bankruptcy. There can be no assurance that such committed
debtor-in-possession financing will be sufficient for Harrah's Jazz to
consummate the plan. Should additional debtor-in-possession funding be necessary
for the consummation of the plan, the approval of the Company's Board of
Directors would be necessary for Harrah's to provide any debtor-in-possession
financing in excess of $40 million.
SKY CITY LIMITED. During 1995, Harrah's sold a portion of its equity
interest in Sky City Limited ("Sky City"), a New Zealand publicly-traded
company which owns a casino entertainment facility in Auckland, New Zealand,
reducing its ownership percentage from 20% to 12.5% and resulting in a pretax
gain of approximately $11.8 million. During 1997, Harrah's sold its remaining
12.5% ownership interest in Sky City and recorded a pretax gain of $37.4
million. Harrah's continues to manage the Sky City facility for a fee under a
management contract. However, the Company has been notified by Sky City of
its intent to buy-out and terminate the management contract on June 30, 1998,
for a price based upon an agreed upon formula in the management contract.
COMBINED FINANCIAL INFORMATION. Summarized balance sheet and income
statement information of nonconsolidated gaming affiliates, including
Harrah's Jazz, which Harrah's accounted for using the equity method, as of
December 31, 1997 and 1996, and for the three fiscal years ended December 31,
1997, is included in the following tables:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Combined Summarized
Balance Sheet Information
Current assets............................................................. $ 18,937 $ 33,516
Land, buildings and equipment, net......................................... 379,147 391,133
Other assets............................................................... 179,976 171,748
---------- ----------
Total assets............................................................. 578,060 596,397
---------- ----------
Current liabilities........................................................ 108,406 129,114
Long-term debt............................................................. 467,970 486,740
---------- ----------
Total liabilities........................................................ 576,376 615,854
---------- ----------
Net assets................................................................... $ 1,684 $ (19,457)
---------- ----------
---------- ----------
Combined Summarized
Statements of Operations
Revenues................................................................... $ 23,464 $ 30,930 $ 118,798
---------- ---------- -----------
---------- ---------- -----------
Operating loss............................................................. $ (44,115) $ (18,194) $ (30,296)
---------- ---------- -----------
---------- ---------- -----------
Net loss................................................................... $ (39,290) $ (22,080) $ (139,200)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Condensed financial information relating to a restaurant subsidiary in which
the Company has a passive investment has not been presented since its operating
results and financial position are not material to Harrah's.
The Company's share of its nonconsolidated affiliates' net income (losses)
is reflected in the accompanying Consolidated Statements of Income as Equity in
income (losses) of nonconsolidated affiliates. Harrah's previously reported its
share of the joint venture pre-interest operating results in Revenues-other, and
its share of joint venture interest expense as Interest expense, net, from
nonconsolidated affiliates. Prior year results have been restated to conform
with the revised presentation.
Harrah's investments in and advances to nonconsolidated affiliates are
reflected in the accompanying Consolidated Balance Sheets as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Harrah's investments in and advances to nonconsolidated affiliates
Accounted for under the equity method................................................... $ 132,049 $ 98,356
Available-for-sale and recorded at market value......................................... 20,352 117,183
---------- ----------
$ 152,401 $ 215,539
---------- ----------
---------- ----------
</TABLE>
In accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," Harrah's adjusts the carrying value
of its available-for-sale equity investments to include unrealized gains or
losses. A corresponding adjustment is recorded in the combination of Harrah's
stockholders' equity and deferred income tax accounts.
48
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Harrah's is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly its financial position, its results of operations and
its cash flows in conformity with generally accepted accounting principles. In
preparing its financial statements, Harrah's is required to include amounts
based on estimates and judgments which it believes are reasonable under the
circumstances.
Harrah's maintains accounting and other control systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed through a
program of audits by an internal auditing staff. Limitations exist in any
internal control system, recognizing that the system's cost should not exceed
the benefits derived.
The Board of Directors pursues its responsibility for Harrah's financial
statements through its Audit Committee, which is composed solely of directors
who are not Harrah's officers or employees. The Audit Committee meets from time
to time with the independent public accountants, management and the internal
auditors. Harrah's internal auditors report directly to the Audit Committee
pursuant to gaming regulations. The independent public accountants have direct
access to the Audit Committee, with and without the presence of management
representatives.
/s/ Philip G. Satre
Philip G. Satre
Chairman of the Board, President
and Chief Executive Officer
/s/ Judy T. Wormser
Judy T. Wormser
Vice President, Controller
and Chief Accounting Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Harrah's Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Harrah's
Entertainment, Inc. (a Delaware corporation) and subsidiaries (Harrah's) as of
December 31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years ended December
31, 1997. These financial statements are the responsibility of Harrah's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Harrah's as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Memphis, Tennessee,
February 3, 1998.
49
<PAGE>
Quarterly Results of Operations (Unaudited) (In thousands, except per share
amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
1997
Revenues............................................. $ 374,099 $ 408,893 $ 438,248 $ 397,970 $ 1,619,210
Income from operations............................... 45,291 61,199 67,749(1) 39,293 213,532(1)
Net income........................................... 17,111 17,239 52,889(1) 12,149 99,388(1)
Earnings per share (3)
Basic.............................................. 0.17 0.17 0.53(1) 0.12 0.99(1)
Diluted............................................ 0.17 0.17 0.52(1) 0.12 0.98(1)
1996
Revenues............................................. $ 382,883 $ 401,066 $ 428,726 $ 373,345 $ 1,586,020
Income from operations............................... 72,430 68,962 89,890 5,636 (2) 236,918(2)
Net income (loss).................................... 31,410 29,977 42,350 (4,840)(2) 98,897(2)
Earnings (loss) per share (3)
Basic.............................................. 0.31 0.29 0.41 (0.05)(2) 0.96(2)
Diluted............................................ 0.30 0.29 0.41 (0.05)(2) 0.95(2)
</TABLE>
- ------------------------
(1) 1997 includes $37.4 million in pretax income from the third quarter sale of
the Company's equity interest in its New Zealand subsidiary (see Note 15),
net of $13.8 million in pretax charges for write-downs and reserves,
including $12.3 million recorded in the third quarter (see Note 8).
(2) 1996 includes $52.2 million in pretax charges for project write-downs and
reserves, of which $50.0 million was recorded in the fourth quarter (see
Note 8).
(3) The sum of the quarterly per share amounts may not equal the annual amount
reported, as per share amounts are computed independently for each quarter
and for the full year.
50
<PAGE>
EX-21
JANUARY 27, 1998
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE DATE OF
NAME OF INCORPORATION OF OWNERSHIP INCORPORATION
- ----------------------------------------------------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Aster Insurance Ltd.............................................. Bermuda 100% 02/06/90
Harrah's Operating Company, Inc.................................. Delaware 100% 08/08/83
HEI Acquisition Corp........................................... Nevada 100% 12/16/97
HPB Corporation................................................ Kansas 100% 11/13/97
Harrah South Shore Corporation................................. California 100% 10/02/59
Harrah's--Holiday Inns of New Jersey, Inc...................... New Jersey 100% 09/19/79
Harrah's Alabama Corporation................................... Nevada 100% 09/09/93
Harrah's Alberta Investment Corporation........................ Alberta 100% 04/05/95
Harrah's Arizona Corporation................................... Nevada 100% 01/26/93
Harrah's Asia Development Company.............................. Nevada 100% 09/20/96
Harrah's Asia Investment Company............................... Nevada 100% 09/20/96
Harrah's Asia Management Company............................... Nevada 100% 09/20/96
Harrah's Atlantic City, Inc.................................... New Jersey 100% 02/13/79
Harrah's Aviation, Inc......................................... Tennessee 100% 03/11/63
Harrah's California Corporation................................ Nevada 100% 02/02/94
Harrah's Colorado Investment Corporation....................... Nevada 100% 06/23/93
Harrah's Colorado Management Company........................... Nevada 100% 06/23/93
Harrah's Colorado Standby Corporation.......................... Nevada 100% 11/10/93
Harrah's Crescent City Investment Company...................... Nevada 100% 03/28/97
Harrah's Huntington Corporation................................ W. Virginia 100% 03/03/95
Harrah's Illinois Corporation.................................. Nevada 100% 12/18/91
Van Buren Leasing Corporation(1)............................. Nevada 100% 08/30/96
Harrah's Indiana Casino Corporation............................ Nevada 100% 09/09/93
Harrah's Indiana Management Corporation........................ Nevada 100% 09/09/93
Harrah's Interactive Entertainment Company..................... Nevada 100% 09/21/94
Harrah's Interactive Investment Company........................ Nevada 100% 09/21/94
Harrah's Kansas Casino Corporation............................. Nevada 100% 11/12/93
Harrah's Las Vegas, Inc........................................ Nevada 100% 03/21/68
Harrah's Laughlin, Inc......................................... Nevada 100% 07/10/87
Harrah's Management Company.................................... Nevada 100% 04/07/83
Harrah's Marketing Services Corporation........................ Nevada 100% 08/21/97
Harrah's Maryland Heights Corporation.......................... Nevada 100% 07/30/93
Harrah's Maryland Heights LLC(2)............................... Delaware 99% 10/16/95
Harrah's Maryland Heights Operating Company.................... Nevada 100% 06/20/95
Harrah's de Mexico, S.A. de C.V.(3)............................ Mexico 50% 05/29/95
Harrah's Michigan Corporation.................................. Nevada 100% 06/15/93
Harrah's Minnesota Corporation................................. Nevada 100% 10/20/92
Harrah's NC Casino Company, LLC(4)............................. North Carolina 99% 04/21/95
Harrah's New Jersey, Inc....................................... New Jersey 100% 09/13/78
Harrah's New Orleans Investment Company........................ Nevada 100% 05/21/93
Harrah's New Orleans Management Company........................ Nevada 100% 05/21/93
Harrah's New Zealand Inc....................................... Nevada 100% 02/18/92
Harrah's-North Kansas City Corporation......................... Nevada 100% 02/23/93
Harrah's Ontario, Inc.......................................... Canada 100% 06/23/93
Harrah's Pennsylvania Development Co........................... Nevada 100% 05/18/94
Harrah's Pittsburgh Management Company......................... Nevada 100% 06/08/94
</TABLE>
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE DATE OF
NAME OF INCORPORATION OF OWNERSHIP INCORPORATION
- ----------------------------------------------------------------- ----------------- ------------- -------------
<S> <C> <C> <C>
Harrah's Red River Corporation................................. Nevada 100% 08/05/96
Harrah's Reno Holding Company, Inc............................. Nevada 100% 02/23/88
Harrah's Shreveport Investment Company, Inc.................... Nevada 100% 04/23/92
Harrah's Shreveport Management Company, Inc.................... Nevada 100% 04/23/92
Harrah's Skagit Valley Agency Corporation...................... Nevada 100% 11/08/95
Harrah's Southeast Washington Casino Corporation............... Nevada 100% 11/21/95
Harrah's Southwest Michigan Casino Corporation................. Nevada 100% 04/06/95
Harrah's Tunica Corporation.................................... Nevada 100% 08/10/92
Harrah's Vicksburg Corporation................................. Nevada 100% 07/13/92
Harrah's Washington Corporation................................ Nevada 100% 02/03/94
Harrah's West Virginia Corporation............................. W. Virginia 100% 03/03/95
Harrah's Wheeling Corporation.................................. Nevada 100% 04/29/94
</TABLE>
- ------------------------
(1) 100% owned by Des Plaines Development Limited Partnership of which
Harrah's Illinois Corporation is 80% partner
(2) 99% Harrah's Operating Company, Inc., 1% Harrah Maryland Heights Operating
Company
(3) 50% Harrah's Operating Company, Inc., 50% Harrah's Mexico Holding Company
(4) 99% Harrah's Operating Company, Inc., 1% Harrah's Management Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 116,443
<SECURITIES> 0
<RECEIVABLES> 55,229
<ALLOWANCES> 11,462
<INVENTORY> 13,011
<CURRENT-ASSETS> 212,310
<PP&E> 2,153,340
<DEPRECIATION> 675,286
<TOTAL-ASSETS> 2,005,506
<CURRENT-LIABILITIES> 210,950
<BONDS> 924,397
0
0
<COMMON> 10,104
<OTHER-SE> 725,399
<TOTAL-LIABILITY-AND-EQUITY> 2,005,506
<SALES> 0
<TOTAL-REVENUES> 1,619,210
<CGS> 0
<TOTAL-COSTS> 1,360,526
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,071
<INCOME-PRETAX> 183,648
<INCOME-TAX> 68,746
<INCOME-CONTINUING> 107,522
<DISCONTINUED> 0
<EXTRAORDINARY> 8,134
<CHANGES> 0
<NET-INCOME> 99,388
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.98
</TABLE>
