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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, 1998
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
(State of (I.R.S. Employer Identification No.)
Incorporation)
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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. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 29, 1999, based upon the closing price of $14.875 for
the Common Stock on the New York Stock Exchange on that date, was
$1,869,450,447.
As of January 29, 1999, the Registrant had 127,111,970 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 1999 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, 1998
(the "Annual Report") 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
Entertainment") is one of the leading casino entertainment companies in the
United States. Harrah's Entertainment, 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 Entertainment 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 Entertainment 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 Entertainment
are located at 1023 Cherry Road, Memphis, Tennessee 38117, telephone (901)
762-8600.
On June 1, 1998, the Company completed its acquisition of Showboat, Inc.
("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. Effective February 26, 1999, Showboat also owns
approximately 99.5% of subsidiaries which own and manage the Harrah's East
Chicago Casino in East Chicago, Indiana.
On October 30, 1998, the Plan of Reorganization of Harrah's Jazz Company was
consummated, clearing the way for the construction of the new Harrah's New
Orleans Casino in New Orleans, Louisiana.
On January 1, 1999, the Company completed its merger with Rio Hotel &
Casino, Inc. ("Rio"). Rio owns and operates the Rio Hotel & Casino, an all-suite
hotel and casino located in Las Vegas, Nevada, as well as the Rio Secco Golf
Club in nearby Seven Hills, Nevada.
The Company terminated its management of the Sky City casino in Auckland,
New Zealand on June 30, 1998.
On November 2, 1998, the Company turned over management of the Harrah's
Skagit Valley casino to the Upper Skagit Valley Tribe, and the Harrah's name was
removed from the property.
In January 1999, Harrah's Entertainment announced plans to relocate its
corporate headquarters and move its senior corporate executives and their
support staffs to Las Vegas, Nevada, beginning in August 1999. The Company's
national service headquarters will remain in Memphis, Tennessee. The Company
believes that the relocation to the epicenter of the casino industry will
improve its business by expanding its knowledge base of the gaming market,
enhancing its product and service innovation, fueling its corporate development
and increasing its visibility and accessibility to important industry, political
and customer constituencies. The Company further believes that expanding its
presence in the world's largest casino marketplace will benefit its entire
national distribution network and will enhance its ability to attract and retain
the highest quality senior executives in the gaming industry. The cost of the
relocation is not expected to be material.
Operating data for the three most recent fiscal years, together with
interest expense and other income, is set forth on pages 26 through 29 of the
Annual Report, which pages of the Annual Report are incorporated herein by
reference.
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For information on operating results and a discussion of those results, see
"Management's Discussion and Analysis--Results of Operations" on pages 25
through 35 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) construction or
development of casinos; (C) planned capital expenditures for 1999 and beyond and
any future debt refinancing; (D) the impact of the WINet and Total Gold
Programs; (E) the launch of National Airlines; and (F) Year 2000 compliance
efforts and costs. 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
The Company'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 Entertainment 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; and casinos on three Indian reservations, one near Phoenix, Arizona,
one near Topeka, Kansas and one in Cherokee, North Carolina. The Company also
operates Showboat land-based casinos in Las Vegas, Nevada and Atlantic City, New
Jersey, as well as a riverboat casino in East Chicago, Indiana (which, on March
15, 1999, began operating under the Harrah's brand name), and the Star City
Casino in Sydney, Australia. On January 1, 1999, the Company acquired the Rio
Hotel & Casino in Las Vegas, Nevada.
As of December 31, 1998 (after giving effect to the Company's merger with
Rio), Harrah's Entertainment operated a total of approximately 1,120,000 square
feet of casino space, 30,162 slot machines, 1,167 table games, 11,685 hotel
rooms or suites, approximately 206,292 square feet of convention space, 90
restaurants, 29 snack bars, twelve showrooms and five cabarets.
Harrah's Entertainment continued in 1998 to implement its Total Gold
program, a fully integrated national player recognition and rewards program that
connects player activity and provides rewards across all Harrah's properties.
Harrah's Total Gold Program 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. The Company has obtained three U.S. patents covering the
technology associated with the Total Gold program. Underpinning Harrah's Total
Gold program is a database management system exclusive to the Company, The
Winners Information Network system, or WINet (U.S. Patent Pending), which
enhances the advantages of the Company's geographic distribution and links all
of its domestic Harrah's brand locations.
The Company's marketing strategy is currently designed to appeal primarily
to those customers who are avid, experienced players, especially those who play
in more than one market. The Company's strategic direction is focused on
establishing well-defined brand identities that communicate and deliver 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 2,570 slot machines and 80 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 nine restaurants, an 800-seat showroom, a health
club with swimming pool and parking for 2,682 cars, including a substantial
portion in a parking garage. The property also has a 63-slip marina.
The Mardi Gras-themed Atlantic City Showboat is located on 21 acres of land
on the Boardwalk next to the Trump Taj Mahal and currently has approximately
102,000 square feet of casino gaming space containing 3,700 slot machines and 95
table games. The hotel and casino also has 7 restaurants, two lounges and
snackbars, a shopping center, a 60-lane bowling center, a 346-seat showroom and
a total of 800 hotel rooms (including 59 suites). There are 3,450 parking spaces
available.
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Harrah's Entertainment announced plans to construct a new 1,600-space
employee and valet service parking lot for the Harrah's Atlantic City Casino on
a plot of land acquired in a land exchange with Mirage Resorts in February 1999.
Previously, the Company had leased a lot on property belonging to Mirage
Resorts, which because of development needs, will terminate the Company's
parking rights in May 1999.
The Company also owns approximately 14.9 acres of land adjacent to Harrah's
Atlantic City and 170 acres of wetlands in the Marina area.
Most of Harrah's Atlantic City's and Atlantic City Showboat's customers
arrive by car from within a 150-mile radius which includes Philadelphia, New
York and northern New Jersey, the casinos' primary feeder markets.
LAS VEGAS
Harrah's Las Vegas is located on approximately 17.3 acres on the Las Vegas
Strip and consists of a 15-floor hotel tower, a 23-floor hotel tower, two
35-story hotel towers, and adjacent low-rise buildings which house a 25,000
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 84 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 2,720
parking spaces available, including a substantial portion in a self-park garage.
The newly-acquired Rio Hotel & Casino is situated adjacent to Interstate 15
near the heart of the Las Vegas Strip and has approximately 105,000 square feet
of casino gaming space containing 2,340 slot machines, approximately 100 table
games including a premium gaming area, poker room, keno and race and sports
book. The carnival and Mardi Gras-themed hotel and casino also has 2,548 hotel
suites, including 1,500 suites contained in the three interconnected 21-story
"Ipanema Towers" and 1,000 suites in the 41-story "Masquerade Tower." In
addition, the hotel contains 13 restaurants, 13 bars and two coffee bars, a
737-seat entertainment complex, a 32,000 square-foot shopping area and a 108,000
square foot outdoor entertainment area featuring a landscaped sand beach and
three swimming pools. There are 6,155 parking spaces available, including
self-parking and valet. Rio also owns the Rio Secco Golf Club in nearby Seven
Hills, which opened for play in October 1997. Construction of the club house was
completed in mid-1998.
In October, 1997, Rio, having accumulated 43 acres of land adjacent to the
Rio, announced the New Rio Master Plan. Most of the first phase of the New Rio
Master Plan is complete, including a state-of-the-art convention and
entertainment center, a complex of nine luxury "Palazzo" suites; a restaurant
serving authentic Chinese food; a valet parking structure; an expanded outdoor
area with an additional swimming pool; additional exhibition space in the
Masquerade Village; an expansion of the Shutters premium gaming lounge; the
creation of a concierge suite level in the Ipanema and Masquerade Towers; an
expansion of the Rio's spa; and additional parking. A new road connecting the
Rio and the Las Vegas Strip through an extension of Twain Avenue to Industrial
Road and a retail shopping area are expected to be completed during 1999.
Subsequent phases of the New Rio Master Plan are in the conceptual stage.
These conceptual phases currently include a separate hotel-casino of up to 3,000
rooms and two additional parking structures. The timetable, theme and cost of
the subsequent phases have not yet been established and there can be no
assurance that the balance of the New Rio Master Plan will be implemented.
In connection with its merger with Rio, the Company assumed all of Rio's
outstanding debt, including its 10 5/8% Senior Subordinated Notes due 2005 and
9 1/2% Senior Subordinated Notes due 2007 (collectively, the "Notes") in the
aggregate principal amount of $225 million. As required by the indentures
governing the Notes, HOC made an offer to purchase the Notes at 101% of their
principal
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amount. None of the Notes were tendered as a result of the offer. The Notes are
non-recourse. The Company also assumed Rio's bank credit facilities with an
aggregate commitment of $400 million, of which $198.7 million was outstanding at
the time of the merger.
The Showboat Las Vegas property is located along the Boulder Highway, south
of downtown Las Vegas. The facility contains 75,000 square feet of gaming space,
including 1,450 slot machines and 18 table games. In addition the Las Vegas
Showboat has four restaurants, 447 hotel rooms, a 106-lane bowling center, 8,300
square feet of meeting space and a 1,200-seat bingo parlor. There are 2,660
parking spaces available, as well as an 84-space recreational vehicle park. The
Company considers the Showboat Las Vegas a non-strategic asset and is holding
the property for sale.
The primary feeder markets for Harrah's Las Vegas are the Midwest,
California and Canada. For Rio, the primary feeder markets are Southern
California, the Southwest and Asia. Showboat Las Vegas primarily attracts a
local market with feeder markets in Southern California, Arizona, Utah and
Texas.
LAKE TAHOE
Harrah's Lake Tahoe is situated on 23 acres near Lake Tahoe and consists of
an 18-story tower and adjoining low-rise building which house an 18,000 square
foot convention center and approximately 66,500 square feet of casino space,
with 1,727 slot machines and 82 table games. The casino hotel, with 77 suites
and 453 luxury rooms, has seven restaurants, two snack bars, the 688-seat South
Shore Showroom, a 50-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.
The Company 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 568 slot machines and 17 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 57,000 square feet of casino space, with 1,459 slot
machines and 72 table games. The facilities include two hotel towers, with 954
rooms and 14 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 1,515 cars, including a valet parking
garage, a self-park garage and off-site valet parking.
One of the hotel towers at Harrah's Reno had been operated by Harrah's
Entertainment as a Hampton Inn pursuant to a license agreement from Promus
Hotels, Inc. ("Promus Hotels"). In August 1998, the Company paid a one-time
franchise termination fee to Promus Hotels and converted the hotel to the
Harrah's brand name.
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 1,520 standard
rooms and 81 suites, a 378-seat showroom, a 3,164-seat outdoor amphitheater,
five restaurants and three snack bars, including a McDonald's and a Baskin
Robbins which are operated by non-affiliated companies. Harrah's Laughlin has
approximately 47,000 square feet of casino space, with 1,183 slot machines and
39 table games, and approximately
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5,000 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.
AUSTRALIA
The Star City casino in Sydney, Australia is owned by a corporation which is
approximately 25% owned by an indirect subsidiary of the Company. The subsidiary
also owns 85% of the facility's management company. Star City is located in the
Sydney Harbor area of the city and holds a 99-year lease and a 12-year legal
monopoly for the state of New South Wales, both of which commenced in September
1995. It is themed like a "mini-city", containing 136,625 square feet of casino
gaming space consisting of approximately 1,500 slot machines and 200 table
games, retail stores, ten restaurants, two snack bars, 13,400 square feet of
convention and banquet space, and two theaters. The casino provides parking for
2,500 cars. The casino's primary feeder market is the Sydney Metropolitan area.
NEW ORLEANS
A Harrah's Entertainment subsidiary owned 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 "Harrah's New Orleans 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"). The Bankruptcy Court confirmed
the Plan as modified on October 13, 1998 and the Plan was consummated on October
30, 1998.
In accordance with the terms of the plan, a newly formed limited liability
company, Jazz Casino Company, L.L.C. ("JCC"), is responsible for completing
construction of the Harrah's New Orleans Casino, which will feature 100,000
square feet of casino space containing an estimated 2,840 slot machines and 114
table games. A 100,000 square foot second floor will feature yet to be
determined non-casino space.
In exchange for an equity investment in JCC's parent, JCC Holding Company,
of $75 million (including $60 million in debtor-in-possession loans to Harrah's
Jazz which were converted to equity upon consummation of the Plan), a subsidiary
of the Company acquired, at the time of Plan consummation, approximately 44% of
the equity in JCC Holding Company. This ownership interest has been reduced to
approximately 43% due to the exercise by an unrelated party of an option to
acquire a portion of the Company's interest, and the ownership interest may be
reduced in the future to approximately 40% in the event other unrelated parties
exercise additional options to acquire portions of the Company's interest. The
Company also owns a warrant which entitles the Company to acquire additional
shares in JCC Holding Company sufficient to increase its ownership in JCC
Holding Company to 50% for a predetermined price.
A subsidiary of the Company (the "Manager") will manage the Casino pursuant
to a management agreement under which it will receive a base management fee of
3% of Casino revenues and 7% of Casino EBITDA in excess of $75 million. The
Company is obligated to defer receipt of management fees under certain
circumstances. The Company has also entered into settlements with former
partners of Harrah's Jazz whereby such partners (or their creditors) are
entitled to future payments from the Company which are calculated based on
management fees received by the Manager.
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The Company (i) guarantees JCC's initial $100 million annual payment under
the casino operating contract to the State of Louisiana gaming board (the "State
Guarantee"), (ii) guarantees $166.5 million of a $236.5 million JCC bank credit
facility, including a $25 million working capital loan, (iii) guarantees to the
State of Louisiana gaming board, City of New Orleans, banks under the JCC bank
credit facility and JCC bondholders, completion and opening of the Casino on or
before October 30, 1999 (subject to force majeure) and (iv) is obligated to make
a $22.5 million subordinated loan to JCC, if needed, to finance construction of
the Casino.
With respect to the State Guarantee, the Company is obligated to guarantee
JCC's first $100 million annual payment obligation commencing upon the earlier
of opening of the Casino or October 30, 1999 (subject to force majeure), and, if
certain cash flow tests and other conditions are satisfied each year, to renew
the guarantee beginning April 1, 2000, for each 12 month period ending March 31,
up to the 12 month period ending March 31, 2004. The Company's obligation under
the guarantee for the first year of operations or any succeeding 12 month period
is limited to a guarantee of the $100 million payment obligation of JCC for the
12 month period in which the guarantee is in effect and is secured by a first
priority lien on JCC's assets. JCC's payment obligation (and therefore the
amount guaranteed by the Company) is $100 million at the commencement of each 12
month period under the casino operating contract and declines on a daily basis
by 1/365 of $100 million to the extent payments are made each day by JCC to
Louisiana's gaming board.
The Company will receive for providing the State Guarantee fees from JCC of
$6 million for the first and second years of operations (or the prorated amounts
thereof) and $5 million for each renewal year thereafter. The Company will also
receive fees for guaranteeing the JCC bank credit facility of approximately
2.75% of up to $156.5 million of guaranteed debt, payable for periods during
which such debt is outstanding. The Company's credit support fees may be reduced
in the event the Company's borrowing costs under its bank credit facility
increase after Plan consummation. The Company is obligated to defer receipt of
State Guarantee fees and a portion of the credit support fees under certain
circumstances.
The casino is currently expected to open by late October 1999.
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 37,160 square feet of casino space with 47
table games and 1,038 slot machines. Each riverboat has the capacity to
accommodate approximately 825 guests per cruise. Harrah's Joliet offers 18 to 19
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.
Construction is under way on a $29 million development project, which will
be located in Joliet's City Center. The project includes a 204-room hotel
(including four suites) with 8,000 square feet of new and renovated office
space. The hotel will be located between Harrah's pavilion and Cass Street and
is scheduled for completion in the fourth quarter of 1999.
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
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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.
The Chicago metropolitan area is the primary feeder market for Harrah's
Joliet, with Joliet being only 30 miles from downtown Chicago. The Company
expects that the addition of the new hotel will expand the customer base beyond
that radius.
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, 1,246 slot machines and 33
table games. Shoreside facilities, which are situated on 88 acres of land,
include a Harrah's hotel, which features 181 rooms, 18 suites, exercise
facilities, three restaurants, a snack bar, a 250-seat showroom, 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 which is 100%
owned by the Company. The underlying land is held under a long-term lease to the
partnership.
The partnership which owns Harrah's Tunica 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 was completed in fourth
quarter 1998 at a cost to the Company of $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. On March 1, 1999, this property was sold to another casino company.
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, 597 slot machines and 34 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 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 1,138 slot machines and 32 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 1,575 cars, including 1,365 spaces in a parking garage.
Construction on expanded parking facilities at Harrah's Shreveport was
completed in the third quarter of 1998, and the Company has announced plans to
expand the facilities to include a 500-room
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hotel as well as four additional restaurants (including a 160-seat steakhouse, a
180-seat coffee shop, a 360-seat buffet and a coffee/snack bar), a new
convention center, health spa and 480-space valet parking garage. The expansion,
scheduled to be completed by September 2000, is expected to cost $123 million.
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, 2,176 slot
machines and 75 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 17
suites, a pavilion that houses four restaurants and 10,000 square feet of
meeting space. Additional property amenities include two 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.
During the third quarter of 1998, the Company completed the acquisition of
various assets of a closed riverboat casino in Kansas City, Missouri, including
a 28,000 square foot casino riverboat, shoreside facilities, parking garage,
certain land, all gaming equipment and computerized customer databases. Harrah's
Entertainment does not plan, at this time, to operate a casino at the acquired
location. Long range plans for the riverboat, land and shoreside facilities have
not been finalized.
EAST CHICAGO
The Harrah's East Chicago Casino (formerly operated as Showboat Mardi Gras
Casino) is a riverboat casino in East Chicago, Indiana, which contains 49,210
square feet of gaming space on four levels containing 76 table games and
approximately 1,800 slot machines. The shoreside facilities, on 11 acres of
land, include a 105,000 square foot pavilion featuring two restaurants and two
snack bars. There is a parking garage with the capacity to hold approximately
1,800 cars, and other surface parking available for approximately 1,200 cars.
The Harrah's East Chicago Casino is owned by the Showboat Marina Casino
Partnership ("SMCP"), an Indiana general partnership, in which the Company now
owns an almost 100% ownership interest. The Company acquired a 55% interest in
SMCP in connection with its acquisition of Showboat in June 1998 and recently
increased its ownership interest by buying out substantially all of the minority
partners in SMCP in a transaction that closed on February 26, 1999. Some of the
minority partners have retained the right to repurchase shares of SMCP at the
original purchase price plus interest. If this occurs, it would reduce the
Company's interest to no less than 91%. On March 15, 1999 the Company completed
the conversion of the facility to the Harrah's brand name.
In February 1999, HOC commenced a tender offer for the $140 million of
13 1/2% First Mortgage Notes due 2009 issued by SMCP and its subsidiary. The
tender offer was consummated in March 1999 with all notes tendered.
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The casino's primary feeder market is the Chicago metropolitan area.
ST. LOUIS-RIVERPORT
Harrah's St. Louis-Riverport is part of a riverboat casino complex owned and
operated by the Company and 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 Entertainment and Players leases space
to both Harrah's Entertainment 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 1,677 slot machines and 48 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
Entertainment 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 included in the development are owned by the
partnership.
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, 13 poker tables, bingo,
keno, two restaurants, one snack bar, 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
Entertainment manages the casino for a fee under a management contract expiring
in December 1999. Harrah's Entertainment and the Ak-Chin Community are currently
negotiating to renew the contract for another 5-year term. Such renewal would
require the approval of the National Indian Gaming Commission ("NIGC").
The primary feeder markets for the casino are Phoenix and Tucson.
CHEROKEE
Harrah's Entertainment developed the Harrah's Cherokee Smoky Mountains
Casino for the Eastern Band of Cherokee Indians on 37 acres of land on their
reservation in Cherokee, North Carolina. The casino includes 60,000 square feet
of casino space, including an approximately 10,000 square foot expansion
completed in June 1998, with 2,294 video gaming machines. Additional facilities
consist of a multi-purpose entertainment room with 1,500 theater-style seats,
two restaurants, as well as a gift shop and child care facilities. Parking is
available for approximately 1,972 cars. Harrah's Entertainment 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 Entertainment
and the Eastern Band of Cherokee Indians and approval by the NIGC.
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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 1998, $73.8 million of the loan 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 ("Prairie Band") on approximately 80
acres of land owned by the tribe. The casino facilities include 25,478 square
feet of casino space with 703 slot machines, 35 table games and a 366-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 casino has recently completed an expansion, adding 127 slot machines, three
blackjack tables and one craps table. 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 Entertainment and the
Prairie Band and approval by the NIGC.
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
1998, $29.7 million of the loan was outstanding.
Topeka and Wichita are the primary feeder markets for the casino.
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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. In addition, Sodak is in the
business of financing, developing and managing Native American and commercial
casino businesses in the United States.
Under the 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, last revised and renewed in March, 1998,
provides for 2-year renewals after May 2001, until it is canceled. Sodak also
has an IGT software distribution and license agreement for IGT product software.
On March 11, 1999, Sodak and IGT entered into an agreement under which IGT
will acquire all the outstanding stock of Sodak for approximately $230 million
in cash, subject to certain conditions, including regulatory and shareholder
approval.
OTHER
During the third quarter of 1998, Harrah's Entertainment invested $15
million in a new airline named National Airlines. Based in Las Vegas, National
Airlines plans to offer conveniently scheduled nonstop flights between Las Vegas
and New York, Chicago, Los Angeles and San Francisco beginning in mid-1999.
Additional routes are expected to be added. All flights will be nonstop to and
from its Las Vegas hub. In addition to obtaining a 19.9% voting interest in the
airline, Harrah's Entertainment has also entered into a marketing agreement to
support joint promotions involving the airline and Harrah's Las Vegas. It is
expected that the Company's investment in the airline will allow the Company to
offer additional valued services and conveniences to customers. Harrah's
Entertainment has no commitment to provide additional funds to the airline. Rio
also invested $15 million in National Airlines and, consequently, the
consummation of the merger with Rio increased the Company's equity interest in
the airline to approximately 47.8%. However, the Company's voting power is
limited to 25%.
The Company also owns a minority interest in Interactive Entertainment
Limited ("IEL"), a publicly-owned corporation. IEL pioneered the development of
sophisticated remote control gaming entertainment software for use in the
international long-haul airline industry, called "Sky Games." However, due to an
inability to obtain sufficient financing for the project, IEL has ceased all
operations related to its Sky Games business and is making efforts to conduct an
orderly disposition of all the assets related to the Sky Games inflight gaming
product line. In the fourth quarter of 1998, the Company wrote off its
investment in IEL.
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.
PATENTS AND TRADEMARKS
The following trademarks used herein are owned by the Company:
Harrah's-Registered Trademark-; Rio-Registered Trademark-;
Showboat-Registered Trademark-; Bill's-Registered Trademark-; Total
Gold-Registered Trademark-; WINet-Registered Trademark-; Harrah's Northern
Star(SM); North Star(SM); Harrah's Southern Star II(SM); ShreveStar(SM); Mardi
Gras(SM); Sammy's Showroom(SM); South Shore Showroom(SM) and Rio Secco Golf
Club(SM). The Company considers all of these marks, and the associated name
recognition, to be valuable to its business. The Company holds three U.S.
patents covering the technology associated with its Total Gold program--U.S.
Patent No. 5,613,912 issued March 25, 1997 (which is the subject of a license
agreement with Mikohn Gaming Corporation), U.S. Patent No. 5,761,647 issued June
2, 1998, and U.S. Patent No. 5,809,482 issued September 15, 1998. The Company
considers these patents to be valuable to its business.
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COMPETITION
Harrah's Entertainment, 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, as well as a land-based casino in Australia,
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 Entertainment 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 Entertainment 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 Entertainment
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
Entertainment, have invested in expanding existing facilities, in the
development of new facilities in existing markets, such as Las Vegas, and in the
acquisition of established facilities in existing markets, such as the Company's
acquisition of the casinos owned by Rio and Showboat. 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 Entertainment 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. For example, in
California's state elections in November 1998, Proposition 5 was adopted,
placing no limits on the size of Indian casinos in the state or on the number of
"slot-like" gambling machines offered. If the expansion of Indian casinos moves
closer to the major metropolitan areas of California, the Company's operations
in Nevada could be adversely affected. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effects of Current
Economic and Political Conditions" on page 34 and portions of "Management's
Discussion and Analysis--Operating Results and Development Plans" on pages 26
and 27 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, and of Atlantic City Showboat, Inc.
("Showboat"), which holds a license to operate Showboat Casino Hotel, Harrah's
Entertainment 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 licensees, Marina and Showboat, but also their
intermediary and ultimate holding companies, including Harrah's Entertainment
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
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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.
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 licenses (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 licensees be licensed. In addition, each person who
directly or indirectly holds any beneficial interest or ownership of the casino
licensees and any person who in the opinion of the New Jersey Commission has the
ability to control the casino licensees must obtain qualification approval. Each
holding and intermediary company having an interest in the casino licensees must
also obtain qualification approval by meeting essentially the same standards as
that required of the casino licensees. 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 licensees 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 licensees 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 Entertainment 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/or Showboat and, in the case of security holders, that they do not have the
ability to control Harrah's Entertainment (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
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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 include an approved Trust Agreement pursuant to which all
securities of Harrah's Entertainment (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 Entertainment (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 Entertainment or its subsidiaries is not qualified
to own such securities. If a security holder of Harrah's Entertainment 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 Entertainment and HOC (both "publicly-traded
companies" as defined by the New Jersey Act) contain provisions which provide
Harrah's Entertainment 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 Entertainment 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 Entertainment 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
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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 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, Showboat or their 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 and/or Showboat could be subject to fines, or their licenses
could be suspended or revoked. If Marina's or Showboat'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 and/or Showboat. A Conservator
would be vested with title to the assets of Marina and/or Showboat, 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 granted Showboat a
plenary casino license in connection with Showboat Casino Hotel in March 1987.
Each of Marina's and Showboat's licenses has been renewed since then. In April
1996, the New Jersey Commission renewed Marina's license for a four-year period
and also found Harrah's Entertainment and HOC to be qualified as holding
companies of Marina. In January 1997, the New Jersey Commission renewed
Showboat's license for a four-year period and, in April 1998, found Harrah's
Entertainment and HOC to be qualified as holding companies of Showboat following
the acquisition of Showboat, Inc. by Harrah's.
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. The Company'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 City of Las Vegas, the
Clark County Liquor and Gaming Licensing Board ("CCLGLB"), the City of Reno, and
the Douglas County Sheriff's Department ("Douglas County"). The Nevada
Commission, the Nevada State Gaming Control Board, the City of Las Vegas, the
CCLGLB, the City of Reno, and Douglas County are 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
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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 the Company's Nevada gaming operations.
Harrah's Entertainment is registered by the Nevada Commission as a publicly
traded corporation
(a "Registered Corporation") and has been found suitable to own the stock of HOC
which is also a Registered Corporation by virtue of its outstanding debt
securities. HOC has been found suitable to own the stock of (I) Rio Hotel &
Casino, Inc. ("Rio"), which is also a Registered Corporation by virtue of its
outstanding debt securities, (ii) Showboat, Inc. ("Showboat"), (iii) Harrah's
Las Vegas, Inc. ("HLVI") and (iv) Harrah's Laughlin, Inc. ("HLI"). Rio has been
found suitable to own the stock of Rio Properties, Inc. ("RPI") and Rio Leasing,
Inc. ("RLI"). Showboat has been registered as an intermediary company and has
been found suitable to own the stock of Showboat Operating Company ("SBOC").
HOC, Showboat, HLVI, HLI, RPI, SBOC and RLI (collectively, the "Gaming
Subsidiaries") are required to be registered or licensed by the Nevada Gaming
Authorities to enable Harrah's Entertainment to conduct gaming operations at
Harrah's Lake Tahoe, Bill's Lake Tahoe Casino, Harrah's Reno, Harrah's Las
Vegas, Harrah's Laughlin, Rio Suite Hotel & Casino and Las Vegas Showboat and to
engage in manufacturing and distribution of gaming devices. The gaming licenses
held by the Gaming Subsidiaries require the periodic payment of fees and taxes
and are not transferable. HOC is also licensed as a manufacturer and distributor
of gaming devices. SBOC and RLI are each licensed as a distributor of gaming
devices. Such manufacturer's and distributor's licenses also require the annual
payment of fees and are not transferable.
As Registered Corporations, Harrah's Entertainment, HOC and Rio are required
periodically to submit detailed financial and operating reports 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 and Harrah's Entertainment may not sell or transfer
beneficial ownership of any of HOC's or Rio's voting securities without the
prior approval of the Nevada Commission. Harrah's Entertainment, Rio and the
Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various
registrations, findings of suitability, approvals, permits and licenses required
in order to engage in gaming, manufacturing and distribution activities in
Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Harrah's Entertainment,
Rio 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 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 Entertainment, HOC, Rio or Showboat 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 Entertainment, Rio 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 Entertainment, Rio or the
Gaming Subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. According to
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the Nevada Act, determinations of suitability or of questions pertaining to
licensing are not subject to judicial review in Nevada.
Harrah's Entertainment, Rio 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
Entertainment 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 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 Entertainment gaming operations.
Any beneficial holder of Harrah's Entertainment 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 Entertainment 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 beneficial ownership of more
than 5% of Harrah's Entertainment voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial owners of more
than 10% of Harrah's Entertainment 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 Entertainment 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
Entertainment, any change in the Company's corporate charter, bylaws,
management, policies or operations of Harrah's Entertainment, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding Harrah's Entertainment 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 voting securities
of a Registered Corporation beyond such period of
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time as may be prescribed by the Nevada Commission may be guilty of a criminal
offense. Harrah's Entertainment 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 Entertainment or the Gaming Subsidiaries, it:
(i) pays that person any dividend or interest upon voting securities of Harrah's
Entertainment; (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 has the authority to approve all persons owning or controlling the
stock of any corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation 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.
Harrah's Entertainment 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 Entertainment 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 Entertainment.
Harrah's Entertainment, HOC and Rio 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 November 19, 1998, the Nevada Commission granted Harrah's
Entertainment, HOC and Rio prior approval to make offerings for a period of two
years, subject to certain conditions ("Shelf Approval"). The Shelf Approval also
applies to any affiliated company wholly owned by Harrah's Entertainment (an
"Affiliate") which is a publicly traded corporation or would thereby become a
publicly traded corporation pursuant to a public offering. The Shelf Approval
also includes approval for the Gaming Subsidiaries to guarantee any security
issued by, or to hypothecate their assets to secure the payment or performance
of any obligations issued by, Harrah's Entertainment or an Affiliate in a public
offering under the Shelf Registration. The Shelf Registration, however, may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval
does not constitute a finding, recommendation or approval 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.
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Changes in control of Harrah's Entertainment 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 or serving of food or refreshments or
the selling of merchandise. 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.
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 or
enter into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of personal unsuitability.
GAMING--NEW SOUTH WALES
The New South Wales Casino Control Authority ("NSWCCA") was created pursuant
to the Casino Control Act 1992 (NSW) ("Casino Act") to maintain and administer
systems for licensing, supervision and control of a casino.
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In considering an application for a casino license, Section 11 of the Casino
Act requires the NSWCCA to have regard to the following matters: (i) the
suitability of applicants and close associates of applicants; (ii) the standard
and nature of the proposed casino, and the facilities to be provided in, or in
conjunction with, the proposed casino; (iii) the likely impact of the use of the
premises concerned as a casino on tourism, employment and economic development
generally in the place or region in which the premises are located; (iv) the
expertise of the applicant, having regard to the obligations of the holder of a
casino license under the Casino Act; and (v) such other matters as the NSWCCA
considers relevant.
The NSWCCA determines an application by either granting or declining to
grant a casino license to the applicant. The casino license may be granted
subject to such conditions as the NSWCCA thinks fit and is granted for the
location specified in the casino license. A casino license confers no right of
property and cannot be assigned or mortgaged, charged or otherwise encumbered.
The conditions of a casino license may be amended by being substituted,
varied, revoked or added to by the NSWCCA subject to the right of the licensee
to make submissions to the NSWCCA in regard to any such proposal. The NSWCCA may
also cancel, suspend or amend the terms or conditions of a casino license where
there are grounds for disciplinary action, including: (i) the casino license
being improperly obtained; (ii) the casino operator, a person in charge of the
casino, an agent of the casino operator or a casino employee contravening a
provision of the Casino Act or a condition of the license; (iii) the casino
premises no longer being suitable for the conduct of the casino operations; (iv)
the licensee being considered to be no longer a suitable person to give effect
to the casino license and the Casino Act; and (v) the public interest that the
casino license should no longer remain in force. No right of compensation
against the government arises for the cancellation, suspension or variation of
the terms and conditions of the casino license.
The NSWCCA must not grant an application for a casino license unless it is
satisfied that the applicant and each close associate is a suitable person to be
concerned in or associated with the management and operation of a casino. In
making the determination as to the suitability of the applicant, the NSWCCA must
consider whether: (a) the applicant and each close associate are of good repute,
having regard to character, honesty and integrity; (b) the applicant and each
close associate is of sound and stable financial background; (c) in the case of
an applicant that is not a natural person, the applicant has or has arranged a
satisfactory ownership, trust or corporate structure; (d) the applicant has or
is able to obtain financial resources that are both suitable and adequate for
ensuring the financial viability of the proposed casino; (e) the applicant has
or is able to obtain the services of persons who have sufficient experience in
the management and operation of a casino; (f) the applicant has sufficient
business ability to establish and maintain a successful casino; (g) the
applicant or any close associate who has any business association with any
person, body or association who, in the opinion of the NSWCCA is not of good
repute, having regard to character, honesty and integrity or has undesirable or
unsatisfactory financial sources; and (h) each director, partner, trustee,
executive officer and secretary and any other officer or person determined by
the NSWCCA to be associated or connected with the ownership, administration or
management of the operations or business of the applicant or a close associate
of the applicant is a suitable person to act in that capacity. Following the
filing of the necessary applications by Harrah's Entertainment for the approval
of its acquisition of Showboat, Inc. and for the findings of suitability, the
NSWCCA conducted its investigation and, in May 1998, approved the acquisition
and found Harrah's Entertainment suitable.
On receiving an application for a casino license, the NSWCCA must carry out
all such investigations and inquiries as it deems necessary. The costs of the
investigation by the NSWCCA are payable to the NSWCCA by the applicant unless
the NSWCCA determines otherwise.
The NSWCCA may give written direction to a casino operator as to the
conduct, supervision or control of operations of the casino. The NSWCCA may
investigate a casino from time to time at the
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discretion of the NSWCCA. Not later than three years after the grant of the
casino license, and thereafter in intervals not exceeding three years, the
NSWCCA must investigate and form an opinion as to whether or not the casino
operator is a suitable person to continue to give effect to the casino license
and determine that it is in the public interest that the casino license should
continue in force. The NSWCCA commenced its first such investigation on November
8, 1996, and it was completed on December 14, 1997. The Minister for Racing &
Gaming issued a press release on December 18, 1997 stating that the NSWCCA had
found that the licensee was a suitable person, to continue to give effect to the
casino license and that it was in the public interest that the casino license
should continue in force. The NSWCCA report was made public on March 3, 1998,
and contained no material adverse recommendations.
A casino operator must not enter into a controlled contract without first
notifying the NSWCCA. A controlled contract is a contract that relates wholly or
partly to the supply of goods or services to a casino, but does not include a
contract that relates solely to the construction of the casino or to the
alteration of premises used or to be used as a casino, or such other contracts
as may be defined by the NSWCCA.
Gaming is not to be conducted in the casino unless the facilities provided
in relation to the conduct and monitoring of operations of the casino are in
accordance with the plans, diagrams and specifications that are approved by the
NSWCCA. The NSWCCA may approve the games to be played in the casino. A casino
operator must not conduct a game in a casino unless there is an order in force
approving the game and the game is conducted in accordance with the rules
approved by such order.
The casino is to be open to the public on such days and at such times as
directed by the NSWCCA in writing. The casino must be closed on days and at
times that are not days or times specified by the NSWCCA.
A casino operator must not: (i) accept a wager otherwise than by means of
money or chips; (ii) lend money or any other valuable thing or provide money or
chips as part of a transaction involving a credit card or debit card; (iii)
extend any other form of credit; or (iv) wholly or partly discharge any debt.
The casino operator may issue chips in exchange for checks if the person has
established a deposit account with the casino operator. Checks accepted by the
casino operator must be presented to the bank within one working day after the
check is accepted by the casino operator. Notwithstanding the foregoing, the
NSWCCA agreed to vary the presentment requirement so that Star City may hold
checks drawn on an Australian bank/branch in an amount of or over A$5,000 for up
to 10 banking days and may hold checks drawn on a non-Australian bank/branch for
up to 20 banking days regardless of the amount of the check prior to presenting
the checks for payment.
GAMING--INDIANA
In 1993, the State of Indiana passed a Riverboat Gambling Act which created
the Indiana Gaming Commission ("Indiana Commission"). The Indiana Commission is
given extensive powers and duties for the purposes of administering, regulating
and enforcing the system of riverboat gaming. It is authorized to award no more
than 11 gaming licenses (five to counties contiguous to Lake Michigan, five to
counties contiguous to the Ohio River and one to a county contiguous to Patoka
Lake).
The Indiana Commission has jurisdiction and supervision over all riverboat
gaming operations in Indiana and all persons on riverboats where gaming
operations are conducted. These powers and duties include authority to: (1)
investigate all applicants for riverboat gaming licenses; (2) select among
competing applicants those that promote the most economic development in a home
dock area and that best serve the interest of the citizens of Indiana; (3)
establish fees for licenses; and (4) prescribe all forms used by applicants. The
Indiana Commission shall adopt rules pursuant to statute for administering the
gaming statute and the conditions under which riverboat gaming in Indiana may be
conducted. The Indiana Commission has promulgated certain final rules and has
proposed additional
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rules governing the application procedure and all other aspects of riverboat
gaming in Indiana. The Indiana Commission may suspend or revoke the license of a
licensee or a certificate of suitability or impose civil penalties, in some
cases without notice or hearing for any act in violation of the Riverboat
Gambling Act or for any other fraudulent act or if the licensee or holder of
such certificate of suitability has not begun regular riverboat excursions prior
to the end of the twelve month period following the Indiana Commission's
approval of the application for an owner's license. In addition, the Indiana
Commission may revoke an owner's license if it is determined by the Indiana
Commission that revocation is in the best interests of the state of Indiana. The
Indiana Commission will: (1) authorize the route of the riverboat and stops that
the riverboat may make; (2) establish minimum amounts of insurance; and (3)
after consulting with the Corps of Engineers, determine which waterways are
navigable waterways for purposes of the Riverboat Gambling Act and determine
which navigable waterways are suitable for the operation of riverboats.
The Riverboat Gambling Act requires an extensive disclosure of records and
other information concerning an applicant, including disclosure of all
directors, officers and persons holding one percent (1%) or more direct or
indirect beneficial interest.
In determining whether to grant an owner's license to an applicant, the
Indiana Commission shall consider: (1) the character, reputation, experience and
financial integrity of the applicant and any person who (a) directly or
indirectly controls the applicant, or (b) is directly or indirectly controlled
by either the applicant or a person who directly or indirectly controls the
applicant; (2) the facilities or proposed facilities for the conduct of
riverboat gaming; (3) the highest total prospective revenue to be collected by
the state from the conduct of riverboat gaming; (4) the good faith affirmative
action plan to recruit, train and upgrade minorities in all employment
classifications; (5) the financial ability of the applicant to purchase and
maintain adequate liability and casualty insurance; (6) whether the applicant
has adequate capitalization to provide and maintain the riverboat for the
duration of the license; and (7) the extent to which the applicant meets or
exceeds other standards adopted by the Indiana Commission. The Indiana
Commission may also give favorable consideration to applicants for economically
depressed areas and applicants who provide for significant development of a
large geographic area. Each applicant must pay an application fee of $50,000 and
additional fees may be assessed for the background investigation. If the
applicant is selected, the applicant must pay an initial license fee of $25,000
and post a bond, and thereafter, pay an annual license renewal fee of $5,000.
The Indiana Commission has issued nine of these eleven licenses--four in Lake
County Indiana; one in LaPorte County; one in Vanderburgh County; one in Ohio
County; one in Dearborn County; and one in Harrison County. The Indiana
Commission has selected Switzerland County, on the Ohio River, for the tenth
license. Additionally, the Indiana Commission has not considered applicants for
the eleventh license since the Patoka Lake site has been determined by the U.S.
Army Corp. of Engineers as an unsuitable site for development of a casino vessel
project.
A person holding an owner's gaming license issued by the Indiana Commission
may not own more than a 10% interest in another such license. An owner's license
expires five years after the effective date of the license; however, after three
years the holder of an owner's license will undergo a reinvestigation to ensure
continued suitability for licensure. Unless the license has been terminated,
expired or revoked, the gaming license may be renewed if the Indiana Commission
determines that the licensee has satisfied all statutory and regulatory
requirements. In connection with the issuance of the license to Showboat Marina
Casino Partnership ("SMCP"), Showboat Marina Partnership, an Indiana general
partnership ("SMP"), Waterfront Entertainment and Development, Inc.
("Waterfront") and Showboat, Inc. and its affiliates declared to the Indiana
Commission that if SMCP received a riverboat owner's license, they shall not
commence more than one other casino gaming operation within a fifty-mile radius
of East Chicago Showboat for a period of five years beginning on the date of
issuance of an owner's license by the Indiana Commission to SMCP. Harrah's
Joliet is within said fifty-mile
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radius. Adherence to the non-competition declaration is a condition of the
owner's license. A gaming license is a revocable privilege and is not a property
right.
Minimum and maximum wagers on games are not established by regulation but
are left to the discretion of the licensee. Wagering may not be conducted with
money or other negotiable currency. Riverboat gaming excursions shall be at
least two hours, but not more than four hours in duration unless expressly
approved by the Indiana Commission. No gaming may be conducted while the boat is
docked except: (1) for 30-minute time periods at the beginning and end of a
cruise while the passengers are embarking and disembarking; (2) if the master of
the riverboat reasonably determines that specific weather or water conditions
present a danger to the riverboat; (3) if either the vessel or the docking
facility is undergoing mechanical or structural repair; (4) if water traffic
conditions present a danger to (A) the riverboat, riverboat passengers, and
crew, or (B) other vessels on the water; or (5) if the master has been notified
that a condition exists that would cause a violation of federal law if the
riverboat were to cruise. The Indiana Commission has adopted rules governing
cruising on Lake Michigan by a riverboat casino. The period of time during which
passengers embark and disembark constitutes a portion of the gambling excursion
if gambling is allowed. At the conclusion of the thirty-minute embarkation
period, the gangway or its equivalent must be closed. However, a riverboat
licensee must allow patrons to disembark at anytime the riverboat remains at the
dock and gambling continues. A standard excursion schedule for a casino vessel
on Lake Michigan must include at least one full excursion (a cruise into the
open water on Lake Michigan, not more than three statute miles from the dock
site July through September and not more than one statute mile October through
June) and one intermediate excursion during which the vessel cruises in
protected navigable water on or accessible to Lake Michigan. An intermediate
excursion is to be conducted if the statutory conditions that permit dockside
gaming are not present and if sea conditions or weather conditions, or both, do
not permit a full excursion. If a casino vessel remains dockside because of
statutory conditions, the embarkation and disembarkation rules still apply.
An admission tax of $3.00 for each person admitted to the gaming excursion
is imposed upon the license owner. The admissions tax is paid by the riverboat
licensee for each excursion or part of an excursion the patron remains on board.
An additional 20% tax is imposed on the adjusted gross receipts received from
gaming operations, which is defined as the total of all cash and property
(including checks received by the licensee whether collected or not) received,
less the total of all cash paid out as winnings to patrons and uncollectible
gaming receivables (not to exceed 2%). The gaming license owner shall remit the
admission and wagering taxes before the close of business on the day following
the day on which the taxes were incurred. Riverboats are assessed for property
tax purposes as real property and are taxed at rates to be determined by local
taxing authorities of the jurisdiction in which a riverboat operates. SMCP is
contesting the timing of the initial assessment of property taxes by Lake County
on the riverboat vessel. The Riverboat Gambling Act requires a riverboat owner
licensee to directly reimburse the Indiana Commission for the costs of
inspectors and agents required to be present during the conduct of gaming
operations. Pursuant to agreements with the City, and as reflected in the
owner's license, SMCP has agreed to: (1) provide certain fixed incentives of
approximately $16.4 million to the City of East Chicago and its agencies for
transportation, job training, home buyer assistance and discrete economic
development initiatives; (2) pay 3% of adjusted gross receipts divided equally
among the City and two not-for-profit foundations for infrastructure
improvements, education and community development; and (3) pay 0.75% of adjusted
gross receipts for community development projects to East Chicago Second
Century, Inc. ("Second Century"), a for-profit corporation owned by former
owners of Waterfront but, in terms of expenditures, controlled by the City.
Funding for the projects will be derived from contributions to Second Century
from SMCP as well as funds from other third-party sources.
The Indiana Commission is authorized to license suppliers and certain
occupations related to riverboat gaming. Gaming equipment and supplies
customarily used in conducting riverboat gaming
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may be purchased or leased only from licensed suppliers. The Indiana Commission
has adopted a rule requiring employees working on the riverboat to have a valid
merchant marine document issued by the United States Coast Guard.
The Indiana Riverboat Gambling Act places special emphasis upon minority and
women's business enterprise participation in the riverboat industry. Any person
issued a riverboat owner's license must establish goals of expending at least
10% of the total dollar value of the licensee's contracts for goods and services
with minority business enterprises and 5% of the total dollar value of the
licensee's contracts for goods and services with women's business enterprises.
The Indiana Commission may suspend, limit or revoke the gaming owner's license
or impose a fine for failure to comply with statutory requirements.
An institutional investor which acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to notify the Indiana
Commission and to provide additional information, and may be subject to a
finding of suitability. A person who acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to apply to the
Indiana Commission for a finding of suitability. Harrah's Entertainment filed
the necessary application for a transfer of 100% of Showboat's and 99% of
Waterfront's beneficial interests in SMCP, including an investigatory fee of
$50,000. The Indiana Commission completed its investigation of the key persons
and substantial owners of Harrah's Entertainment, and Harrah's Entertainment was
found to meet the criteria for licensing and suitability of riverboat owner
licensees at the Indiana Commission's meeting on February 26, 1999.
A riverboat owner licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods or services rendered or received. All contracts are subject to disapproval
by the Indiana Commission.
A riverboat owner licensee or an affiliate may not enter into a debt
transaction of $1 million or more without the prior approval of the Indiana
Commission. A riverboat owner licensee or any other person may not lease,
hypothecate, borrow money against or loan money against a riverboat owner's
license.
The Indiana Commission has a rule requiring the reporting of certain
currency transactions which is similar to that required by federal authorities.
The Riverboat Gambling Act prohibits contributions to a candidate for a
state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee, by an officer of a person
holding at least a 1% interest in the licensee. The Indiana Commission has
promulgated a rule requiring quarterly reporting by the holder of a riverboat
owner's license or a supplier's license of officers of the licensee, officers of
persons that hold at least a 1% interest in the licensee, and of persons who
directly or indirectly own a 1% interest in the licensee.
The Indiana Commission adopted a rule that prohibits a distribution by a
riverboat licensee to its partners, shareholders, itself, or any affiliated
entity, if the distribution would impair the financial viability of the
riverboat gambling operation. The Indiana Commission has proposed another rule,
which would, if adopted, require riverboat licensees to maintain on a quarterly
basis a cash reserve in the amount of the actual payout for three days, and the
cash reserve would include cash in the casino cage, cash in a bank account in
Indiana, or cash equivalents not committed or obligated.
The Governor of Indiana has appointed a Gaming Impact Study Commission
chaired by the Attorney General to review the impact of all forms of gaming in
Indiana, and to issue its final report by December 31, 1999.
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A lawsuit was filed on October 25, 1996, in Harrison County Indiana by three
individuals residing in counties abutting the Ohio River, which challenges the
constitutionality of the Riverboat Gambling Act on grounds that: (i) it creates
an unequal privilege because under the Act supporters of riverboat casino
gambling, having lost a county-wide vote, are allowed to resubmit a proposal to
county voters for approval of riverboat casino gambling while opponents of
riverboat casino gambling, having lost a county-wide vote, do not have a
converse opportunity; and (ii) it was enacted as a provision attached to a state
budget bill allegedly in violation of an Indiana constitutional provision
requiring legislative acts to be confined to one subject and matters properly
connected with the subject. The Indiana Supreme Court previously has upheld the
constitutionality of the Riverboat Gambling Act, although the prior challenge
was on different grounds than those contained in the current lawsuit. The
Attorney General of the State of Indiana, on behalf of the Indiana Commission,
has filed a motion for summary judgment, which is pending. If the Riverboat
Gambling Act ultimately was held unconstitutional it would, absent timely
corrective legislation, have a material adverse effect on SMCP's operations.
GAMING--LOUISIANA (NEW ORLEANS)
On October 30, 1998, the plan of reorganization of Harrah's Jazz Company, a
partnership formed for the purposes of developing, owning and operating the
exclusive land-based casino in New Orleans, was consummated (the "Plan").
Pursuant to the Plan, a newly formed entity, Jazz Casino Company, L.L.C.
("JCC"), is responsible for constructing the casino (the "New Orleans Casino")
and operating the casino in accordance with a casino operating contract with the
gaming board of the State of Louisiana (the "Amended and Renegotiated Casino
Operating Contract"). In exchange for an equity investment, a subsidiary of the
Company acquired, at the time of consummation of the Plan, approximately a 44%
equity interest in the parent of JCC (which is subject to certain options). A
subsidiary of the Company, Harrah's New Orleans Management Company ("HNOMC")
will manage the New Orleans Casino pursuant to a management agreement with JCC.
The ownership, management and operation of the New Orleans Casino are
subject to pervasive governmental regulation, including regulation by the
Louisiana Gaming Control Board ("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 Amended and Renegotiated Casino Operating Contract. The
LGCB is empowered to regulate a wide spectrum of gaming and nongaming related
activities.
The Gaming Act and the Rules and Regulations, all of which are subject to
amendment or revision from time to time, establish significant regulatory
requirements with respect to gaming activities, JCC, HNOMC and affiliated
entities, including, without limitation, suitability standards for direct and
indirect investors, 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
Amended and Renegotiated Casino Operating Contract.
The Gaming Act initially established a special public purpose corporation
("LEDGC") to regulate land-based gaming in Louisiana. In May 1996, a law
transferred responsibility for regulation of riverboat gaming and land-based
casino gaming from separate boards, and substituted in their place the LGCB.
This single board is empowered to regulate most forms of gaming in the State,
including the New Orleans Casino. This law also authorized the State Police to,
among other things, conduct investigations and audits of gaming license
applicants and to assist the LGCB in determining compliance with gaming laws and
regulations.
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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 usable space. The term of the contract under the
Gaming Act is not to exceed a total of 20 years with one ten-year renewal
option. The Gaming Act requires minimum compensation of 18 1/2% of gross
revenues or $100 million, annually, whichever is greater (the "Minimum
Compensation").
Under the Plan, and with certain approvals from the LGCB, Harrah's Jazz
Company and JCC entered into the Amended and Renegotiated Casino Operating
Contract which provides for alterations of the size and scope of the Casino and
a revised opening schedule for the Casino. The Amended and Renegotiated Casino
Operating Contract requires JCC to pay the Minimum Compensation and to guarantee
the payment thereof in each year the New Orleans Casino opens for business. The
failure of JCC to post such guarantee prior to the beginning of each fiscal year
is an event of default resulting in the immediate termination of the Amended and
Renegotiated Casino Operating Contract. Subject to the terms and conditions of
the Amended and Renegotiated Casino Operating Contract, the term of the
authorization for gaming runs to July 2014, with a ten-year renewal period.
Under the Gaming Act, the LGCB has broad discretionary authority to regulate
all aspects of the casino operator's operations, including the power to adopt
administrative rules and regulations as may be necessary to carry out and
implement its powers and duties, the conduct of gaming operations, and any other
matters necessary or desirable for the efficient and effective operation of
casino gaming or public convenience. The Gaming Act gives the LGCB the power,
among other things, to (i) investigate the qualifications of any proposed gaming
operator, each applicant for a license or permit, and all direct and indirect
investors, including the Company and its shareholders, (ii) investigate
violations of the Gaming Act and any rules and regulations promulgated
thereunder, and any other incidents or transactions which it deems appropriate,
(iii) conduct hearings and proceedings concerning, and reviews and inspections
of, gaming operations and related activities, (iv) inspect and examine all
premises, and all equipment or supplies thereon, where gaming activities are
conducted or gaming devices or equipment are manufactured, sold, distributed,
and summarily seize and remove from such premises and impound any equipment or
supplies for the purpose of examination and inspection, (v) audit the records of
applicants and gaming operators respecting all revenues produced by any gaming
operations, (vi) issue interrogatories and subpoenas, and (vii) monitor the
conduct of all casino operators, licensees, permittees and other persons having
a material involvement directly or indirectly with a casino operator. Under the
Gaming Act, the gaming activities that may be conducted at the New Orleans
Casino, subject to the rule-making authority of the LGCB, include any banking or
percentage game that is played with cards, dice or any electronic, electrical or
mechanical device or machine for money, property or any thing of value, but
exclude lottery, bingo, charitable games, raffles, electronic video bingo, pull
tabs, cable television bingo, wagering on dog or horse races, sports betting or
wagering on any type of sports contest or event.
Under the Gaming Act, the LGCB is required to issue licenses or permits to
certain persons associated with gaming operations, including (i) certain
employees of the casino operator; (ii) certain manufacturers, distributors and
suppliers of gaming devices; (iii) certain suppliers of goods or services; (iv)
any person who furnishes services or property to the casino operator under an
arrangement pursuant to which the person receives payments based on earnings,
profits or receipts from gaming operations; and (v) any other persons deemed
necessary by the LGCB.
The securing of the requisite licenses and permits under the Gaming Act is a
prerequisite for conducting, operating or performing any activity regulated by
the LGCB or the Gaming Act. The Gaming Act provides that the LGCB has full and
absolute power to deny an application, or to limit, condition, restrict, revoke
or suspend any license, permit or approval, or to fine any person licensed,
permitted or approved for any cause specified in the Gaming Act or rules
promulgated by the LGCB. The Rules and Regulations provide that the LGCB may
take any of the foregoing actions with respect
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to any person licensed, permitted, or approved, or any person registered, found
suitable, or holding a contract, for any cause deemed reasonable.
The Gaming Act provides that it is the express intent, desire and policy of
the legislature that no holder of the casino operating contract, applicant for a
license, permit, contract or other thing existing, issued or let as a result of
the Gaming Act shall have any right or action to obtain any license, permit,
contract or the granting of the approval sought except as provided for and
authorized by the Gaming Act. Any license, permit, contract, approval or thing
obtained or issued pursuant to the provisions of the Gaming Act has been
expressly declared by the legislature to be a pure and absolute revocable
privilege and not a right, property or otherwise, under the constitutions of the
United States or of the State. The Gaming Act also provides that no holder
acquires any vested right therein or thereunder.
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, HNOMC,
anyone with a direct ownership interest or the ability to control JCC or HNOMC
(as well as their intermediary and holding companies), certain officers and
directors of such companies, and certain employees of JCC. Suitability requires
a demonstration by each applicant, by clear and convincing evidence, that, among
other things, (i) the applicant is a person of good character, honesty and
integrity; (ii) the applicant's 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) the applicant 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 Amended and Renegotiated
Casino Operating Contract, JCC 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 Amended and
Renegotiated 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 JCC or its affiliated companies and
the holders of equity interests in holding companies of JCC, the Company or
other affiliated entities 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 JCC or HNOMC or ten percent or more equity interest
in a publicly traded, direct or indirect holding company of JCC or HNOMC, is
presumed to have the ability to control JCC or HNOMC, 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 passive institutional investors holding a stated
minimum amount of assets and, upon request, such institution files a
certification stating that it does not have an intention to influence the
affairs of JCC or HNOMC. To the extent any holder of the securities fails to
satisfy such requirement, such holder may be required to obtain certain
qualifications or approvals from the LGCB to continue to hold such securities.
Any failure to obtain such qualifications or approvals may, by virtue of the
requirements, subject such security holders to certain requirements, limitations
or prohibitions, including a requirement that such security holders liquidate
their securities at a time or at a cost that is otherwise unfavorable to such
security holders.
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
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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 Amended and Renegotiated 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
Amended and Renegotiated 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 JCC or HNOMC or an affiliate,
intermediary or holding company thereof has failed to be found or remain
suitable, the LGCB shall not declare JCC or HNOMC or its affiliate, intermediary
or holding company, as the case may be, unsuitable as a result 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) HNOMC has failed to remain suitable, (ii) JCC is engaged in a
relationship with the unsuitable person and had actual or constructive knowledge
of the wrongdoing causing LGCB's action, (iii) JCC is so tainted by such person
that it affects the suitability of JCC under the standards of the Gaming Act, or
(iv) JCC cannot meet the suitability standard contained in the Gaming Act and
the Rules and Regulations.
JCC is not permitted to operate the Casino unless and until certain persons
and entities required to be found suitable are found suitable by the LGCB. Such
persons and entities include, without limitation, JCC, HNOMC, the Company and
certain members, officers and directors of such companies and any other persons
having the ability to significantly affect the affairs of such companies. On
October 13, 1998, JCC, HNOMC and the Company and certain officers and directors
of JCC, its parent company and HNOMC were found suitable after extensive
background investigations by the LGCB (and its investigatory arm, the State
Police). JCC and all other persons and entities required to be found suitable,
including those already found suitable, have an ongoing obligation to maintain
their suitability throughout the term of the Amended and Renegotiated Casino
Operating Contract.
The sale, transfer, assignment, or alienation of the Amended and
Renegotiated Casino Operating Contract, or an interest therein, in violation of
the Gaming Act is prohibited. The LGCB may approve the sale, transfer,
assignment, or any grant the approval subject to conditions imposed by the LGCB.
Under the Gaming Act, the sale, transfer, assignment, pledge, alienation,
disposition, public offering, or acquisition of securities that result in one
person's owning 5% or more of the total outstanding shares issued by JCC is void
as to such person without prior approval of the LGCB. Failure to obtain prior
approval by the LGCB of a person acquiring 5% or more of the total outstanding
shares of a licensee of 5% or more economic interest in JCC is grounds for
cancellation of the casino operating contract or license suspension or
revocation. A transfer of an interest in the Company that would lead to a change
in control in the ownership or management of the Company may require prior LGCB
approvals and certain findings of suitability.
The Gaming Act obligates JCC to give preference and priority to Louisiana
residents, laborers, vendors and suppliers, except when not reasonably possible
to do so without added expense, substantial inconvenience or sacrifice in
operational efficiency. The Gaming Act further obligates JCC to give preference
and priority to Louisiana residents in considering applicants for employment and
requires that no less than 80% of the persons employed by JCC be Louisiana
residents for at least one year immediately prior to employment. The Gaming Act
provides that if any contract or other agreement to which the casino operator is
a party contains a provision or clause establishing a different percentage or
requiring more than 50% of the persons employed to be residents of any one
parish, any such provision or clause shall be null and void and unenforceable as
against public policy.
The Gaming Act requires that JCC adopt written policies, procedures, and
regulations to allow the participation of businesses owned by minorities in all
design, engineering, and construction contracts and/or projects to the maximum
extent practicable. The Rules and Regulations provide that JCC and
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HNOMC must take the foregoing actions with respect to all design, engineering,
construction, banking and maintenance contracts and any other projects initiated
by JCC and HNOMC. The Gaming Act further requires JCC, as nearly as practicable,
to employ minorities consistent with the population of the State. The Rules and
Regulations extend this obligation to HNOMC as well. The Rules and Regulations
provide that if at any time the LGCB shall conclude that JCC or HNOMC is
conducting itself in a manner inconsistent with the requirements of State law or
the Rules and Regulations, the LGCB may take enforcement action, including fines
and the imposition of a plan that the LGCB determines meets the objectives of
the Gaming Act and the Rules and Regulations.
The Gaming Act provides that JCC shall not: (i) offer seated restaurant
facilities with table food service for patrons, but may offer limited cafeteria
style food services for employees and patrons as provided by rule of the LGCB,
provided, however, that no food may be given away or subsidized within the New
Orleans Casino by JCC or any licensee, and no facility for food service shall
exceed seating for 250 persons (by rule and regulation, LGCB is empowered to
allow JCC to contract with local food preparers to provide food at the
restaurant at the New Orleans Casino); (ii) offer lodging in the Casino, nor
engage in any practice or enter into any business relationships to give any
hotel, whether or not affiliated with JCC, any advantage or preference not
available to all similarly situated hotels; (iii) engage in such activities as
are prohibited by the Amended and Renegotiated Casino Operating Contract; (iv)
engage in the sale of products that are not directly related to gaming; or (v)
cash or accept in exchange for the purchase of tokens, chips or electronic cards
an identifiable employee payroll check. Any contract between JCC and any hotel
or lodging facilities must be submitted to the LGCB for approval prior to
entering into the contract.
The Gaming Act provides that all records of the LGCB are public records and
available for public inspection, subject to certain exceptions, and may, in any
event, be made available to other governmental entities or regulators, under
certain circumstances.
The Gaming Act provides that the LGCB shall annually enter into a casino
support services contract with the City of New Orleans in order to compensate it
for the cost to it for providing support services resulting from the operation
of the official gaming establishment and the activities therein. The amount of
the contract is to be determined by negotiation and agreement between the LGCB
and the City of New Orleans, subject to approval by the State legislature.
The Gaming Act authorizes the LGCB to provide for the protection of the
rights of holders of security interests in both immovable property and movable
property used in or related to casino gaming operations ("Gaming Collateral")
and to provide for the continued operation of the New Orleans Casino during the
period of time that a lender, as a holder of a security interest, seeks to
enforce its security interest in such property. In connection therewith, the
Gaming Act provides that the holder of a security interest in Gaming Collateral
may receive payments from the owner or lessee of such property out of the
proceeds of casino gaming operations received by the owner or lessee, and, the
holder of the security interest may be exempt from the licensing requirements of
the Gaming Act with respect to such payments if the transaction(s) giving rise
to such payments have been approved in advance by the LGCB and complies with all
rules and regulations of the LGCB and the LGCB determines the holder to be
suitable.
Under the Gaming Act, a holder of a security interest in a gaming device who
asserts the right to ownership or possession of the encumbered property may be
granted a one-time, nonrenewable, provisional contract for a maximum of 90 days
for the sole purpose of acquiring ownership or possession for resale to a
licensed or approved person, all in accordance with rules and regulations to be
promulgated by the LGCB. The Rules and Regulations do not yet include a rule and
regulation on this provision. The license or contract shall not authorize the
holder to operate the gaming device or to utilize the property in gaming
activities.
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If the holder of a security interest in immovable property comprising the
New Orleans Casino wished to continue the operation during and after the filing
of a suit to enforce the security interest, the Gaming Act provides that the
holder of the security interest must name the LGCB as a nominal defendant in
such suit and request the appointment of a receiver from among the persons on a
list maintained by the LGCB. Upon proof of the debtor's default under the
security instrument and the holder's right to enforce the security interest, the
court shall appoint a person from the LGCB's list as a receiver of the official
gaming establishment. Upon appointment of the receiver, the Gaming Act requires
the receiver to furnish a fidelity bond in favor of the security interest
holder, the owner or lessee of the official gaming establishment and the LGCB in
an amount to be set by the court after consultation with the LGCB and all
parties. The Gaming Act requires the LGCB to issue to the receiver a one-time,
nonrenewable, provisional contact to continue gaming operations until the
receivership is terminated. The receiver is considered to have all the rights
and obligations of the casino operator under the casino operating contract. The
holder of the security interest provoking the appointment of a receiver under
the Gaming Act is required to pay the cost of the receiver's bond and the cost
of operating the official gaming establishment or gaming operator during the
term of the receivership to the extent that such costs exceed available
revenues, in accordance with the rules and regulations of the LGCB. The Gaming
Act further provides that the fees of the receiver and the authority for
expenditures of the receiver are to be established by rules and regulations of
the LGCB.
The Gaming Act provides that a receivership must terminate upon: (i) the
sale of the property subject to receivership to a duly approved or authorized
person; (ii) the payment in full of all obligations due to the holder of the
security interest in the property subject to the receivership; (iii) an
agreement for termination of the receivership signed by the holder of the
security interest and the debtor, and approved by the LGCB and the court; or
(iv) the lapse of five years from the date of the initial appointment of the
receiver. Under the Gaming Act, a receivership may also be terminated by notice
from the holder of the security interest who provoked the receivership addressed
to the court and the LGCB of its intention to withdraw its financial support of
the receivership at a specified time not less than 90 days from the date of the
notice. In the event of such notice, the Gaming Act provides that the holder of
the security interest giving the notice will not be responsible for any costs or
expenses of the receivership after the date specified in the notice; except for
reasonable costs and fees of the receiver in concluding the receivership, and
the costs of a final accounting.
The Gaming Act purports to provide that LGCB, the Governor by Executive
Order, subject to legislative approval or the State legislature by act or
resolution, may set aside or renegotiate the provisions of Casino operating
contract when the casino operator is either voluntarily or involuntarily placed
in bankruptcy, receivership or similar status.
The Gaming Act provides that no rule or regulation and no provision in a
contract executed by the LGCB pursuant to its authority to protect the holders
of security interests in Gaming Collateral shall be the basis for any cause of
action in contract or in tort against the State or the LGCB, its board of
directors or its agents, attorneys or employees.
Because legalized gaming is a relatively new industry in the State, there
has been significant attention by the Louisiana legislature over the past few
years to gaming related bills dealing with a wide range of subjects that could
impact the New Orleans Casino project. At various times, bills have been
introduced to, among other things, constitutionally and/or legislatively repeal
all forms of gaming (including the land-based casino), increase taxes on
casinos, limit credit that may be extended by casinos, limit days and hours of
operation and alter the regulatory oversite structure. There can be no
assurances that legislation having a material detrimental impact on the New
Orleans Casino will not be enacted.
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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 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
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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 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 legislation, as amended, imposes 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.
There have been discussions regarding increasing the number of riverboat
gaming licenses and/or allowing a riverboat gaming license to be moved from one
location to another. There can be no assurance that legislation increasing the
number of licenses, allowing a change in license location 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.
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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, and on March 1,
1999, that casino was sold to a subsidiary of Casino America, Inc. In addition,
a parent company of a company holding a license must register under the
Mississippi Act. Harrah's Entertainment 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 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.
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Any individual who is found to have a material relationship to, or material
involvement with, Harrah's Entertainment 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 Entertainment 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 Entertainment without prior approval of the Mississippi
Commission. Harrah's Entertainment also is prohibited from consummating a plan
of recapitalization proposed by management in opposition to an attempted
acquisition of control of Harrah's Entertainment 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 Entertainment 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 Entertainment
outstanding Common Stock at a price in excess of 110 percent of the then-current
market value of Harrah's Entertainment Common Stock from a person who owns and
has for less than one year owned more than three percent of Harrah's
Entertainment outstanding Common Stock, unless the repurchase has been approved
by a majority of Harrah's Entertainment 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 Entertainment registers with and gets
the approval of the Mississippi Commission. Harrah's Entertainment must obtain
prior approval from the Mississippi Commission for any subsequent public
offering of the securities of Harrah's Entertainment 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 Entertainment must provide
further documentation
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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 Entertainment 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 Entertainment 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 Entertainment 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 Entertainment 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 Entertainment is not permitted to pay such person for
services rendered, or to employ or enter into any contract with such person.
Harrah's Entertainment 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 Entertainment also is required to render maximum assistance in
determining the identity of the beneficial owner.
Because Harrah's Entertainment is licensed to conduct gaming in the State of
Mississippi, neither Harrah's Entertainment 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 Entertainment 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.
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 ("Red River"), 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.
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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. Red River received a conditional renewal, pending
completion of investigation, in January 1999. The investigation is expected to
be completed, and final renewal received, by June 1999. 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.
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.
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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 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 a 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 a 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.
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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.
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
and the gaming regulatory agencies of tribal governments. IGRA is subject to
interpretation by the 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 management contracts relating to Harrah's Phoenix Ak-Chin,
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; (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
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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 pari-mutuel wagering. Harrah's Phoenix
Ak-Chin and Harrah's Prairie Band provide Class II gaming and, as limited by the
tribal-state compact, Class III gaming. Harrah's Cherokee provides only 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.
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 has received its permanent certification from the
Arizona Department of Gaming as management contractor for the Ak-Chin Indian
Community's casino and has been licensed by the relevant tribal gaming
authorities to operate the Prairie Band of Potawatomi Indians' casino and the
Eastern Band of Cherokee Indians' casino, respectively. The certification for
Cherokee was provided by the Tribal Gaming Commission.
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 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, Cherokee and/or Prairie
Band casinos. The possession of valid licenses from the Ak-Chin Indian
Community, the Eastern Band of
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Cherokee Indians and the Prairie Band of Potawatomi Nation are ongoing
conditions of the Company's agreements with these tribes.
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
Entertainment. Access to several Harrah's Entertainment 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, Harrah's Atlantic City and the Atlantic City Showboat.
EMPLOYEE RELATIONS
Harrah's Entertainment, through its subsidiaries, has approximately 37,400
employees. Labor relations with employees are good.
The Company's subsidiaries have collective bargaining agreements covering
approximately 5,400 employees. These agreements relate to certain casino, hotel
and restaurant employees at Harrah's Atlantic City, Harrah's Las Vegas and all
the Showboat facilities.
ITEM 3. LEGAL PROCEEDINGS.
NEW ORLEANS
On October 30, 1998, the Plan of Reorganization for Harrah's Jazz Company
was consummated. As a result, the contingencies in the already approved
settlements in the IN RE HARRAH'S ENTERTAINMENT, INC. SECURITIES LITIGATION,
Civil No. 95-3925, and RUSSELL M. SWODY, ET AL. V. HARRAH'S NEW ORLEANS
MANAGEMENT COMPANY AND HARRAH'S ENTERTAINMENT, INC., Civil No. 95-4118, matters,
both of which were pending in the United States District Court for the Eastern
District of Louisiana, were removed and the settlements are now fully effective.
Also in connection with the consummation of the Plan of Reorganization,
releases of past events in connection with the New Orleans Casino project were
obtained by the Company from various parties that had previously been in
litigation with the Company. Among the releases exchanged at closing were
releases from Centex-Landis, the City of New Orleans, the Louisiana Gaming
Control Board, the Louisiana Economic Development and Gaming Corporation, New
Orleans/Louisiana Development Corporation and its shareholders, Eddie Sapir and
the Eddie Sapir Inter Vivos Trust No. 1.
Also in connection with the consummation of the Plan of Reorganization,
motions to dismiss with prejudice and/or notices of dismissal with prejudice
were filed in the following actions involving the Company: HARRAH'S NEW ORLEANS
INVESTMENT COMPANY V. NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION, Civil No.
95-3166, NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION V. HARRAH'S
ENTERTAINMENT, ET AL., Civil No. 95-14653, CENTEX-LANDIS CONSTRUCTION CO., INC.
V. HARRAH'S
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ENTERTAINMENT, INC. ET AL., Civil No. 95-18101, CITY OF NEW ORLEANS AND
RIVERGATE DEVELOPMENT CORPORATION V. HARRAH'S ENTERTAINMENT, INC. ET AL., Civil
No. 95-19285, LOUISIANA ECONOMIC DEVELOPMENT AND GAMING CORPORATION V. HARRAH'S
ENTERTAINMENT, INC. ET AL., now Civil No. 96-169, in the IN RE HARRAH'S JAZZ
COMPANY BANKRUPTCY PROCEEDING, the adversary proceeding styled HARRAH'S JAZZ
COMPANY V. A&D MAINTENANCE SERVICES, ET AL., 97-1174, in the IN RE NEW ORLEANS
LOUISIANA DEVELOPMENT CORPORATION BANKRUPTCY PROCEEDING, the adversary
proceeding styled NEW ORLEANS LOUISIANA DEVELOPMENT CORPORATION V. BANKERS TRUST
COMPANY, ET AL., 97-1176, and EDDIE SAPIR ET AL. V. BANKERS TRUST COMPANY, ET
AL., Civil No. 97-20643, all pending in the United States District Court for the
Eastern District of Louisiana or its Bankruptcy Court. The orders effectuating
these dismissals have all been entered.
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
Entertainment 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 appealed
to the Missouri Supreme Court which, on May 28, 1998, lifted the lower court's
restraining order. On June 18, 1998, the Commission reissued its proposed
disciplinary resolutions. All affected licensees, including Harrah's, filed
timely appeals of the proposed disciplinary resolutions. Subsequently, all of
the parties to the several disciplinary hearings, including Harrah's
Entertainment and the Commission, agreed that all of the evidence for the
hearings would be presented through documents rather than through oral
testimony, so no hearings were held. Harrah's Entertainment also filed suit
seeking declaratory judgment that its gaming facilities met the state
constitutional mandates as established by the Missouri Supreme Court. On
November 3, 1998, the people of the State of Missouri voted to amend the State's
Constitution to deem all floating casino facilities in compliance with state
law. The election results have been certified, and the Commission has dismissed
the disciplinary resolutions.
In addition to the matters described above, Harrah's Entertainment and its
subsidiaries are 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 matters will
not have a material adverse effect upon the Company's consolidated financial
position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 18, 1998, the Company held a special meeting of stockholders to
approve the issuance of Company common stock in connection with the Rio merger.
The results of the vote were as follows: 81,782,544 votes in favor, 358,103
votes against or withheld and 259,793 abstentions.
42
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<S> <C>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- --------------------------------------------- ---------------------------------------------
Philip G. Satre (49)......................... Director since 1989, member of the three-
executive Office of the President since
December 1998, Chairman of the Board since
January 1997, President since April 1991 and
Chief Executive Officer since April 1994 of
Harrah's Entertainment. Chief Operating
Officer of Harrah's Entertainment
(1991-1994). President (1984-1995) of
Harrah's Gaming Group. He was a member of the
Executive Committee of Harrah's Jazz Company
and was 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. On
October 30, 1998, the Plan of Reorganization
for both Companies was consummated.
Colin V. Reed (51)........................... Director since 1998, member of the three-
executive Office of the President since
December 1998, Executive Vice President of
Harrah's Entertainment since September 1995.
Chief Financial Officer of Harrah's
Entertainment since April 1997. Senior Vice
President, Corporate Development of Harrah's
Entertainment from May 1992 to September
1995. He was a member of the Executive
Committee of Harrah's Jazz Company and was a
director, Senior Vice President and Secretary
of Harrah's Jazz Finance Corp., both of which
filed petitions under Chapter 11 of the
United States Bankruptcy Code in November
1995. On October 30, 1998, the Plan of
Reorganization for both companies was
consummated. He is also a director of Sodak
Gaming, Inc. and National Airlines, Inc., as
well as Chairman of the Board of JCC Holding
Company.
Gary W. Loveman (38)......................... Executive Vice President, Chief Operating
Officer and member of the three-executive
Office of the President since May 1998. Mr.
Loveman was Associate Professor of Business
Administration, Harvard University Graduate
School of Business Administration from 1994
to 1998, where his responsibilities included
teaching MBA and executive education
students, research and publishing in the
field of service management, and consulting
and advising large service companies.
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- --------------------------------------------- ---------------------------------------------
John M. Boushy (44).......................... Senior Vice President, Information Technology
and Brand Operations of Harrah's
Entertainment since June 1993. He is a
director of Interactive Entertainment Limited
and JCC Holding Company (for which he has
applied for approval by the Louisiana Gaming
Control Board).
Ben C. Peternell (53)........................ Senior Vice President, Corporate Human
Resources and Communications of Harrah's
Entertainment since November 1989.
E. O. Robinson, Jr. (59)..................... Senior Vice President and General Counsel of
Harrah's Entertainment since April 1993 and
Secretary of Harrah's Entertainment from
November 1989 to October 1995.
</TABLE>
44
<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>
1998 HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First Quarter................................................................ 25 1/8 18 1/8
Second Quarter............................................................... 26 3/16 21 5/8
Third Quarter................................................................ 23 1/2 13 5/16
Fourth Quarter............................................................... 17 1/4 11 1/16
<CAPTION>
1997
- -----------------------------------------------------------------------------
<S> <C> <C>
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 29, 1999, is as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
TITLE OF CLASS OF HOLDERS OF RECORD
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Common Stock, Par Value $0.10 per share.................................. 12,848
</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 35 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. The
Board of Directors of the Company may 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 1994 through 1998 set forth under
"Financial and Statistical Highlights" on pages 22 and 23 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information set forth on pages 25 through 35 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risk, primarily changes in interest rates.
The Company has entered into derivative transactions to hedge its exposure to
interest rate changes. The Company does
45
<PAGE>
not hold or issue derivative financial instruments for trading purposes and does
not enter into derivative transactions that would be considered speculative
positions.
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by contractual maturity dates.
<TABLE>
<CAPTION>
MATURITY DATE
----------------------------------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE(1)
--------- --------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
LIABILITIES
Long-term debt
Fixed rate........................ $ 2.3 $ 2.6 $ 3.9 $ 1.2 $ 1.3 $ 902.3 $ 913.6 $ 933.0
Average interest rate........... 10.2% 10.3% 8.3% 7.1% 7.1% 7.9% 7.9%
Variable rate..................... $ -- $ 1,086.0 $ -- $ -- $ -- $ -- $ 1,086.0 $ 1,086.0
Average interest rate(2)........ --% 6.0% -- -- -- -- 6.0%
INTEREST RATE SWAPS
Variable to Fixed................. $ -- $ 300.0 $ -- $ -- $ -- $ -- $ 300.0 $ 6.2
Average pay rate................ 6.5% 6.5%
Average receive rate............ 5.3% 5.3%
</TABLE>
- ------------------------
(1) The fair values are based on the borrowing rates currently available for
debt instruments with similar terms and maturities and market quotes of the
Company's publicly traded debt.
(2) The average interest rates were based on December 31, 1998, variable rates.
Actual rates in future periods could vary.
During January 1999, the Company completed a public offering of $500 million
principal amount 7 1/2% Senior Notes due 2009. The proceeds from the issuance of
these notes were used to retire a portion of the variable rate debt due in 2000.
The interest rate swap agreements contain a credit risk to the Company that
the counterparties may be unable to meet the terms of the agreements. The
Company minimizes this risk by evaluating the creditworthiness of its
counterparties, which are limited to major banks and financial institutions.
Although the Company has an ownership interest in and manages a business in
a foreign country, these operations are not material to the Company's
consolidated financial position, results of operations or cash flows.
Additionally, foreign currency translation gains and losses were not material to
the Company's results of operations for the year ended December 31, 1998.
Accordingly, the Company is not currently subject to material foreign currency
exchange rate risk from the effects that exchange rate movements of foreign
currencies would have on the Company's future operating results or cash flows.
The Company also holds investments in various other available-for-sale equity
securities. The Company's exposure to price risk arising from the ownership of
these investments is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth on pages 36 through 53 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.
46
<PAGE>
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 43 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 1998 and
December 31, 1998 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.
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, 1998 and 1997.
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996.
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the Years Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.
- ------------------------
* Incorporated by reference from pages 36 through 53 of the Annual Report.
47
<PAGE>
2. Schedules for the years ended December 31, 1998, 1997 and 1996, are
as follows:
<TABLE>
<CAPTION>
NO.
- -----------
<S> <C> <C>
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.
</TABLE>
3. Exhibits (footnotes appear on pages 56 through 58)
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
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)
2(2) -- Agreement and Plan of Merger, dated August 9, 1998, and amended September 4, 1998, by and among
Harrah's Entertainment, Inc., HEI Acquisition Corp. III, and Rio Hotel & Casino, Inc. (11)
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. (29)
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)
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) -- Interest Swap Agreement between Bank of America National Trust and Savings Association and Embassy
Suites, Inc. dated May 14, 1993. (6)
4(8) -- Interest Swap Agreement between NationsBank of North Carolina, N. A. and Embassy Suites, Inc.
dated May 18, 1993. (6)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
4(9) -- Interest Swap Agreement between Bank of America National Trust and Savings Association and
Harrah's Operating Company, Inc. dated December 21, 1995. (25)
4 10) -- Interest Swap Agreement between NationsBank, N. A. (Carolinas) and Harrah's Entertainment, Inc.
dated December 21, 1995. (25)
4 11) -- Interest Swap Agreement between The Bank of Nova Scotia and Embassy Suites, Inc. dated January 25,
1995 and amended February 2, 1995. (7)
4 12) -- Interest Swap Agreement between Bankers Trust Company and Embassy Suites, Inc. dated May 16, 1995.
(10)
4 13) -- Interest Swap Agreement between The Sumitomo Bank, Limited and Embassy Suites, Inc. dated June 5,
1995. (10)
4 14) -- Interest Swap Agreement between Bankers Trust Company and Embassy Suites, Inc. dated June 6, 1995.
(10)
4 15) -- 5 Year Credit Agreement among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
Certain Subsidiaries of Harrah's Operating Company, Inc., Various Banks, Canadian Imperial Bank of
Commerce and Societe Generale, as Co-Syndication Agents, Bank of America National Trust and
Savings Association, as Documentation Agent, and Bankers Trust Company, as Administrative Agent,
dated as of July 22, 1993 and Amended and Restated as of June 9, 1995 and further Amended and
Restated as of April 1, 1998. (16)
4 16) -- 364 Day Credit Agreement among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
Certain Subsidiaries of Harrah's Operating Company, Inc., Various Banks, Canadian Imperial Bank of
Commerce and Societe Generale, as Co-Syndication Agents, Bank of America National Trust and
Savings Association, as Documentation Agent, and Bankers Trust Company, as Administrative Agent,
dated as of June 9, 1995 and Amended and Restated as of April 1, 1998. (16)
4 17) -- First Amendment, dated as of September 16, 1998, to the Credit Agreement dated as of July 22,
1993, amended and restated as of June 9, 1995 and further amended and restated as of April 1, 1998
(the "5-Year Credit Agreement") and to the Credit Agreement dated as of June 9, 1995, amended and
restated as of April 1, 1998 (the "364-Day Credit Agreement"), among Harrah's Entertainment, Inc.,
Harrah's Operating Company, Inc., Marina Associates, the lenders party to these credit agreements,
Canadian Imperial Bank of Commerce and Societe Generale, as Co-Syndication Agents, Bank of America
National Trust and Savings Association, as Documentation Agent, and Bankers Trust Company, as
Administrative Agent.
**4 18) -- Second Amendment, dated as of November 30, 1998, to the 5-Year Credit Agreement and to the 364-Day
Credit Agreement, among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., Marina
Associates, the lenders party to these credit agreements, Canadian Imperial Bank of Commerce and
Societe Generale, as Co-Syndication Agents, Bank of America National Trust and Savings
Association, as Documentation Agent, and Bankers Trust Company, as Administrative Agent.
**4 19) -- Indenture, dated as of December 9, 1998, among Harrah's Operating Company, Inc. as Issuer,
Harrah's Entertainment, Inc., as Guarantor and IBJ Schroder Bank & Trust Company, as Trustee
relating to the 7 7/8% Senior Subordinated Notes Due 2005.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
4 20) -- Indenture, dated as of December 18, 1998, among Harrah's Operating Company, Inc. as obligor,
Harrah's Entertainment, Inc., as Guarantor, and IBJ Schroder Bank & Trust Company, as Trustee
relating to the 7 1/2% Senior Notes Due 2009.
4 21) -- Indenture dated as of July 21, 1995, among Rio Hotel & Casino, Inc., Rio Properties, Inc. and IBJ
Schroder Bank & Trust Company for the 10 5/8% Senior Subordinated Notes Due 2005. (31)
4 22) -- Indenture dated as of February 11, 1997, among Rio Hotel & Casino, Inc., Rio Properties, Inc. and
IBJ Schroder Bank & Trust Company for the 9 1/2% Senior Subordinated Notes Due 2007. (32)
4 23) -- Amended and Restated Credit Agreement dated as of February 24, 1998 among Rio Properties, Inc. and
Rio Leasing, Inc. and Bank of America National Trust and Savings Association as Agent and the
other financial institutions party hereto. (33)
**4 24) -- Amendment No. 1 dated December 7, 1998 to the Amended and Restated Credit Agreement dated as of
February 24, 1998, among Rio Properties, Inc., Rio Leasing, Inc., Bank of America National Trust
and Savings Association, and the financial institutions thereto.
**4 25) -- Loan Agreement dated December 18, 1998, among Rio Properties, Inc., Rio Leasing, Inc., Bank of
America National Trust and Savings Association, as Agent, NationsBanc Montgomery Securities LLC,
as Lead Arranger, and the other financial institutions party hereto ("Loan Agreement dated
December 18, 1998").
**4 26) -- Form of Note utilized under Loan Agreement dated December 18, 1998.
**4 27) -- Guaranty dated December 18, 1998, by Rio Hotel and Casino, Inc. as guarantor under Loan Agreement
dated December 18, 1998.
**4 28) -- Pledge and Security Agreement dated December 18, 1998, by Rio Properties, Inc. and Rio Leasing,
Inc. under Loan Agreement dated December 18, 1998.
**4 29) -- Parent Pledge and Security Agreement dated December 18, 1998, by Rio Hotel & Casino, Inc. under
Loan Agreement dated December 18, 1998.
**4 30) -- Deed of Trust, dated December 18, 1998, by Rio Properties, Inc. under Loan Agreement dated
December 18, 1998.
**4 31) -- Deed of Trust, dated December 18, 1998, by Cinderlane, Inc. under Loan Agreement dated December
18, 1998.
**4 32) -- Intercreditor Agreement dated December 18, 1998, among Bank of America National Trust Savings
Association, as Agent, and various banks as lenders.
4 33) -- Press Release dated April 1, 1998--Harrah's Calls Notes for Redemption; Closes Bank Facility. (16)
4 34) -- Press Release dated May 13, 1998--Harrah's Commences Tender for Showboat Debt. (16)
4 35) -- Press Release dated May 26, 1998--Harrah's Revises Tender for Showboat Senior Subordinated Notes
No Change In First Mortgage Bonds. (16)
4 36) -- Press Release dated May 28, 1998--Harrah's receives Requisite Consents for Showboat First Mortgage
Bonds. (16)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
4 37) -- Press Release dated May 29, 1998--Harrah's Receives Requisite Consents for Showboat Senior
Subordinated Notes. (16)
4 38) -- Press Release dated June 9, 1998--Harrah's Prices Tender Offer for Showboat First Mortgage Bonds
and Senior Subordinated Notes. (16)
4 39) -- Press Release dated June 11, 1998--Harrah's Completes Tender Offer for Showboat First Mortgage
Bonds and Senior Subordinated Notes. (16)
4 40) -- Indenture dated May 18, 1993, for the 9 1/4% First Mortgage Bonds due 2008 among Showboat, Inc.,
Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company, and IBJ Schroder
Bank & Trust Company; Guaranty by Ocean Showboat Operating Company in favor of IBJ Schroder Bank &
Trust Company and Form of Bond Certificate for the 9 1/4% First Mortgage Bonds due 2008. (16)
4 41) -- First Supplemental Indenture dated July 18, 1994, for the 9 1/4% First Mortgage Bonds due 2008
among Showboat, Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating
Company and IBJ Schroder Bank & Trust Company is incorporated herein by reference to Showboat,
Inc.'s Form 10-K (file no. 1-7123) for the year ended December 31, 1994, Exhibit 4.02. (16)
4 42) -- Indenture dated August 10, 1994, for the 13% Senior Subordinated Notes due 2009 among Showboat,
Inc., Ocean Showboat, Inc., Atlantic City Showboat, Inc., Showboat Operating Company, and Marine
Midland Bank; Guaranty by Ocean Showboat, Inc., Atlantic City Showboat, Inc. and Showboat
Operating Company in favor of Marine Midland Bank; and Form of Note Certificate for the 13% Senior
Subordinated Notes due 2009. (34)
4 43) -- Indenture dated as of March 28, 1996, among Showboat Marina Casino Partnership, Showboat Marina
Finance Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Nomura Securities
International, Inc., Bear, Stearns & Co., Inc. and American Bank National Association, as Trustee,
relating to the 13 1/2 Series A and Series B First Mortgage Notes due 2003. (35)
**4 44) -- First Supplemental Indenture dated as of March 1, 1999 to Indenture dated as of March 28, 1996,
for $140,000,000 13 1/2% First Mortgage Notes due 2003 of Showboat Marina Casino Partnership and
Showboat Marina Finance Corporation and Firstar Bank of Minnesota, N.A., as Trustee.
4 45) -- Second Supplemental Indenture dated as of May 27, 1998 to Indenture dated as of May 18, 1993, for
$275,000,000 9 1/4% First Mortgage Bonds due 2008 of Showboat, Inc., Issuer, Ocean Showboat, Inc.,
Atlantic City Showboat, Inc. and Showboat Operating Company, Guarantors, and IBJ Schroder Bank &
Trust Company as Trustee. (16)
4 46) -- First Supplemental Indenture dated as of May 28, 1998 to Indenture dated as of August 10, 1994 for
$120,000,000 13% Senior Subordinated Notes due 2009 of Showboat, Inc., Company, Ocean Showboat,
Inc., Atlantic City Showboat, Inc., and Showboat Operating Company, Guarantors, and Marine Midland
Bank as Trustee. (16)
4 47) -- Agreement of Purchase and Sale by and between Sun International and Showboat Land LLC, dated
January 29, 1998; Assignment and Assumption of Lease by and between Sun International and Showboat
Land LLC, dated January 27, 1998; Landlord Estoppel Certificate by Sun International to Atlantic
City Showboat, Inc. dated January 27, 1998; Tenant Estoppel Certificate by Atlantic City Showboat,
Inc. to Sun International dated January 27, 1998. (36)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
4 48) -- Mortgage and Security Agreement by and between Column Financial, Inc. and Showboat Land LLC, dated
January 29, 1998; Promissory Note in the principal amount of $100,000,000 in favor of Column
Financial Inc. by Showboat Land LLC, dated January 29, 1998; Cash Management Agreement by and
between Column Financial, Inc. and Showboat Land LLC dated January 28, 1998; Guaranty of Lease by
and between Showboat, Inc. and Column Financial, Inc. dated January 29, 1998; Environmental
Indemnity Agreement by and between Column Financial, Inc., Showboat Land LLC and Atlantic City
Showboat, Inc. dated January 29, 1998; Assignment of Leases and Rents by and between Column
Financial Inc. and Showboat Land LLC, dated January 29, 1998; Tenant Estoppel Certificate by
Atlantic City Showboat, Inc. to Column Financial, Inc. and Showboat Land LLC, dated January 29,
1998; Promissory Note Clarification Agreement dated January 29, 1998 between Column Financial,
Inc. and Showboat Land LLC; and Lease Clarification Agreement dated February 13, 1998 among
Showboat Land LLC and Atlantic City Showboat, Inc. (36)
10(1) -- Tax Sharing Agreement, dated June 30, 1995, between The Promus Companies Incorporated and Promus
Hotel Corporation. (10)
+10(2) -- Form of Indemnification Agreement entered into by The Promus Companies Incorporated and each of
its directors and executive officers. (1)
+10(3) -- Financial Counseling Plan of Harrah's Entertainment, Inc. as amended January 1996. (25)
+10(4) -- The Promus Companies Incorporated 1996 Non-Management Director's Stock Incentive Plan dated April
5, 1995. (9)
+10(5) -- Amendment dated February 20, 1997 to 1996 Non-Management Director's Stock Incentive Plan. (5)
+10(6) -- Trust Agreement dated November 7, 1997 between Harrah's Entertainment, Inc. and NationsBank
concerning the Non-Management Director's Stock Incentive Plan. (29)
+10(7) -- The Promus Companies Incorporated Key Executive Officer Annual Incentive Plan dated February 24,
1995. (10)
+10(8) -- Summary Plan Description of Executive Term Life Insurance Plan. (27)
+10(9) -- Form of Harrah's Entertainment, Inc.'s Annual Management Bonus Plan, as amended 1995. (25)
+10 10) -- Amendment dated as of December 12, 1997 to Harrah's Entertainment, Inc.'s Annual Management Bonus
Plan. (29)
**+10 11) -- Amendment dated December 10, 1998 to Harrah's Entertainment, Inc.'s Annual Management Bonus Plan.
+10 12) -- Amended and Restated Severance Agreement dated as of October 31, 1997 entered into with Philip G.
Satre. (29)
+10 13) -- Form of Amended and Restated Severance Agreement dated as of October 31, 1997 entered into with
John M. Boushy, Ben C. Peternell, Colin V. Reed and E. O. Robinson, Jr. (29)
**+10 14) -- Severance Agreement dated October 29, 1998 entered into with Gary W. Loveman.
**+10 15) -- Severance Agreement dated October 29, 1998 entered into with Philip G. Satre.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
**+10 16) -- Form of Severance Agreement dated October 29, 1998 entered into with John M. Boushy, Ben C.
Peternell, Colin V. Reed, E. O. Robinson, Jr. and Judy T. Wormser.
+10 17) -- 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 18) -- Amendment, dated May 5, 1997, to Employment Agreement of Philip G. Satre dated as of February 25,
1994. (5)
**+10 19) -- Form of Employment Agreement dated April 1, 1998, between Harrah's Entertainment, Inc. and John M.
Boushy, Ben C. Peternell, Colin V. Reed and E. O. Robinson, Jr.
**+10 20) -- Addendum dated April 1, 1998, to Employment Agreement between Harrah's Entertainment, Inc. and
John M. Boushy.
**+10 21) -- Employment Agreement and Addendum dated May 4, 1998, between Harrah's Entertainment, Inc. and Gary
W. Loveman.
+10 22) -- Employment Agreement between Harrah's Entertainment, Inc. and J. Kell Houssels, III, dated June 1,
1998. (16)
**+10 23) -- Memorandum Agreement Concerning Termination of Employment and Commencement of Consulting Agreement
dated November 25, 1998, among Harrah's Entertainment, Inc. and J. Kell Houssels, III.
+10 24) -- The Promus Companies Incorporated 1990 Stock Option Plan. (12)
+10 25) -- The Promus Companies Incorporated 1990 Stock Option Plan (as amended as of April 30, 1993). (20)
+10 26) -- The Promus Companies Incorporated 1990 Stock Option Plan, as amended April 29, 1994. (8)
+10 27) -- The Promus Companies Incorporated 1990 Stock Option Plan, as amended July 29, 1994. (21)
+10 28) -- Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990 Stock Option Plan as
adjusted on December 12, 1996. (27)
+10 29) -- Amendment, dated February 26, 1998, to the Harrah's Entertainment, Inc. 1990 Stock Option Plan.
(13)
+10 30) -- Amendment, dated April 30, 1998, to the Harrah's Entertainment, Inc. 1990 Stock Option Plan. (16)
**+10 31) -- Amendment, dated October 29, 1998, to the Harrah's Entertainment, Inc. 1990 Stock Option Plan.
+10 32) -- Revised Form of Stock Option (1990 Stock Option Plan). (25)
+10 33) -- Revised Form of Stock Option with attachments (1990 Stock Option Plan). (27)
+10 34) -- 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 35) -- The Promus Companies Incorporated 1990 Restricted Stock Plan. (12)
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
+10 36) -- Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990 Restricted Stock Plan.
(9)
+10 37) -- Amendment, dated February 26, 1998, to the Harrah's Entertainment, Inc. 1990 Restricted Stock
Plan. (13)
+10 38) -- Amendment, dated April 30, 1998, to the Harrah's Entertainment, Inc. 1990 Restricted Stock Plan.
(16)
**+10 39) -- Amendment, dated October 29, 1998, to the Harrah's Entertainment, Inc. 1990 Restricted Stock Plan.
+10 40) -- Revised Forms of Restricted Stock Award (1990 Restricted Stock Plan). (25)
+10 41) -- Revised Form of Restricted Stock Award (1990 Restricted Stock Plan). (27)
+10 42) Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan and Stock Option
Plan) dated October 27, 1995. (25)
+10 43) -- Amendment to Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan and
Stock Option Plan) dated December 12, 1996. (27)
+10 44) -- Description of Terms of Stock Option and TARSAP grants for Gary W. Loveman on April 30, 1998. (16)
+10 45) -- Deferred Compensation Plan dated October 16, 1991. (15)
+10 46) -- Amendment, dated May 26, 1995, to The Promus Companies Incorporated Deferred Compensation Plan.
(2)
+10 47) -- Forms of Deferred Compensation Agreement. (25)
+10 48) -- Amended and Restated Executive Deferred Compensation Plan dated as of October 27, 1995. (25)
+10 49) -- Amendment dated April 24, 1997 to Harrah's Entertainment, Inc.'s Executive Deferred Compensation
Plan. (18)
+10 50) -- Amendment dated April 30, 1998 to the Harrah's Entertainment, Inc. Executive Deferred Compensation
Plan. (16)
**+10 51) -- Amendment dated October 29, 1998 to the Harrah's Entertainment, Inc. Executive Deferred
Compensation Plan.
+10 52) -- Description of Amendments to Executive Deferred Compensation Plan. (22)
+10 53) -- Restated Amendment, dated July 18, 1996, to Harrah's Entertainment, Inc. Executive Deferred
Compensation Plan. (27)
+10 54) -- Forms of Executive Deferred Compensation Agreement. (25)
+10 55) -- Amendment dated April 24, 1997, to Harrah's Entertainment, Inc.'s Deferred Compensation Plan. (18)
+10 56) -- Escrow Agreement dated February 6, 1990 between The Promus Companies Incorporated, certain
subsidiaries thereof, and Sovran Bank, as escrow agent. (12)
+10 57) -- First Amendment to Escrow Agreement dated January 31, 1990 among Holiday Corporation, certain
subsidiaries thereof and Sovran Bank, as escrow agent. (12)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
+10 58) -- 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 59) -- Amendment, dated as of June 7, 1995, to Escrow Agreement among The Promus Companies Incorporated,
certain subsidiaries thereof and NationsBank. (2)
+10 60) -- Amendment, dated as of July 18, 1996, to Escrow Agreement between Harrah's Entertainment, Inc. and
NationsBank. (26)
+10 61) -- Time Accelerated Restricted Stock Award Plan ("TARSAP") program dated December 12, 1996. (27)
+10 62) -- Form of TARSAP Award. (27)
+10 63) -- 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 64) -- Amendment, dated as of October 30, 1997, to Escrow Agreement between Harrah's Entertainment, Inc.,
Harrah's Operating Company, Inc. and NationsBank. (29)
10 65) -- Notes Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.
and Norwest Bank Minnesota, National Association, as Trustee, dated October 30, 1998. (30)
10 66) -- Subordinated Loan Agreement among Jazz Casino Company, L.L.C., Harrah's Operating Company, Inc.
and Harrah's Entertainment, Inc., dated October 30, 1998. (30)
10 67) -- Intercreditor Agreement among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
Bankers Trust Company, as Administrative Agent, and Norwest Bank Minnesota, National Association,
as Trustee, and The Bank of New York, as Collateral Agent, acknowledged and agreed to by JCC
Holding Company, Jazz Casino Company, L.L.C., CP Development, L.L.C., FP Development, L.L.C., and
JCC Development Company, L.L.C., dated as of October 29, 1998. (30)
10 68) -- Second Amended and Restated Management Agreement between Harrah's New Orleans Management Company
and Jazz Casino Company, L.L.C., acknowledged and consented to by Rivergate Development
Corporation, as Landlord, dated as of October 29, 1998. (30)
10 69) -- City/RDC Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating Company,
Inc., the Rivergate Development Corporation and the City of New Orleans, dated as of October 29,
1998. (30)
10 70) -- LGCB Completion Guarantee among Harrah's Entertainment, Inc., Harrah's Operating Company, Inc.,
accepted and agreed to by the Louisiana Gaming Control Board, dated as of October 30, 1998. (30)
10 71) -- Amended and Restated Subordinated Completion Loan Agreement among Jazz Casino Company, L.L.C.,
Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., and as to the provisions of
Sections 2(C)iii and (iv) only, agreed and accepted by Bankers Trust Company as Administrative
Agent for Lenders, dated October 30, 1998. (30)
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
NO.
- --------------------
<C> <S> <C>
10 72) -- Amended and Restated Construction Lien Indemnity Obligation Agreement between Jazz Casino Company,
L.L.C. and Harrah's Operating Company, Inc., dated October 30, 1998. (30)
10 73) -- Bank Completion Guarantee among Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc.,
accepted and agreed to by Bankers Trust Company, as Administrative Agent, dated October 29, 1998.
(30)
10 74) -- HET/JCC Agreement between Harrah's Entertainment, Inc., Harrah's Operating Company, Inc. and Jazz
Casino Company, L.L.C., dated October 30, 1998. (30)
10 75) -- Guaranty and Loan Purchase Agreement by Harrah's Entertainment, Inc. and Harrah's Operating
Company, Inc., acknowledged and agreed to by Bankers Trust Company as Administrative Agent, dated
as of October 29, 1998. (30)
**11 -- Computations of per share earnings.
**12 -- Computations of ratios.
**13 -- Portions of Annual Report to Stockholders for the year ended December 31, 1998. (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.
(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.
56
<PAGE>
(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 Current Report on Form 8-K,
filed August 14, 1998, and amended on September 4, 1998, 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 the Company's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1998, filed May 14, 1998, File No. 1-10410.
(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 the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998, filed August 7, 1998, File No. 1-10410.
(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.
(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.
(29) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, filed March 10, 1998, File No.
1-10410.
(30) Incorporated by reference from JCC Holding Company's Registration Statement
on Form 10/A, filed November 20, 1998.
57
<PAGE>
(31) Incorporated by reference from Rio Hotel & Casino, Inc.'s Current Report on
Form 8-K, filed July 18, 1995, File No. 0-13760.
(32) Incorporated by reference from Rio Hotel & Casino, Inc.'s Current Report on
Form 8-K, filed February 4, 1997, File No. 0-13760.
(33) Incorporated by reference from Rio Hotel & Casino, Inc.'s Current Report on
Form 8-K, filed February 24, 1998, File No. 0-13760.
(34) Incorporated by reference from Showboat, Inc.'s Current Report on Form 8-K
(file no. 1-7123) dated August 10, 1994.
(35) Incorporated by reference from Showboat, Inc.'s Quarterly Report on Form
10-Q (file no. 1-7123) for the six month period ended June 30, 1996.
(36) Incorporated by reference from Showboat, Inc.'s Annual Report on Form 10-K
(file no. 1-7123) for the year ended December 31, 1997.
(37) Incorporated by reference from the Company's Registration Statement on Form
S-3 of Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc.,
File No. 333-52949, filed May 18, 1998.
(38) Incorporated by reference from the Company's Registration Statement on Form
S-3 of Harrah's Entertainment, Inc. and Harrah's Operating Company, Inc.,
File No. 333-69263, filed December 18, 1998.
(b) The following Current Reports on Form 8-K were filed by the Company
during the fourth quarter of 1997 and thereafter through March 1, 1999: November
9, 1998--reporting the Company's third quarter results; December 7,
1998--reporting the Underwriting Agreement in connection with $750,000,000
7 7/8% Senior Notes Due 2005); January 7, 1999--reporting the consummation of
the merger with Rio Hotel & Casino, Inc.; January 13, 1999--reporting the
Underwriting Agreement in connection with $500,000,000 7 1/2% Senior Notes Due
2009); and February 12, 1999--reporting the Company's year-end results.
58
<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.
<TABLE>
<S> <C> <C>
HARRAH'S ENTERTAINMENT, INC.
By: PHILIP G. SATRE
-----------------------------------------
(Philip G. Satre, Chairman
and Chief Executive Officer)
Dated: March 19, 1999
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
SUSAN CLARK-JOHNSON
- ------------------------------ Director March 19, 1999
(Susan Clark-Johnson)
JAMES B. FARLEY
- ------------------------------ Director March 19, 1999
(James B. Farley)
JOE M. HENSON
- ------------------------------ Director March 19, 1999
(Joe M. Henson)
RALPH HORN
- ------------------------------ Director March 19, 1999
(Ralph Horn)
J. KELL HOUSSELS, III
- ------------------------------ Director March 19, 1999
(J. Kell Houssels, III)
R. BRAD MARTIN
- ------------------------------ Director March 19, 1999
(R. Brad Martin)
COLIN V. REED Director and
- ------------------------------ Chief Financial Officer March 19, 1999
(Colin V. Reed) Office of the President
WALTER J. SALMON
- ------------------------------ Director March 19, 1999
(Walter J. Salmon)
PHILIP G. SATRE Director, Chairman and
- ------------------------------ Chief Executive Officer March 19, 1999
(Philip G. Satre) Office of the President
BOAKE A. SELLS
- ------------------------------ Director March 19, 1999
(Boake A. Sells)
EDDIE N. WILLIAMS
- ------------------------------ Director March 19, 1999
(Eddie N. Williams)
JUDY T. WORMSER
- ------------------------------ Controller and Principal March 19, 1999
(Judy T. Wormser) Accounting Officer
</TABLE>
59
<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. 1998
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 9, 1999. 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 9, 1999.
<PAGE>
SCHEDULE I
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Cash...................................................................................... $ -- $ --
Investments in and advances to subsidiaries (eliminated in consolidation)................. 851,407 735,491
---------- ----------
$ 851,407 $ 735,491
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued taxes, including federal income taxes............................................. $ -- $ (12)
---------- ----------
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-- 102,188,018
and 101,035,898 shares (net of 3,036,562 and 3,001,568 held in treasury).............. 10,219 10,104
Capital surplus......................................................................... 407,691 388,925
Retained earnings....................................................................... 451,410 349,386
Accumulated other comprehensive income.................................................. 6,567 2,884
Deferred compensation related to restricted stock....................................... (24,480) (15,796)
---------- ----------
851,407 735,503
---------- ----------
$ 851,407 $ 735,491
---------- ----------
---------- ----------
</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>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
Revenues........................................................................ $ -- $ -- $ --
Costs and expenses.............................................................. 165 144 150
---------- --------- ---------
Loss before income taxes and equity in subsidiaries' earnings................... (165) (144) (150)
Income tax benefit.............................................................. 58 50 57
---------- --------- ---------
Loss before equity in subsidiaries' earnings.................................... (107) (94) (93)
Equity in subsidiairies' earnings............................................... 121,824 107,616 98,990
---------- --------- ---------
Income before extraordinary loss................................................ 121,717 107,522 98,897
Extraordinary loss, net of tax benefit of $10,522 and $4,477 (Note 3)........... (19,693) (8,134) --
---------- --------- ---------
Net income...................................................................... $ 102,024 $ 99,388 $ 98,897
---------- --------- ---------
---------- --------- ---------
</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>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
Cash flows from operating activities
Net income................................................................... $ 102,024 $ 99,388 $ 98,897
Adjustment to reconcile net income to cash flows from operating activities
Equity in undistributed earnings of subsidiaries......................... (121,824) (107,616) (98,990)
Extraordinary loss....................................................... 29,491 12,611 --
Other non-cash activity.................................................. (9,691) (4,383) 93
---------- ---------- ---------
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 Entertainment" 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
Entertainment and subsidiaries.
NOTE 2--INVESTMENT IN ASTER
The value of Harrah's Entertainment's investment in Aster has been reduced
below zero. The Company's negative investment in Aster at December 31, 1998 and
1997 was $7.3 million and $8.1 million, respectively, and is included in
investments in and advances to subsidiaries on the balance sheet. In addition,
Harrah's Entertainment has guaranteed the future payment by Aster of certain
insurance-related liabilities.
NOTE 3--LONG-TERM DEBT
Harrah's Entertainment has no long-term debt obligations. The Company has
guaranteed certain long-term debt obligations of HOC. During second quarter
1998, HOC redeemed its $200 million 8 1/4% Senior Subordinated Notes due 2000
(the "8 1/4% Notes"). Subsequent to the acquisition of Showboat, Inc., HOC
completed tender offers and consent solicitations for Showboat's 9 1/4% First
Mortgage Bonds due 2008 (the "Bonds") and 13% Senior Subordinated Notes due 2008
(the "13% Notes"). 1998 extraordinary losses, net of tax benefit, were primarily
results of these early extinguishments of debt. In May 1997, HOC redeemed its
$200 million 10 7/8% Notes due 2002 (the "10 7/8% Notes"). As a result of the
early extinguishment of the 10 7/8% Notes, an $8.1 million extraordinary loss,
net of tax beneift, was recorded.
During December 1998, HOC completed a public offering of $750.0 million
principal amount of 7 7/8% Senior Subordinated Notes due 2005 (the "7 7/8
Notes"). Subsequent to the end of 1998, HOC completed a public offering of
$500.0 million principal amount $7 1/2% Senior Notes due 2009 (the "7 1/2%
Notes").
NOTE 4--STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's Entertainment 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 Entertainment'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
S-4
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCKHOLDERS' EQUITY (CONTINUED)
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.
In October 1996, the Company's Board of Directors approved a plan, which
expired on December 31, 1997, under which 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.
NOTE 5--INCOME TAXES
Harrah's Entertainment files a consolidated tax return with its
subsidiaries.
NOTE 6--COMMITMENTS AND CONTINGENCIES
In November 1995, Harrah's Jazz Company ("Jazz") and its wholly-owned
subsidiary, Harrah's Jazz Finance Corp., filed petitions for relief under
Chapter 11 of the Bankruptcy Code. During October 1998, the plan of
reorganization (the "Plan") of Jazz was consummated.
Pursuant to the Plan, a newly formed limited liability company, Jazz Casino
Company, L.L.C. ("JCC") is responsible for constructing and opening the Casino.
JCC leases the site for the Casino from the City of New Orleans and will operate
the casino pursuant to a casino operating contract with the State of Louisiana
gaming board.
In exchange for an equity investment in JCC's parent of $75 million
(including $60 million in debtor-in-possession loans to Jazz which were
converted to equity at Plan consummation), a subsidiary of the Company acquired,
at the time of plan consummation, approximately 44% of the equity in JCC's
parent. The Company's ownership interest has been reduced to approximately 43%
due to the exercise by an unrelated party of an option to acquire a portion of
our interest.
Harrah's Entertainment and HOC (i) guarantee JCC's initial $100 million
annual payment under the casino operating contract to the State of Louisiana
gaming board (the "State Guarantee"); (ii) guarantee $166.5 million of a $236.5
million JCC bank credit facility; (iii) guarantee to the State of Louisiana
gaming board, City of New Orleans, banks under the JCC bank credit facility and
JCC bondholders, completion and opening of the Casino on or before October 30,
1999 (subject to force majeure); and, (iv) are obligated to make a $22.5 million
subordinated loan to JCC to finance construction of the Casino.
With respect to the State Guarantee, Harrah's Entertainment and HOC are
obligated to guarantee JCC's first $100 million annual payment obligation
commencing upon the earlier of opening of the Casino or October 30, 1999
(subject to force majeure), and, if certain cash flow tests and other conditions
are satisfied each year, to renew the guarantee beginning April 1, 2000, for
each 12 month period ending March 31, 2004. The obligations under the guarantee
for the first year of operations or any succeeding 12 month period is limited to
a guarantee of the $100 million payment obligation of JCC for the 12 month in
which the guarantee is in effect and is secured by a first priority lien on
JCC's assets. JCC's payment obligation (and therefore the amount we have
guaranteed) is $100 million at the commencement of each
S-5
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
12 month period under the casino operating contract and declines on a daily
basis by 1/365 of $100 million to the extent payments are made each day by JCC
to Louisiana's gaming board.
NOTE 7--LITIGATION
Harrah's Entertainment and certain of its subsidiaries had 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
owned an approximate 47% interest and which filed for protection under Chapter
11 of the U.S. Bankruptcy Code. In October 1998, the plan of reorganization of
Harrah's Jazz Company was consummated, and these lawsuits were dismissed.
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. On November 3, 1998, the
people of the state of Missouri voted to amend the State's Constitution to deem
all floating casino facilities in compliance with state law, and all litigation
regarding the issue which had been pending has been dismissed.
NOTE 8--ACQUISITIONS
On June 1, 1998, HOC completed the acquisition of Showboat, Inc.
("Showboat") for $520.0 million in cash and assumption of approximately $635
million of Showboat debt.
In third quarter 1998, the Company entered into a definitive merger
agreement with Rio Hotel and Casino, Inc. ("Rio"). The merger was completed on
January 1, 1999. Harrah's Entertainment acquired all Rio outstanding shares in a
one-for-one stock transaction valued at $525 million and transferred ownership
of the Rio stock to HOC.
S-6
<PAGE>
SCHEDULE II
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
-------------------
ADDITIONS COLUMN E
COLUMN B ------------------- COLUMN D --------
---------- CHARGED ---------------- BALANCE
COLUMN A BALANCE AT TO COSTS CHARGED DEDUCTIONS AT CLOSE
- --------------------------------------------------------------- BEGINNING AND TO OTHER FROM OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD
- --------------------------------------------------------------- ---------- -------- -------- ---------------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts
Current...................................................... $11,462 $ 9,905 $ -- $ (7,011)(A) $14,356
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Long-term.................................................... $10,421 $ -- $ -- $ 2,272 $12,693
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Reserve against investments in and advances to nonconsolidated
affiliates (B)................................................ $13,000 $ -- $ -- $ -- $13,000
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Reserve for impairment of long-lived assets.................... $33,369 $ 2,740 $ 381 $ -- $36,490
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Reserve for contingent liability exposure...................... $ 4,806 $ -- $ -- $ (3,765) $ 1,041
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
Insurance allowances and reserves.............................. $46,870 $ 62,262 $ -- $ (63,361) $45,771
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
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
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
</TABLE>
- ------------------------
(A) Uncollectible accounts written off, net of amounts recovered.
(B) See Note 14 to the Company's Consolidated Financial Statements.
S-7
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 9, 1999, included in this Form 10-K for the year
ended December 31, 1998, into the Company's previously filed Registration
Statements File Nos. 333-52949, 333-65759, 333-69263, 333-52401, 333-52409,
333-70269 and 333-70265.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
March 18, 1999
<PAGE>
EXHIBIT 4(18)
SECOND AMENDMENT
SECOND AMENDMENT (this "Amendment"), dated as of November 30, 1998,
among HARRAH'S ENTERTAINMENT, INC., a Delaware corporation ("Parent"), HARRAH'S
OPERATING COMPANY, INC., a Delaware corporation (the "Company"), MARINA
ASSOCIATES, a partnership organized under the laws of New Jersey ("Marina"), the
lenders party to the Credit Agreements referred to below (the "Banks"), CANADIAN
IMPERIAL BANK OF COMMERCE and SOCIETE GENERALE, as Co-Syndication Agents (the
"Co-Syndication Agents"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Documentation Agent (the "Documentation Agent"), 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 Co-Syndication
Agents, the Documentation Agent and the Administrative Agent are parties to a
Credit Agreement, dated as of July 22, 1993 and amended and restated as of June
9, 1995 and further amended and restated as of April 1, 1998 (as amended,
modified or supplemented through, but not including, the date hereof, the
"5-Year Credit Agreement");
WHEREAS, Parent, the Company, Marina, the Banks, the Co-Syndication
Agents, the Documentation Agent and the Administrative Agent are parties to a
Credit Agreement, dated as of June 9, 1995 and amended and restated as of April
1, 1998 (as amended, modified or supplemented through, but not including, the
date hereof, the "364-Day Credit Agreement" and, together with the 5-Year Credit
Agreement, the "Credit Agreements");
WHEREAS, Parent and the Company plan to acquire all of the
outstanding capital stock of Rio Hotel & Casino, Inc. ("Rio Hotel") pursuant to
a transaction whereby (x) a Wholly-Owned Subsidiary of Parent will merge with
and into Rio Hotel (the "Rio Merger") and (y) immediately thereafter, Parent
will contribute its equity interest in Rio Hotel to the Company;
<PAGE>
WHEREAS, the consideration to be paid by Parent to the shareholders
of Rio Hotel as part of the Rio Merger shall consist of one share of common
stock of Parent for every share of common stock of Rio Hotel held by such
shareholders (as such amount may be adjusted pursuant to the Agreement and Plan
of Merger for the Rio Merger (the "Rio Merger Agreement"));
WHEREAS, as part of the Rio Merger, Rio Hotel shall keep outstanding
(i) its $100,000,000 10-5/8% Senior Subordinated Notes due July 15, 2005 (the
"10-5/8% Rio Subordinated Notes"), (ii) its $125,000,000 9-1/2% Senior
Subordinated Notes due April 15, 2007 (the "9-1/2% Rio Subordinated Notes" and,
together with the 10-5/8% Rio Subordinated Notes, the "Rio Subordinated Notes")
and (iii) its $275,000,000 senior secured bank credit facility agented by Bank
of America National Trust & Savings Association (the "Rio Credit Facility");
WHEREAS, as a result of the Rio Merger, a "change of control" shall
occur under the Rio Subordinated Notes which will allow the holders thereof to
"put" their Rio Subordinated Notes back to Rio Hotel at a purchase price of 101%
of par (the "Rio Change of Control Put");
WHEREAS, to fund the purchase of any Rio Subordinated Notes "put" to
Rio Hotel pursuant to the Rio Change of Control Put, Rio Hotel will either (x)
increase the Rio Credit Facility by $125,000,000 (the "Rio Credit Facility
Amendment") or (y) enter into a new, parallel $125,000,000 credit facility on
substantially the same terms and conditions as the Rio Credit Facility (the
"Additional Rio Credit Facility");
WHEREAS, Parent and the Company have requested that the Banks
consent to, and the Banks have agreed to give their consent to, the Rio Merger
on the terms and conditions provided for herein; and
WHEREAS, the parties hereto wish to amend certain provisions of the
Credit Agreements as herein provided;
-2-
<PAGE>
NOW, THEREFORE, it is agreed:
I. Amendments to the 5-Year Credit Agreement.
1. Section 1.08(a) of the 5-Year Credit Agreement is hereby amended
by (i) deleting the words "equal to the Base Rate" appearing therein and (ii)
inserting the words "equal to the sum of the Applicable Base Rate Margin plus
the Base Rate" in lieu thereof.
2. Section 1.08(b) of the 5-Year Credit Agreement is hereby amended
by deleting the words "Applicable Margin" appearing therein and inserting the
words "Applicable Eurodollar Rate Margin" in lieu thereof.
3. Section 2.05(a) of the 5-Year Credit Agreement is hereby amended
by inserting the words "sum of the Applicable Base Rate Margin plus the"
immediately before the words "Base Rate" in each place such words appear
therein.
4. Section 3.01(b) of the 5-Year Credit Agreement is hereby amended
by deleting the words "Applicable Margin for Eurodollar Loans" appearing therein
and inserting the words "Applicable Eurodollar Rate Margin" in lieu thereof.
5. The table appearing in Section 3.03(b) of the 5-Year Credit
Agreement is hereby amended by (x) deleting the dates "January 31, 1999", "July
31, 1999" and "January 31, 2000" appearing therein and (y) deleting the
references to (i) the amount "$75,000,000" appearing opposite the dates "January
31, 1999" and "July 31, 1999" appearing therein and (ii) the amount
"$100,000,000" appearing opposite the date "January 31, 2000" appearing therein.
6. Section 3.03(e) of the 5-Year Credit Agreement is hereby amended
by inserting the following new sentence at the end thereof:
"In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, on each date on or after the Second Amendment
Effective Date upon which Parent receives any proceeds from the issuance
by Parent of any common or preferred (including trust preferred) equity or
any Trust Preferred Subsidiary receives any proceeds from the issuance by
it of any
-3-
<PAGE>
trust preferred equity (other than proceeds received from the issuance of
equity to officers, directors and employees of Parent or any of its
Subsidiaries or Unrestricted Subsidiaries), the Total Revolving Loan
Commitment shall be reduced by an amount equal to its Share of the cash
proceeds of the respective equity issuance (net of underwriting or
placement discounts and commissions and other reasonable costs associated
therewith), provided that, to the extent that the 364-Day Banks do not
require that their full Share be applied to reduce the Total 364-Day
Revolving Loan Commitment, the amount of their Share not so applied shall
instead be applied to reduce the Total Revolving Loan Commitment as
required by clause (g) of this Section 3.03; and provided further, that
the provisions of this sentence shall cease to be of any further force or
effect at such time as the Total Revolving Loan Commitment and the Total
364-Day Revolving Loan Commitment shall have been reduced pursuant to this
Section 3.03(e) and Section 2.03(c) of the 364-Day Credit Agreement as a
result of equity issuances by Parent (and/or a Trust Preferred Subsidiary,
as the case may be) and/or issuances by the Company of Additional
Unsecured Senior Debt and/or Subordinated Debt generating in the aggregate
at least $750,000,000 in gross cash proceeds."
7. Section 8 of the 5-Year Credit Agreement is hereby amended by
inserting the following new Sections 8.15 and 8.16 at the end thereof:
"8.15 Maintenance of Corporate Separateness. Parent will, and will
cause each of its Subsidiaries and Unrestricted Subsidiaries to, satisfy
customary corporate formalities, including the holding of regular board of
directors' and shareholders' meetings or action by directors or
shareholders without a meeting and the maintenance of corporate offices
and records. Neither Parent nor any of its Subsidiaries shall make any
payment to a creditor of any Unrestricted Subsidiaries in respect of any
liability of any Unrestricted Subsidiaries, and no bank account of any
Unrestricted Subsidiary shall be commingled with any
-4-
<PAGE>
bank account of Parent or any of its Subsidiaries. Any financial
statements distributed to any creditors of any Unrestricted Subsidiaries
shall clearly establish or indicate the corporate separateness of such
Unrestricted Subsidiaries from Parent and its Subsidiaries. Finally,
neither Parent nor any of its Subsidiaries shall take any action, or
conduct its affairs in a manner, which is likely to result in the
corporate existence of (x) Parent or any of its Subsidiaries being
substantively consolidated with any Unrestricted Subsidiary or (y) any
Unrestricted Subsidiary being substantively consolidated with Parent or
any of its Subsidiaries, in either case in a bankruptcy, reorganization or
other insolvency proceeding.
8.16 Collateral. Except as otherwise provided in the immediately
succeeding sentence, in the event that on or prior to June 30, 1999 the
Company has not permanently reduced the Total Revolving Loan Commitment
and the Total 364-Day Revolving Loan Commitment pursuant to Section
3.03(e) of this Agreement and Section 2.03(c) of the 364-Day Credit
Agreement as a result of equity issuances by Parent (and/or a Trust
Preferred Subsidiary, as the case may be) and/or issuances by the Company
of Additional Unsecured Senior Debt and/or Subordinated Debt generating in
the aggregate at least $500,000,000 in gross cash proceeds, then (A)
Parent, the Company and each other Credit Party shall grant to the
Collateral Agent, for the benefit of the Administrative Agent, the
Collateral Agent, the Banks, the 364-Day Banks, the Letter of Credit
Issuers and the Interest Rate Protection Creditors, a first priority
perfected security interest in substantially all of such Credit Parties'
tangible and intangible assets, with such exceptions thereto as may be
acceptable to the Administrative Agent (including an exception with
respect to a Lien on the Company's and its Subsidiaries' riverboat
casinos), (B) each such Credit Party shall promptly enter into and/or
deliver, or cause to be delivered, all such security and other
documentation as may be necessary or, in the reasonable opinion of the
Administrative Agent,
-5-
<PAGE>
desirable to effectively create such security interest in all such assets,
(C) Parent, the Company and each other Credit Party shall deliver, or
cause to be delivered, to the Administrative Agent one or more opinions of
counsel, in form and substance, and from counsel, reasonably acceptable to
the Administrative Agent, with respect to the security interests granted
by such Credit Parties as required above and such other matters incident
to the transactions contemplated thereby as the Administrative Agent shall
reasonably request and (D) Parent, the Company and each Subsidiary
Borrower shall enter into an appropriate amendment to this Agreement, in
form and substance satisfactory to the Administrative Agent and the
Required Banks, in connection with the grant of the security interests as
required above and such other matters incident thereto as the
Administrative Agent may reasonably require. Notwithstanding anything to
the contrary contained in the immediately preceding sentence, if on June
30, 1999 the senior unsecured Indebtedness of the Company is rated at
least BBB- by S&P or Baa3 by Moody's, then no Credit Party shall be
required to grant any such security interests or take any of the other
actions otherwise required by the immediately preceding sentence."
8. Section 9.01 of the 5-Year Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (xix) thereof, (ii)
deleting the period at the end of the clause (xx) thereof and inserting the text
"; and" in lieu thereof and (iii) inserting the following new clause (xxi)
immediately following clause (xx) thereof:
"(xxi) from and after the time that any Liens are created by any
Credit Party in favor of the Collateral Agent by operation of Section 8.16
(but only for so long as such Liens remain in effect), Liens on the
property or assets of such Credit Party in support of such Credit Party's
obligations in respect of any Additional Unsecured Senior Debt on an equal
and ratable basis with the Liens on such property or assets of such Credit
Party arising by operation of Section 8.16 and pursuant to documentation
in form and
-6-
<PAGE>
substance reasonably satisfactory to the Administrative Agent (but, in any
event, only to the extent any such Liens are required to be created
pursuant to the documentation evidencing such Additional Unsecured Senior
Debt)."
9. Section 9.03(iv) of the 5-Year Credit Agreement is hereby amended
by deleting the text "clauses (v) and (vi)" in each instance such text appears
therein and inserting in each such instance the text "clauses (v), (vi) and
(xi)" in lieu thereof.
10. Section 9.03 of the 5-Year Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (ix) thereof, (ii)
deleting the period appearing at the end of clause (x) thereof and inserting the
text "; and" in lieu thereof and (iii) inserting the following new clause (xi)
immediately following clause (x) thereof:
"(xi) so long as no Default or Event of Default shall exist (both
before and after giving effect to the payment thereof), Parent and any
Trust Preferred Subsidiary may pay cash Dividends to holders of any trust
preferred stock issued by it."
11. The last paragraph of Section 9.05 of the 5-Year Credit
Agreement is hereby amended by (i) deleting the word "and" appearing at the end
of clause (x)(A) thereof and (ii) inserting the following new sub-clause (C)
immediately following clause (x)(B) thereof:
"and (C) from and after the consummation of the Rio Merger, Parent
and its Subsidiaries may expend up to $50,000,000 of the Investment basket
set forth in clause (i) of this Section 9.05 to make cash Investments in
Rio Hotel and its Subsidiaries, provided that such $50,000,000 amount
shall be increased to $100,000,000 from and after such time as the Total
Revolving Loan Commitment and the Total 364-Day Revolving Loan Commitment
have been reduced pursuant to Section 3.03(e) of this Agreement and
Section 2.03(c) of the 364-Day Credit Agreement as a result of equity
issuances by Parent (and/or a Trust Preferred
-7-
<PAGE>
Subsidiary, as the case may be) and/or issuances by the Company of
Additional Unsecured Senior Debt and/or Subordinated Debt generating in
the aggregate at least $250,000,000 in gross cash proceeds."
12. The table appearing in Section 9.07(b) of the 5-Year Credit
Agreement is hereby deleted in its entirety and the following new table is
inserted in lieu thereof:
<TABLE>
<CAPTION>
Period Ratio
--------------------------------- ---------
<S> <C>
Showboat Merger Effective Date to
and including June 30, 1998 5.50:1.00
July 1, 1998 to and including
March 31, 1999 5.00:1.00
April 1, 1999 to and including
June 30, 1999 4.75:1.00
July 1, 1999 to and including
September 30, 1999 4.50:1.00
October 1, 1999 to and including
December 31, 1999 4.25:1.00
January 1, 2000 to and including
March 31, 2000 4.00:1.00
Thereafter 3.50:1.00
</TABLE>
-8-
<PAGE>
13. The table appearing in Section 9.08(b) of the 5-Year Credit
Agreement is hereby deleted in its entirety and the following new table is
inserted in lieu thereof:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
----------------------------------- ---------
<S> <S>
Fiscal quarters ending June 30,
1998, September 30, 1998,
December 31, 1998, March 31,
1999, June 30, 1999, September 30,
1999 and December 31, 1999 2.00:1.00
Fiscal quarters ending March 31,
2000 and thereafter 2.50:1.00
</TABLE>
14. Section 9.10 of the 5-Year Credit Agreement is hereby amended by
deleting the following text appearing in clause (i)(B) thereof:
"(i) the Company or a Wholly-Owned Subsidiary thereof owns at least
79% of the total equity interest (as determined on a fully diluted basis)
in the Showboat East Chicago Riverboat Casino and (ii)".
15. Section 9.12 of the 5-Year Credit Agreement is hereby amended by
inserting the following new sentence at the end thereof:
"Notwithstanding anything to the contrary contained in this Section
9.12 or anything else contained in this Agreement, neither Parent nor any
Subsidiary of Parent shall issue any trust preferred stock other than such
issuances by Parent and a Trust Preferred Subsidiary in each case so long
as all the terms and conditions of, and the documentation for,
-9-
<PAGE>
such trust preferred stock shall be in form and substance reasonably
satisfactory to the Administrative Agent."
16. Section 9.14 of the 5-Year Credit Agreement is hereby amended by
inserting the following new sentence at the end thereof:
"In addition to the foregoing, from and after the consummation of
the Rio Merger, Parent will ensure that at all times (i) either the
Company or a Wholly-Owned Subsidiary of the Company that is a Guarantor
owns all of the outstanding capital stock of Rio Hotel and that Rio Hotel
owns all of the outstanding capital stock of Rio Properties (although
nothing herein shall prevent Rio Hotel and Rio Properties from merging
together so long as all of the outstanding capital stock of the surviving
corporation is owned by the Company or a Wholly-Owned Subsidiary of the
Company that is a Guarantor) and (ii) either Rio Hotel or Rio Properties
is the owner and operator of the Rio Hotel and Casino in Las Vegas,
Nevada."
17. The definition of "Applicable Margin" appearing in Section 11.01
of the 5-Year Credit Agreement is hereby deleted in its entirety.
18. The definition of "Consolidated EBITDA" appearing in Section
11.01 of the 5-Year Credit Agreement is hereby amended by inserting the
following proviso at the end thereof:
" ; provided that for purposes of determining compliance with
Section 9.07(b) only, (x) (A) prior to the consummation of the Rio Merger,
Consolidated EBITDA for Parent's fiscal quarters ending on March 31, 1998,
June 30, 1998 and September 30, 1998 was $124,092,000, $152,904,000 and
$158,683,000, respectively and (B) from and after the consummation of Rio
Merger, Consolidated EBITDA for Parent's fiscal quarters ending on March
31, 1998, June 30, 1998 and September 30, 1998 was $149,401,000,
$172,983,000 and $184,543,000, respectively (which amounts represent
Parent's historical Consolidated EBITDA for such quarters as adjusted to
give pro forma effect for the historical
-10-
<PAGE>
operating results of (I) in the case of clause (A) above, Showboat and its
Consolidated Subsidiaries for the respective fiscal quarters and (II) in
the case of clause (B) above, Showboat and its Consolidated Subsidiaries
and Rio Hotel and its Consolidated Subsidiaries for the respective fiscal
quarters) and (y) from and after the consummation of the Rio Merger,
Consolidated EBITDA for Parent's fiscal quarter ending December 31, 1998
shall be adjusted to give pro forma effect for the historical operating
results of Rio Hotel and its Consolidated Subsidiaries for the portion of
such fiscal quarter prior to the consummation of the Rio Merger".
19. The definition of "Consolidated Interest Expense" appearing in
Section 11.01 of the 5-Year Credit Agreement is hereby amended by (i) deleting
the word "and" appearing at the end of clause (i) thereof and inserting a comma
in lieu thereof and (ii) inserting the following new clause (iii) immediately
following clause (ii) thereof:
"and (iii) the amount of all Dividends paid by Parent and Trust
Preferred Subsidiaries during such period to holders of their respective
trust preferred stock; provided, however, that in the event that the
parent company of such Trust Preferred Subsidiary is not allowed an
off-setting tax deduction in respect of interest payments made by such
parent company on subordinated indebtedness issued in connection with the
issuance of any such trust preferred stock, then an amount equal to the
product of (A) the amount of all Dividends paid by Parent and Trust
Preferred Subsidiaries during such period to holders of their respective
trust preferred stock and (B) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of Parent expressed
as a decimal shall instead be added to Consolidated Interest Expense for
such period".
20. The definition of "Consolidated Net Income" appearing in Section
11.01 of the 5-Year Credit Agreement is hereby deleted in its entirety and the
following new definition of "Consolidated Net Income" is inserted in lieu
thereof:
-11-
<PAGE>
"Consolidated Net Income" shall mean, for any period, the net income
of Parent and its Consolidated Subsidiaries (without deduction for
minority interests in Subsidiaries) for such period, provided that for the
purposes of determining the applicable Reduction Discount and Consolidated
Net Income under Sections 9.03, 9.04 and 9.05, the net income (or loss) of
any Unrestricted Subsidiary shall be included in any calculation of
Consolidated Net Income only to the extent of the payment of cash
dividends or distributions by such Unrestricted Subsidiary to Parent or a
Wholly-Owned Subsidiary thereof during such period."
21. The definition of "Permitted Designated Indebtedness" appearing
in Section 11.01 of the 5-Year Credit Agreement is hereby deleted in its
entirety and the following new definition of "Permitted Designated Indebtedness"
is inserted in lieu thereof:
"Permitted Designated Indebtedness" shall mean (i) all Subordinated
Debt incurred pursuant to Section 9.04(xi) and (ii) all Additional
Unsecured Senior Debt; provided, however, after the Total Revolving Loan
Commitment and the Total 364-Day Revolving Loan Commitment have been
permanently reduced pursuant to Section 3.03(e) of this Agreement and
Section 2.03(c) of the 364-Day Credit Agreement as a result of equity
issuances by Parent (and/or a Trust Preferred Subsidiary, as the case may
be) and/or issuances by the Company of Additional Unsecured Senior Debt
and/or Subordinated Debt generating in the aggregate at least $750,000,000
in gross cash proceeds, then the next $200,000,000 of Subordinated Debt
issued thereafter shall not be considered "Permitted Designated
Indebtedness", and provided further, however, after the Total Revolving
Loan Commitment and the Total 364-Day Revolving Loan Commitment have been
permanently reduced pursuant to Section 3.03(e) of this Agreement and
Section 2.03(c) of the 364-Day Credit Agreement in any fiscal quarter of
Parent as a result of equity issuances by Parent (and/or a Trust Preferred
Subsidiary, as the case may be) and/or issuances by the
-12-
<PAGE>
Company of Additional Unsecured Senior Debt and/or Subordinated Debt
generating in the aggregate at least $250,000,000 in gross cash proceeds
during such fiscal quarter, then any additional Subordinated Debt issued
thereafter during such fiscal quarter shall not be considered "Permitted
Designated Indebtedness" so long as the proceeds therefrom are used within
120 days after any such issuances to refinance, repay, purchase,
repurchase, redeem or otherwise retire the East Chicago Showboat Notes
(including the payment of any premiums associated therewith) (it being
understood and agreed that (x) until such proceeds from any such issuances
of additional Subordinated Debt are used to refinance, repay, purchase,
repurchase, redeem or otherwise retire the East Chicago Showboat Notes as
permitted hereunder, such proceeds may be used to voluntarily prepay Loans
in accordance with Section 4.01 and (y) to the extent that any portion of
such proceeds from any such issuances of additional Subordinated Debt are
not used within such 120 day period to refinance, repay, repurchase,
redeem or otherwise retire the East Chicago Showboat Notes, the Total
Revolving Loan Commitment and the 364-Day Revolving Loan Commitment shall
be reduced pursuant to Section 3.03(e) of this Agreement and Section
2.03(c) of the 364-Day Credit Agreement by an amount equal to such portion
not so used to the extent such portion would otherwise constitute
"Permitted Designated Indebtedness" hereunder).
22. The definition of "Reduction Discount" appearing in Section
11.01 of the 5-Year Credit Agreement is hereby amended by inserting the words
"and Base Rate Loans" immediately following the words "Eurodollar Loans"
appearing in clauses (A)(x), (B)(x) and (C)(x) therein.
23. The definition of "Subsidiary" appearing in Section 11.01 of the
5-Year Credit Agreement is hereby amended by inserting the following new
sentence at the end thereof:
"Notwithstanding the foregoing (and except for purposes of (x) the
definition of Unrestricted Subsidiary contained herein, (y) determining
compliance with Sections 9.07(b), 9.08(b) and 9.09 only and (z) Sections
10.04 and 10.05), an Unrestricted Subsidiary
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<PAGE>
shall be deemed not to be a Subsidiary of Parent or any of its other
Subsidiaries for purposes of this Agreement."
24. Section 11.01 of the 5-Year Credit Agreement is hereby further
amended by inserting the following new definitions in the appropriate
alphabetical order:
"Applicable Base Rate Margin" shall mean 0% less, to the extent that
such percentage has been increased by operation of the provisions set
forth below in this definition, the then applicable Reduction Discount;
provided, however, in the event that the Total Revolving Loan Commitment
and the Total 364-Day Revolving Loan Commitment have not been reduced
pursuant to Section 3.03(e) of this Agreement and Section 2.03(c) of the
364-Day Credit Agreement as a result of equity issuances by Parent (and/or
a Trust Preferred Subsidiary, as the case may be) and/or issuances by the
Company of Additional Unsecured Senior Debt and/or Subordinated Debt
generating in the aggregate at least (x) $250,000,000 in gross cash
proceeds during the period from the Second Amendment Effective Date to and
including December 31, 1998, then the Applicable Base Rate Margin shall be
increased from and after January 1, 1999 by 1/2 of 1%, (y) either (A)
$500,000,000 in gross cash proceeds during the period from the Second
Amendment Effective Date to and including March 31, 1999 or (B)
$250,000,000 in gross cash proceeds during the period from January 1, 1999
to and including March 31, 1999, then the Applicable Base Rate Margin
shall be increased from and after April 1, 1999 by 1/2 of 1% (after giving
effect to any increase thereto effected pursuant to
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<PAGE>
preceding clause (x), if any) and (z) either (A) $750,000,000 in gross
cash proceeds during the period from the Second Amendment Effective Date
to and including June 30, 1999 or (B) $250,000,000 in gross cash proceeds
during the period from April 1, 1999 to and including June 30, 1999, then
the Applicable Base Rate Margin shall be increased from and after July 1,
1999 by 1/2 of 1% (after giving effect to any increases effected thereto
pursuant to preceding clauses (x) and (y), if any). Notwithstanding
anything to the contrary contained in this definition or elsewhere in this
Agreement, in no event shall the Applicable Base Rate Margin be less than
0% (and if the Applicable Base Rate Margin would otherwise be less than 0%
by operation of the applicable Reduction Discount, such Applicable Base
Rate Margin shall instead be 0%).
"Applicable Eurodollar Rate Margin" shall mean 1-1/4% less the then
applicable Reduction Discount; provided, however, in the event that the
Total Revolving Loan Commitment and the Total 364-Day Revolving Loan
Commitment has not been reduced pursuant to Section 3.03(e) of this
Agreement and Section 2.03(c) of the 364-Day Credit Agreement as a result
of equity issuances by Parent (and/or a Trust Preferred Subsidiary, as the
case may be) and/or issuances by the Company of Additional Unsecured
Senior Debt and/or Subordinated Debt generating in the aggregate at least
(x) $250,000,000 in gross cash proceeds during the period from the Second
Amendment Effective Date to and including December 31, 1998, then the
Applicable Eurodollar Rate Margin shall be increased from and after
January 1, 1999 by 1/2 of 1%, (y) either (A) $500,000,000 in gross cash
proceeds during the period from the Second Amendment Effective Date to and
including March 31, 1999 or (B) $250,000,000 in gross cash proceeds during
the period from January 1, 1999 to and including March 31, 1999, then the
Applicable Base Rate Margin shall be increased from and after April 1,
1999 by 1/2 of 1% (after giving effect to any increase effected pursuant
to preceding clause (x), if any) and (z) either (A) $750,000,000 in gross
cash proceeds during the period from the Second Amendment Effective Date
to and including June 30, 1999 or (B) $250,000,000 in gross cash proceeds
during the period from April 1, 1999 to and including June 30, 1999, then
the Applicable Eurodollar Rate Margin shall be increased from and after
July 1, 1999 by 1/2 of 1% (after giving effect to any increases thereto
effected pursuant to preceding clauses (x) and (y), if any).
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<PAGE>
"Rio Hotel" shall mean Rio Hotel and Casino, Inc., a Nevada
corporation.
"Rio Merger" shall mean the acquisition by Parent and the Company of
all of the outstanding capital stock of Rio Hotel through the merger of a
Wholly-Owned Subsidiary of the Company with and into Rio Hotel.
"Rio Properties" shall mean Rio Properties, Inc., a Nevada
corporation and a Wholly-Owned Subsidiary of Rio Hotel.
"Second Amendment Effective Date" shall mean November 30, 1998.
"Trust Preferred Subsidiary" shall mean a special purpose Subsidiary
of the Company (other than, in any event, a Material Subsidiary) whose
sole purpose is to issue trust preferred stock, which does not otherwise
have any assets or liabilities and all of the common stock of which is
owned by the Company or a Wholly-Owned Subsidiary thereof.
"Unrestricted Subsidiary" shall mean Rio Hotel and its Subsidiaries.
25. Section 13.07(a) of 5-Year Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (ii) of the proviso
thereof and inserting a comma in lieu thereof and (ii) inserting the following
new clause (iv) at the end of such proviso:
"and (iv) except as expressly provided herein, the financial results
of Unrestricted Subsidiaries shall be ignored".
II. Amendments to 364-Day Credit Agreement.
1. Section 1.09(a) of the 364-Day Credit Agreement is hereby amended
by (i) deleting the words "equal to the Base Rate" appearing therein and (ii)
inserting the words "equal to the sum of the Applicable Base Rate Margin plus
the Base Rate" in lieu thereof.
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<PAGE>
2. Section 1.09(b) of the 364-Day Credit Agreement is hereby amended
by deleting the words "Applicable Margin" appearing therein and inserting the
words "Applicable Eurodollar Rate Margin" in lieu thereof.
3. Section 2.03(c) of the 364-Day Credit Agreement is hereby amended
by inserting the following new sentence at the end thereof:
"In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, on each date on or after the Second Amendment
Effective Date upon which Parent receives any proceeds from the issuance
by Parent of any common or preferred (including trust preferred) equity or
any Trust Preferred Subsidiary receives any proceeds from the issuance by
it of any trust preferred equity (other than proceeds received from the
issuance of equity to officers, directors and employees of Parent or any
of its Subsidiaries or Unrestricted Subsidiaries), the Total Revolving
Loan Commitment shall be reduced by an amount equal to its Share of the
cash proceeds of the respective equity issuance (net of underwriting or
placement discounts and commissions and other reasonable costs associated
therewith), provided that, to the extent that the 5-Year Banks do not
require that their full Share be applied to reduce the Total 5-Year
Revolving Loan Commitment, the amount of their Share not so applied shall
instead be applied to reduce the Total Revolving Loan Commitment as
required by clause (e) of this Section 2.03; and provided further, that
the provisions of this sentence shall cease to be of any further force or
effect at such time as the Total Revolving Loan Commitment and the Total
5-Year Revolving Loan Commitment shall have been reduced pursuant to this
Section 2.03(c) and Section 3.03(e) of the 5-Year Credit Agreement as a
result of equity issuances by Parent (and/or a Trust Preferred Subsidiary,
as the case may be) and/or issuances by the Company of Additional
Unsecured Senior Debt and/or Subordinated Debt generating in the aggregate
at least $750,000,000 in gross cash proceeds."
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<PAGE>
4. Section 7 of the 364-Day Credit Agreement is hereby amended by
inserting the following new Sections 7.15 and 7.16 at the end thereof:
"7.15 Maintenance of Corporate Separateness. Parent will, and will
cause each of its Subsidiaries and Unrestricted Subsidiaries to, satisfy
customary corporate formalities, including the holding of regular board of
directors' and shareholders' meetings or action by directors or
shareholders without a meeting and the maintenance of corporate offices
and records. Neither Parent nor any of its Subsidiaries shall make any
payment to a creditor of any Unrestricted Subsidiaries in respect of any
liability of any Unrestricted Subsidiaries, and no bank account of any
Unrestricted Subsidiary shall be commingled with any bank account of
Parent or any of its Subsidiaries. Any financial statements distributed to
any creditors of any Unrestricted Subsidiaries shall clearly establish or
indicate the corporate separateness of such Unrestricted Subsidiaries from
Parent and its Subsidiaries. Finally, neither Parent nor any of its
Subsidiaries shall take any action, or conduct its affairs in a manner,
which is likely to result in the corporate existence of (x) Parent or any
of its Subsidiaries being substantively consolidated with any Unrestricted
Subsidiary or (y) any Unrestricted Subsidiary being substantively
consolidated with Parent or any of its Subsidiaries, in either case in a
bankruptcy, reorganization or other insolvency proceeding.
7.16 Collateral. Except as otherwise provided in the immediately
succeeding sentence, in the event that on or prior to June 30, 1999 the
Company has not permanently reduced the Total Revolving Loan Commitment
and the Total 5-Year Revolving Loan Commitment pursuant to Section 2.03(c)
of this Agreement and Section 3.03(e) of the 5-Year Credit Agreement as a
result of equity issuances by Parent (and/or a Trust Preferred Subsidiary,
as the case may be) and/or issuances by the Company of Additional
Unsecured Senior Debt and/or Subordinated Debt generating in the aggregate
at least
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<PAGE>
$500,000,000 in gross cash proceeds, then (A) Parent, the Company and each
other Credit Party shall grant to the Collateral Agent, for the benefit of
the Administrative Agent, the Collateral Agent, the Banks, the 364-Day
Banks, the Letter of Credit Issuers and the Interest Rate Protection
Creditors, a first priority perfected security interest in substantially
all of such Credit Parties' tangible and intangible assets, with such
exceptions thereto as may be acceptable to the Administrative Agent
(including an exception with respect to a Lien on the Company's and its
Subsidiaries' riverboat casinos), (B) each such Credit Party shall
promptly enter into and/or deliver, or cause to be delivered, all such
security and other documentation as may be necessary or, in the reasonable
opinion of the Administrative Agent, desirable to effectively create such
security interest in all such assets, (C) Parent, the Company and each
other Credit Party shall deliver, or cause to be delivered, to the
Administrative Agent one or more opinions of counsel, in form and
substance, and from counsel, reasonably acceptable to the Administrative
Agent, with respect to the security interests granted by such Credit
Parties as required above and such other matters incident to the
transactions contemplated thereby as the Administrative Agent shall
reasonably request and (D) Parent, the Company and each Subsidiary
Borrower shall enter into an appropriate amendment to this Agreement, in
form and substance satisfactory to the Administrative Agent and the
Required Banks, in connection with the grant of such security interests as
required above and such other matters incident thereto as the
Administrative Agent may reasonably require. Notwithstanding anything to
the contrary contained in the immediately preceding sentence, if on June
30, 1999 the senior unsecured Indebtedness of the Company is rated at
least BBB- by S&P or Baa3 by Moody's, then no Credit Party shall be
required to grant any such security interests or take any of the other
actions required by the immediately preceding sentence."
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<PAGE>
5. Section 8.01 of the 364-Day Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (xix) thereof, (ii)
deleting the period at the end of the clause (xx) thereof and inserting the text
"; and" in lieu thereof and (iii) inserting the following new clause (xxi)
immediately following clause (xx) thereof:
"(xxi) from and after the time that any Liens are created by any
Credit Party in favor of the Collateral Agent by operation of Section 7.16
(but only for so long as such Liens remain in effect), Liens on the
property or assets of such Credit Party in support of such Credit Party's
obligations in respect of any Additional Unsecured Senior Debt on an equal
and ratable basis with the Liens on such property or assets of such Credit
Party arising by operation of Section 7.16 and pursuant to documentation
in form and substance reasonably satisfactory to the Administrative Agent
(but, in any event, only to the extent any such Liens are required to be
created pursuant to the documentation evidencing such Additional Unsecured
Senior Debt)."
6. Section 8.03(iv) of the 364-Day Credit Agreement is hereby
amended by deleting the text "clauses (v) and (vi)" in each instance such text
appears therein and inserting in each such instance the text "clauses (v), (vi)
and (xi)" in lieu thereof.
7. Section 8.03 of the 364-Day Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (ix) thereof, (ii)
deleting the period appearing at the end of clause (x) thereof and inserting the
text "; and" in lieu thereof and (iii) inserting the following new clause (xi)
immediately following clause (x) thereof:
"(xi) so long as no Default or Event of Default shall exist (both
before and after giving effect to the payment thereof), Parent and any
Trust Preferred Subsidiary may pay cash Dividends to holders of trust
preferred stock issued by it."
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<PAGE>
8. The last paragraph of Section 8.05 of the 364-Day Credit
Agreement is hereby amended by (i) deleting the word "and" appearing at the end
of clause (x)(A) thereof and (ii) inserting the following new sub-clause (C)
immediately following clause (x)(B) thereof:
"and (C) from and after the consummation of the Rio Merger, Parent
and its Subsidiaries may expend up to $50,000,000 of the Investment basket
set forth in clause (i) of this Section 8.05 to make cash Investments in
Rio Hotel and its Subsidiaries, provided that such $50,000,000 amount
shall be increased to $100,000,000 from and after such time as the Total
Revolving Loan Commitment and the Total 5-Year Revolving Loan Commitment
have been reduced pursuant to Section 2.03(c) of this Agreement and
Section 3.03(e) of the 364-Day Credit Agreement as a result of equity
issuances by Parent (and/or a Trust Preferred Subsidiary, as the case may
be) and/or issuances by the Company of Additional Unsecured Senior Debt
and/or Subordinated Debt generating in the aggregate at least $250,000,000
in gross cash proceeds."
9. The table appearing in Section 8.07(b) of the 364-Day Credit
Agreement is hereby deleted in its entirety and the following new table is
inserted in lieu thereof:
<TABLE>
<CAPTION>
Period Ratio
------------------------------- ---------
<S> <C>
Showboat Merger Effective Date
to and including June 30, 1998 5.50:1.00
July 1, 1998 to and including
March 31, 1999 5.00:1.00
April 1, 1999 to and including
June 30, 1999 4.75:1.00
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Period Ratio
------------------------------- ---------
<S> <C>
July 1, 1999 to and including
September 30, 1999 4.50:1.00
October 1, 1999 to and including
December 31, 1999 4.25:1.00
January 1, 2000 to and including
March 31, 2000 4.00:1.00
Thereafter 3.50:1.00
</TABLE>
10. The table appearing in Section 8.08(b) of the 364-Day Credit
Agreement is hereby deleted in its entirety and the following new table is
inserted in lieu thereof:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------------------------- ---------
<S> <C>
Fiscal quarters ending June 30,
1998, September 30, 1998,
December 31, 1998, March 31,
1999, June 30, 1999, September
30, 1999 and December 31, 1999
2.00:1.00
Fiscal quarters ending March 31,
2000 and thereafter 2.50:1.00
</TABLE>
11. Section 8.10 of the 364-Day Credit Agreement is hereby amended
by deleting the following text appearing in clause (i)(B) thereof:
"(i) the Company or a Wholly-Owned Subsidiary thereof owns at least
79% of the total equity interest (as determined on a fully diluted basis)
in the Showboat East Chicago Riverboat Casino and (ii)".
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<PAGE>
12. Section 8.12 of the 364-Day Credit Agreement is hereby amended
by inserting the following sentence at the end thereof:
"Notwithstanding anything to the contrary contained in this Section
8.12 or anything else contained in this Agreement, neither Parent nor any
Subsidiary of Parent shall issue any trust preferred stock other than such
issuances by Parent and a Trust Preferred Subsidiary in each case so long
as all the terms and conditions of, and the documentation for, such trust
preferred stock shall be in form and substance reasonably satisfactory to
the Administrative Agent."
13. Section 8.14 of the 364-Day Credit Agreement is hereby amended
by inserting the following new sentence at the end thereof:
"In addition to the foregoing, from and after the consummation of
the Rio Merger, Parent will ensure that at all times (i) either the
Company or a Wholly-Owned Subsidiary of the Company that is a Guarantor
owns all of outstanding capital stock of Rio Hotel and that Rio Hotel owns
all of the outstanding capital stock of Rio Properties (although nothing
herein shall prevent Rio Hotel and Rio Properties from merging together so
long as all of the outstanding capital stock of the surviving corporation
is owned by the Company or a Wholly-Owned Subsidiary of the Company that
is a Guarantor) and (ii) either Rio Hotel or Rio Properties is the owner
and operator of the Rio Hotel and Casino in Las Vegas, Nevada."
14. The definition of "Applicable Margin" appearing in Section 10.01
of the Credit Agreement is hereby deleted in its entirety.
15. The definition of "Consolidated EBITDA" appearing in Section
10.01 of the 364-Day Credit Agreement is hereby amended by inserting the
following proviso at the end thereof:
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<PAGE>
"; provided that for purposes of determining compliance with Section
8.07(b) only, (x) (A) prior to the consummation of the Rio Merger,
Consolidated EBITDA for Parent's fiscal quarters ending on March 31, 1998,
June 30, 1998 and September 30, 1998 was $124,092,000, $152,904,000 and
$158,683,000, respectively and (B) from and after the Rio Merger,
Consolidated EBITDA for Parent's fiscal quarters ending on March 31, 1998,
June 30, 1998 and September 30, 1998 was $149,401,000, $172,983,000 and
$184,543,000 respectively (which amounts represent Parent's historical
Consolidated EBITDA for such quarters as adjusted to give pro forma effect
for the historical operating results of (I) in the case of clause (A)
above, Showboat and its Consolidated Subsidiaries for the respective
fiscal quarters and (II) in the case of clause (B) above, Showboat and its
Consolidated Subsidiaries and Rio Hotel and its Consolidated Subsidiaries
for the respective fiscal quarters) and (y) from and after the
consummation of the Rio Merger, Consolidated EBITDA for Parent's fiscal
quarter ending December 31, 1998 shall be adjusted to give pro forma
effect for the historical operating results of Rio Hotel and its
Consolidated Subsidiaries for the portion of such fiscal period prior the
consumation of the Rio Merger.
16. The definition of "Consolidated Interest Expense" appearing in
Section 10.01 of the 364-Day Credit Agreement is hereby amended by (i) deleting
the word "and" appearing at the end of clause (i) thereof and inserting a comma
in lieu thereof and (ii) inserting the following new clause (iii) immediately
following clause (ii) thereof:
"and (iii) the amount of all Dividends paid by Parent and Trust
Preferred Subsidiaries during such period to holders of their respective
trust preferred stock; provided, however, that in the event that the
parent company of such Trust Preferred Subsidiary is not allowed an
off-setting tax deduction in respect of interest payments made by such
parent company on subordinated indebtedness issued in connection with the
issuance of any such trust preferred stock, then an amount equal to the
product of (A) the amount of all
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<PAGE>
Dividends paid by Parent and Trust Preferred Subsidiaries during such
period to holders of their respective trust preferred stock and (B) a
fraction, the numerator of which is one and the denominator of which is
one minus the current effective consolidated federal, state and local
income tax rate of Parent expressed as a decimal shall instead be added to
Consolidated Interest Expense for such period."
17. The definition of "Consolidated Net Income" appearing in Section
10.01 of the 364-Day Credit Agreement is hereby deleted in its entirety and the
following new definition of "Consolidated Net Income" is inserted in lieu
thereof:
"Consolidated Net Income" shall mean, for any period, the net income
of Parent and its Consolidated Subsidiaries (without deduction for
minority interests in Subsidiaries) for such period, provided that for the
purpose of determining the applicable Reduction Discount and Consolidated
Net Income under Sections 8.03, 8.04 and 8.05, the net income (or loss) of
any Unrestricted Subsidiary shall be included in the calculation of
Consolidated Net Income only to the extent of the payment of cash
dividends or distributions by such Unrestricted Subsidiary to Parent or a
Wholly-Owned Subsidiary thereof during such period."
18. The definition of "Permitted Designated Indebtedness" appearing
in Section 10.01 of the 364-Day Credit Agreement is hereby deleted in its
entirety and the following new definition of "Permitted Designated Indebtedness"
is inserted in lieu thereof:
"Permitted Designated Indebtedness" shall mean (i) all Subordinated
Debt incurred pursuant to Section 8.04(xi) and (ii) all Additional
Unsecured Senior Debt; provided, however, after the Total Revolving Loan
Commitment and the Total 5-Year Revolving Loan Commitment have been
permanently reduced pursuant to Section 2.03(c) of this Agreement and
Section 3.03(e) of the 5-Year Credit Agreement as a result of equity
issuances by Parent (and/or a Trust Preferred Subsidiary, as the case may
be) and/or issuances by the
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<PAGE>
Company of Additional Unsecured Senior Debt and/or Subordinated Debt
generating in the aggregate at least $750,000,000 in gross cash proceeds,
the next $200,000,000 of Subordinated Debt issued thereafter shall not be
considered "Permitted Designated Indebtedness", and provided further,
however, after the Total Revolving Loan Commitment and the 5-Year
Revolving Loan Commitment have been permanently reduced pursuant to
Section 2.03(c) of this Agreement and Section 3.03(e) of the 5-Year Credit
Agreement in any fiscal quarter of Parent as a result of equity issuances
by Parent (and/or a Trust Preferred Subsidiary, as the case may be) and/or
issuances by the Company of Additional Unsecured Senior Debt and/or
Subordinated Debt generating in the aggregate at least $250,000,000 in
gross cash proceeds during such fiscal quarter, then any additional
Subordinated Debt issued thereafter during such fiscal quarter shall not
be considered "Permitted Designated Indebtedness" so long as the proceeds
therefrom are used within 120 days after any such issuances to refinance,
repay, purchase, repurchase, or otherwise retire the East Chicago Showboat
Notes (including the payment of any premiums associated therewith) (it
being understood and agreed that (x) until such proceeds from any such
issuances of additional Subordinated Debt are used to refinance the East
Chicago Showboat Notes as permitted hereunder, such proceeds may be used
to voluntarily prepay Loans in accordance with Section 3.01 and (y) to the
extent that any portion of such proceeds from any such issuances of
additional Subordinated Debt are not used within such 120 day period to
refinance, repay, purchase, repurchase, redeem or otherwise retire the
East Chicago Showboat Notes, the Total Revolving Loan Commitment and the
5-Year Revolving Loan Commitment shall be reduced pursuant to Section
2.03(c) of this Agreement and Section 3.03(e) of the 5-Year Credit
Agreement by an amount equal to such portion not so used to the extent
such portion would otherwise constitute "Permitted Designated
Indebtedness" hereunder).
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<PAGE>
19. The definition of "Reduction Discount" appearing in Section
10.01 of the 364-Day Credit Agreement is hereby amended by inserting the words
"and Base Rate Loans" immediately following the words "Eurodollar Loans"
appearing in clauses (A)(x), (B)(x) and (C)(x) therein.
20. The definition of "Subsidiary" appearing in Section 10.01 of the
364-Day Credit Agreement is hereby amended by inserting the following new
sentence at the end thereof:
"Notwithstanding the foregoing (and except for purposes of (x) the
definition of Unrestricted Subsidiary contained herein, (y) determining
compliance with Sections 8.07(b), 8.08(b) and 8.09 only and (z) Sections
9.04 and 9.05), an Unrestricted Subsidiary shall be deemed not to be a
Subsidiary of Parent or any of its other Subsidiaries for purposes of this
Agreement."
21. Section 10.01 of the 364-Day Credit Agreement is hereby further
amended by inserting the following new definitions in the appropriate
alphabetical order:
"Applicable Base Rate Margin" shall mean 0% less, to the extent that
such percentage has been increased by operation of the provisions set
forth below in this definition, the then applicable Reduction Discount;
provided, however , in the event that the Total Revolving Loan Commitment
and the Total 5-Year Revolving Loan Commitment have not been reduced
pursuant to Section 2.03(c) of this Agreement and Section 3.03(e) of the
5-Year Credit Agreement as a result of equity issuances by Parent (and/or
a Trust Preferred Subsidiary, as the case may be) and/or issuances by the
Company of Additional Unsecured Senior Debt and/or Subordinated Debt
generating in the aggregate at least (x) $250,000,000 in gross cash
proceeds during the period from the Second Amendment Effective Date to and
including December 31, 1998, then the Applicable Base Rate Margin shall be
increased from and after January 1, 1999 by 1/2 of 1%, (y) either (A)
$500,000,000 in gross
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<PAGE>
cash proceeds during the period from the Second Amendment Effective Date
to and including March 31, 1999 or (B) $250,000,000 in gross cash proceeds
during the period from January 1, 1999 to and including March 31, 1999,
then the Applicable Base Rate Margin shall be increased from and after
April 1, 1999 by 1/2 of 1% (after giving effect to any increase thereto
effected pursuant to preceding clause (x), if any) and (z) either (A)
$750,000,000 in gross cash proceeds during the period from the Second
Amendment Effective Date to and including June 30, 1999 or (B)
$250,000,000 in gross cash proceeds during the period from April 1, 1999
to and including June 30, 1999, then the Applicable Base Rate Margin shall
be increased from and after July 1, 1999 by 1/2 of 1% (after giving effect
to any increases effected thereto pursuant to preceding clauses (x) and
(y), if any). Notwithstanding anything to the contrary contained in this
definition or elsewhere in this Agreement, in no event shall the
Applicable Base Rate Margin be less than 0% (and if the Applicable Base
Rate Margin would otherwise be less than 0% by operation of the applicable
Reduction Discount, such Applicable Base Rate Margin shall instead be 0%).
"Applicable Eurodollar Rate Margin" shall mean 7/8 of 1% less the
then applicable Reduction Discount, provided, however, in the event that
the Total Revolving Loan Commitment and the Total 5-Year Revolving Loan
Commitment have not been reduced pursuant to Section 2.03(c) of this
Agreement and Section 3.03(e) of the 5-Year Credit Agreement as a result
of equity issuances by Parent (and/or a Trust Preferred Subsidiary, as the
case may be) and/or issuances by the Company of Additional Unsecured
Senior Debt and/or Subordinated Debt generating in the aggregate at least
(x) $250,000,000 in gross cash proceeds during the period from the Second
Amendment Effective Date to and including December 31, 1998, then the
Applicable Eurodollar Rate Margin shall be increased from and after
January 1, 1999 by 1/2 of 1%, (y) either (A) $500,000,000 in gross cash
proceeds during the period from the Second Amendment Effective Date to and
including March 31, 1999 or (B) $250,000,000 in gross cash proceeds during
the period from January 1, 1999 to and including March 31, 1999,
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<PAGE>
then the Applicable Eurodollar Rate Margin shall be increased from and
after April 1, 1999 by 1/2 of 1% (after giving effect to any increase
thereto effected pursuant to preceding clause (x), if any) and (z) either
(A) $750,000,000 in gross cash proceeds during the period from the
Restatement Effective Date to and including June 30, 1999 or (B)
$250,000,000 in gross cash proceeds during the period from April 1, 1999
to and including June 30, 1999, then the Applicable Eurodollar Rate Margin
shall be increased from and after July 1, 1999 by 1/2 of 1% (after giving
effect any increases thereto effected pursuant to preceding clauses (x)
and (y), if any).
"Rio Hotel" shall mean Rio Hotel and Casino, Inc., a Nevada
corporation.
"Rio Merger" shall mean the acquisition by Parent and the Company of
all of the outstanding capital stock of Rio Hotel through the merger of a
Wholly-Owned Subsidiary of the Company with and into Rio Hotel.
"Rio Properties" shall mean Rio Properties, Inc., a Nevada
corporation and a Wholly-Owned Subsidiary of Rio Hotel.
"Second Amendment Effective Date" shall mean November 30, 1998.
"Trust Preferred Subsidiary" shall mean a special purpose Subsidiary
of the Company (other than, in any event, a Material Subsidiary) whose
sole purpose is to issue trust preferred stock and which does not
otherwise have any assets or liabilities and all of the common stock of
which is owned by the Company or a Wholly-Owned Subsidiary thereof.
"Unrestricted Subsidiary" shall mean Rio Hotel and its Subsidiaries.
-29-
<PAGE>
22. Section 12.07(a) of 364-Day Credit Agreement is hereby amended
by (i) deleting the word "and" appearing at the end of clause (ii) of the
proviso thereof and inserting a comma in lieu thereof and (ii) inserting the
following new clause (iv) at the end of such proviso:
"and (iv) except as expressly provided herein, the financial results
of Unrestricted Subsidiaries shall be ignored".
III. Consent to Rio Merger.
1. The Banks hereby consent to the consummation of the Rio Merger on
the terms and conditions set forth in the Rio Merger Agreement and this
Amendment, provided that on or prior to the time the Rio Merger is consummated,
either (x) the Rio Credit Facility Amendment or (y) the Additional Rio Credit
Facility shall have been entered into and shall, in either case, be in full
force and effect and the Administrative Agent shall have received a true and
correct copy of the Rio Credit Facility Amendment or the Additional Rio Credit
Facility, as the case may be, which shall, in either case, be in form and
substance reasonably satisfactory to the Administrative Agent.
IV. Miscellaneous.
1. 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 Second Amendment Effective Date, 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 Second 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 Second 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).
2. 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.
-30-
<PAGE>
3. 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.
4. 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.
5. This Amendment shall become effective on the date (the "Second
Amendment Effective Date") when (i) 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
(in-cluding by way of telecopier) the same to the Administrative Agent at the
Notice Office and (ii) the Administrative Agent shall have received for the
account of each Bank which has executed a counterpart hereof and delivered the
same to the Administrative Agent at the Notice Office by 5:30 p.m. (New York
time) on December 7, 1998 an amendment fee equal to .15% of the sum of such
Bank's Revolving Loan Commitment under each of the 5-Year Credit Agreement and
the 364-Day Credit Agreement.
6. From and after the Second 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 modified hereby.
* * *
-31-
<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: /s/ Charles L. Atwood
-----------------------------
Name: Charles L. Atwood
Title: Vice President/Treasurer
HARRAH'S OPERATING COMPANY, INC.
By: /s/ Charles L. Atwood
------------------------------
Name: Charles L. Atwood
Title: Vice President/Treasurer
MARINA ASSOCIATES
By: HARRAH'S ATLANTIC CITY, INC.,
a general partner
By: /s/ Stephen H. Brammell
-----------------------------
Name: Stephen H. Brammell
Title: Assistant Secretary
By: HARRAH'S NEW JERSEY, INC.,
a general partner
By: /s/ Stephen H. Brammell
-----------------------------
Name: Stephen H. Brammell
Title: Assistant Secretary
<PAGE>
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
By: /s/ Mary Kay Coyle
----------------------------
Name: Mary Kay Coyle
Title: Managing Director
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
Individually and as Documentation Agent
By: /s/ Scott Faber
---------------------------
Name: Scott L. Faber
Title: Vice President
SOCIETE GENERALE, Individually and as a
Co-Syndication Agent
By: /s/ Donald L. Schubert
------------------------------
Name: Donald Schubert
Title: Managing Director
CANADIAN IMPERIAL BANK OF
COMMERCE, Individually and as
Co-Syndication Agent
By: /s/ Paul J. Chakmak
----------------------------
Name: Paul J. Chakmak
Title: Managing Director, CIBC
Oppenheimer Corp., AS AGENT
<PAGE>
FLEET BANK, N.A.
By: /s/ John T. Harrison
---------------------------
Name: John T. Harrison
Title: Senior Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: /s/ Suzanne Fuller
---------------------------
Name: Suzanne Fuller
Title: Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: /s/ Cynthia M. Niesen
---------------------------
By: /s/ Walter T. Duffy, III
------------------------------
Name: Cynthia M. Niesen
Title: Managing Director
Name: Walter T. Duffy, III
Title: Associate
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH
By: /s/ Rebecca J. S. Silbert
------------------------------
Name: Rebecca J. S. Silbert
Title: SVP
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Gary W. Wessels
----------------------------
Name: Gary W. Wessels
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Anna Marie Hughes
----------------------------
Name: Anna Marie Hughes
Title: Vice President
CREDIT LYONNAIS ATLANTA AGENCY
By: /s/ David M. Cawrse
----------------------------
Name: David M. Cawrse
Title: First Vice President & Manager
DEUTSCHE BANK AG, acting through its
New York Branch and/or Cayman
Islands Branch
By: /s/ Stephan A. Wiedemann
------------------------------
Name: Stephen A. Wiedemann
Title: Director
By: /s/ Hans-Josef Thiele
----------------------------
Name: Hans-Josef Thiele
Title: Director
<PAGE>
THE SUMITOMO BANK, LIMITED, ATLANTA
AGENCY
By: /s/ Gary Franke
----------------------------
Name: Gary Franke
Title: VP
THE MITSUBISHI TRUST & BANKING CORP.
By: /s/ Beatrice E. Kossodo
-----------------------------
Name: Beatrice E. Kossodo
Title: Senior Vice President
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Dale Parshall
----------------------------
Name: Dale Parshall
Title: Vice President
THE SANWA BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Masahito Okubo
----------------------------
Name: Masahito Okubo
Title: Vice President
<PAGE>
ABN AMRO BANK N.V., SAN FRANCISCO
BRANCH
By: ABN AMRO NORTH AMERICA, INC., as
its Agent
By: /s/ Jeffrey A. French
----------------------------
Name: Jeffrey A. French
Title: Group Vice President & Director
By: /s/ Corina Fong
---------------------------
Name: Corina Fong
Title: Credit Officer
THE BANK OF NOVA SCOTIA
By: /s/ M. D. Smith
----------------------------
Name: M. D. Smith
Title: Agent Operations
COMMERZBANK AG, LOS ANGELES BRANCH
By: /s/ Christian Jagenberg
-----------------------------
Name: Christian Jagenberg
Title: SVP and Manager
By: /s/ Werner Schmidbauer
-----------------------------
Name: Werner Schmidbauer
Title: Vice President
<PAGE>
FIRST SECURITY BANK, N.A.
By: /s/ David P. Williams
---------------------------
Name: David P. Williams
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
ATLANTA AGENCY
By: /s/ Koichi Hasegawa
----------------------------
Name: Koichi Hasegawa
Title: Senior Vice President
and Deputy General Manager
THE TOKAI BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Shinichi Nakatani
---------------------------
Name: Shinichi Nakatani
Title: Assistant General Manager
BANQUE NATIONALE DE PARIS, HOUSTON
AGENCY
By: /s/ Warren G. Parham
----------------------------
Name: Warren G. Parham
Title: Vice President
<PAGE>
MICHIGAN NATIONAL BANK
By: /s/ Joseph M. Redoutey
---------------------------
Name: Joseph M. Redoutey
Title: Relationship Manager
FIRST NATIONAL BANK OF COMMERCE
By: /s/ Louis Ballero
----------------------------
Name: Louis Ballero
Title:
WACHOVIA BANK, N.A.
By: /s/ Karin E. Reel
----------------------------
Name: Karin E. Reel
Title: Vice President
FIRST AMERICAN NATIONAL BANK, operating
as, and successor in interest by
merger to, Deposit Guaranty National Bank
By: /s/ Larry C. Ratzlaff
----------------------------
Name: Larry C. Ratzlaff
Title: Senior Vice President
<PAGE>
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By: /s/ James H. Moore, Jr.
------------------------------
Name: James H. Moore, Jr.
Title: Vice President
By: ---------------------------
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
By: /s/ Tatsuji Noguchi
----------------------------
Name: Tatsuji Noguchi
Title: Chief Representative
HIBERNIA NATIONAL BANK
By: /s/ Ross Wales
---------------------------
Name: Ross Wales
Title: Vice President
DEPOSIT GUARANTY NATIONAL BANK
By: ---------------------------
Name:
Title:
<PAGE>
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG
By: /s/ David Manheim
--------------------------
/s/ John S. Runnion
----------------------------
Name: David Manheim
Title: Assistant Vice President
Erste Bank New York Branch
Name: John S. Runnion
Title: First Vice President
SUNTRUST BANK, NASHVILLE, N.A.
By: /s/ Renee D. Drake
---------------------------
Name: Renee D. Drake
Title: Vice President
By: ---------------------------
Name:
Title:
BANK OF AMERICA NT & SA
By: ---------------------------
Name:
Title:
<PAGE>
NBD BANK, N.A.
By: /s/ William C. Corrigan
-----------------------------
Name: William C. Corrigan
Title: Vice President
COMERICA BANK
By: /s/ Eoin P. Collins
----------------------------
Name: Eoin P. Collins
Title: Account Officer
<PAGE>
EXHIBIT 4(19)
HARRAH'S OPERATING COMPANY, INC.
Issuer
-------------------------
HARRAH'S ENTERTAINMENT, INC.
Guarantor
-------------------------
INDENTURE
Dated as of December 9, 1998
----------------------------
IBJ SCHRODER BANK & TRUST
COMPANY
Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE.......................1
Section 1.1. Definitions...............................................1
Section 1.2. Other Definitions.........................................8
Section 1.3. Incorporation by Reference of Trust Indenture Act.........8
Section 1.4. Rules of Construction.....................................9
ARTICLE II. THE SECURITIES.................................................10
Section 2.1. Issuable in Series.......................................10
Section 2.2. Establishment of Terms of Series of Securities...........10
Section 2.3. Execution and Authentication.............................14
Section 2.4. Registrar and Paying Agent...............................15
Section 2.5. Paying Agent to Hold Money in Trust......................16
Section 2.6. Securityholder Lists.....................................17
Section 2.7. Transfer and Exchange....................................17
Section 2.8. Mutilated, Destroyed, Lost and Stolen Securities.........18
Section 2.9. Outstanding Securities...................................19
Section 2.10. Treasury Securities.....................................20
Section 2.11. Temporary Securities....................................20
Section 2.12. Cancellation............................................20
Section 2.13. Defaulted Interest......................................21
Section 2.14. Global Securities.......................................21
Section 2.15. CUSIP Numbers...........................................23
ARTICLE III. REDEMPTION....................................................24
Section 3.1. Notice to Trustee........................................24
Section 3.2. Selection of Securities to be Redeemed...................25
Section 3.3. Notice of Redemption.....................................25
Section 3.4. Effect of Notice of Redemption...........................26
Section 3.5. Deposit of Redemption Price..............................26
Section 3.6. Securities Redeemed in Part..............................27
ARTICLE IV. COVENANTS......................................................27
Section 4.1. Payment of Principal and Interest........................27
Section 4.2. SEC Reports..............................................27
Section 4.3. Compliance Certificate...................................27
Section 4.4. Stay, Extension and Usury Laws...........................28
Section 4.5. Corporate Existence......................................28
Section 4.6. Taxes....................................................29
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE V. SUCCESSORS.......................................................29
Section 5.1. When Company May Merge, Etc...............................29
Section 5.2. Successor Corporation Substituted.........................30
ARTICLE VI. DEFAULTS AND REMEDIES...........................................30
Section 6.1. Events of Default.........................................30
Section 6.2. Acceleration of Maturity; Rescission and Annulment........32
Section 6.3. Collection of Indebtedness and Suits for Enforcement
by Trustee. ............................................34
Section 6.4. Trustee May File Proofs of Claim..........................35
Section 6.5. Trustee May Enforce Claims Without Possession of
Securities .............................................36
Section 6.6. Application of Money Collected............................36
Section 6.7. Limitation on Suits.......................................37
Section 6.8. Unconditional Right of Holders to Receive Principal
and Interest ...........................................38
Section 6.9. Restoration of Rights and Remedies........................38
Section 6.10. Rights and Remedies Cumulative...........................38
Section 6.11. Delay or Omission Not Waiver.............................39
Section 6.12. Control by Holders.......................................39
Section 6.13. Waiver of Past Defaults..................................40
Section 6.14. Undertaking for Costs....................................40
ARTICLE VII. TRUSTEE........................................................41
Section 7.1. Duties of Trustee.........................................41
Section 7.2. Rights of Trustee.........................................43
Section 7.3. Individual Rights of Trustee..............................44
Section 7.4. Trustee's Disclaimer......................................44
Section 7.5. Notice of Defaults........................................44
Section 7.6. Reports by Trustee to Holders.............................45
Section 7.7. Compensation and Indemnity................................45
Section 7.8. Replacement of Trustee....................................46
Section 7.9. Successor Trustee by Merger, etc..........................48
Section 7.10. Eligibility; Disqualification............................48
Section 7.11. Preferential Collection of Claims Against Company........48
ARTICLE VIII. SATISFACTION AND DISCHARGE; DEFEASANCE........................48
Section 8.1. Satisfaction and Discharge of Indenture...................48
Section 8.2. Application of Trust Funds; Indemnification...............50
Section 8.3. Legal Defeasance of Securities of any Series..............51
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
Section 8.4. Covenant Defeasance.......................................53
Section 8.5. Repayment to Company......................................55
ARTICLE IX. AMENDMENTS AND WAIVERS..........................................55
Section 9.1. Without Consent of Holders................................55
Section 9.2. With Consent of Holders...................................56
Section 9.3. Limitations...............................................57
Section 9.4. Compliance with Trust Indenture Act.......................58
Section 9.5. Revocation and Effect of Consents.........................58
Section 9.6. Notation on or Exchange of Securities.....................59
Section 9.7. Trustee Protected.........................................59
ARTICLE X. MISCELLANEOUS....................................................59
Section 10.1. Trust Indenture Act Controls.............................59
Section 10.2. Notices..................................................59
Section 10.3. Communication by Holders with Other Holders..............60
Section 10.4. Certificate and Opinion as to Conditions Precedent.......61
Section 10.5. Statements Required in Certificate or Opinion............61
Section 10.6. Rules by Trustee and Agents..............................62
Section 10.7. Legal Holidays...........................................62
Section 10.8. No Recourse Against Others...............................62
Section 10.9. Counterparts.............................................62
Section 10.10. Governing Laws..........................................62
Section 10.11. No Adverse Interpretation of Other Agreements...........63
Section 10.12. Successors..............................................63
Section 10.13. Severability............................................63
Section 10.14. Table of Contents, Headings, Etc........................63
Section 10.15. Securities in a Foreign Currency or in ECU..............63
Section 10.16. Judgment Currency.......................................64
ARTICLE XI. SINKING FUNDS...................................................66
Section 11.1. Applicability of Article.................................66
Section 11.2. Satisfaction of Sinking Fund Payments with Securities....66
Section 11.3. Redemption of Securities for Sinking Fund................67
ARTICLE XII. GUARANTEE .....................................................68
Section 12.1. Guarantee................................................68
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
Section 12.2. Execution and Delivery of Guarantee......................70
Section 12.3. Release of Guarantor.....................................71
Section 12.4. When Guarantor May Merge, etc............................73
</TABLE>
<PAGE>
HARRAH'S OPERATING COMPANY, INC.
Reconciliation and tie between Trust Indenture Act of 1939 and
Indenture, dated as of December 9, 1998
<TABLE>
<S> <C> <C>
ss. 310(a)(1) ............................................ 7.10
(a)(2) ............................................ 7.10
(a)(3) ............................................ Not Applicable
(a)(4) ............................................ Not Applicable
(a)(5) ............................................ 7.10
(b) ............................................ 7.10
ss. 311(a) ............................................ 7.11
(b) ............................................ 7.11
(c) ............................................ Not Applicable
ss. 312(a) ............................................ 2.6
(b) ............................................ 10.3
(c) ............................................ 10.3
ss. 313(a) .......................................... 7.6
(b)(1) ............................................ 7.6
(b)(2) ............................................ 7.6
(c)(1) ............................................ 7.6
(d) ............................................ 7.6
ss. 314(a) ............................................ 4.2, 10.5
(b) ............................................ Not Applicable
(c)(1) ............................................ 10.4
(c)(2) ............................................ 10.4
(c)(3) ............................................ Not Applicable
(d) ............................................ Not Applicable
(e) ............................................ 10.5
(f) ............................................ Not Applicable
ss. 315(a) .......................................... 7.1
(b) ............................................ 7.5
(c) ............................................ 7.1
(d) ............................................ 7.1
(e) ............................................ 6.14
ss. 316(a) ............................................ 2.10
(a)(1)(A) ............................................ 6.12
(a)(1)(B) ............................................ 6.13
(b) ............................................ 6.8
ss. 317(a)(1) ............................................ 6.3
(a)(2) ............................................ 6.4
(b) ............................................ 2.5
ss. 318(a) ............................................ 10.1
</TABLE>
- ----------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be part of the Indenture.
i
<PAGE>
Indenture dated as of December 9, 1998 between Harrah's Operating Company,
Inc., a Delaware corporation ("Company"), Harrah's Entertainment, Inc., a
Delaware corporation ("Guarantor"), and IBJ Schroder Bank & Trust Company, a New
York banking corporation ("Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Securities issued under this
Indenture.
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Additional Amounts" means any additional amounts which are required
hereby or by any Security, under circumstances specified herein or therein, to
be paid by the Company in respect of certain taxes imposed on Holders specified
therein and which are owing to such Holders.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or Service Agent.
"Authorized Newspaper" means a newspaper in an official language of the
country of publication customarily published at least once a day for at least
five days in each calendar week and of general circulation in the place in
connection with which the
<PAGE>
term is used. If it shall be impractical in the opinion of the Trustee to make
any publication of any notice required hereby in an Authorized Newspaper, any
publication or other notice in lieu thereof that is made or given by the Trustee
shall constitute a sufficient publication of such notice.
"Bearer" means anyone in possession from time to time of a Bearer
Security.
"Bearer Security" means any Security, including any interest coupon
appertaining thereto, that does not provide for the identification of the Holder
thereof.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee thereof.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been adopted by the Board of
Directors or pursuant to authorization by the Board of Directors and to be in
full force and effect on the date of the certificate and delivered to the
Trustee.
"Business Day" means, unless otherwise provided by Board Resolution,
Officers' Certificate or supplemental indenture hereto for a particular Series,
any day except a Saturday, Sunday or a legal holiday in the City of New York on
which banking institutions are authorized or required by law, regulation or
executive order to close.
"Company" means the party named as such above until a successor replaces
it and thereafter means the successor.
"Company Order" means a written order signed in the name of the Company by
two Officers, one of whom must be the Company's principal executive officer,
principal financial officer or principal accounting officer.
"Company Request" means a written request signed in the name of the
Company by its Chairman of the Board, a President or a Vice President, and by
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary,
and delivered to the Trustee.
-2-
<PAGE>
"Consolidated Net Tangible Assets" means the total amount of assets
(including investments in Joint Ventures) of the Company and its subsidiaries
(less applicable depreciation, amortization and other valuation reserves) after
deduction therefrom (a) all current liabilities of the Company and its
subsidiaries (excluding (i) the current portion of long-term indebtedness, (ii)
intercompany liabilities and (iii) any liabilities which are by their terms
renewable or extendible at the option of the obligor thereon to a time more than
12 months from the time as of which the amount thereof is being computed) and
(b) all goodwill, trade names, trademarks, patents, unamortized debt discount
and any other like intangibles, all as set forth on the consolidated balance
sheet of the Company for the most recently completed fiscal quarter for which
financials are available and computed in accordance with generally accepted
accounting principles.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Depository" means, with respect to the Securities of any Series issuable
or issued in whole or in part in the form of one or more Global Securities, the
person designated as Depository for such Series by the Company, which Depository
shall be a clearing agency registered under the Exchange Act; and if at any time
there is more than one such person, "Depository" as used with respect to the
Securities of any Series shall mean the Depository with respect to the
Securities of such Series.
"Discount Security" means any Security that provides for an amount less
than the stated principal amount thereof to be due and payable upon declaration
of acceleration of the maturity thereof pursuant to Section 6.2.
"Dollars" means the currency of The United States of America.
-3-
<PAGE>
"ECU" means the European Currency Unit as determined by the Commission of
the European Union.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Currency" means any currency or currency unit issued by a
government other than the government of The United States of America.
"Foreign Government Obligations" means with respect to Securities of any
Series that are denominated in a Foreign Currency, (i) direct obligations of the
government that issued or caused to be issued such currency for the payment of
which obligations its full faith and credit is pledged or (ii) obligations of a
person controlled or supervised by or acting as an agency or instrumentality of
such government the timely payment of which is unconditionally guaranteed as a
full faith and credit obligation by such government, which, in either case under
clauses (i) or (ii), are not callable or redeemable at the option of the issuer
thereof.
"Gaming Laws" means the gaming laws of a jurisdiction or jurisdictions to
which the Company or a subsidiary of the Company is, or may at any time after
the date of this Indenture be, subject.
"Gaming Authority" means the Nevada Gaming Commission, the Nevada State
Gaming Control Board, the New Jersey Casino Control Commission or any similar
commission or agency which has, or may at any time after the date of this
Indenture have, jurisdiction over the gaming activities of the Company or a
subsidiary of the Company or any successor thereto.
"Global Security" or "Global Securities" means a Security or Securities,
as the case may be, in the form established pursuant to Section 2.2 evidencing
all or part of a Series of Securities, issued to the Depository for such Series
or its nominee, and registered in the name of such Depository or nominee.
-4-
<PAGE>
"Guarantee" shall have the meaning set forth in Section 12.1 hereof.
"Guarantor" means the party named as such above until a successor replaces
it and thereafter means the successor.
"Holder" or "Securityholder" means a person in whose name a Security is
registered or the holder of a Bearer Security.
"Indenture" means this Indenture as amended from time to time and shall
include the form and terms of particular Series of Securities established as
contemplated hereunder.
"interest" with respect to any Discount Security which by its terms bears
interest only after Maturity, means interest payable after Maturity.
"Joint Venture" means any partnership, corporation or other entity, in
which up to and including 50% of the partnership interests, outstanding voting
stock or other equity interests is owned, directly or indirectly, by the Company
and/or more subsidiaries.
"Maturity," when used with respect to any Security or installment of
principal thereof, means the date on which the principal of such Security or
such installment of principal becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption, notice of option to elect repayment or otherwise.
"Non-recourse Indebtedness" means indebtedness the terms of which
provide that the lender's claim for repayment of such indebtedness is limited
solely to a claim against the property which secures such indebtedness.
"Officer" means the Chairman of the Board, any President, any
Vice-President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the Company's principal executive officer, principal financial
officer or principal accounting officer.
-5-
<PAGE>
"Opinion of Counsel" means a written opinion of legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company.
"person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"principal" of a Security means the principal of the Security plus, when
appropriate, the premium, if any, on, and any Additional Amounts in respect of,
the Security.
"Responsible Officer" means any officer of the Trustee in its Corporate
Trust Office and also means, with respect to a particular corporate trust
matter, any other officer to whom any corporate trust matter is referred because
of his or her knowledge of and familiarity with a particular subject.
"SEC" means the Securities and Exchange Commission.
"Securities" means the debentures, notes or other debt instruments of the
Company of any Series authenticated and delivered under this Indenture.
"Series" or "Series of Securities" means each series of debentures, notes
or other debt instruments of the Company created pursuant to Sections 2.1 and
2.2 hereof.
"Significant Subsidiary" means (i) any direct or indirect Subsidiary of
the Company that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act of 1933,
as amended, as such regulation is in effect on the date hereof, or (ii) any
group of direct or indirect Subsidiaries of the Company that, taken together as
a group, would be a "significant subsidiary" as defined in Article 1, Rule 1-02
of Regulation S-X, promulgated pursuant to the Securities Act of 1933, as
amended, as such regulation is in effect on the date hereof.
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"Stated Maturity" when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" of any specified person means any corporation of which at
least a majority of the outstanding stock having by the terms thereof ordinary
voting power for the election of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by such person, or
by one or more other Subsidiaries, or by such person and one or more other
Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date,
"TIA" means, to the extent required by any such amendment, the Trust Indenture
Act as so amended.
"Trustee" means the person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each person who is then a Trustee hereunder, and if at any time there
is more than one such person, "Trustee" as used with respect to the Securities
of any Series shall mean the Trustee with respect to Securities of that Series.
"U.S. Government Obligations" means securities which are (i) direct
obligations of The United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of The United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by The United States of America, and which in the case of (i)
and (ii) are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository
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receipt issued by a bank or trust company as custodian with respect to any such
U.S. Government Obligation or a specific payment of interest on or principal of
any such U.S. Government Obligation held by such custodian for the account of
the holder of a depository receipt,provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation evidenced by such
depository receipt.
Section 1.2. Other Definitions.
<TABLE>
<CAPTION>
TERM DEFINED IN
SECTION
<S> <C>
"Bankruptcy Law" 6.1
"Custodian" 6.1
"Event of Default" 6.1
"Journal" 10.15
"Judgment Currency" 10.16
"Legal Holiday" 10.7
"mandatory sinking fund payment" 11.1
"Market Exchange Rate" 10.15
"New York Banking Day" 10.16
"optional sinking fund payment" 11.1
"Paying Agent" 2.4
"Registrar" 2.4
"Required Currency" 10.16
"Service Agent" 2.4
"successor person" 5.1
</TABLE>
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
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"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company
and any successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
and not otherwise defined herein are used herein as so defined.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(c) references to "generally accepted accounting principles" shall
mean generally accepted accounting principles in effect as of the time
when and for the period as to which such accounting principles are to be
applied;
(d) "or" is not exclusive;
(e) words in the singular include the plural, and in the plural
include the singular; and
(f) provisions apply to successive events and transactions.
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ARTICLE II.
THE SECURITIES
Section 2.1. Issuable in Series.
The aggregate principal amount of Securities that may be authenticated and
delivered under this Indenture is unlimited. The Securities may be issued in one
or more Series. All Securities of a Series shall be identical except as may be
set forth in a Board Resolution, a supplemental indenture or an Officers'
Certificate detailing the adoption of the terms thereof pursuant to the
authority granted under a Board Resolution. In the case of Securities of a
Series to be issued from time to time, the Board Resolution, Officers'
Certificate or supplemental indenture may provide for the method by which
specified terms (such as interest rate, maturity date, record date or date from
which interest shall accrue) are to be determined. Securities may differ between
Series in respect of any matters, provided that all Series of Securities shall
be equally and ratably entitled to the benefits of the Indenture.
Section 2.2. Establishment of Terms of Series of Securities.
At or prior to the issuance of any Securities within a Series, the
following shall be established (as to the Series generally, in the case of
Subsection 2.2.1 and either as to such Securities within the Series or as to the
Series generally in the case of Subsections 2.2.2 through 2.2.22) by a Board
Resolution, a supplemental indenture or an Officers' Certificate pursuant to
authority granted under a Board Resolution:
2.2.1. the title of the Series (which shall distinguish the
Securities of that particular Series from the Securities of any other
Series);
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2.2.2. the price or prices (expressed as a percentage of the
principal amount thereof) at which the Securities of the Series will be
issued;
2.2.3. any limit upon the aggregate principal amount of the
Securities of the Series which may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the Series pursuant to Section 2.7, 2.8, 2.11, 3.6 or 9.6);
2.2.4. the date or dates on which the principal of the Securities of
the Series is payable;
2.2.5. the rate or rates (which may be fixed or variable) per annum
or, if applicable, the method used to determine such rate or rates
(including, but not limited to, any commodity, commodity index, stock
exchange index or financial index) at which the Securities of the Series
shall bear interest, if any, the date or dates from which such interest,
if any, shall accrue, the date or dates on which such interest, if any,
shall commence and be payable and any regular record date for the interest
payable on any interest payment date;
2.2.6. the place or places where the principal of and interest, if
any, on the Securities of the Series shall be payable, or the method of
such payment, if by wire transfer, mail or other means;
2.2.7. if applicable, the period or periods within which, the price
or prices at which and the terms and conditions upon which the Securities
of the Series may be redeemed, in whole or in part, at the option of the
Company;
2.2.8. the obligation, if any, of the Company to redeem or purchase
the Securities of the Series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods
within which, the
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price or prices at which and the terms and conditions upon which
Securities of the Series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
2.2.9. the dates, if any, on which and the price or prices at which
the Securities of the Series will be repurchased by the Company at the
option of the Holders thereof and other detailed terms and provisions of
such repurchase obligations;
2.2.10. if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which the Securities of the Series
shall be issuable;
2.2.11. the forms of the Securities of the Series in bearer or fully
registered form (and, if in fully registered form, whether the Securities
will be issuable as Global Securities);
2.2.12. if other than the principal amount thereof, the portion of
the principal amount of the Securities of the Series that shall be payable
upon declaration of acceleration of the maturity thereof pursuant to
Section 6.2;
2.2.13. the currency of denomination of the Securities of the
Series, which may be Dollars or any Foreign Currency, including, but not
limited to, the ECU, and if such currency of denomination is a composite
currency other than the ECU, the agency or organization, if any,
responsible for overseeing such composite currency;
2.2.14. the designation of the currency, currencies or currency
units in which payment of the principal of and interest, if any, on the
Securities of the Series will be made;
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2.2.15. if payments of principal of or interest, if any, on the
Securities of the Series are to be made in one or more currencies or
currency units other than that or those in which such Securities are
denominated, the manner in which the exchange rate with respect to such
payments will be determined;
2.2.16. the manner in which the amounts of payment of principal of
or interest, if any, on the Securities of the Series will be determined,
if such amounts may be determined by reference to an index based on a
currency or currencies or by reference to a commodity, commodity index,
stock exchange index or financial index;
2.2.17. the provisions, if any, relating to any security provided
for the Securities of the Series;
2.2.18. any addition to or change in the Events of Default which
applies to any Securities of the Series and any change in the right of the
Trustee or the requisite Holders of such Securities to declare the
principal amount thereof due and payable pursuant to Section 6.2;
2.2.19. any addition to or change in the covenants set forth in
Articles IV or V which applies to Securities of the Series;
2.2.20. any other terms of the Securities of the Series (which terms
shall not be inconsistent with the provisions of this Indenture, except as
permitted by Section 9.1, but which may modify or delete any provision of
this Indenture insofar as it applies to such Series); and
2.2.21. any depositories, interest rate calculation agents, exchange
rate calculation agents or other agents with respect to Securities of such
Series if other than those appointed herein.
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All Securities of any one Series need not be issued at the same time and
may be issued from time to time, consistent with the terms of this Indenture, if
so provided by or pursuant to the Board Resolution, supplemental indenture or
Officers' Certificate referred to above, and the authorized principal amount of
any Series may not be increased to provide for issuances of additional
Securities of such Series, unless otherwise provided in such Board Resolution,
supplemental indenture or Officers' Certificate.
Section 2.3. Execution and Authentication.
An Officer shall sign the Securities for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature
of the Trustee or an authenticating agent. The signature shall be conclusive
evidence that the Security has been authenticated under this Indenture.
Subject to the provisions of this Section 2.3, the Trustee shall at any
time, and from time to time, authenticate Securities for original issue in the
principal amount provided in the Board Resolution, supplemental indenture hereto
or Officers' Certificate, upon receipt by the Trustee of a Company Order. Such
Company Order may authorize authentication and delivery pursuant to oral or
electronic instructions from the Company or its duly authorized agent or agents,
which oral instructions shall be promptly confirmed in writing. Each Security
shall be dated the date of its authentication unless otherwise provided by a
Board Resolution, a supplemental indenture hereto or an Officers' Certificate.
The aggregate principal amount of Securities of any Series outstanding at
any time may not exceed any limit upon the maximum principal amount for such
Series set forth in the Board Resolution, supplemental indenture hereto or
Officers' Certificate delivered pursuant to Section 2.2, except as provided in
Section 2.8.
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Prior to the issuance of Securities of any Series, the Trustee shall have
received and (subject to Section 7.2) shall be fully protected in relying on:
(a) the Board Resolution, supplemental indenture hereto or Officers' Certificate
establishing the form of the Securities of that Series or of Securities within
that Series and the terms of the Securities of that Series or of Securities
within that Series, (b) an Officers' Certificate complying with Section 10.4,
and (c) an Opinion of Counsel complying with Section 10.4.
The Trustee shall have the right to decline to authenticate and deliver
any Securities of such Series: (a) if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken; or (b) if the Trustee in
good faith by its board of directors or trustees, executive committee or a trust
committee of directors and/or vice-presidents shall determine that such action
would expose the Trustee to personal liability to Holders of any then
outstanding Series of Securities.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
Section 2.4. Registrar and Paying Agent.
The Company shall maintain, with respect to each Series of Securities, at
the place or places specified with respect to such Series pursuant to Section
2.2, an office or agency where Securities of such Series may be presented or
surrendered for payment (" Paying Agent"), where Securities of such Series may
be surrendered for registration of transfer or exchange ("Registrar") and where
notices and demands to or upon the Company in respect of the Securities of such
Series and this Indenture may be served ("Service Agent"). The Registrar shall
keep a register with respect to each Series of Securities and to their transfer
and exchange. The Company will give prompt
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written notice to the Trustee of the name and address, and any change in the
name or address, of each Registrar, Paying Agent or Service Agent. If at any
time the Company shall fail to maintain any such required Registrar, Paying
Agent or Service Agent or shall fail to furnish the Trustee with the name and
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more
co-registrars, additional paying agents or additional service agents and may
from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligations to maintain a Registrar, Paying Agent and Service Agent in each
place so specified pursuant to Section 2.2 for Securities of any Series for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the name or address of any such
co-registrar, additional paying agent or additional service agent. The term
"Registrar" includes any co-registrar; the term "Paying Agent" includes any
additional paying agent; and the term "Service Agent" includes any additional
service agent.
The Company hereby appoints the Trustee the initial Registrar, Paying
Agent and Service Agent for each Series unless another Registrar, Paying Agent
or Service Agent, as the case may be, is appointed prior to the time Securities
of that Series are first issued.
Section 2.5. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust, for the benefit of
Securityholders of any Series of Securities, or the Trustee, all money held by
the Paying Agent for the payment of principal of or interest on the Series of
Securities, and will notify the Trustee of any default by the Company in making
any such payment. While any such default
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continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or a Subsidiary) shall have no further liability for
the money. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of Securityholders
of any Series of Securities all money held by it as Paying Agent.
Section 2.6. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders of each Series of Securities and shall otherwise comply with TIA
ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to
the Trustee at least ten days before each interest payment date and at such
other times as the Trustee may request in writing a list, in such form and as of
such date as the Trustee may reasonably require, of the names and addresses of
Securityholders of each Series of Securities.
Section 2.7. Transfer and Exchange.
Where Securities of a Series are presented to the Registrar or a
co-registrar with a request to register a transfer or to exchange them for an
equal principal amount of Securities of the same Series, the Registrar shall
register the transfer or make the exchange if its requirements for such
transactions are met. To permit registrations of transfers and exchanges, the
Trustee shall authenticate Securities at the Registrar's request. No service
charge shall be made for any registration of transfer or exchange (except as
otherwise expressly permitted herein), but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer tax or similar
governmental charge payable upon exchanges pursuant to Sections 2.11, 3.6 or
9.6).
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Neither the Company nor the Registrar shall be required (a) to issue,
register the transfer of, or exchange Securities of any Series for the period
beginning at the opening of business fifteen days immediately preceding the
mailing of a notice of redemption of Securities of that Series selected for
redemption and ending at the close of business on the day of such mailing, or
(b) to register the transfer of or exchange Securities of any Series selected,
called or being called for redemption as a whole or the portion being redeemed
of any such Securities selected, called or being called for redemption in part.
Section 2.8. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same Series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and make available for delivery, in lieu of any such destroyed,
lost or stolen Security, a new Security of the same Series and of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
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Every new Security of any Series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that Series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 2.9. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest on a Global Security
effected by the Trustee in accordance with the provisions hereof and those
described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.8, it ceases to be
outstanding until the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds on the Maturity of Securities of a Series money sufficient
to pay such Securities payable on that date, then on and after that date such
Securities of the Series cease to be outstanding and interest on them ceases to
accrue.
A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
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In determining whether the Holders of the requisite principal amount of
outstanding Securities have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, the principal amount of a Discount Security
that shall be deemed to be outstanding for such purposes shall be the amount of
the principal thereof that would be due and payable as of the date of such
determination upon a declaration of acceleration of the Maturity thereof
pursuant to Section 6.2.
Section 2.10. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities of a Series have concurred in any request, demand, authorization,
direction, notice, consent or waiver Securities of a Series owned by the Company
or an Affiliate shall be disregarded, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
request, demand, authorization, direction, notice, consent or waiver only
Securities of a Series that the Trustee knows are so owned shall be so
disregarded.
Section 2.11. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall, subject to Section 2.3, (in the case of original
issuance), authenticate temporary Securities upon a Company Order. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee upon
request shall authenticate definitive Securities of the same Series and date of
maturity in exchange for temporary Securities. Until so exchanged, temporary
securities shall have the same rights under this Indenture as the definitive
Securities.
Section 2.12. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for
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registration of transfer, exchange or payment. The Trustee sha ll cancel all
Securities surrendered for transfer, exchange, payment, replacement or
cancellation and shall destroy such canceled Securities (subject to the record
retention requirement of the Exchange Act) and deliver a certificate of such
destruction to the Company, unless the Company otherwise directs. The Company
may not issue new Securities to replace Securities that it has paid or delivered
to the Trustee for cancellation.
Section 2.13. Defaulted Interest.
If the Company defaults in a payment of interest on a Series of
Securities, it shall pay the defaulted interest, plus, to the extent permitted
by law, any interest payable on the defaulted interest, to the persons who are
Securityholders of the Series on a subsequent special record date. The Company
shall fix the record date and payment date. At least 30 days before the record
date, the Company shall mail to the Trustee and to each Securityholder of the
Series a notice that states the record date, the payment date and the amount of
interest to be paid. The Company may pay defaulted interest in any other lawful
manner.
Section 2.14. Global Securities.
2.14.1. Terms of Securities. A Board Resolution, a supplemental
indenture hereto or an Officers' Certificate shall establish whether the
Securities of a Series shall be issued in whole or in part in the form of
one or more Global Securities and the Depository for such Global Security
or Securities.
2.14.2. Transfer and Exchange. Notwithstanding any provisions to the
contrary contained in Section 2.7 of the Indenture and in addition
thereto, any Global Security shall be exchangeable pursuant to Section 2.7
of the Indenture for Securities registered in the names of Holders other
than the Depository for such Security or its nominee only if (i) such
Depository notifies the Company that it is unwilling or unable to continue
as Depository for such Global Security or
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if at any time such Depository ceases to be a clearing agency registered
under the Exchange Act, and, in either case, the Company fails to appoint
a successor Depository within 90 days of such event, (ii) the Company
executes and delivers to the Trustee an Officers' Certificate to the
effect that such Global Security shall be so exchangeable or (iii) an
Event of Default with respect to the Securities represented by such Global
Security shall have happened and be continuing. Any Global Security that
is exchangeable pursuant to the preceding sentence shall be exchangeable
for Securities registered in such names as the Depository shall direct in
writing in an aggregate principal amount equal to the principal amount of
the Global Security with like tenor and terms.
Except as provided in this Section 2.14.2, a Global Security may not
be transferred except as a whole by the Depository with respect to such Global
Security to a nominee of such Depository, by a nominee of such Depository to
such Depository or another nominee of such Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such a successor
Depository.
2.14.3. Legend. Any Global Security issued hereunder shall bear a
legend in substantially the following form:
"This Security is a Global Security within the meaning of the
Indenture hereinafter referred to and is registered in the name of the
Depository or a nominee of the Depository. This Security is exchangeable for
Securities registered in the name of a person other than the Depository or its
nominee only in the limited circumstances described in the Indenture, and may
not be transferred except as a whole by the Depository to a nominee of the
Depository, by a nominee of the Depository to the Depository or another nominee
of the Depository or by the Depository or any such nominee to a successor
Depository or a nominee of such a successor Depository."
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2.14.4. Acts of Holders. The Depository, as a Holder, may appoint
agents and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
which a Holder is entitled to give or take under the Indenture.
2.14.5. Payments. Notwithstanding the other provisions of this
Indenture, unless otherwise specified as contemplated by Section 2.2,
payment of the principal of and interest, if any, on any Global Security
shall be made to the Holder thereof.
2.14.6. Consents, Declaration and Directions. Except as provided in
Section 2.14.5, the Company, the Trustee and any Agent shall treat a
person as the Holder of such principal amount of outstanding Securities of
such Series represented by a Global Security as shall be specified in a
written statement of the Depositary with respect to such Global Security,
for purposes of obtaining any consents, declarations, waivers or
directions required to be given by the Holders pursuant to this Indenture.
Section 2.15. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other elements of
identification printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
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Section 2.16. Mandatory Disposition of Debt Securities Pursuant to Gaming
Laws
Each Holder and beneficial owner, by accepting or otherwise acquiring an
interest in the Debt Securities, shall be deemed to have agreed that if the
Gaming Authority of any jurisdiction in which the Company or any of its
subsidiaries conducts or proposes to conduct gaming requires that a Person who
is a Holder or beneficial owner must be licensed, qualified or found suitable
under the applicable Gaming Laws, such Holder or beneficial owner shall apply
for a license, qualification or a finding of suitability within the required
time period. If such Person fails to apply or become licensed or qualified or is
found unsuitable, then the Company shall have the right, at its option, (i) to
require such Person to dispose of its Debt Securities or beneficial interest
therein within 30 days of receipt of notice of the Company's election or such
earlier date as may be requested or prescribed by such Gaming Authority or (ii)
to redeem such Debt Securities at a redemption price equal to the lesser of (a)
such Person's cost or (b) 100% of the principal amount thereof, plus accrued and
unpaid interest to the earlier of the redemption date and the date of the
finding of unsuitability, which may be less than 30 days following the notice of
redemption if so requested or prescribed by the Gaming Authority. The Company
shall notify the Trustee in writing of any such redemption as soon as
practicable. The Company shall not be responsible for any costs or expenses any
such Holder or beneficial owner may incur in connection with its application for
a license, qualification or a finding of suitability.
ARTICLE III.
REDEMPTION
Section 3.1. Notice to Trustee.
The Company may, with respect to any Series of Securities, reserve the
right to redeem and pay the Series of Securities or may covenant to redeem and
pay the Series of Securities or any
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part thereof prior to the Stated Maturity thereof at such time and on such terms
as provided for in such Securities. If a Series of Securities is redeemable and
the Company wants or is obligated to redeem prior to the Stated Maturity thereof
all or part of the Series of Securities pursuant to the terms of such
Securities, it shall notify the Trustee of the redemption date and the principal
amount of Series of Securities to be redeemed. The Company shall give such
notice at least 45 days before the redemption date (or such shorter notice as
may be acceptable to the Trustee).
Section 3.2. Selection of Securities to be Redeemed.
Unless otherwise indicated for a particular Series by a Board Resolution,
a supplemental indenture or an Officers' Certificate, if less than all the
Securities of a Series are to be redeemed, the Trustee shall select the
Securities of the Series to be redeemed in any manner that the Trustee deems
fair and appropriate. The Trustee shall make the selection from Securities of
the Series outstanding not previously called for redemption. The Trustee may
select for redemption portions of the principal of Securities of the Series that
have denominations larger than $1,000. Securities of the Series and portions of
them it selects shall be in amounts of $1,000 or whole multiples of $1,000 or,
with respect to Securities of any Series issuable in other denominations
pursuant to Section 2.2.10, the minimum principal denomination for each Series
and integral multiples thereof. Provisions of this Indenture that apply to
Securities of a Series called for redemption also apply to portions of
Securities of that Series called for redemption.
Section 3.3. Notice of Redemption.
Unless otherwise indicated for a particular Series by Board Resolution, a
supplemental indenture hereto or an Officers' Certificate, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail a notice
of redemption by first-class mail to each Holder whose Securities are to be
redeemed (and provide a copy of such notice to the Trustee) and if any Bearer
Securities are outstanding, publish on one occasion a notice in an Authorized
Newspaper.
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The notice shall identify the Securities of the Series to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of the Paying Agent;
(d) that Securities of the Series called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(e) that interest on Securities of the Series called for redemption
ceases to accrue on and after the redemption date; and
(f) any other information as may be required by the terms of the
particular Series or the Securities of a Series being redeemed.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed or published as provided in Section
3.3, Securities of a Series called for redemption become due and payable on the
redemption date and at the redemption price. A notice of redemption may not be
conditional. Upon surrender to the Paying Agent, such Securities shall be paid
at the redemption price plus accrued interest to the redemption date.
Section 3.5. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Paying Agent money sufficient to pay the redemption price of and accrued
interest, if any, on all Securities to be redeemed on that date.
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Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security of the same Series and the same
maturity equal in principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE IV.
COVENANTS
Section 4.1. Payment of Principal and Interest.
The Company covenants and agrees for the benefit of the Holders of each
Series of Securities that it will duly and punctually pay the principal of and
interest, if any, on the Securities of that Series in accordance with the terms
of such Securities and this Indenture.
Section 4.2. SEC Reports.
The Company shall deliver to the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA ss.314(a).
Section 4.3. Compliance Certificate.
The Company shall deliver to the Trustee, within 90 days after the end of
each fiscal year of the Company, an Officers' Certificate stating that a review
of the activities of the Company and its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such
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certificate, that to the best of his knowledge the Company has kept, observed,
performed and fulfilled each and every covenant contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he may
have knowledge).
The Company will, so long as any of the Securities are outstanding,
deliver to the Trustee, forthwith upon becoming aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with respect thereto.
Section 4.4. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture or the Securities; and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law and covenants that it will not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
Section 4.5. Corporate Existence.
Subject to Article V, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate, partnership or other existence of each Significant Subsidiary
in accordance with the respective organizational documents of each Significant
Subsidiary and the rights (charter and statutory), licenses and franchises of
the Company and its Significant Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate,
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partnership or other existence of any Significant Subsidiary, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries taken as a
whole and that the loss thereof is not adverse in any material respect to the
Holders.
Section 4.6. Taxes.
The Company shall, and shall cause each of its Significant Subsidiaries
to, pay prior to delinquency all taxes, assessments and governmental levies,
except as contested in good faith and by appropriate proceedings.
ARTICLE V.
SUCCESSORS
Section 5.1. When Company May Merge, Etc.
The Company shall not consolidate with or merge into, or convey, transfer
or lease all or substantially all of its properties and assets to, any person (a
"successor person"), and may not permit any person to merge into, or convey,
transfer or lease its properties and assets substantially as an entirety to, the
Company, unless:
(a) the successor person (if any) is a corporation, partnership,
trust or other entity organized and validly existing under the laws of any
U.S. domestic jurisdiction and expressly assumes the Company's obligations
on the Securities and under this Indenture and
(b) immediately after giving effect to the transaction, no Default
or Event of Default, shall have occurred and be continuing.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
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Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.1, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor person has been named
as the Company herein; provided, however, that the predecessor Company in the
case of a sale, lease, conveyance or other disposition shall not be released
from the obligation to pay the principal of and interest, if any, on the
Securities.
ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
"Event of Default," wherever used herein with respect to Securities of any
Series, means any one of the following events, unless in the establishing Board
Resolution, supplemental indenture or Officers' Certificate, it is provided that
such Series shall not have the benefit of said Event of Default:
(a) default in the payment of any interest on any Security of that
Series when it becomes due and payable, and continuance of such default
for a period of 30 days (unless the entire amount of such payment is
deposited by the Company with the Trustee or with a Paying Agent prior to
the expiration of such period of 30 days); or
(b) default in the payment of the principal of any Security of that
Series at its Maturity; or
(c) default in the deposit of any sinking fund payment, when and as
due in respect of any Security of that Series; or
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(d) default in the performance or breach of any covenant or warranty
of the Company or the Guarantor in this Indenture (other than a covenant
or warranty that has been included in this Indenture solely for the
benefit of Series of Securities other than that Series), which default
continues uncured for a period of 60 days after there has been given, by
registered or certified mail, to the Company or the Guarantor by the
Trustee or to the Company, the Guarantor and the Trustee by the Holders of
at least 25% in principal amount of the outstanding Securities of that
Series a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(e) the acceleration of the maturity of any indebtedness of the
Company (other than Non-recourse Indebtedness), at any one time, in an
amount in excess of the greater of (i) $25 million and (ii) 5% of
Consolidated Net Tangible Assets, if such acceleration is not annulled
within 30 days after written notice to the Company by the Trustee and the
holders of at least 25% in principal amount of the outstanding Debt
Securities of that Series.
(f) the Company or any of its Significant Subsidiaries pursuant to
or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is unable to pay its debts as the same become
due; or
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(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case,
(ii) appoints a Custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of its
property, or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries,
and the order or decree remains unstayed and in effect for 60 days; or
(h) any other Event of Default provided with respect to Securities
of that Series, which is specified in a Board Resolution, a supplemental
indenture hereto or an Officers' Certificate, in accordance with Section
2.2.18.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
Section 6.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any Series at the
time outstanding occurs and is continuing (other than an Event of Default
referred to in Section 6.1(f) or (g)) then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the outstanding Securities
of that Series may declare the principal amount (or, if any Securities of that
Series are Discount Securities, such portion of the principal amount as may be
specified in the terms of such Securities) of and accrued and unpaid interest,
if any, on all of the Securities of that Series to be due and payable
immediately,
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by a notice in writing to the Company (and to the Trustee if given by Holders),
and upon any such declaration such principal amount (or specified amount) and
accrued and unpaid interest, if any, shall become immediately due and payable.
If an Event of Default specified in Section 6.1(f) or (g) shall occur, the
principal amount (or specified amount) of and accrued and unpaid interest, if
any, on all outstanding Securities shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder.
At any time after such a declaration of acceleration with respect to any
Series has been made and before a judgment or decree for payment of the money
due has been obtained by the Trustee as hereinafter in this Article provided,
the Holders of a majority in principal amount of the outstanding Securities of
that Series, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest, if any, on all Securities of that
Series,
(ii) the principal of any Securities of that Series which have
become due otherwise than by such declaration of acceleration and
interest thereon at the rate or rates prescribed therefor in such
Securities,
(iii) to the extent that payment of such interest is lawful,
interest upon any overdue principal and overdue interest at the rate
or rates prescribed therefor in such Securities, and
(iv) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel;
and
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(b) all Events of Default with respect to Securities of that Series,
other than the non-payment of the principal of Securities of that Series
which have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
Section 6.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for
a period of 30 days, or
(b) default is made in the payment of principal of any Security at
the Maturity thereof, or
(c) default is made in the deposit of any sinking fund payment when
and as due by the terms of a Security,
then, the Company will, upon demand of the Trustee, pay to it, for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal or any
overdue interest, at the rate or rates prescribed therefor in such Securities,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to
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judgment or final decree and may enforce the same against the Company or any
other obligor upon such Securities and collect the moneys adjudged or deemed to
be payable in the manner provided by law out of the property of the Company or
any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to any Securities of any Series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such Series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
Section 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Securities and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same,
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.5. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
Section 6.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Securities and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section 7.7;
and
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Second: To the payment of the amounts then due and unpaid for principal of
and interest on the Securities in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Securities for principal
and interest, respectively; and
Third: To the Company.
Section 6.7. Limitation on Suits.
No Holder of any Security of any Series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to the Securities of that
Series;
(b) the Holders of not less than 25% in principal amount of the
outstanding Securities of that Series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the outstanding Securities of that Series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect,
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disturb or prejudice the rights of any other of such Holders, or to obtain or to
seek to obtain priority or preference over any other of such Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.
Section 6.8. Unconditional Right of Holders to Receive Principal and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Security on the Stated
Maturity or Stated Maturities expressed in such Security (or, in the case of
redemption, on the redemption date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
Section 6.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 6.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in Section 2.8, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter
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existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 6.12. Control by Holders.
The Holders of a majority in principal amount of the outstanding
Securities of any Series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such Series, provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) subject to the provisions of Section 6.1, the Trustee shall have
the right to decline to follow any such direction if the Trustee in good
faith shall, by a Responsible Officer of the Trustee, determine that the
proceeding so directed would involve the Trustee in personal liability.
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Section 6.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
outstanding Securities of any Series may on behalf of the Holders of all the
Securities of such Series waive any past Default hereunder with respect to such
Series and its consequences, except a Default in the payment of the principal of
or interest on any Security of such Series (provided, however, that the Holders
of a majority in principal amount of the outstanding Securities of any Series
may rescind an acceleration and its consequences, including any related payment
default that resulted from such acceleration). Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
Section 6.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the outstanding Securities of any Series, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of or interest on
any Security on or after the Stated Maturity or Stated Maturities expressed in
such Security (or, in the case of redemption, on the redemption date).
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ARTICLE VII.
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon Officers'
Certificates or Opinions of Counsel furnished to the Trustee and
conforming to the requirements of this Indenture; however, in the
case of any such Officers' Certificates or Opinions of Counsel which
by any provisions hereof are specifically required to be furnished
to the Trustee, the Trustee shall examine such Officers'
Certificates and Opinions of Counsel to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
grossly negligent action, its own grossly negligent failure to act or its
own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b)
of this Section.
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(ii) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it with respect to
Securities of any Series in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
outstanding Securities of such Series relating to the time, method
and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture with respect to the Securities of such
Series.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraph (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to risk
its own funds or otherwise incur any financial liability in the
performance of any of its duties, or in the exercise of any of its rights
or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk is not
reasonably assured to it.
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(h) The Paying Agent, the Registrar and any authenticating agent
shall be entitled to the protections, immunities and standard of care as
are set forth in paragraphs (a), (b) and (c) of this Section with respect
to the Trustee.
Section 7.2. Rights of Trustee.
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care. No
Depository shall be deemed an agent of the Trustee and the Trustee shall
not be responsible for any act or omission by any Depository.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders
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of Securities unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or an Affiliate
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing with respect to
the Securities of any Series and if it is known to a Responsible Officer of the
Trustee, the Trustee shall mail to each Securityholder of the Securities of that
Series and, if any Bearer Securities are outstanding, publish on one occasion in
an Authorized Newspaper, notice of a Default or Event of Default within 90 days
after it occurs or, if later, after a Responsible Officer of the Trustee has
knowledge of such Default or Event of Default. Except in the case of a Default
or Event of Default in payment of principal of or interest on any Security of
any Series, the Trustee may withhold the notice if and so long as its corporate
trust committee or a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Securityholders of
that Series.
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Section 7.6. Reports by Trustee to Holders.
Within 60 days after May 15 in each year, the Trustee shall transmit by
mail to all Securityholders, as their names and addresses appear on the register
kept by the Registrar and, if any Bearer Securities are outstanding, publish in
an Authorized Newspaper, a brief report dated as of such May 15, in accordance
with, and to the extent required under, TIA ss. 313.
A copy of each report at the time of its mailing to Securityholders of any
Series shall be filed with the SEC and each stock exchange on which the
Securities of that Series are listed. The Company shall promptly notify the
Trustee when Securities of any Series are listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services as shall be agreed upon pursuant to a separate
agreement dated not later than the date hereof. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses shall include the
reasonable compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee (including the cost of defending
itself) against any loss, liability or expense incurred by it except as set
forth in the next paragraph in the performance of its duties under this
Indenture as Trustee or Agent. The Trustee shall notify the Company promptly of
any claim for which it may seek indemnity. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld. This indemnification shall
apply to officers, directors, employees, shareholders and agents of the Trustee.
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The Company need not reimburse any expense or indemnify against any loss
or liability incurred by the Trustee or by any officer, director, employee,
shareholder or agent of the Trustee through gross negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities of any Series on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities of that Series.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(f) or (g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign with respect to the Securities of one or more
Series by so notifying the Company. The Holders of a majority in principal
amount of the Securities of any Series may remove the Trustee with respect to
that Series by so notifying the Trustee and the Company. The Company may
remove the Trustee with respect to Securities of one or more Series if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee with respect to the Securities of any one or more
Series does not take office within 60 days after the retiring Trustee resigns or
is removed, the retiring Trustee, the Company or the Holders of at least 10% in
principal amount of the Securities of the applicable Series may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee with respect to the Securities of any one or more Series
fails to comply with Section 7.10, any Securityholder of the applicable Series
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after that, the retiring
Trustee shall transfer all property held by it as Trustee to the successor
Trustee subject to the lien provided for in Section 7.7, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee with respect
to each Series of Securities for which it is acting as Trustee under this
Indenture. A successor Trustee shall mail a notice of its succession to each
Securityholder of each such Series and, if any Bearer Securities are
outstanding, publish such notice on one occasion in an Authorized Newspaper.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the
Company's obligations under Section 7.7 hereof shall continue for the benefit of
the retiring trustee with respect to expenses and liabilities incurred by it
prior to such replacement.
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Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA ss. 310(a)(1), (2) and (5). The Trustee shall always have a combined
capital and surplus of at least $25,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII.
SATISFACTION AND DISCHARGE; DEFEASANCE
Section 8.1. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Order cease to be of further effect
(except as hereinafter provided in this Section 8.1), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) either
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(i) all Securities theretofore authenticated and delivered
(other than Securities that have been destroyed, lost or stolen and
that have been replaced or paid) have been delivered to the Trustee
for cancellation; or
(ii) all such Securities not theretofore delivered to the
Trustee for cancellation
(1) have become due and payable, or
(2) will become due and payable at their Stated Maturity
within one year, or
(3) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company, or
(4) are deemed paid and discharged pursuant to Section
8.3, as applicable;
and the Company, in the case of (1), (2) or (3) above, has deposited or caused
to be deposited with the Trustee as trust funds in trust an amount sufficient
for the purpose of paying and discharging the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case of Securities
which have become due and payable on or prior to the date of such deposit) or to
the Stated Maturity or redemption date, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
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Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 7.7, and, if money shall
have been deposited with the Trustee pursuant to clause (a) of this Section, the
provisions of Sections 2.4, 2.7, 2.8, 8.1 8.2 and 8.5 shall survive.
Section 8.2. Application of Trust Funds; Indemnification.
(a) Subject to the provisions of Section 8.5, all money deposited
with the Trustee pursuant to Section 8.1, all money and U.S. Government
Obligations or Foreign Government Obligations deposited with the Trustee
pursuant to Section 8.3 or 8.4 and all money received by the Trustee in
respect of U.S. Government Obligations or Foreign Government Obligations
deposited with the Trustee pursuant to Section 8.3 or 8.4, shall be held
in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as
the Trustee may determine, to the persons entitled thereto, of the
principal and interest for whose payment such money has been deposited
with or received by the Trustee or to make mandatory sinking fund payments
or analogous payments as contemplated by Sections 8.3 or 8.4.
(b) The Company shall pay and shall indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against U.S.
Government Obligations or Foreign Government Obligations deposited
pursuant to Sections 8.3 or 8.4 or the interest and principal received in
respect of such obligations other than any payable by or on behalf of
Holders.
(c) The Trustee shall deliver or pay to the Company from time to
time upon Company Request any U.S. Government Obligations or Foreign
Government Obligations or money held by it as provided in Sections 8.3 or
8.4 which, in the opinion of a nationally recognized firm of independent
certified public accountants expressed in a written certification thereof
delivered to the Trustee, are then in
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excess of the amount thereof which then would have been required to be
deposited for the purpose for which such U.S. Government Obligations or
Foreign Government Obligations or money were deposited or received. This
provision shall not authorize the sale by the Trustee of any U.S.
Government Obligations or Foreign Government Obligations held under this
Indenture.
Section 8.3. Legal Defeasance of Securities of any Series.
Unless this Section 8.3 is otherwise specified, pursuant to Section
2.2.20, to be inapplicable to Securities of any Series, the Company shall be
deemed to have paid and discharged the entire indebtedness on all the
outstanding Securities of such Series on the 91st day after the date of the
deposit referred to in subparagraph (d) hereof, and the provisions of this
Indenture, as it relates to such outstanding Securities of such Series, shall no
longer be in effect (and the Trustee, at the expense of the Company, shall, at
Company Request, execute proper instruments acknowledging the same), except as
to:
(a) the rights of Holders of Securities of such Series to receive,
from the trust funds described in subparagraph (d) hereof, (i) payment of
the principal of and each installment of principal of and interest on the
outstanding Securities of such Series on the Stated Maturity of such
principal or installment of principal or interest and (ii) the benefit of
any mandatory sinking fund payments applicable to the Securities of such
Series on the day on which such payments are due and payable in accordance
with the terms of this Indenture and the Securities of such Series;
(b) the provisions of Sections 2.4, 2.7, 2.8, 8.2, 8.3 and 8.5; and
(c) the rights, powers, trust and immunities of the Trustee
hereunder;
provided that, the following conditions shall have been satisfied:
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(d) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for and
dedicated solely to the benefit of the Holders of such Securities (i) in
the case of Securities of such Series denominated in Dollars, cash in
Dollars (or such other money or currencies as shall then be legal tender
in the United States) and/or U.S. Government Obligations, or (ii) in the
case of Securities of such Series denominated in a Foreign Currency (other
than a composite currency), money and/or Foreign Government Obligations,
which through the payment of interest and principal in respect thereof, in
accordance with their terms, will provide (and without reinvestment and
assuming no tax liability will be imposed on such Trustee), not later than
one day before the due date of any payment of money, an amount in cash,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge each installment of principal
(including mandatory sinking fund or analogous payments) of and interest,
if any, on all the Securities of such Series on the dates such
installments of interest or principal are due;
(e) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(f) no Default or Event of Default with respect to the Securities of
such Series shall have occurred and be continuing on the date of such
deposit or during the period ending on the 91st day after such date;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel to the effect that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of execution of this Indenture,
there
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has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the Securities of such Series will not
recognize income, gain or loss for Federal income tax purposes as a result
of such deposit, defeasance and discharge and will be subject to Federal
income tax on the same amount and in the same manner and at the same times
as would have been the case if such deposit, defeasance and discharge had
not occurred;
(h) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Securities of such Series over any
other creditors of the company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company;
(i) such deposit shall not result in the trust arising from such
deposit constituting an investment company (as defined in the Investment
Company Act of 1940, as amended), or such trust shall be qualified under
such Act or exempt from regulation thereunder; and
(j) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the defeasance contemplated by this
Section have been complied with.
Section 8.4. Covenant Defeasance.
Unless this Section 8.4 is otherwise specified pursuant to Section 2.2.20
to be inapplicable to Securities of any Series, on and after the 91st day after
the date of the deposit referred to in subparagraph (a) hereof, the Company may
omit to comply with any term, provision or condition set forth under Sections
4.2, 4.3, 4.4, 4.5, 4.6, and 5.1 as well as any additional covenants contained
in a supplemental indenture hereto for a particular Series of Securities or a
Board Resolution or an Officers' Certificate delivered pursuant to Section
2.2.20 (and the failure
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to comply with any such covenants shall not constitute a Default or Event of
Default under Section 6.1) and the occurrence of any event described in clause
(e) of Section 6.1 shall not constitute a Default or Event of Default hereunder,
with respect to the Securities of such Series, provided that the following
conditions shall have been satisfied:
(a) With reference to this Section 8.4, the Company has deposited or
caused to be irrevocably deposited (except as provided in Section 8.2(c))
with the Trustee as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such
Securities (i) in the case of Securities of such Series denominated in
Dollars, cash in Dollars (or such other money or currencies as shall then
be legal tender in the United States) and/or U.S. Government Obligations,
or (ii) in the case of Securities of such Series denominated in a Foreign
Currency (other than a composite currency), money and/or Foreign
Government Obligations, which through the payment of interest and
principal in respect thereof, in accordance with their terms, will provide
(and without reinvestment and assuming no tax liability will be imposed on
such Trustee), not later than one day before the due date of any payment
of money, an amount in cash, sufficient, in the opinion of a nationally
recognized firm of independent certified public accountants expressed in a
written certification thereof delivered to the Trustee, to pay principal
and interest, if any, on and any mandatory sinking fund in respect of the
Securities of such Series on the dates such installments of interest or
principal are due;
(b) Such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(c) No Default or Event of Default with respect to the Securities of
such Series shall have occurred and be continuing on the date of such
deposit or during the period ending on the 91st day after such date;
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(d) the Company shall have delivered to the Trustee an Opinion of
Counsel confirming that Holders of the Securities of such Series will not
recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred;
(e) the Company shall have delivered to the Trustee an Officers'
Certificate stating the deposit was not made by the Company with the
intent of preferring the Holders of the Securities of such Series over any
other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company; and
(f) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the defeasance contemplated by
this Section have been complied with.
Section 8.5. Repayment to Company.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal and interest that remains
unclaimed for two years. After that, Securityholders entitled to the money must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person.
ARTICLE IX.
AMENDMENTS AND WAIVERS
Section 9.1. Without Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or the
Securities of one or more Series without the consent of any Securityholder:
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(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article V;
(c) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(d) to make any change that does not adversely affect the rights of
any Securityholder;
(e) to provide for the issuance of and establish the form and terms
and conditions of Securities of any Series as permitted by this Indenture;
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more Series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee; or
(g) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Section 9.2. With Consent of Holders.
The Company and the Trustee may enter into a supplemental indenture with
the written consent of the Holders of at least a majority in principal amount of
the outstanding Securities of each Series affected by such supplemental
indenture (including consents obtained in connection with a tender offer or
exchange offer for the Securities of such Series), for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any supplemental indenture or of modifying in any manner
the rights of the Securityholders of each such Series. Except as provided in
Section 6.13, the Holders of at least a majority in principal amount of the
outstanding Securities of each Series affected by such waiver by notice to the
Trustee (including consents obtained
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in connection with a tender offer or exchange offer for the Securities of such
Series) may waive compliance by the Company with any provision of this Indenture
or the Securities with respect to such Series.
It shall not be necessary for the consent of the Holders of Securities
under this Section 9.2 to approve the particular form of any proposed
supplemental indenture or waiver, but it shall be sufficient if such consent
approves the substance thereof. After a supplemental indenture or waiver under
this section becomes effective, the Company shall mail to the Holders of
Securities affected thereby and, if any Bearer Securities affected thereby are
outstanding, publish on one occasion in an Authorized Newspaper, a notice
briefly describing the supplemental indenture or waiver. Any failure by the
Company to mail or publish such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture or waiver.
Section 9.3. Limitations.
Without the consent of each Securityholder affected, an amendment or
waiver may not:
(a) change the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the rate of or extend the time for payment of interest
(including default interest) on any Security;
(c) reduce the principal or change the Stated Maturity of any
Security or reduce the amount of, or postpone the date fixed for, the
payment of any sinking fund or analogous obligation;
(d) reduce the principal amount of Discount Securities payable upon
acceleration of the maturity thereof;
(e) waive a Default or Event of Default in the payment of the
principal of or interest, if any, on any Security (except a rescission of
acceleration of the Securities of
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any Series by the Holders of at least a majority in principal amount of
the outstanding Securities of such Series and a waiver of the payment
default that resulted from such acceleration);
(f) make the principal of or interest, if any, on any Security
payable in any currency other than that stated in the Security;
(g) make any change in Sections 6.8, 6.13, 9.3 (this sentence),
10.15 or 10.16; or
(h) waive a redemption payment with respect to any Security or
change any of the provisions with respect to the redemption of any
Securities.
Section 9.4. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities of one or more Series
shall be set forth in a supplemental indenture hereto that complies with the TIA
as then in effect.
Section 9.5. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives the
notice of revocation before the date the amendment or waiver becomes effective.
Any amendment or waiver once effective shall bind every Securityholder of
each Series affected by such amendment or waiver unless it is of the type
described in any of clauses (a) through (g) of Section 9.3. In that case, the
amendment or waiver shall bind each Holder of a Security who has consented to it
and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security.
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Section 9.6. Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or waiver
on any Security of any Series thereafter authenticated. The Company in exchange
for Securities of that Series may issue and the Trustee shall authenticate upon
request new Securities of that Series that reflect the amendment or waiver.
Section 9.7. Trustee Protected.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 7.1) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee shall sign all
supplemental indentures, except that the Trustee need not sign any supplemental
indenture that adversely affects its rights.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required or deemed to be included in this Indenture
by the TIA, such required or deemed provision shall control.
Section 10.2. Notices.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first-class mail:
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if to the Company:
Harrah's Operating Company, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Finance Trust Services
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar and,
if any Bearer Securities are outstanding, published in an Authorized Newspaper.
Failure to mail a notice or communication to a Securityholder of any Series or
any defect in it shall not affect its sufficiency with respect to other
Securityholders of that or any other Series.
If a notice or communication is mailed or published in the manner provided
above, within the time prescribed, it is duly given, whether or not the
Securityholder receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 10.3. Communication by Holders with Other Holders.
Securityholders of any Series may communicate pursuant to TIA ss. 312(b)
with other Securityholders of that Series or any other Series with respect to
their rights under this Indenture or the Securities of that Series or all
Series. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss. 312(c).
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Section 10.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 10.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA ss.
314(e) and shall include:
(a) a statement that the person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
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Section 10.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders of one or more Series. Any Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 10.7. Legal Holidays.
Unless otherwise provided by Board Resolution, Officers' Certificate or
supplemental indenture for a particular Series, a "Legal Holiday" is any day
that is not a Business Day. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 10.8. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
Section 10.9. Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 10.10. Governing Laws.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH
STATE, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
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Section 10.11. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 10.12. Successors.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 10.13. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 10.14. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
Section 10.15. Securities in a Foreign Currency or in ECU.
Unless otherwise specified in a Board Resolution, a supplemental indenture
hereto or an Officers' Certificate delivered pursuant to Section 2.2 of this
Indenture with respect to a particular Series of Securities, whenever for
purposes of this Indenture any action may be taken by the Holders of a specified
percentage in aggregate principal amount of Securities of all Series or all
Series affected by a particular action at the time outstanding and, at such
time, there are outstanding
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Securities of any Series which are denominated in a coin or currency other than
Dollars (including ECUs), then the principal amount of Securities of such Series
which shall be deemed to be outstanding for the purpose of taking such action
shall be that amount of Dollars that could be obtained for such amount at the
Market Exchange Rate at such time. For purposes of this Section 10.15, "Market
Exchange Rate" shall mean the noon Dollar buying rate in New York City for cable
transfers of that currency as published by the Federal Reserve Bank of New York;
provided, however, in the case of ECUs, Market Exchange Rate shall mean the rate
of exchange determined by the Commission of the European Union (or any successor
thereto) as published in the Official Journal of the European Union (such
publication or any successor publication, the "Journal"). If such Market
Exchange Rate is not available for any reason with respect to such currency, the
Trustee shall use, in its sole discretion and without liability on its part,
such quotation of the Federal Reserve Bank of New York or, in the case of ECUs,
the rate of exchange as published in the Journal, as of the most recent
available date, or quotations or, in the case of ECUs, rates of exchange from
one or more major banks in The City of New York or in the country of issue of
the currency in question or, in the case of ECUs, in Luxembourg or such other
quotations or, in the case of ECUs, rates of exchange as the Trustee, upon
consultation with the Company, shall deem appropriate. The provisions of this
paragraph shall apply in determining the equivalent principal amount in respect
of Securities of a Series denominated in currency other than Dollars in
connection with any action taken by Holders of Securities pursuant to the terms
of this Indenture.
All decisions and determinations of the Trustee regarding the Market
Exchange Rate or any alternative determination provided for in the preceding
paragraph shall be in its sole discretion and shall, in the absence of
manifest error, be conclusive to the extent permitted by law for all purposes
and irrevocably binding upon the Company and all Holders.
Section 10.16. Judgment Currency.
The Company agrees, to the fullest extent that it may effectively do so
under applicable law, that (a) if for the purpose of obtaining judgment in any
court it is necessary to
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convert the sum due in respect of the principal of or interest or other amount
on the Securities of any Series (the "Required Currency") into a currency in
which a judgment will be rendered (the "Judgment Currency"), the rate of
exchange used shall be the rate at which in accordance with normal banking
procedures the Trustee could purchase in The City of New York the Required
Currency with the Judgment Currency on the day on which final unappealable
judgment is entered, unless such day is not a New York Banking Day, then, the
rate of exchange used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the New York Banking Day
preceding the day on which final unappealable judgment is entered and (b) its
obligations under this Indenture to make payments in the Required Currency (i)
shall not be discharged or satisfied by any tender, any recovery pursuant to any
judgment (whether or not entered in accordance with subsection (a)), in any
currency other than the Required Currency, except to the extent that such tender
or recovery shall result in the actual receipt, by the payee, of the full amount
of the Required Currency expressed to be payable in respect of such payments,
(ii) shall be enforceable as an alternative or additional cause of action for
the purpose of recovering in the Required Currency the amount, if any, by which
such actual receipt shall fall short of the full amount of the Required Currency
so expressed to be payable, and (iii) shall not be affected by judgment being
obtained for any other sum due under this Indenture. For purposes of the
foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a
legal holiday in The City of New York on which banking institutions are
authorized or required by law, regulation or executive order to close.
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ARTICLE XI.
SINKING FUNDS
Section 11.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of the Securities of a Series, except as otherwise permitted or
required by any form of Security of such Series issued pursuant to this
Indenture.
The minimum amount of any sinking fund payment provided for by the terms
of the Securities of any Series is herein referred to as a "mandatory sinking
fund payment" and any other amount provided for by the terms of Securities of
such Series is herein referred to as an "optional sinking fund payment." If
provided for by the terms of Securities of any Series, the cash amount of any
sinking fund payment may be subject to reduction as provided in Section 11.2.
Each sinking fund payment shall be applied to the redemption of Securities of
any Series as provided for by the terms of the Securities of such Series.
Section 11.2. Satisfaction of Sinking Fund Payments with Securities.
The Company may, in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of any Series to be made pursuant to the
terms of such Securities (1) deliver outstanding Securities of such Series to
which such sinking fund payment is applicable (other than any of such Securities
previously called for mandatory sinking fund redemption) and (2) apply as credit
Securities of such Series to which such sinking fund payment is applicable and
which have been redeemed either at the election of the Company pursuant to the
terms of such Series of Securities (except pursuant to any mandatory sinking
fund) or through the application of permitted optional sinking fund payments or
other optional redemptions pursuant to
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the terms of such Securities, provided that such Securities have not been
previously so credited. Such Securities must be received by the Trustee,
together with an Officers' Certificate with respect thereto, not later than 15
days prior to the date on which the Trustee begins the process of selecting
Securities for redemption, and shall be credited for such purpose by the Trustee
at the price specified in such Securities for redemption through operation of
the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly. If as a result of the delivery or credit of Securities in lieu of
cash payments pursuant to this Section 11.2, the principal amount of Securities
of such Series to be redeemed in order to exhaust the aforesaid cash payment
shall be less than $100,000, the Trustee need not call Securities of such Series
for redemption, except upon receipt of a Company Order that such action be
taken, and such cash payment shall be held by the Trustee or a Paying Agent and
applied to the next succeeding sinking fund payment, provided, however, that the
Trustee or such Paying Agent shall from time to time upon receipt of a Company
Order pay over and deliver to the Company any cash payment so being held by the
Trustee or such Paying Agent upon delivery by the Company to the Trustee of
Securities of that Series purchased by the Company having an unpaid principal
amount equal to the cash payment required to be released to the Company.
Section 11.3. Redemption of Securities for Sinking Fund.
Not less than 45 days (unless otherwise indicated in the Board Resolution,
supplemental indenture hereto or Officers' Certificate in respect of a
particular Series of Securities) prior to each sinking fund payment date for any
Series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing mandatory sinking fund
payment for that Series pursuant to the terms of that Series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivering and crediting of
Securities of that Series pursuant to Section 11.2, and the optional amount, if
any, to be added in cash to the next ensuing
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mandatory sinking fund payment, and the Company shall thereupon be obligated to
pay the amount therein specified. Not less than 30 days (unless otherwise
indicated in the Board Resolution, Officers' Certificate or supplemental
indenture in respect of a particular Series of Securities) before each such
sinking fund payment date the Trustee shall select the Securities to be redeemed
upon such sinking fund payment date in the manner specified in Section 3.2 and
cause notice of the redemption thereof to be given in the name of and at the
expense of the Company in the manner provided in Section 3.3. Such notice having
been duly given, the redemption of such Securities shall be made upon the terms
and in the manner stated in Sections 3.4, 3.5 and 3.6.
ARTICLE XII.
GUARANTEE
Section 12.1. Guarantee
(a) Subject to subsection (b), below, the Guarantor hereby
irrevocably and unconditionally guarantees (such guarantee being the
"Guarantee") to each Holder of a Security authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture and the
Securities hereunder, that: (i) the principal of, premium, if any, and
interest on the Securities promptly will be paid in full when due, whether
at the Maturity, by acceleration, call for redemption or otherwise, and
interest on the overdue principal, premium, if any, and interest, if any,
of the Securities, if lawful, and all other obligations of the Company to
the Holders or the Trustee hereunder or thereunder will be promptly paid
in full or performed, all in accordance with the terms hereof and thereof,
and (ii) in case of any extension of time of payment or renewal of any
Securities or any of such other obligations, the same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or
otherwise. Failing
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payment when due by the Company of any amount so guaranteed for whatever
reason, the Guarantor shall be obligated to pay the same immediately. The
Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability
of the Securities or this Indenture, the absence of any action to enforce
the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. The Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that this Guarantee shall not be
discharged except by complete performance of the obligations contained in
the Securities and this Indenture. If any Holder or the Trustee is
required by any court or otherwise to return to the Company or any
custodian, Trustee, liquidator or other similar official acting in
relation to the Company, any amount paid by the Company to the Trustee or
such Holder, this Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect. The Guarantor agrees that it shall
not be entitled to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations is guaranteed hereby.
(b) It is the intention of the Guarantor and the Company that the
obligations of the Guarantor hereunder shall be, but not in excess of, the
maximum amount permitted by applicable law. Accordingly, if the
obligations in respect of the Guarantee would be annulled, avoided or
subordinated to the creditors of the Guarantor by a court of competent
jurisdiction in a proceeding actually pending before such court as a
result of a determination both that such Guarantee was made without fair
consideration and, immediately after giving effect thereto, the Guarantor
was
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insolvent or unable to pay its debts as they mature or left with an
unreasonably small capital, then the obligations of the Guarantor under
the Guarantee shall be reduced by such court if such reduction would
result in the avoidance of such annulment, avoidance or subordination;
provided, however, that any reduction pursuant to this paragraph shall be
made in the smallest amount as is strictly necessary to reach such result.
For purposes of this paragraph, "fair consideration," "insolvency,"
"unable to pay its debts as they mature," "unreasonably small capital" and
the effective times of reductions, if any, required by this paragraph
shall be determined in accordance with applicable law.
(c) The Guarantor shall be subrogated to all rights of the Holders
against the Company in respect of any amounts paid by Guarantor pursuant
to the provisions of the Guarantee or this Indenture; provided, however,
that the Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation until
the principal of, premium, if any, and interest on all Securities issued
hereunder shall have been paid in full.
Section 12.2. Execution and Delivery of Guarantee.
To evidence the Guarantee set forth in Section 12.1, the Company and the
Guarantor hereby agree that a notation of such Guarantee shall be endorsed on
each Security authenticated and delivered by the Trustee, that such notation of
such Guarantee shall be in such form as shall be established by or pursuant to a
Board Resolution or in one or more indentures supplemental hereto, in each case
with such appropriate provisions as are required or permitted by this Indenture,
and that this Indenture shall be executed on behalf of the Guarantor by its
Chairman of the Board, one of its Vice Chairmen of the Board, its President or
one of its Vice Presidents.
The Guarantor hereby agrees that the Guarantee set forth in Section 12.1
shall remain in full force and effect notwithstanding any failure to endorse on
each Security a notation of the Guarantee.
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If an officer whose signature is on this Indenture no longer holds that
office at the time the Trustee authenticates the Security on which the Guarantee
is endorsed, the Guarantee shall be valid nevertheless.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of the Guarantor.
Section 12.3. Release of Guarantor.
The Guarantor shall be released from all of its obligations under the
Guarantee and under this Indenture if:
(a) (i) the Company or the Guarantor has transferred all or
substantially all of its properties and assets to any Person (whether by
sale, merger or consolidation or otherwise), or has merged into or
consolidated with another Person, pursuant to a transaction in compliance
with this Indenture;
(ii) the corporation to whom all or substantially all of the
properties and assets of the Company or the Guarantor are
transferred, or whom the Company or the Guarantor has merged into or
consolidated with, has expressly assumed, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Guarantor
under the Guarantee and this Indenture;
(iii) immediately before and immediately after giving effect
to such transaction, no Event of Default, and no event or condition
which, after notice or lapse of time or both, would become and Event
of Default, shall have occurred and be continuing; and
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(iv) the Guarantor has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture
comply with this Section 12.3 and that all conditions precedent
herein provided for relating to such transaction have been complied
with; or
(b) the Guarantor liquidates (other than pursuant to any Bankruptcy
Law) and complies, if applicable, with the provisions of this Indenture;
provided that if a Person and its Affiliates, if any, shall acquire all or
substantially all of the assets of the Guarantor upon such liquidation the
Guarantor shall liquidate only if:
(i) the Person and each such Affiliate (or the common
corporate parent of such Person and its Affiliates, if such Person
and its Affiliates are wholly owned by such parent) which acquire or
will acquire all or a portion of the assets of the Guarantor shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Guarantor, under the Guarantee and this
Indenture and such Person or any of such Affiliates (or such parent)
shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia;
(ii) immediately after giving effect to such transaction, no
Event of Default, and no event or condition which, after notice or
lapse of time or both, would become an Event of Default, shall have
occurred and be continuing; and
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(iii) the Guarantor has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
liquidation and such supplemental indenture comply with this Section
12.3 and that all conditions precedent herein provided for relating
to such transaction have been complied with; or
(c) the Company ceases for any reason to be a "wholly owned
subsidiary" of the Guarantor (as such term is defined in Rule 1-02(z) of
the Regulation S-X promulgated by the Commission).
Upon any assumption of the Guarantee by any Person pursuant to this
Section 12.3, such Person may exercise every right and power of the Guarantor
under this Indenture with the same effect as if such successor corporation had
been named as the Guarantor herein, and all the obligations of the Guarantor,
hereunder and under the Guarantee and the Indenture shall terminate.
Section 12.4. When Guarantor May Merge, etc.
The Guarantor shall not consolidate with or merge with or into any other
Person or, directly or indirectly, sell, lease or convey all or substantially
all of its assets (computed on a consolidated basis), whether in a single
transaction or a series of related transactions, to another Person, unless:
(a) either the Guarantor shall be the continuing person, or the
Person (if other than the Guarantor) formed by such consolidation or into
which the Guarantor is merged or to which the assets of the Guarantor are
transferred shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Guarantor under the Guarantee and this
Indenture;
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(b) immediately after giving effect to such transaction, no Event of
Default, and no event or condition which, after notice or lapse of time or
both, would become an Event of Default, shall have occurred and be
continuing; and
(c) the Guarantor has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, conveyance or lease and such supplemental
indenture comply with this Section 12.4 and that all conditions precedent
herein provided for relating to such transaction have been complied with.
Upon any consolidation or merger, or any sale, conveyance or lease of all
or substantially all of the assets of the Guarantor, in accordance with this
Section 12.4, the successor corporation formed by such consolidation or into
which the Guarantor is merged or to which such transfer is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Guarantor under this Indenture with the same effect as if such successor
corporation had been named as the Guarantor herein, and all the obligations of
the predecessor Guarantor hereunder and under the Guarantee and the Indenture
shall terminate.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
HARRAH'S OPERATING COMPANY, INC.
By: /s/ Stephen H. Brammell
------------------------
Name: Stephen H. Brammell
Its: Vice President
HARRAH'S ENTERTAINMENT, INC.
By: /s/ Stephen H. Brammell
-------------------------
Name: Stephen H. Brammell
Its: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
-------------------------
Name: Stephen J. Giurlando
Its: Assistant Vice
President
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EX 4(24)
AMENDMENT NO.1 TO AMENDED
AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO.1 TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is entered into as of December 7, 1998 with reference to the
Amended and Restated Credit Agreement (the "Credit Agreement") dated as of
February 24, 1998 among Rio Properties, Inc., a Nevada corporation ("Rio
Properties"), Rio Leasing, Inc., a Nevada corporation ("Rio Leasing" and
collectively with Rio Properties, the "Borrowers"), the Banks party thereto, and
Bank of America National Trust and Savings Association (the "Agent"), as agent
for the Banks. Capitalized terms used but not defined herein are used with the
meanings set forth for those terms in the Credit Agreement.
RECITALS
A. The Borrowers have notified the Lenders that their corporate
parent, Rio Hotel & Casino, Inc. ("Parent"), has agreed to be acquired by
Harrah's Entertainment, Inc. (the "Harrah's Acquisition").
B. The Harrah's Acquisition constitutes a "Change of Control" as
defined in the Indentures governing the Parent's 10 5/8% Senior
Subordinated Notes due July 15, 2005 (the "10 5/8% Notes") and the
Parent's 9 1/2% Senior Subordinated Notes due April 15, 2007 (the "9 1/2%
Notes"), and requires, under Section 4.08 of each such Indenture, that the
Parent offer to repurchase such Parent Senior Subordinated Notes.
C. Parent proposes to call the 10 5/8% Notes for redemption and to
offer to redeem the 9 1/2% Notes .
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D. The Borrowers propose to obtain financing in the amount of
$125,000,000 pursuant to a secured credit facility (the "Supplemental Bank
Facility"), the proceeds of which shall be loaned to Parent to redeem all
of the 10 5/8% Notes and used to redeem any of the 9 1/2% Notes tendered
to Parent, and for related transactional expenses.
E. By this Amendment, and subject to the terms and conditions set
forth herein, the Banks consent to the Harrah's Acquisition, to the
incurrence of the Supplemental Bank Facility and associated liens and
guarantees, and to the redemption of the Parent Senior Subordinated Notes
as described above.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Borrowers and the Agent, acting with
the consent of the Majority Banks, hereby agree as follows:
1. Definitions. The definition of "EBITDA" is hereby amended to read in
full as set forth below, the definition of "Unrestricted Subsidiaries" is hereby
amended to read in full as set forth below, and the following new definitions
are inserted in proper alphabetical order in Section 1.01 of the Credit
Agreement:
"EBITDA" means, for any period, for the Borrowers and their
respective Restricted Subsidiaries on a combined basis, determined in
accordance with GAAP, the sum of (a) net income (or net loss) plus (b) all
amounts treated as expenses for depreciation and interest and the
amortization of intangibles of any kind to the extent included in the
determination of such net income (or loss), plus (c) all accrued taxes on
or measured by income to the extent included in the determination of such
net income (or loss), plus (d) all transactional expenses incurred during
that period by reason of the Harrah's Acquisition, plus (e) any
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Pre-Opening Expenses attributable to any New Venture, plus (f) severance
expenses associated with the termination prior to January 1, 1999, of
senior executive employees of the Company; provided, however, that net
income (or loss) shall be computed for these purposes without giving
effect to extraordinary losses or extraordinary gains.
"Harrah's" means Harrah's Entertainment, Inc., and its successors.
"Harrah's Acquisition" means the acquisition of Parent by Harrah's
Entertainment, Inc. pursuant to the terms of the Harrah's Acquisition
Agreement.
"Harrah's Acquisition Agreement" means the Agreement and Plan of
Merger between Parent and Harrah's, as amended.
"Intercreditor Agreement" means an Intercreditor Agreement
substantially in the form of Exhibit A hereto, entered into between the
Agent and the lenders party to the Supplemental Bank Facility.
"Supplemental Bank Facility" means senior secured financing in a
principal amount not to exceed $125,000,000 incurred by Borrowers during
the period between November 15, 1998 and June 30, 1999 to refinance Parent
Senior Subordinated Notes tendered to Parent and associated transactional
expenses pursuant to terms which are substantially consistent with the
terms described on Exhibit B.
"Unrestricted Subsidiaries" means Rio Development, Rio Resorts and
each other Subsidiary of Parent which is not a Subsidiary of either
Borrower formed following the Closing Date which is designated as such at
the time of its formation pursuant to Section 6.13, provided that no
Subsidiaries owning portions of the Cinderlane Property may be
Unrestricted Subsidiaries at any time when the aggregate Investments made
pursuant to Section 7.04(f) are in excess of the limitations set forth
therein.
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2. Consent to Harrah's Acquisition. The Banks hereby consent to the
Harrah's Acquisition and waive Section 8.01(o)(ii) (as in effect prior to the
effectiveness of this Amendment) to the extent that such Section is violated by
the Harrah's Acquisition. This is a one time waiver only, and the Banks shall be
entitled to require full compliance with such Section (as amended hereby).
3. Consent to Supplemental Bank Facility and Intercreditor Agreement. The
Banks hereby consent to the incurrence of the Supplemental Bank Facility and the
repayment of the 10 5/8% Notes and the 9 1/2% Notes at any time prior to June
30, 1999. The Banks further consent to the granting of the liens contemplated by
the Supplemental Facility and authorize the Agent to enter into the
Intercreditor Agreement with the lenders under the Supplemental Bank Facility,
substantially in the form of Exhibit A hereto.
4. Amendment to Financial Statement Reporting Requirements. Section 6.01
of the Credit Agreement is hereby amended so that clauses (a) and (b) read in
full as follows:
"(a) As soon as available, but not later than 120 days after the end
of each fiscal year, a copy of the Form 10-K of Harrah's (and, for the
fiscal year ending December 31, 1998, of Parent) as filed with the SEC for
such fiscal year, which shall include, or be accompanied by, the opinion
of Arthur Andersen or another nationally recognized independent public
accounting firm which report shall state that such consolidated and
consolidating financial statements present fairly the financial position
of Harrah's (and/or Parent) for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years. Such opinion shall
not be qualified or limited for any reason, including without limitation
because of a restricted or limited examination by such accountant of any
material portion of Harrah's, the Parent's, the Company's or any
Subsidiary's records and shall be delivered to the Agent pursuant to a
reliance agreement between the Agent and Banks and such accounting firm in
form and substance satisfactory to the Agent;
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(b) As soon as available, but not later than 45 days after the end
of each of the first three fiscal quarters of each fiscal year a copy of
the Form 10-Q of Harrah's as filed with the SEC for such fiscal quarter
accompanied by a certificate of a Responsible Officer certifying the
financial statements appearing therein as being complete and correct and
fairly presenting, in accordance with GAAP, the financial position and the
results of operations of the Parent, the Borrowers and their respective
Subsidiaries;"
5. Amendment to Certificate/Other Information Reporting Requirements.
Section 6.02 of the Credit Agreement is hereby amended by deleting subsection
(g) thereof in its entirety.
6. Amendment to Negative Pledge. Section 7.01 of the Credit Agreement is
hereby amended to add a new clause (m) thereto, to read in full as follows:
"(m) pari passu Liens in favor of the agent and the lenders under
the Supplemental Facility in Property of the Parent, Borrowers and their
Restricted Subsidiaries which are not more extensive than the Liens in
favor of the Agent and the Lenders under this Agreement, and which are
subject to the Intercreditor Agreement described in Amendment No. 1
hereto."
7. Amendment to Investments Covenant. Section 7.04(e) of the Credit
Agreement is hereby amended by replacing the amount "$30,000,000" therein with
the amount "$35,000,000". Section 7.04(f) of the Credit Agreement is hereby
amended by replacing the amount "$50,000,000" therein with the amount
"$60,000,000".
8. Amendment to Indebtedness Covenant. Section 7.05 of the Credit
Agreement is hereby amended so that clause (g) reads in full as follows and to
add new clauses (h) and (i) thereto, as follows:
"(g) Indebtedness incurred when no Default or Event of Default
exists having subordination and other terms substantially the
same as the Parent's outstanding 9-1/2% Senior Subordinated
Notes Due
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<PAGE>
2007 (other than pricing, but in any event reasonably
satisfactory to the Agent and its counsel), providing in any
event for no payments of principal prior to the maturity of
such Senior Subordinated Notes;
(h) Indebtedness consisting of the Supplemental Bank Facility
incurred prior to June 30, 1999; and
(i) unsecured revolving Indebtedness of the Parent (but not of the
Borrowers or their Subsidiaries) to Harrah's in an aggregate
principal amount not to exceed $100,000,000 at any time."
9. Amendment to Contingent Obligations Covenant. Section 7.08 of the
Credit Agreement is hereby amended to add a new clause (g) thereto, to read in
full as follows:
"(g) Contingent Obligations consisting of guarantees of the
Supplemental Bank Facility issued by Parent and the Restricted
Subsidiaries which have guaranteed the obligations under this Agreement
and which are pari passu with those granted to the Agent and the Lenders."
10. Amendment to Restricted Payments. Section 7.12 of the Credit Agreement
is hereby amended so that clause (c) reads in full as follows, and to add a new
clause (d) thereto, as follows:
"(c) Dividends to the Parent made when no Default or Event of
Default exists or would result therefrom; and
(d) Payments of principal and interest with respect to the
Indebtedness described in Section 7.05(i) mad e when no Default or Event
of Default exists."
11. Amendment to Senior Leverage Ratio. Section 7.16 of the Credit
Agreement is hereby amended to read in full as follows:
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<PAGE>
"7.16 Maximum Senior Leverage Ratio. The Borrowers shall not permit the
Senior Leverage Ratio, (a) as of the last day of any fiscal quarter ending
on or prior to December 31, 1999, to be greater than 3.50:1.00, (b) as of
the fiscal quarter ending March 31, 1999 through June 30, 2000, to be
greater than 3.25:1.00 and (c) as of the last day of any subsequent fiscal
quarter, to be greater than 3.00:1.00."
12. Change of Control Provision. Section 8.01(o) of the Credit Agreement
is hereby amended, effective concurrently with the consummation of the Harrah's
Acquisition, to read in full as follows:
"(o) Ownership Parent and Company.
(i) The Parent any time: (A) ceases to maintain in the aggregate a
direct or indirect beneficial equity interest in any Loan Party at least
equal to 100% of the beneficial equity interest directly or indirectly
held by it on the Closing Date; or (B) fails to own beneficially, directly
or indirectly, capital stock representing voting control of any Loan
Party; or
(ii) (A) Harrah's ceases to own or control beneficially, directly or
indirectly, at least 75% of the outstanding Voting Stock of the Parent, or
(B) or any Person or group of Persons (as defined in the Securities
Exchange Act of 1934 and regulations thereunder) shall hold or control a
greater amount of the Voting Stock of the Parent than the amount owned
directly or controlled by Harrah's; "
13. Representations and Warranties. The Borrowers represent and warrant to
the Agent and the Banks that:
(a) The Borrowers have all necessary power and have taken all
corporate action necessary to enter into this Amendment and to make this
Amendment and all other agreements and instruments to which they are a
party executed in connection herewith, the valid and enforceable
obligations they purport to be.
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<PAGE>
(b) No Event of Default under the Credit Agreement has occurred and
remains continuing.
14. Conditions; Effectiveness. The effectiveness of this Amendment shall
be subject to the conditions precedent that:
(a) Borrowers shall have paid to the Agent for the account of each
Bank an amendment fee of 15 basis points times the amount of each Bank's
Commitment under the Credit Agreement.
(b) Borrowers shall have delivered to the Agent a copy of a
resolution or resolutions passed by the Board of Directors of each
Borrower, certified by the Secretary or an Assistant Secretary of each
Borrower as being in full force and effect on the date hereof, authorizing
the execution, delivery and performance of this Amendment.
(c) The Agent shall have received written consents hereto from the
Majority Banks substantially in the form of Exhibit C hereto.
(d) Each of Parent, Cinderlane, Inc. and HLG, Inc. shall have
executed this Amendment to acknowledge their consent hereto.
15. Conditions Subsequent. There shall be conditions subsequent to the
waivers and amendments contained herein that:
(a) Borrowers shall have concurrently entered into the Supplemental
Credit Facility and the Harrah's Acquisition shall have been concurrently
consummated.
(b) Cinderlane and\or Rio Properties shall have executed Deeds of
Trust in form and substance satisfactory to the Agent encumbering that
portion of the Cinderlane Property underlying the "Rio Convention Center"
and the "Palazzo Suites" by a pari passu first priority Lien in favor of
the Administrative Agent, and such Deeds of Trust shall have been duly
recorded with the County Recorder's Office of Clark County, Nevada.
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<PAGE>
16. No Waiver. This Amendment is specific in time and in intent and does
not constitute, nor should it be construed as, a waiver of any other right,
power or privilege under the Loan Documents, or under any agreement, contract,
indenture, document or instrument mentioned in the Loan Documents; nor does it
preclude any exercise thereof or the exercise of any other right, power or
privilege, nor shall any future waiver of any right, power or privilege or
default hereunder, or under any agreement, contract, indenture, document or
instrument mentioned in the Loan Documents, constitute a waiver of any other
default of the same or of any other term or provision.
17. Effectiveness of the Credit Agreement. Except as hereby expressly
amended, the Credit Agreement remains in full force and effect, and is hereby
ratified and confirmed in all respects.
18. Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument. This Amendment shall not become
effective until the Borrowers, the Banks and the Agent shall have signed a copy
hereof, and the Parent shall have consented hereto, whether the same instrument
or counterparts, and the same shall have been delivered to the Agent.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
RIO PROPERTIES, INC.
By: /s/ Ronald J. Radcliffe
------------------------------
Title: Treasurer
------------------------------
RIO LEASING, INC.
By: /s/ Ronald J. Radcliffe
------------------------------
Title: Secretary
---------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Janice Hammond
------------------------------
Title: Vice President
Agency Specialist
----------------------------
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[Attach Exhibit A - Intercreditor Agreement and
Exhibit B - Supplemental Bank Facility Term Sheet.]
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<PAGE>
[Exhibit C to Amendment No. 1]
CONSENT OF BANK
This Consent of Bank is delivered with reference to the Amended and
Restated Credit Agreement (the "Credit Agreement") dated as of February 24, 1998
among Rio Properties, Inc., a Nevada corporation ("Rio Properties"), Rio
Leasing, Inc., a Nevada corporation ("Rio Leasing" and collectively with Rio
Properties, the "Borrowers"), the Banks party thereto, and Bank of America
National Trust and Savings Association (the "Agent"), as agent for the Banks.
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Credit Agreement.
The undersigned Bank hereby consents to the execution, delivery and
performance of the proposed Amendment No. 1 to the Credit Agreement,
substantially in the form provided to the undersigned as a draft, and without
limitation on the foregoing, specifically to (a) the acquisition of Parent by
Harrah's Entertainment, Inc., and (b) to the Supplemental Bank Facility
described therein.
-------------------------------
[Name of Bank]
By: ---------------------------
-------------------------------
[Printed Name and Title]
By: ---------------------------
-------------------------------
[Printed Name and Title]
Date: -------------------------
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EXHIBIT 4(25)
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of December 18, 1998
among
RIO PROPERTIES, INC.
and
RIO LEASING, INC.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
as Agent
NATIONSBANC MONTGOMERY SECURITIES LLC
as Lead Arranger
and
THE OTHER FINANCIAL INSTITUTIONS
PARTY HERETO
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS ................................................. 1
1.01 Defined Terms ............................................... 1
1.02 Other Interpretive Provisions ............................... 25
1.03 Accounting Principles ....................................... 26
ARTICLE 2 THE CREDIT .................................................. 26
2.01 Amounts and Terms of Commitment ............................. 26
2.02 Notes ....................................................... 27
2.03 Procedure for Borrowing ..................................... 27
2.04 Conversion and Continuation Elections ....................... 29
2.05 Voluntary Termination or Reduction of
Aggregate Commitment ........................................ 30
2.06 Optional Prepayments ........................................ 30
2.07 Mandatory Commitment Reductions; Mandatory
Prepayments of Loans ........................................ 31
2.08 Repayment ................................................... 31
2.09 Interest .................................................... 31
2.10 Fees ........................................................ 32
2.11 Computation of Fees and Interest ............................ 33
2.12 Payments by the Borrowers ................................... 34
2.13 Payments by the Lenders to the Agent ........................ 35
2.14 Sharing of Payments, Etc .................................... 35
2.15 Security and Guarantees ..................................... 36
ARTICLE 3 TAXES, YIELD PROTECTION AND ILLEGALITY ........................ 36
3.01 Taxes ....................................................... 36
3.02 Illegality .................................................. 39
3.03 Increased Costs and Reduction of Return ..................... 40
3.04 Funding Losses .............................................. 41
3.05 Inability to Determine Rates ................................ 42
3.06 Certificates of Lenders ..................................... 42
3.07 Survival .................................................... 42
ARTICLE 4 CONDITIONS PRECEDENT .......................................... 42
4.01 Conditions of Initial Loans ................................. 42
4.02 Conditions to All Borrowings ................................ 46
ARTICLE 5 REPRESENTATIONS AND WARRANTIES ................................ 47
5.01 Corporate Existence and Power ............................... 47
5.02 Corporate Authorization; No Contravention ................... 48
5.03 Governmental Authorization .................................. 48
5.04 Binding Effect .............................................. 49
5.05 Litigation .................................................. 49
5.06 No Default .................................................. 49
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5.07 ERISA Compliance ............................................ 49
5.08 Use of Proceeds; Margin Regulations ......................... 51
5.09 Title to Properties ......................................... 51
5.10 Taxes ....................................................... 52
5.11 Financial Condition/Material Adverse Effect ................. 52
5.12 Environmental Matters ....................................... 53
5.13 Collateral Documents ........................................ 54
5.14 Regulated Entities .......................................... 55
5.15 No Burdensome Restrictions .................................. 55
5.16 Solvency .................................................... 55
5.17 Labor Relations ............................................. 55
5.18 Copyrights, Patents, Trademarks and Licenses, etc ........... 55
5.19 Subsidiaries and Other Investments .......................... 55
5.20 Insurance ................................................... 56
5.21 Full Disclosure ............................................. 56
5.22 Projections ................................................. 56
5.23 Gaming Laws ................................................. 56
5.24 Management Agreement ........................................ 56
ARTICLE 6 AFFIRMATIVE COVENANTS ......................................... 56
6.01 Financial Statements ........................................ 57
6.02 Certificates; Other Information ............................. 58
6.03 Notices ..................................................... 59
6.04 Preservation of Corporate Existence, Etc .................... 61
6.05 Maintenance of Property ..................................... 61
6.06 Insurance ................................................... 61
6.07 Payment of Obligations ...................................... 62
6.08 Compliance with Laws ........................................ 62
6.09 Inspection of Property and Books and Records ................ 62
6.10 Environmental Laws .......................................... 63
6.11 Use of Proceeds ............................................. 63
6.12 Solvency .................................................... 63
6.13 New Subsidiaries ............................................ 63
6.14 Additional Collateral ....................................... 63
6.15 Requirements of Law ......................................... 64
6.16 Permits, Licenses and Approvals ............................. 64
6.17 Purchase of Materials; Conditional Sales Contracts .......... 64
6.18 Site Visits; Right to Stop Work ............................. 64
6.19 Protection Against Lien Claims .............................. 65
6.20 Signs and Publicity ......................................... 65
6.21 Leases of Company Premises .................................. 65
6.22 Further Assurances .......................................... 66
6.23 Pledge of Borrowers Stock ................................... 66
</TABLE>
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ARTICLE 7 NEGATIVE COVENANTS .......................................... 67
7.01 Limitation on Liens ......................................... 67
7.02 Disposition of Assets ....................................... 69
7.03 Consolidations and Mergers .................................. 69
7.04 Loans and Investments ....................................... 70
7.05 Limitation on Indebtedness .................................. 71
7.06 Transactions with Affiliates ................................ 71
7.07 Use of Proceeds ............................................. 72
7.08 Contingent Obligations ...................................... 72
7.09 Joint Ventures .............................................. 73
7.10 Compliance with ERISA ....................................... 73
7.11 Lease Obligations ........................................... 73
7.12 Restricted Payments ......................................... 74
7.13 Capital Expenditures ........................................ 74
7.14 Interest Coverage Ratio ..................................... 74
7.15 Maximum Total Leverage Ratio ................................ 75
7.16 Maximum Senior Leverage Ratio ............................... 75
7.17 Change in Business .......................................... 75
7.18 Change in Structure ......................................... 75
7.19 Accounting Changes .......................................... 76
7.20 Other Contracts ............................................. 76
7.21 Management Agreement ........................................ 76
7.22 Improvement District ........................................ 76
ARTICLE 8 EVENTS OF DEFAULT ........................................... 76
8.01 Event of Default ............................................ 76
8.02 Remedies .................................................... 81
8.03 Rights Not Exclusive ........................................ 82
ARTICLE 9 THE AGENT ..................................................... 82
9.01 Appointment and Authorization ............................... 82
9.02 Delegation of Duties ........................................ 82
9.03 Liability of Agent .......................................... 83
9.04 Reliance by Agent ........................................... 83
9.05 Notice of Default ........................................... 84
9.06 Credit Decision ............................................. 84
9.07 Indemnification ............................................. 85
9.08 Agent in Individual Capacity ................................ 85
9.09 Successor Agent ............................................. 86
9.10 Collateral Matters .......................................... 86
ARTICLE 10 MISCELLANEOUS ................................................ 87
10.01 Amendments and Waivers ..................................... 87
10.02 Notices .................................................... 88
10.03 No Waiver; Cumulative Remedies ............................. 89
10.04 Costs and Expenses ......................................... 89
10.05 Indemnity .................................................. 90
</TABLE>
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10.06 Marshaling; Payments Set Aside ............................. 91
10.07 Successors and Assigns ..................................... 91
10.08 Assignments, Participations, etc. .......................... 91
10.09 Setoff ..................................................... 94
10.10 Notification of Addresses, Lending Offices, Etc ............ 95
10.11 Counterparts ............................................... 95
10.12 Severability ............................................... 95
10.13 No Third Parties Benefited ................................. 95
10.14 Time ....................................................... 95
10.15 Governing Law and Jurisdiction ............................. 95
10.16 Waiver of Jury Trial ....................................... 96
10.17 Notice of Claims; Claims Bar ............................... 96
10.18 Entire Agreement ........................................... 97
10.19 Interpretation ............................................. 97
10.20 Guarantor and Suretyship Provisions ........................ 97
</TABLE>
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TABLE OF CONTENTS
<TABLE>
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SCHEDULES
Schedule 1.01A Real Property Description
Schedule 1.01B Cinderlane Real Property Description
Schedule 1.01C Proposed Rio Expansion Description
Schedule 2.01 Commitments of the Lenders
Schedule 5.05 Litigation
Schedule 5.07 ERISA
Schedule 5.11 Indebtedness Not Shown on Financial Statements
Schedule 5.12 Environmental Matters
Schedule 5.19 Subsidiaries and Equity Investments
Schedule 5.28 Excluded Cinderlane Property
Schedule 6.26 Existing Leases
Schedule 7.01 Permitted Liens
Schedule 7.05 Permitted Indebtedness
Schedule 7.08 Contingent Obligations
EXHIBITS
Exhibit A Note
Exhibit B Notice of Borrowing
Exhibit C Notice of Continuation/Conversion
Exhibit D Compliance Certificate
Exhibit E Assignment and Acceptance Agreement
Exhibit F Projections
</TABLE>
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<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT (as the same may be amended, supplemented or
otherwise modified from time to time, this "Agreement"), dated as of December
18, 1998, is entered into by and among Rio Properties, Inc., a Nevada
corporation (the "Company"), Rio Leasing, Inc., a Nevada corporation ("Rio
Leasing"; the Company and Rio Leasing, each a "Borrower" and collectively, the
"Borrowers"), the several financial institutions party to this Agreement, and
Bank of America National Trust and Savings Association, as agent for the
Lenders. In consideration of the mutual agreements, provisions and covenants
contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.01 Defined Terms. In addition to the terms defined elsewhere in
this Agreement, the following terms have the following meanings:
"Acquisition" means any transaction or series of related
transactions entered into by the Borrowers or any of their Subsidiaries for the
purpose of or resulting in (a) the acquisition, directly or indirectly, of all
or substantially all of the assets of a Person, or of any business or division
of a Person, (b) the acquisition, directly or indirectly, of in excess of 50% of
the capital stock, partnership interests or equity of any Person or otherwise
causing any Person to become a Subsidiary of a Borrower, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary of a Borrower) provided that a Borrower or a Borrower's
Subsidiary is the surviving entity.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract or otherwise. Without
limitation, any
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<PAGE>
director, executive officer or beneficial owner of 10% or more of the equity of
a Person shall for the purposes of this Agreement, be deemed to control the
other Person. In no event shall any Lender be deemed an "Affiliate" of a
Borrower or of any Subsidiary of a Borrower.
"Agent" means BofA in its capacity as agent for the Lenders
hereunder, and any successor agent.
"Agent Related Persons" means BofA and any successor agent arising
under Section 9.09, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set forth on
the signature page hereto in relation to the Agent or such other address as the
Agent may from time to time specify in accordance with Section 10.02.
"Aggregate Commitment" means the combined Commitments of the
Lenders, in the initial amount of $125,000,000, as such amount may be reduced
from time to time pursuant to this Agreement.
"Agreement" means this Loan Agreement, as it may from time to time
be supplemented, modified, amended, renewed, or extended.
"Applicable Margin" means, for each Pricing Period, the following
margins over the Base Rate and the Eurodollar Rate, as applicable, and the
following commitment fee rate per annum, in each case for the relevant periods
when the Total Leverage Ratio for such Pricing Period is as follows:
<TABLE>
<CAPTION>
Total Leverage Base
Ratio Total LIBOR Rate
Debt/EBITDA Margin Margin Commitment Fee
----------------- ------ ------ --------------
<S> <C> <C> <C>
x greater than or
equal to 3.00x 2.25% 1.25% 0.50%
----------------- ------ ------ --------------
x Less than 3.00X 1.75% 0.75% 0.50%
----------------- ------ ------ --------------
</TABLE>
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<PAGE>
"Appraisal" means a real estate appraisal conducted in accordance
with the Uniform Standards of Professional Appraisal Practice (as promulgated by
the Appraisal Standards Board of the Appraisal Foundation) and all Requirements
of Law applicable to the Lenders, and applicable internal policies of the Agent,
undertaken by an independent appraisal firm satisfactory to the Agent and the
Majority Lenders, and providing an assessment of fair market value of a parcel
of property, and taking into account any and all Estimated Remediation Costs.
"Appraisal Value" means the appraised "as is" market value of the
Real Property, as evidenced by a certificate of an independent appraiser
selected by the Agent and determined by an Appraisal that in the opinion of such
appraiser and Majority Lenders conforms to the Agent's guidelines regarding
appraisal procedures and applicable regulations issued thereunder all as the
same may be amended, modified or superseded from time to time.
"Assignee" has the meaning specified in Section 10.08(a).
"Assignment and Acceptance" has the meaning specified in Section
10.08(a).
"Attorney Costs" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"Available Commitment" with respect to each Lender, means an amount
equal to such Lender's Commitment Percentage of the unused portion of the
Aggregate Commitment.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. ss. 101, et seq.).
"Base Rate" means the higher of:
(a) the rate of interest publicly announced from time to time
by BofA in San Francisco, California, as its "reference rate." It is
a rate set
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<PAGE>
by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate; and
(b) 0.50% per annum above the latest Federal Funds Rate.
Any change in the reference rate announced by BofA shall take effect
at the opening of business on the day specified in the public announcement of
such change.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"BofA" means Bank of America National Trust and Savings Association,
a national banking association.
"Borrower" means the Company or Rio Leasing (collectively, the
"Borrowers").
"Borrowers Security Agreement" means the Pledge and Security
Agreement executed by the Company and Rio Leasing on the Closing Date, as it may
from time to time be supplemented, modified, amended, renewed, or extended.
"Borrowing" means a borrowing hereunder consisting of Loans made to
a Borrower on the same day by the Lenders pursuant to Article 2.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City, San Francisco, or Las Vegas,
Nevada are authorized or required by law to close and, if the applicable
Business Day relates to any Eurodollar Rate Loan, means such a day on which
dealings are carried on in the London offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
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<PAGE>
"Capital Expenditures" means, for any period and with respect to any
Person, all expenditures by such Person and its Subsidiaries for the acquisition
or leasing of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period and
including any amount which is required to be treated as an asset subject to a
Capital Lease) which should be capitalized under GAAP on a consolidated balance
sheet of such Person and its Subsidiaries. For the purpose of this definition,
the purchase price of equipment which is purchased simultaneously with the
trade-in of existing equipment owned by such Person or any of its Subsidiaries
or with insurance proceeds shall be included in Capital Expenditures only to the
extent of the gross amount of such purchase price less the credit granted by the
seller of such equipment for such equipment being traded in at such time, or the
amount of such proceeds, as the case may be.
"Capital Lease" has the meaning specified in the definition of
Capital Lease Obligations.
"Capital Lease Obligations" means all monetary obligations of a
Borrower or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, is classified as a capital lease ("Capital
Lease").
"Cash Equivalents" means:
(a) securities issued or fully guaranteed or insured by the
United States Government or any agency thereof and backed by the
full faith and credit of the United States having maturities of not
more than six months from the date of acquisition;
(b) certificates of deposit, time deposits, Eurodollar time
deposits, repurchase agreements, reverse repurchase agreements, or
bankers' acceptances, having in each case a tenor of not more than
six months, issued by any Lender, or by any U.S. commercial bank or
any branch or agency of a non-U.S. bank licensed to conduct business
in the U.S. having combined capital and surplus of not less than
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<PAGE>
$100,000,000 whose short term securities are rated at least A1 by
Standard & Poor's Corporation and P1 by Moody's Investors Service,
Inc.;
(c) commercial paper of an issuer rated at least A1 by
Standard & Poor's Corporation or P1 by Moody's Investors Service
Inc. and in either case having a tenor of not more than three
months.
"CERCLA" has the meaning specified in the definition of
"Environmental Laws."
"Cinderlane" means Cinderlane, Inc., a Nevada corporation.
"Cinderlane Property" means that certain real property located
adjacent to the Rio Hotel and Casino described on Schedule 1.01B, which real
property is owned by Cinderlane as of the Closing Date.
"Closing Date" means the date on which all conditions precedent set
forth in Section 4.01 are satisfied or waived by all Lenders.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time and regulations promulgated thereunder.
"Collateral" means all Property and interests in Property and
proceeds thereof now owned or hereafter acquired by any Borrower or any of its
Subsidiaries in or upon which a Lien now or hereafter exists in favor of the
Lenders, or the Agent on behalf of the Lenders, whether under this Agreement or
under any other documents executed by any such persons and delivered to the
Agent or the Lenders.
"Collateral Documents" means, collectively, (i) the Borrowers
Security Agreement, the Mortgages, and all other security agreements, pledge
agreements, mortgages, deeds of trust, patent and trademark assignments, lease
assignments, guarantees and other similar agreements between any Borrower or any
of its Subsidiaries and the Lenders or the Agent for the benefit of the Lenders
now or hereafter delivered to the
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<PAGE>
Lenders or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the UCC or comparable law) against any
Borrower or any of its Subsidiaries as debtor in favor of the Lenders or the
Agent for the benefit of the Lenders as secured party and (ii) any amendments,
supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Commitment" means, as to each Lender, the amount set forth opposite
the Lender's name in Schedule 2.01 under the heading "Commitment" (such amount
as the same may reduced pursuant to Sections 2.06 or 2.08 or as a result of one
or more assignments pursuant to Section 10.08).
"Commitment Percentage" means, as to any Lender, the percentage
which is equal to such Lender's Commitment divided by the Aggregate Commitment.
"Completion" means, with respect to the Rio Expansion Project, that
(a) a temporary certificate of occupancy has been issued by the Clark County
Building Department; (b) a Notice of Completion has been duly recorded; (c) all
materialmen's claims, mechanics, liens or other Liens or claims for Liens
directly related thereto (other than those created pursuant to the Loan
Documents) have been paid or satisfactory provisions have been made for such
payment; (d) certificates have been delivered, by the project architect and
project manager and by a Responsible Officer of the Company, to the Agent and
the Lenders certifying that the Rio Expansion Project has been substantially
completed in accordance with the construction plans therefor and all applicable
building laws, ordinances and regulations; and (e) the Rio Expansion Project is
in a condition (including installation of fixtures, furnishings and equipment)
to receive customers and fully engage in its operations in the ordinary course
of business. For the purposes of the preceding sentence, satisfactory provision
for payment of claims, Liens and claims for Liens shall be deemed to have been
made if a bond, escrow or trust account for payment has been established with an
independent third party satisfactory to the Agent in an amount at least equal to
the total of such outstanding claims, Liens and claims for Liens.
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"Compliance Certificate" means a Certificate substantially in the
form of Exhibit D hereto.
"Completion Guaranty" means a Guaranty Obligation given by any
Borrower or any of its Subsidiaries to a holder of Indebtedness of, or an
obligee of, any Person which obligates any Borrower or any of its Subsidiaries
(a) to cause the completion of construction of any Person, (b) to provide
funding for all or a portion of any construction cost overruns with respect
thereto, and/or (c) to cause the Person to perform any of its Contractual
Obligations (other than in respect of the repayment of any Indebtedness or other
monetary obligation of the Person) to an obligee of the Person.
"Contingent Obligation" means, as to any Person, (a) any Guaranty
Obligation of that Person; and (b) any direct or indirect obligation or
liability, contingent or otherwise, of that Person, (i) in respect of any letter
of credit or similar instrument issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings, (ii) to
purchase any materials, supplies or other property from, or to obtain the
services of, another Person if the relevant contract or other related document
or obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether delivery of
such materials, supplies or other property is ever made or tendered, or such
services are ever performed or tendered, or (iii) in respect of any Rate
Contract that is not entered into in connection with a bona fide hedging
operation that provides offsetting benefits to such Person. The amount of any
Contingent Obligation shall (subject, in the case of Guaranty Obligations, to
the last sentence of the definition of "Guaranty Obligation") be deemed equal to
the maximum reasonably anticipated liability in respect thereof, and shall, with
respect to item (b)(iii) of this definition, be marked to market on a current
basis.
"Contractual Obligations" means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
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"Controlled Group" means the Company and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Company pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Conversion Date" means any date on which a Borrower elects to
convert a Base Rate Loan to an Eurodollar Rate Loan; or an Eurodollar Rate Loan
to a Base Rate Loan.
"Deed of Trust" means one or more deeds of trust covering the Real
Property, as any such deed of trust may be modified, supplemented, amended,
renewed or extended from time to time.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Disposition" means (i) the sale, lease, conveyance or other
disposition of Property, other than sales or other dispositions expressly
permitted under Section 7.02(a) or 7.02(b), and (ii) the sale or transfer by any
Borrower or any of its Subsidiaries of any equity securities issued by any
Subsidiary of a Borrower and held by such transferor Person.
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"Domestic Lending Office" means, with respect to each Lender, the
office of that Lender designated as such in the signature pages hereto or such
other office of the Lender as it may from time to time specify to the Company
and the Agent.
"EBITDA" means, for any period, for the Borrowers and their
respective Restricted Subsidiaries on a combined basis, determined in accordance
with GAAP, the sum of (a) net income (or net loss) plus (b) all amounts treated
as expenses for depreciation and interest and the amortization of intangibles of
any kind to the extent included in the determination of such net income (or
loss), plus (c) all accrued taxes on or measured
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by income to the extent included in the determination of such net income (or
loss), plus (d) all transactional expenses incurred during that period by reason
of the Harrah's Acquisition, plus (e) any Pre-Opening Expenses attributable to
any New Venture, plus (f) severance expenses associated with the termination
prior to January 1, 1999, of senior executive employees of the Company;
provided, however, that net income (or loss) shall be computed for these
purposes without giving effect to extraordinary losses or extraordinary gains.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000; (ii) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in the
United States; and (iii) any Lender Affiliate.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon (a) the presence, placement, discharge, emission or release
(including intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from Property,
whether or not owned by a Borrower, or (b) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders,
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directed duties, requests, licenses, authorizations and permits of, and
agreements with, any Governmental Authorities, in each case relating to
environmental, health, safety and land use matters; including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the
Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right to Know Act,
the Endangered Species Act, and any applicable law of the State of Nevada, and
the rules regulations and ordinances of Clark County, Nevada.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b), 414(c) or 414(m) of the Code.
"ERISA Event" means (a) a Reportable Event with respect to a
Qualified Plan or a Multiemployer Plan; (b) a withdrawal by the Company or any
ERISA Affiliate from a Qualified Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA); (c) a complete or partial withdrawal by the Company or any
ERISA Affiliate from a Multiemployer Plan; (d) the filing of a notice of intent
to terminate, the treatment of a plan amendment as a termination under Section
4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to
terminate a Qualified Plan or Multiemployer Plan subject to Title IV of ERISA;
(e) a failure by the Company or any member of the Controlled Group to make
required contributions to a Qualified Plan or Multiemployer Plan; (f) an event
or condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate;
(h) an application for a funding waiver or an extension of any
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amortization period pursuant to Section 412 of the Code with respect to any
Plan; (i) a non-exempt prohibited transaction occurs with respect to any Plan
for which the Company or any Subsidiary of the Company may be directly or
indirectly liable; or (j) a violation of the applicable requirements of Section
404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the
Code by any fiduciary or disqualified person with respect to any Plan for which
the Company or any member of the Controlled Group may be directly or indirectly
liable.
"Estimated Remediation Cost" means all costs associated with
performing work to remediate contamination of real property or groundwater,
including engineering and other professional fees and expenses, costs to remove,
transport and dispose of contaminated soil, costs to "cap" or otherwise contain
contaminated soil, and costs to pump and treat water and monitor water quality.
"Eurodollar Lending Office" means with respect to each Lender, the
Office of such Lender designated as such in the signature pages hereto or such
other office of such Lender as such Lender may from time to time specify to the
Company and the Agent.
"Eurodollar Rate" means, for each Interest Period in respect of
Eurodollar Rate Loans comprising part of the same Borrowing, an interest rate
per annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to
the following formula:
LIBOR
Eurodollar Rate = ---------------------
1.00 minus Eurodollar
Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means a Loan that bears interest based on the
Eurodollar Rate.
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"Eurodollar Reserve Percentage" means the maximum reserve
percentage (expressed as a decimal, rounded upward to the nearest 1/100th of
1%) in effect on the date LIBOR for such Interest Period is determined
(whether or not applicable to any Lender) under regulations issued from time
to time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities") having a term comparable to such Interest Period.
"Event of Default" means any of the events or circumstances
specified in Section 8.01.
"Event of Loss" means, with respect to any Property, any of the
following: (a) any loss, destruction or damage of such Property; (b) any pending
or threatened institution of any proceedings for the condemnation or seizure of
such Property or for the exercise of any right of eminent domain; or (c) any
actual condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such Property, or confiscation of such Property or the
requisition of the use of such Property.
"Exchange Act" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
"Existing Credit Agreement" means that certain Amended and Restated
Credit Agreement dated as of February 24, 1998 among the Borrowers, BofA as
agent, and the other financial institutions party thereto as Banks, as
supplemented, modified, amended, renewed, or extended.
"Existing Credit Agreement Closing Date" means the Closing Date
described in the Existing Credit Agreement.
"Federal Funds Rate" means, for any period, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the
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Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, the "Composite 3:30 p.m. Quotation") for such day under the
caption "Federal Funds Effective Rate". If on any relevant day the appropriate
rate for such previous day is not yet published in either H.15(519) or the
Composite 3:30 p.m. Quotations, the rate for such day will be the arithmetic
mean of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York time) on that day by each of three leading brokers
of Federal funds transactions in New York City selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto.
"Funded Debt" means, as of any date of determination, without
duplication, the sum of (a) all principal Indebtedness of the Borrowers and
their respective Restricted Subsidiaries on a combined basis for borrowed money
(including debt securities issued by any Borrower or any of its Restricted
Subsidiaries) on that date, provided, however, that the Company's obligations
under the Guaranty Obligations permitted under Section 7.08(f) shall not be
included in this definition unless and until a demand is made under such
Guaranty Obligations by a Person entitled to make demand thereunder, plus (b)
the aggregate amount of all monetary obligations of the Borrowers and their
respective Restricted Subsidiaries on a combined basis in respect of Capital
Leases on that date, plus (c) the aggregate undrawn face amount of all letters
of credit (other than letters of credit supporting workers compensation
obligations and permitted pursuant to Section 7.08(d)) for which any Borrower or
any of its Restricted Subsidiaries is the account party but which have not been
drawn as of the date of determination, plus the aggregate amounts on which a
drawing has been received or paid by an issuing bank under any such letter of
credit which drawing or payment has not been reimbursed to the issuing bank by
any Borrower or any of its Restricted Subsidiaries as of the date of
determination, all as determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements
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of the Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and
authority within the accounting profession), or in such other statements by such
other entity as may be in general use by significant segments of the U.S.
accounting profession, which are applicable to the circumstances as of the date
of determination.
"Gaming Authorities" means, without limitation, the Nevada Gaming
Commission, the Nevada State Gaming Control Board, the Clark County Liquor and
Gaming Licensing Board and any other applicable governmental or administrative
state or local agency, authority, board, bureau, commission, department or
instrumentality of any nature whatsoever involved in the supervision or
regulation of casinos or gaming and gaming activities in the County of Clark,
Nevada and State of Nevada.
"Gaming Laws" means all Requirements of Law pursuant to which a
Gaming Authority possesses licensing or permit authority over gambling, gaming,
or casino activities conducted by a Borrower within its jurisdiction.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guarantor" means the Parent, each Subsidiary of Parent (other than
the Unrestricted Subsidiaries) and any other Person that hereafter delivers a
Guaranty (collectively "Guarantors").
"Guaranty" means the Parent Guaranty, the Subsidiary Guaranties
executed by HLG, Inc. and Cinderlane on the Closing Date, and any other any
guaranty of all or any part of the Obligations delivered by any Subsidiary of a
Borrower or by any other Person, as such document may from time to time be
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supplemented, modified, amended, renewed, or extended (collectively the
"Guaranties").
"Guaranty Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that Person,
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof. The amount of any Guaranty
Obligation shall be deemed equal to the stated or determinable amount of the
primary obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated liability in
respect thereof. The amount of any Guaranty Obligation consisting of a
Completion Guaranty shall be deemed to be zero unless and until any Borrower or
any of its Subsidiaries has determined, or in good faith should determine based
on all information then available to it, that performance by any Borrower or any
of its Subsidiaries of its obligations under the Completion Guaranty is at least
reasonably possible (within the meaning of such term under Financial Accounting
Standards Board Statement No. 5) and, notwithstanding the preceding sentence, if
such performance is at least reasonably possible the amount thereof shall, if
not stated or determinable, be deemed the reasonably anticipated liability in
respect thereof as determined by any Borrower or any of its Subsidiaries in good
faith.
"Harrah's" means Harrah's Entertainment, Inc., and its successors.
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"Harrah's Acquisition" means the acquisition of Parent by Harrah's
Entertainment, Inc. pursuant to the terms of the Harrah's Acquisition Agreement.
"Harrah's Acquisition Agreement" means the Agreement and Plan of
Merger dated as of August 9, 1998, and amended as of September 4, 1998 among HEI
Acquisition Corp. III, the Company and Harrah's.
"Hazardous Materials" means all those substances which are regulated
by, or which may form the basis of liability under, any Environmental Law,
including all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"HLG" means HLG, Inc., a Nevada corporation, a wholly-owned
Subsidiary of the Parent.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business pursuant to ordinary
terms); (c) all reimbursement obligations with respect to surety bonds, letters
of credit, bankers' acceptances and similar instruments (in each case, to the
extent material or non-contingent); (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses;
(e) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to Property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all Capital Lease Obligations; (g)
all net obligations with respect to Rate Contracts; (h) all indebtedness
referred to in clauses (a) through (g) above secured by (or for which the holder
of such
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Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in Property (including accounts and contracts rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (i) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (g) above.
"Indemnified Liabilities" has the meaning specified in Section
10.05(a).
"Indemnified Person" has the meaning specified in Section 10.05(a).
"Insolvency Proceeding" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; in each case (a) and (b) undertaken under U.S. Federal, State or
foreign law, including the Bankruptcy Code.
"Intangible Assets" means assets that are considered
intangible assets under GAAP, including customer lists, goodwill, computer
software, copyrights, trade names, trademarks and patents.
"Intercreditor Agreement" means that certain Intercreditor
Agreement of even date herewith among the Agent, the Lenders and BofA as agent
for the Banks under the Existing Credit Agreement.
"Interest Coverage Ratio" means, as of the last day of each
fiscal quarter, the ratio of (a) EBITDA for the fiscal period consisting of that
fiscal quarter and the three immediately prior fiscal quarters less the sum of
(i) Maintenance Capital Expenditures made by the Borrowers and their respective
Restricted Subsidiaries during such fiscal period, and (ii) cash payments of
federal, state (if any) or local income taxes (and including all payments of
alternative
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minimum tax) made by the Borrowers and their respective Restricted Subsidiaries
during such fiscal period to (b) cash Interest Expense, including capitalized
Interest Expense during such period.
"Interest Expense" means, for any period, the sum of (a) gross
interest expense for the period (including all commissions, discounts, fees and
other charges in connection with standby letters of credit and similar
instruments) for the Borrowers and their respective Restricted Subsidiaries and
for the Parent with respect to the Parent Senior Subordinated Notes, provided,
however, that the Company's obligations under the Guaranty Obligations permitted
under Section 7.08(f) shall not be included in this definition unless and until
a demand is made under such Guaranty Obligations by a Person entitled to make
demand thereunder, plus (b) the portion of the upfront costs and expenses for
Rate Contracts (to the extent not included in gross interest expense) fairly
allocated to such Rate Contracts as expenses for such period, plus (c) the
portions of rent payable with respect to that fiscal period under Capital Leases
that should be treated as interest in accordance with GAAP less interest income
for that period and Rate Contracts payments received as determined in accordance
with GAAP.
"Interest Payment Date" means, with respect to any Eurodollar Rate
Loan, the last day of each Interest Period applicable to such Loan and, with
respect to Base Rate Loans, the last Business Day of each quarter and each date
a Base Rate Loan is converted into an Eurodollar Rate Loan; provided, however,
that if any Interest Period for an Eurodollar Rate Loan exceeds three months,
interest shall also be paid on the date which falls three months after the
beginning of such Interest Period.
"Interest Period" means, with respect to any Eurodollar Rate Loan,
the period commencing on the Business Day the Loan is disbursed or continued or
on the Conversion Date on which the Loan is converted to the Eurodollar Rate
Loan and ending on the date one, two, three or six months thereafter, as
selected by a Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation;
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provided that:
(i) if any Interest Period pertaining to an Eurodollar Rate
Loan would otherwise end on a day which is not a Business Day, that
Interest Period shall be extended to the next succeeding Business
Day unless, in the case of an Eurodollar Rate Loan, the result of
such extension would be to carry such Interest Period into another
calendar month, in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period pertaining to an Eurodollar Rate Loan
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest
Period;
(iii) no Interest Period shall extend beyond any Reduction
Date unless, giving effect to the Loan for which that Interest
Period has been requested, the aggregate principal amount of the
Loans having Interest Periods ending prior to such Reduction Date
will not exceed the Aggregate Commitment (after giving effect to the
reduction therein on such Reduction Date); and
(iv) no Interest Period for any Loan shall extend beyond the
Maturity Date.
"Joint Venture" means a partnership, joint venture or other legal
arrangement (whether created pursuant to contract or conducted through a
separate legal entity) now or hereafter formed by any Borrower or any of its
Subsidiaries with another Person in order to conduct a common venture or
enterprise with such Person.
"Lead Arranger" means NationsBanc Montgomery Securities LLC. The
Lead Arranger shall have no obligations or liabilities under this Agreement or
the Loan Documents, but shall be entitled to the benefits of Sections 2.10(a),
10.04 and 10.05.
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"Lender" means the financial institutions party to this Agreement
from time to time, whether as parties to this Agreement as originally signed, as
parties by joinder or amendment to this Agreement or as parties by assignment
pursuant to Section 10.08 (collectively, "Lenders").
"Lender Affiliate" means a Person engaged primarily in the business
of commercial banking and that is a Subsidiary of a Lender or of a Person of
which a Lender is a Subsidiary.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its "Lending Office" or "Domestic Lending
Office" or "Eurodollar Lending Office", as the case may be, opposite its name on
the applicable signature page hereto, or such other office or offices of the
Lender as it may from time to time notify the Company and the Agent.
"LIBOR" means the rate of interest per annum determined by the Agent
to be the rate of interest at which dollar deposits in the approximate amount of
BofA's pro rata share of the Loan to be made or continued as, or converted into,
a Eurodollar Rate Loan and having a maturity comparable to such Interest Period
would be offered by BofA's London Branch to major banks in the London interbank
market at their request at or about 11:00 a.m. (London time) on the second
Business Day prior to the commencement of such Interest Period.
"License Revocation" means the revocation of, or failure to renew, a
casino, gambling or gaming license issued by any Gaming Authority to any
Borrower or any of its Subsidiaries.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a Capital Lease Obligation, any
financing lease having substantially the
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same economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as debtor,
under the UCC or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor under
an Operating Lease.
"Loan" means an extension of credit by a Lender to a Borrower
pursuant to Article 2, and may be a Base Rate Loan or an Eurodollar Rate Loan.
"Loan Documents" means the Agreement, the Notes, the Collateral
Documents, the Parent Guaranty, any Subsidiary Guaranties, the Parent Collateral
Documents, the Subsidiary Collateral Documents, any Notice of Borrowing and all
certificates, agreements or documents of any type or nature heretofore or
hereafter delivered to the Agent in connection therewith and all Rate Contracts
between a Borrower and any of the Lenders.
"Loan Parties" means the Parent, each Borrower, Cinderlane and any
other Affiliate or Subsidiary of any of the foregoing executing and delivering
any Loan Document from time to time (individually, a "Loan Party").
"Maintenance Capital Expenditures" means a Capital Expenditure for
the maintenance, repair, restoration or refurbishment of any component of the
Rio Hotel and Casino (including after completion thereof, the Rio Expansion
Project), but excluding any Capital Expenditure which adds to or further
improves any such property.
"Majority Lenders" means at any time Lenders then holding at least
66 2/3% of the then aggregate unpaid principal amount of the Loans, or, if no
such principal amount is then outstanding, Lenders then having at least 66 2/3%
of the Aggregate Commitment.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the Federal Reserve Board.
"Material Adverse Effect" means (a) a material adverse change in, or
a material adverse effect upon, the
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operations, business, properties, condition (financial or otherwise) or
prospects of a Borrower or the Borrowers and their respective Subsidiaries taken
as a whole; (b) a material impairment of the ability of a Borrower or the Parent
to perform under any Loan Document and avoid any Event of Default; or (c) a
material adverse effect upon (i) the legality, validity, binding effect or
enforceability of any Loan Document, or (ii) the perfection or priority of any
Lien granted to the Lenders or to the Agent for the benefit of the Lenders under
any of the Collateral Documents, the Parent Collateral Documents or the
Subsidiary Collateral Documents.
"Maturity Date" means June 30, 2000 or such earlier date upon which
the Aggregate Commitment shall terminate in accordance with the provisions of
this Agreement.
"Mortgage" means the Deed of Trust and any other deed of trust,
mortgage or other document creating a Lien on the Real Property or any interest
in the Real Property.
"Multiemployer Plan" means a "multiemployer plan" (within the
meaning of Section 4001(a)(3) of ERISA) and to which any member of the
Controlled Group makes, is making, or is obligated to make contributions or,
during the preceding three calendar years, has made, or been obligated to make,
contributions.
"Negative Pledge" means any covenant binding on a Person that
prohibits the creation of Liens on any Property thereof, except a covenant
contained in an instrument creating a Permitted Lien or Permitted Right of
Others on Property that prohibits the creation of other Liens on that Property
and no other Property of such Person.
"Net Income" means, with respect to any fiscal period, the combined
net income of the Borrowers and their respective Subsidiaries for that period,
determined in accordance with GAAP.
"New Venture" means a casino, hotel, casino/hotel, resort,
casino/resort, riverboat casino, dockside casino, golf course, entertainment
center or similar facility (or any site or proposed site for any of the
foregoing) directly or indirectly owned or to be owned by the Parent or any
of its Subsidiaries.
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"New Project Entities" means one or more Persons formed by Parent or
any of its Subsidiaries following the Closing Date for the exclusive purpose of
developing all or any portion of the Cinderlane Property. A New Project Entity
may be designated by Borrowers as an Unrestricted Subsidiary at the time of its
acquisition or formation in accordance with Section 6.13.
"Note" means a promissory note of a Borrower payable to the order of
a Lender in substantially the form of Exhibit A, evidencing the aggregate
indebtedness of such Borrower to such Lender resulting from Loans made by such
Lender.
"Notice of Borrowing" means a notice given by a Borrower to the
Agent pursuant to Section 2.03, in substantially the form of Exhibit B.
"Notice of Conversion/Continuation" means a notice given by a
Borrower to the Agent pursuant to Section 2.04, in substantially the form of
Exhibit C.
"Notice of Lien" means any "notice of lien" or similar document
intended to be filed or recorded with any court, registry, recorder's office,
central filing office or other Governmental Authority for the purpose of
evidencing, creating, perfecting or preserving the priority of a Lien securing
obligations owing to a Governmental Authority.
"Obligations" means all Loans, and other Indebtedness, advances,
debts, liabilities, obligations, covenants and duties owing by the Loan Parties
to the Lenders, the Agent, or any other Person required to be indemnified under
any Loan Document, of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, arising under this
Agreement, under any other Loan Document, or in respect of any Rate Contract,
whether or not for the payment of money, whether arising by reason of an
extension of credit, loan, guaranty, indemnification or in any other manner,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to
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become due, now existing or hereafter arising and however acquired, including
any interest which arises after the commencement of any proceeding under the
United States Federal Bankruptcy Reform Act of 1986 or any similar statute
providing for debtor relief with respect to any Loan Party.
"Operating Lease" means, as applied to any Person, any lease of
Property which is not a Capital Lease.
"Ordinary Course of Business" means, in respect of any transaction
involving any Borrower or any of its respective Subsidiaries, the ordinary
course of such Person's business, as conducted by any such Person in accordance
with casino industry practice in Las Vegas, Nevada, undertaken by such Person in
good faith and not for purposes of evading any covenant or restriction in any
Loan Document.
"Organization Documents" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
and all applicable resolutions of the board of directors (or any committee
thereof) of such corporation.
"Other Taxes" has the meaning specified in Section 3.01(b).
"Parent" means Rio Hotel and Casino, Inc., a Nevada corporation.
"Parent Collateral" means all Property and interests in Property and
proceeds thereof now owned or hereafter acquired by the Parent in or upon which
a Lien now or hereafter exists in favor of the Lenders, or the Agent on behalf
of the Lenders, whether under this Agreement or under any other documents
executed by any such persons and delivered to the Agent or the Lenders.
"Parent Collateral Documents" means, collectively, (i) the Parent
Security Agreement, and all other security agreements, pledge agreements,
mortgages, deeds of trust, patent and trademark assignments, lease assignments,
guarantees and other similar agreements between the Parent and the Lenders
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or the Agent for the benefit of the Lenders now or hereafter delivered to the
Lenders or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the UCC or comparable law) against the
Parent as debtor in favor of the Lenders or the Agent for the benefit of the
Lenders as secured party and (ii) any amendments, supplements, modifications,
renewals, replacements, consolidations, substitutions and extensions of any of
the foregoing.
"Parent Guaranty" means the Rio Hotel and Casino, Inc. Guaranty
executed by Parent on the Closing Date with respect to the Obligations of
Borrowers hereunder, as it may from time to time be supplemented, modified,
amended, renewed, or extended.
"Parent Security Agreement" means the Parent Pledge and Security
Agreement executed by Parent on the Closing Date to secure its obligations under
the Parent Guaranty, as it may from time to time be supplemented, modified,
amended, renewed, or extended.
"Parent Senior Subordinated Notes" means (a) the $100,000,000
10-5/8% Senior Subordinated Notes Due 2005 issued by the Parent, (b) the
$125,000,000 9-1/2% Senior Subordinated Notes Due 2007 issued by Parent, and (c)
other senior subordinated indebtedness incurred pursuant to Section 7.05(g).
"Participant" has the meaning specified in Section 10.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" has the meaning specified in Section 7.01.
"Permitted Right of Others" means a Right of Others consisting of
(a) an interest (other than a legal or equitable co-ownership interest, an
option or right to acquire a legal or equitable co-ownership interest and any
interest of a ground
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lessor under a ground lease) that does not materially impair the value or use of
property for the purposes for which it is or may reasonably be expected to be
held and does not impair the security interest of the Lenders in such Property,
(b) an option or right to acquire a Lien that would be a Permitted Lien, and (c)
the reversionary interest of a landlord under a lease of Property.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust, unincorporated
association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Company or any member of the Controlled Group sponsors or
maintains or to which the Company or any member of the Controlled Group makes,
is making or is obligated to make contributions, and includes any Multiemployer
Plan or Qualified Plan.
"Pledged Collateral" has the meaning specified in the Parent
Security Agreement.
"Pre-Opening Expenses" means, with respect to any fiscal period, the
amount of expenses (other than Interest Expense) classified as "pre-opening
expenses" on the applicable financial statements of the Parent and its
Subsidiaries for such period, prepared in accordance with GAAP.
"Pricing Period" means, with respect to the last day of each
calendar month (as of which a Total Leverage Ratio is determined), the one (1)
calendar month period commencing on the first day of the third calendar month to
commence after such day.
"Projections" means the financial projections for the Company
attached hereto as Exhibit F.
"Property" means any estate or interest in any kind of property or
asset, whether real, personal or mixed, and whether tangible or intangible.
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"Qualified Plan" means a pension plan (as defined in Section 3(2)
of ERISA) intended to be tax-qualified under Section 401(a) of the Code and
which any member of the Controlled Group sponsors, maintains, or to which it
makes, is making or is obligated to make contributions, or in the case of a
multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"Rate Contracts" means interest rate and currency swap agreements,
cap, floor and collar agreements, interest rate insurance, currency spot and
forward contracts and other agreements or arrangements designed to provide
protection against fluctuations in interest or currency exchange rates.
"Real Property" means all of the Loan Parties' right, title and
interest, whether now existing or hereafter acquired, in and to the real
property described in Schedule 1.01A together with all easements and other
rights now or hereafter made appurtenant thereto, all improvements and fixtures
now or hereafter located thereon, and all additions and accretions thereto.
"Reportable Event" means, as to any Plan, (a) any of the events set
forth in Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been waived
in regulations issued by the PBGC, (b) a withdrawal from a Plan described in
Section 4063 of ERISA, or (c) a cessation of operations described in Section
4062(e) of ERISA.
"Requirement of Law" means, (i) as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject,
and (ii) as to the Real Property, all laws, ordinances, regulations, orders,
building codes, restrictions and requirements of, and all agreements with and
commitments to, all governmental judicial or legal authorities having
jurisdiction over the Real Property.
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"Responsible Officer" means, for any Person, the chief executive
officer or the president or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants by any Person or financial reporting by such Person, the chief
financial officer or the treasurer of such Person, or any other officer
having substantially the same authority and responsibility, and with respect
to delivery of Notices of Borrowing, any of the foregoing officers of such
Person or other individuals designated in writing by any one of such officers.
"Restricted Subsidiary" means each Subsidiary of Parent which is not
an Unrestricted Subsidiary.
"Right of Others" means, as to any Property in which a Person has an
interest, any legal or equitable right, title or other interest (other than a
Lien) held by any other Person in that Property, and any option or right held by
any other Person to acquire any such right, title or other interest in that
Property, including any option or right to acquire a Lien; provided, however,
that (a) any covenant restricting the use or disposition of Property of such
Person contained in any Contractual Obligation of such Person and (b) any
provision contained in a contract creating a right of payment or performance in
favor of a Person that conditions, limits, restricts, diminishes, transfers or
terminates such right, shall not be deemed to constitute a Rights of Others.
"Rio Development" means Rio Development Company, Inc., a Nevada
corporation, a wholly-owned Unrestricted Subsidiary of the Parent.
"Rio Expansion Project" means the proposed expansion to the existing
Rio Hotel and Casino described on Schedule 1.01C.
"Rio Leasing" means Rio Leasing, Inc., a Nevada corporation.
"Rio Resorts" means Rio Resort Properties, Inc., a Nevada
corporation, a wholly-owned Unrestricted Subsidiary of the Parent.
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"Rio Secco Golf Course" means the Rio Secco Golf Course, formerly
known as the Seven Hills Golf Course, a golf course in Henderson, Nevada owned
by Rio Development, together with all related improvements, equipment and
fixtures.
"SEC" means the Securities and Exchange Commission, or any successor
thereto.
"Senior Indebtedness" means Indebtedness that is not subordinated to
the Obligations on terms and conditions satisfactory to the Agent and the
Majority Lenders.
"Senior Leverage Ratio" means, as of the last day of each fiscal
quarter, the ratio of (a) the average outstanding principal amount of the Senior
Indebtedness of the Borrowers and their combined Restricted Subsidiaries which
constitutes Funded Debt as of the last day of that fiscal quarter (determined by
averaging all such Senior Indebtedness of the Borrowers and their combined
Restricted Subsidiaries as of the last date of each of the three-months
constituting the fiscal quarter ending on that date using the Senior
Indebtedness reported for each such month pursuant to Section 6.01(c)) to (b)
EBITDA for the four fiscal quarter period ending on that date.
"Shareholders' Equity" means, as of any date of determination and
with respect to any Person, the consolidated shareholders' equity of the Person
as of that date determined in accordance with GAAP.
"Solvent" means, as to any Person at any time, that (a) the fair
value of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code and, in the alternative, for purposes of the
Nevada Uniform Fraudulent Transfer Act; (b) the present fair saleable value of
the Property of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured; (c) such Person is able to realize upon its Property and pay its
debts and other liabilities (including
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disputed, contingent and unliquidated liabilities) as they mature in the normal
course of business; (d) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's ability to pay as
such debts and liabilities mature; and (e) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof.
"Subsidiary Collateral" means all Property and interests in Property
and proceeds thereof now owned or hereafter acquired by the Guarantors other
than Parent in or upon which a Lien now or hereafter exists in favor of the
Lenders, or the Agent on behalf of the Lenders, whether under this Agreement or
under any other documents executed by any such persons and delivered to the
Agent or the Lenders.
"Subsidiary Collateral Documents" means, collectively, (i) the
Subsidiary Security Agreement and all other security agreements, pledge
agreements, mortgages, deeds of trust, patent and trademark assignments, lease
assignments, guarantees and other similar agreements between the Subsidiaries of
the Borrowers and the Lenders or the Agent for the benefit of the Lenders now or
hereafter delivered to the Lenders or the Agent pursuant to or in connection
with the transactions contemplated hereby, and all financing statements (or
comparable documents now or hereafter filed in accordance with the UCC or
comparable law) against such Persons as debtor in favor of the Lenders or the
Agent for the benefit of the Lenders as secured party and (ii) any amendments,
supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Subsidiary Guarantors" means each Subsidiary of a Borrower that has
executed and delivered a Guaranty to the Agent.
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"Subsidiary Guaranty" means each Guaranty executed and delivered by
a Subsidiary of any Borrower, as such document may from time to time be
supplemented, modified, amended, renewed, or extended (collectively the
"Subsidiary Guaranties").
"Subsidiary Security Agreement" means a Security Agreement executed
by each of Cinderlane and HLG on the Closing Date to secure its obligations
under the Subsidiary Guaranty, as it may from time to time be supplemented,
modified, amended, renewed, or extended.
"Tangible Net Worth" means, as of any date of determination, the
Shareholders' Equity of the Borrowers and their respective Subsidiaries on that
date minus the aggregate Intangible Assets of the Borrowers and their respective
Subsidiaries on that date.
"Taxes" has the meaning specified in Section 3.01(a).
"Total Leverage Ratio" means, as of the last day of each fiscal
quarter, the ratio of (a) average outstanding total principal Indebtedness of
the Borrowers and their combined Restricted Subsidiaries which constitutes
Funded Debt plus outstanding principal Indebtedness under the Parent Senior
Subordinated Notes (determined by averaging all such Senior Indebtedness of the
Borrowers and their combined Restricted Subsidiaries as of the last date of each
of the three months constituting the fiscal quarter ending on that date using
the Senior Indebtedness and Parent Senior Subordinated Notes reported for each
such month pursuant to Section 6.01(c)) to (b) EBITDA for the four fiscal
quarter period ending on the same date.
"Transferee" has the meaning specified in Section 10.08(e).
"UCC" means the Uniform Commercial Code as in effect in any
jurisdiction.
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"Unfunded Pension Liabilities" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current
value of that Plan's assets, determined in accordance with the assumptions
used by the Plan's actuaries for funding the Plan pursuant to section 412 for
the applicable plan year.
"United States" and "U.S." each means the United States of America.
"Unrestricted Subsidiaries" means Rio Development, Rio Resorts and
each other Subsidiary of Parent which is not a Subsidiary of either Borrower
formed following the Closing Date which is designated as such at the time of its
formation pursuant to Section 6.13, provided that no Subsidiaries owning
portions of the Cinderlane Property may be Unrestricted Subsidiaries at any time
when the aggregate Investments made pursuant to Section 7.04(f) are in excess of
the limitations set forth therein.
"Unsecured Indemnity Agreement" means an Unsecured Indemnity
Agreement executed by Parent and the Borrowers on the Closing Date, as it may
from time to time be supplemented, modified, amended, renewed, or extended.
"Voting Stock" means the shares of common stock or preferred stock
in a Person having ordinary voting power under ordinary circumstances for the
election of directors of such Person and for carrying out the ordinary functions
of shareholders under the law of the jurisdiction of incorporation or formation
of such Person.
"Withdrawal Liabilities" means, as of any determination date, the
aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA
if the Controlled Group made a complete withdrawal from all Multiemployer Plans
and any increase in contributions pursuant to Section 4243 of ERISA.
1.02 Other Interpretive Provisions.
(a) Defined Terms. Unless otherwise specified herein or
therein, all terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or
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delivered pursuant hereto. The meaning of defined terms shall be
equally applicable to the singular and plural forms of the defined
terms. Terms (including uncapitalized terms) not otherwise defined
herein and that are defined in the UCC shall have the meanings
therein described.
(b) The Agreement. The words "hereof", "herein", "hereunder"
and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of
this Agreement; and section, schedule and exhibit references are to
this Agreement unless otherwise specified.
(c) Certain Common Terms.
(i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures,
notices and other writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(d) Performance; Time. Whenever any performance obligation
hereunder (other than a payment obligation) shall be stated to be
due or required to be satisfied on a day other than a Business Day,
such performance shall be made or satisfied on the next succeeding
Business Day. In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding",
and the word "through" means "to and including." If any provision of
this Agreement refers to any action taken or to be taken by any
Person, or which such Person is prohibited from taking, such
provision shall be interpreted to encompass any and all means,
direct or indirect, of taking, or not taking, such action.
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(e) Contracts. Unless otherwise expressly provided herein,
references to agreements and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document.
(f) Laws. References to any statute or regulation are to be
construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting
the statute or regulation.
(g) Captions. The captions and headings of this Agreement are
for convenience of reference only and shall not affect the
interpretation of this Agreement.
(h) Independence of Provisions. The parties acknowledge that
this Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar
matters, and that such limitations, tests and measurements are
cumulative and must each be performed, except as expressly stated to
the contrary in this Agreement.
1.03 Accounting Principles
(a) Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall
be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Borrowers.
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ARTICLE 2
THE CREDIT
2.01 Amounts and Terms of Commitment. From time to time following
the Closing Date and prior to June 30, 1999 (the "Cutoff Date"), each Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
term loans to the Borrowers (each a "Loan") in an aggregate principal amount
not exceeding the amount set forth opposite such Lender's name on Schedule
2.01 under the heading "Commitment" (such amount as the same may be reduced
pursuant to Section 2.05 or Section 2.07 or as a result of one or more
assignments pursuant to Section 10.08, such Lender's "Commitment"); provided,
however, that, after giving effect to any Borrowing of Loans, (i) each
Lender's Loans shall not exceed its Commitment, and (ii) the aggregate
principal amount of all outstanding Loans shall not exceed the Aggregate
Commitment. Following the Cutoff Date, each Lender shall, on the terms and
conditions hereinafter set forth, make term Loans to the Borrowers in the
amount necessary to refinance outstanding Loans on the last day of the
related Interest Periods for such Loans, but no such Loan shall result in an
increase in the aggregate principal outstanding amount of the Loans. The
Commitments are in the nature of multiple draw term loans, and no Loan, once
repaid, may be reborrowed.
2.02 Notes
(a) The Loans made by each Lender shall be evidenced by a Note
payable to the order of that Lender in an amount equal to its
Commitment.
(b) Each Lender may endorse on the schedules annexed to its
Note, the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by the Borrowers with
respect thereto. Each Lender is irrevocably authorized by the
Borrowers to endorse its Note and each Lender's record shall be
conclusive absent manifest error; provided, however, that the
failure of a Lender to make, or an error in making, a notation
thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Borrowers hereunder or under any such Note to
such Lender.
(c) The Loans made by each Lender may, in lieu of Notes, be
evidenced by one or more accounts or
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records maintained by such Lender in the ordinary course of
business. The accounts or records maintained by each Lender shall be
conclusive absent manifest error of the amount of the Loans made by
the Lenders to the Borrowers, and the interest and payments thereon;
provided, however, that the failure of a Lender to make, or an error
in making, a notation with respect to any Loan shall not limit or
otherwise affect the obligations of the Borrowers hereunder to such
Lender.
2.03 Procedure for Borrowing
(a) Each Borrowing shall be made upon a Borrower's irrevocable
written notice delivered to the Agent in accordance with Section
10.02 in the form of a Notice of Borrowing (which notice must be
received by the Agent prior to 9:00 a.m. San Francisco time) (i)
three Business Days prior to the requested Borrowing date, in the
case of Eurodollar Rate Loans; and one Business Day prior to the
requested Borrowing date, in the case of Base Rate Loans,
specifying:
(i) the amount of the Borrowing, which shall be, for
Eurodollar Rate Loans and for Base Rate Loans, in an aggregate
minimum principal amount of Five Million dollars ($5,000,000)
or any multiple of One Million dollars ($1,000,000) in excess
thereof;
(ii) the requested Borrowing date, which shall be a
Business Day;
(iii) whether the Borrowing is to be comprised of
Eurodollar Rate Loans or Base Rate Loans; and
(iv) the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of Borrowing
of Loans shall fail to specify the duration of the Interest
Period for any Borrowing comprised of
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Eurodollar Rate Loans, such Interest Period shall be three
months;
provided that, with respect to the Borrowing to be made on the
Closing Date, the Notice of Borrowing shall be delivered to the
Agent not later than 9:00 a.m. (San Francisco time) one Business Day
before the Closing Date and such Borrowing will consist of Base Rate
Loans only.
(b) Upon receipt of each Notice of Borrowing, the Agent will
promptly notify each Lender thereof and of the amount of such
Lender's Commitment Percentage of the Borrowing.
(c) Each Lender will make the amount of its Commitment
Percentage of the Borrowing available to the Agent for the account
of the relevant Borrower at the Agent's Payment Office by 11:00 a.m.
(San Francisco time) on the Borrowing Date requested by the relevant
Borrower in funds immediately available to the Agent. The proceeds
of all such Loans will then be made available by the Agent to the
holders of Parent Senior Subordinated Notes (or to the
representative thereof) for the account of the Borrowers (or, to the
extent that the same constitute related transactional expenses, to
Borrowers) by wire transfer of like funds in accordance with written
instructions provided to the Agent by the relevant Borrower.
(d) Unless the Majority Lenders shall otherwise agree, during
the existence of an Event of Default, the Borrowers may not elect to
have a Loan be made as, or converted into or continued as, an
Eurodollar Rate Loan.
(e) After giving effect to any Borrowing, there shall not be
more than 12 different Interest Periods in effect for Eurodollar
Rate Loans outstanding.
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2.04 Conversion and Continuation Elections.
(a) A Borrower may upon irrevocable written notice to the
Agent in accordance with Section 2.04(b):
(i) elect to convert on any Business Day, any Base Rate
Loans (or any part thereof in an amount not less than
$3,000,000, or that is in an integral multiple of $1,000,000
in excess thereof) into Eurodollar Rate Loans;
(ii) elect to convert on any Interest Payment Date any
Eurodollar Rate Loans maturing on such Interest Payment Date
(or any part thereof in an amount not less than $1,000,000, or
that is in an integral multiple of $1,000,000 in excess
thereof) into Base Rate Loans; or
(iii) elect to renew on any Interest Payment Date any
Eurodollar Rate Loans maturing on such Interest Payment Date
(or any part thereof in an amount not less than $3,000,000, or
that is in an integral multiple of $1,000,000 in excess
thereof);
provided, that if the aggregate amount of Eurodollar Rate Loans
shall have been reduced, by payment, prepayment, or conversion of
part thereof to be less than $3,000,000, the Eurodollar Rate Loans
shall automatically convert into Base Rate Loans, and on and after
such date the right of the relevant Borrower to continue such Loans
as, and convert such Loans into, Eurodollar Rate Loans shall
terminate.
(b) The relevant Borrower shall deliver a Notice of
Conversion/Continuation in accordance with Section 10.02 to be
received by the Agent not later than 9:00 a.m. (San Francisco time)
at least (i) three Business Days in advance of the Conversion Date
or continuation date, if the Loans are to be converted into or
continued as Eurodollar Rate Loans; (ii) one Business Day in advance
of the Conversion Date, if the Loans are to be converted into Base
Rate Loans; specifying:
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(i) the proposed Conversion Date or continuation date;
(ii) the aggregate amount of Loans to be converted or
renewed;
(iii) the nature of the proposed conversion or
continuation; and
(iv) the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to Eurodollar Rate Loans, a Borrower has failed to select a new
Interest Period to be applicable to such Eurodollar Rate Loans, as
the case may be, or if any Default or Event of Default shall then
exist, such Borrower shall be deemed to have elected to convert such
Eurodollar Rate Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, the
Agent will promptly notify each Lender thereof, or, if no timely
notice is provided by a Borrower, the Agent will promptly notify
each Lender of the details of any automatic conversion. All
conversions and continuations shall be made pro rata according to
the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Lender.
(e) Unless the Majority Lenders shall otherwise agree, during
the existence of a Default or Event of Default, a Borrower may not
elect to have a Loan converted into or continued as an Eurodollar
Rate Loan.
(f) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or continuation of
any Loans, there
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shall not be more than 12 different Interest Periods in effect at
any one time.
2.05 Voluntary Termination or Reduction of Aggregate Commitment.
Borrowers may, upon not less than five Business Days' prior notice to the Agent,
terminate or permanently reduce the Aggregate Commitment by an aggregate minimum
amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; provided
that no such reduction or termination shall be permitted if, after giving effect
thereto and to any prepayments of the Loans made on the effective date thereof,
the then outstanding principal amount of the Loans would exceed the Aggregate
Commitment then in effect and; provided, further, that once reduced in
accordance with this Section 2.05, the Commitment may not be increased. Any
reduction of a Commitment shall be applied to each Lender's Commitment in
accordance with such Lender's Commitment Percentage. All accrued commitment fees
to but not including the effective date of any reduction or termination of the
Aggregate Commitment, shall be paid on the effective date of such reduction or
termination. No voluntary reduction shall reduce the amount of any mandatory
reduction of the Aggregate Commitment pursuant to any other provision of this
Agreement.
2.06 Optional Prepayments. Subject to Section 3.04, a Borrower may,
at any time or from time to time, upon at least three Business Days' notice in
the case of prepayment of an Eurodollar Rate Loan, and one Business Day's notice
in the case of prepayment of a Base Rate Loan, to the Agent, ratably prepay
Loans in whole or in part, in amounts of $3,000,000 or any multiple of
$1,000,000 in excess thereof in the case of prepayment of Eurodollar Rate Loans
and in amounts of $1,000,000 or any multiple of $1,000,000 in excess thereof in
the case of prepayment of Base Rate Loans. Such notice of prepayment shall
specify the date and amount of such prepayment and whether such prepayment is of
Base Rate Loans or Eurodollar Rate Loans, or any combination thereof. Such
notice shall not thereafter be revocable by a Borrower and the Agent will
promptly notify each Lender thereof and of such Lender's Commitment Percentage
of such prepayment. If such notice is given by a Borrower, Borrowers shall make
such prepayment and the payment amount specified in such notice shall be due and
payable on the date specified therein, together with accrued
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interest to each such date on the amount prepaid and any amounts required
pursuant to Section 3.04.
2.07 Mandatory Commitment Reductions; Mandatory Prepayments of
Loans.
(a) Automatic Commitment Reductions. The Aggregate Commitment
shall be reduced to zero on the Maturity Date. Such automatic
reduction shall occur without regard to any other reductions of the
Aggregate Commitment occurring pursuant to Sections 2.05 or 2.07 or
pursuant to any other provision of this Agreement.
(b) Automatic Commitment Termination. All Commitments shall
automatically terminate upon the occurrence of a (a) Disposition
consisting of (i) all or substantially all of the assets of a
Borrower or (ii) all or substantially all of the assets of the
Parent or (b) an Event of Loss affecting all or substantially all of
the Rio Hotel and Casino.
(c) Effect of Commitment Reductions. Any termination of the
Aggregate Commitment will be accompanied by prepayment in full of
the unpaid principal amount of the Loans then outstanding
thereunder, together with the payment of any accrued and unpaid
interest or fees, or both, on the amount prepaid. Any reduction of
the Aggregate Commitment will be accompanied by the prepayment of
Loans to the extent, if any, that the aggregate unpaid principal
amount thereof outstanding exceeds the relevant commitment as then
reduced.
(d) General. Any prepayments pursuant to this Section 2.07
shall be applied first to any Base Rate Loans then outstanding and
then to Eurodollar Rate Loans with the shortest Interest Periods
remaining.
2.08 Repayment. The Borrowers shall repay to the Lenders in full on
the Maturity Date the aggregate principal amount of the Loans outstanding on the
Maturity Date.
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2.09 Interest.
(a) Subject to Section 2.09(d), each Loan shall bear interest
on the outstanding principal amount thereof from the date when made
until it becomes due at a rate per annum equal to the Eurodollar
Rate or the Base Rate, as the case may be, plus the Applicable
Margin as the same may be adjusted pursuant to the provisions of
Section 2.09(b).
(b) The Applicable Margin for any Loan during any month (such
calendar month being the Pricing Period) shall be based on the Total
Leverage Ratio as of the last day of the third calendar month prior
to the first day of the Pricing Period as shown in the financial
reports and certificates delivered pursuant to the provisions of
Section 6.01(c) and Section 6.02(c). If the Borrowers fail to
deliver the financial reports and certificates required under
Section 6.01(c) and Section 6.02(c) within 15 days of the date for
delivery set forth therein, the Total Leverage Ratio for such
Pricing Period shall be conclusively presumed to be greater than
3.00:1.00 and amounts payable following late delivery of reports and
application of the foregoing presumption in respect of the Total
Leverage Ratio shall be due and payable upon demand and shall be in
addition to amounts that may otherwise become due pursuant to
Section 2.09(d).
(c) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of
any prepayment of Loans pursuant to Section 2.06 and 2.07 for the
portion of the Loans so prepaid and upon payment (including
prepayment) in full thereof and, during the existence of any Event
of Default, interest shall be paid on demand.
(d) While any Event of Default exists or after acceleration,
the Borrowers shall pay interest (after as well as before entry of
judgment thereon to the extent permitted by law), as required by the
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Requisite Lenders, on the principal amount of all Loans unpaid at a
rate per annum which is determined by adding 2% per annum to the
Applicable Margin then in effect for such Loans (whether the same
are Eurodollar Rate Loans or Base Rate Loans) and, in the case of
Obligations not subject to an Applicable Margin, at a rate per annum
equal to the Base Rate plus 2%; provided, however, that, on and
after the expiration of any Interest Period applicable to any
Eurodollar Rate Loan outstanding on the date of occurrence of such
Event of Default or acceleration, the principal amount of such Loan
shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base
Rate plus the Applicable Margin plus 2%.
2.10 Fees.
(a) Arrangement Fee. The Company shall pay to the Lead
Arranger for its own account an arrangement fee in an amount and at
the times set forth in a letter agreement between the Company and
the Lead Arranger.
(b) Upfront Fee. On the Closing Date, the Company shall pay to
each Lender hereto a fee in an amount set forth in the applicable
letter agreement between the Company and such Lender. Each such fee
paid to a Lender hereunder shall be solely for the account of such
Lender and need not be shared with the Agent or any other Lender.
(c) Commitment Fees. The Company shall pay to the Agent for
the account of each Lender a commitment fee on the average daily
unused portion of that Lender's Available Commitment, computed on a
quarterly basis in arrears on the last Business Day of each calendar
quarter based upon the daily utilization for that quarter as
calculated by the Agent, equal to the Applicable Margin based on the
applicable Total Leverage Ratio in effect on the last day of such
calendar quarter. Commitment fees shall accrue from the Closing Date
to the Maturity Date
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(whether or not Loans are available hereunder) and shall be due and
payable quarterly in arrears on the last Business Day of each
calendar quarter and on the Maturity Date; provided that, in
connection with any reduction or termination of Commitments pursuant
to Section 2.05 or Section 2.07, the accrued commitment fee
calculated for the period ending on such date shall also be paid on
the date of such reduction or termination, with the next succeeding
quarterly payment being calculated on the basis of the period from
the reduction or termination date to such quarterly payment date.
(d) Agency Fee. The Company shall pay to the Agent for the
Agent's own account an agency fee in the amount and at the times set
forth in a letter agreement between the Company and the Agent.
2.11 Computation of Fees and Interest
(a) All computations of fees and interest under this Agreement
shall be made on the basis of a 360-day year and actual days
elapsed, which results in more interest being paid than if computed
on the basis of a 365 day year. Interest and fees shall accrue
during each period during which interest or such fees are computed
from the first day thereof to the last day thereof.
(b) The Agent will, with reasonable promptness, notify the
Borrowers and the Lenders of each determination of an Eurodollar
Rate; provided that any failure to do so shall not relieve the
Borrowers of any liability hereunder or provide the basis for any
claim against the Agent. Any change in the interest rate on a Loan
resulting from a change in the Eurodollar Reserve Percentage shall
become effective as of the opening of business on the day on which
such change in the Eurodollar Reserve Percentage becomes effective.
The Agent will with reasonable promptness notify the Borrowers and
the Lenders of the effective date and the amount of each such
change, provided that any failure to do so shall
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not relieve the Borrowers of any liability hereunder or provide the
basis for any claim against the Agent.
(c) Each determination of an interest rate by the Agent
pursuant hereto shall be conclusive and binding on the Borrowers and
the Lenders in the absence of manifest error.
(d) All fees are non-refundable and earned on the date when
payment is due.
2.12 Payments by the Borrowers
(a) All payments (including prepayments) to be made by the
Borrowers on account of principal, interest, fees and other amounts
required hereunder shall be made without setoff, recoupment or
counterclaim and shall, except as otherwise expressly provided
herein, be made to the Agent for the ratable account of the Lenders
at the Agent's Payment Office, in dollars and in immediately
available funds, no later than 11:00 a.m. (San Francisco time) on
the date specified herein, San Francisco time, on the day of payment
(which must be a Business Day). The Agent will promptly distribute
to each Lender its Commitment Percentage (or other applicable share
as expressly provided herein) of such principal, interest, fees or
other amounts, in like funds as received. Any payment which is
received by the Agent later than 11:00 a.m. (San Francisco time)
shall be deemed to have been received on the immediately succeeding
Business Day and any applicable interest or fee shall continue to
accrue.
(b) Whenever any payment hereunder shall be stated to be due
on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day, and such extension of time shall
in such case be included in the computation of interest or fees, as
the case may be, subject to the provisions set forth in the
definition of "Interest Period" herein.
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(c) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due to the
Lenders hereunder that such Borrower will not make such payment in
full as and when required hereunder, the Agent may assume that such
Borrower has made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so
required), in reliance upon such assumption, cause to be distributed
to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent such Borrower shall not have
made such payment in full to the Agent, each Lender shall repay to
the Agent on demand such amount distributed to such Lender, together
with interest thereon for each day from the date such amount is
distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate as in effect for each
such day.
2.13 Payments by the Lenders to the Agent.
(a) Unless the Agent shall have received notice from a Lender
on the Closing Date or, with respect to each Borrowing after the
Closing Date, at least one Business Day prior to the date of any
proposed Borrowing, that such Lender will not make available to the
Agent as and when required hereunder for the account of the relevant
Borrower the amount of that Lender's Commitment Percentage of the
Borrowing, the Agent may assume that each Lender has made such
amount available to the Agent in immediately available funds on the
Borrowing date and the Agent may (but shall not be so required), in
reliance upon such assumption, make available to the relevant
Borrower on such date a corresponding amount. If and to the extent
any Lender shall not have made its full amount available to the
Agent in immediately available funds and the Agent in such
circumstances has made available to the relevant Borrower such
amount, that Lender shall on the next Business Day following the
date of such Borrowing make such amount available to the Agent,
together with interest at the
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Federal Funds Rate for and determined as of each day during such
period. A notice of the Agent submitted to any Lender with respect
to amounts owing under this Section 2.13(a) shall be conclusive,
absent manifest error. If such amount is so made available, such
payment to the Agent shall constitute such Lender's Loan on the date
of borrowing for all purposes of this Agreement. If such amount is
not made available to the Agent on the next Business Day following
the date of such Borrowing, the Agent shall notify the relevant
Borrower of such failure to fund and, upon demand by the Agent, the
relevant Borrower shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since
the date of such Borrowing, at a rate per annum equal to the
interest rate applicable at the time to the Loans comprising such
Borrowing.
(b) The failure of any Lender to make any Loan on any date of
borrowing shall not relieve any other Lender of any obligation
hereunder to make a Loan on the date of such borrowing, but no
Lender shall be responsible for the failure of any other Lender to
make the Loan to be made by such other Lender on the date of any
borrowing.
2.14 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
setoff, or otherwise) in excess of its Commitment Percentage of payments on
account of the Loans obtained by all the Lenders, such Lender shall forthwith
(a) notify the Agent of such fact, and (b) purchase from the other Lenders such
participations in the Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price paid therefor, together with an amount equal to such paying
Lender's Commitment Percentage (according to the proportion of (i) the amount of
such paying Lender's required
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repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrowers agree that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.14
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff, but subject to Section 10.09) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrowers in the amount of such participation. The Agent will keep records
(which shall be conclusive and binding in the absence of manifest error) of
participations purchased pursuant to this Section 2.14 and will in each case
notify the Lenders following any such purchases or repayments.
2.15 Security and Guarantees
(a) All obligations of the Borrowers under this Agreement, the
Notes and all other Loan Documents shall be secured in accordance
with the Collateral Documents.
(b) All obligations of the Borrowers under this Agreement,
each of the Notes and all other Loan Documents shall be
unconditionally guaranteed by the Guarantors pursuant to the
Guaranties.
(c) The obligations of the Borrowers under any Rate Contracts
shall be entitled to the ratable and pari passu benefits of the
security provided by the Collateral Documents and the Guaranties in
the same manner as other obligations and indebtedness under the
other Loan Documents to the extent of the risk assessment factor
typically utilized by the Agent in assessing the credit risk
associated with Rate Contracts, and shall be entitled to the
subordinate benefit of the Collateral Documents and the Guaranties
to the extent of any excess, provided that the counterparties to
Rate Contracts shall not (prior to the repayment of the other
obligations and indebtedness under the Loan Documents) be entitled
to exercise any additional voting rights hereunder by reason of
their being parties to such Rate Contracts over those otherwise
allocated to Lenders hereunder.
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ARTICLE 3
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes
(a) Subject to Section 3.01(g), any and all payments by the
Borrowers to each Lender or the Agent under this Agreement shall be
made free and clear of, and without deduction or withholding for,
any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and the Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or
measured by each Lender's net income by the jurisdiction under the
laws of which such Lender or the Agent, as the case may be, is
organized or maintains a Lending Office or any political subdivision
thereof (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to
as "Taxes").
(b) In addition, the Borrowers shall pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made
hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan
Documents (hereinafter referred to as "Other Taxes").
(c) Subject to Section 3.01(g), the Borrowers shall indemnify
and hold harmless each Lender and the Agent for the full amount of
Taxes or Other Taxes (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 3.01) paid by
the Lender or the Agent and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other
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Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days from the date the
Lender or the Agent makes written demand therefor.
(d) If the Borrowers shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to any Lender or the Agent, then, subject to
Section 3.01(g):
(i) the sum payable shall be increased as necessary so
that after making all required deductions (including
deductions applicable to additional sums payable under this
Section 3.01) such Lender or the Agent, as the case may be,
receives an amount equal to the sum it would have received had
no such deductions been made;
(ii) the Borrowers shall make such deductions; and
(iii) the Borrowers shall pay the full amount deducted
to the relevant taxation authority or other authority in
accordance with applicable law.
(e) Within 30 days after the date of any payment by the
Borrowers of Taxes or Other Taxes, the Borrowers shall furnish to
the Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to the
Agent.
(f) Each Lender which is a foreign person (i.e., a person
other than a United States person for United States Federal income
tax purposes) agrees that:
(i) it shall, no later than the Closing Date (or, in the
case of a Lender which becomes a party hereto pursuant to
Section 10.08 after the Closing Date, the date upon which the
Lender
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becomes a party hereto) deliver to the Borrowers through the
Agent two accurate and complete signed originals of Internal
Revenue Service Form 4224 or any successor thereto ("Form
4224"), or two accurate and complete signed originals of
Internal Revenue Service Form 1001 or any successor thereto
("Form 1001"), as appropriate, in each case indicating that
the Lender is on the date of delivery thereof entitled to
receive payments of principal, interest and fees under this
Agreement free from withholding of United States Federal
income tax;
(ii) if at any time the Lender makes any changes
necessitating a new Form 4224 or Form 1001, it shall with
reasonable promptness deliver to the Borrowers through the
Agent in replacement for, or in addition to, the forms
previously delivered by it hereunder, two accurate and
complete signed originals of Form 4224; or two accurate and
complete signed originals of Form 1001, as appropriate, in
each case indicating that the Lender is on the date of
delivery thereof entitled to receive payments of principal,
interest and fees under this Agreement free from withholding
of United States Federal income tax;
(iii) it shall, before or promptly after the occurrence
of any event (including the passing of time but excluding any
event mentioned in (ii) above) requiring a change in or
renewal of the most recent Form 4224 or Form 1001 previously
delivered by such Lender, deliver to the Borrowers through the
Agent two accurate and complete original signed copies of Form
4224 or Form 1001 in replacement for the forms previously
delivered by the Lender; and
(iv) it shall, promptly upon the Borrowers' or the
Agent's reasonable request to that effect, deliver to the
Borrowers or the Agent (as the case may be) such other forms
or similar
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documentation as may be required from time to time by any
applicable law, treaty, rule or regulation in order to
establish such Lender's tax status for withholding purposes.
(g) The Borrowers will not be required to pay any additional
amounts in respect of United States Federal income tax pursuant to
Section 3.01(d) to any Lender for the account of any Lending Office
of such Lender:
(i) if the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender to
comply with its obligations under Section 3.01(f) in respect
of such Lending Office;
(ii) if such Lender shall have delivered to the
Borrowers a Form 4224 in respect of such Lending Office
pursuant to Section 3.01(f), and such Lender shall not at any
time be entitled to exemption from deduction or withholding of
United States Federal income tax in respect of payments by the
Borrowers hereunder for the account of such Lending Office for
any reason other than a change in United States law or
regulations or in the official interpretation of such law or
regulations by any governmental authority charged with the
interpretation or administration thereof (whether or not
having the force of law) after the date of delivery of such
Form 4224; or
(iii) if the Lender shall have delivered to the
Borrowers Form 1001 in respect of such Lending Office pursuant
to Section 3.01(f), and such Lender shall not at any time be
entitled to exemption from deduction or withholding of United
States Federal income tax in respect of payments by the
Borrowers hereunder for the account of such Lending Office for
any reason other than a change in United States law or
regulations or any applicable tax treaty or
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regulations or in the official interpretation of any such law,
treaty or regulations by any governmental authority charged
with the interpretation or administration thereof (whether or
not having the force of law) after the date of delivery of
such Form 1001.
(h) If, at any time, the Borrowers request any Lender to
deliver any forms or other documentation pursuant to Section
3.01(f)(iv), then the Borrowers shall, on demand of such Lender
through the Agent, reimburse such Lender for any costs and expenses
(including Attorney Costs) reasonably incurred by such Lender in the
preparation or delivery of such forms or other documentation.
(i) If the Borrowers are required to pay additional amounts to
any Lender or the Agent pursuant to Section 3.01(d), then such
Lender shall use its reasonable best efforts (consistent with legal
and regulatory restrictions) to change the jurisdiction of its
Lending Office so as to eliminate any such additional payment by the
Borrowers which may thereafter accrue if such change, in the
judgment of such Lender, is not otherwise disadvantageous to such
Lender.
3.02 Illegality.
(a) If any Lender shall determine that the introduction of any
Requirement of Law, or any change in any Requirement of Law or in
the interpretation or administration thereof, has made it unlawful,
or that any central bank or other Governmental Authority has
asserted that it is unlawful, for any Lender or its Lending Office
to make Eurodollar Rate Loans, then, on notice thereof by the Lender
to the Company through the Agent, the obligation of that Lender to
make Eurodollar Rate Loans shall be suspended until the Lender shall
have notified the Agent and the Company that the circumstances
giving rise to such determination no longer exists.
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(b) If a Lender shall determine that it is unlawful to
maintain any Eurodollar Rate Loan, the relevant Borrower shall
prepay in full all Eurodollar Rate Loans of that Lender then
outstanding, together with interest accrued thereon, either on the
last day of the Interest Period thereof if the Lender may lawfully
continue to maintain such Eurodollar Rate Loans to such day, or
immediately, if the Lender may not lawfully continue to maintain
such Eurodollar Rate Loans, together with any amounts required to be
paid in connection therewith pursuant to Section 3.04.
(c) If a Borrower is required to prepay any Eurodollar Rate
Loan immediately as provided in Section 3.02(b), then concurrently
with such prepayment, such Borrower shall borrow from the affected
Lender, in the amount of such repayment, a Base Rate Loan.
(d) Before giving any notice to the Agent pursuant to this
Section 3.02, the affected Lender shall designate a different
Lending Office with respect to its Eurodollar Rate Loans if such
designation will avoid the need for giving such notice or making
such demand and will not, in the judgment of the Lender, be illegal
or otherwise disadvantageous to the Lender.
3.03 Increased Costs and Reduction of Return
(a) If any Lender shall determine that, due to either (i) the
introduction of or any change in reserve requirements included in
the calculation of the Eurodollar Rate) in or in the interpretation
of any law or regulation or (ii) the compliance with any guideline
or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any
increase in the cost to such Lender of agreeing to make or making,
funding or maintaining any Eurodollar Rate Loans, then the Borrowers
shall be liable for, and shall from time to time, upon demand
therefor by such
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Lender (with a copy of such demand to the Agent), pay to such
Lender, additional amounts as are sufficient to compensate such
Lender for such increased costs.
(b) If any Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in
any Capital Adequacy Regulation, (iii) any change in the
interpretation or administration of any Capital Adequacy Regulation
by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the
Lender (or its Lending Office) or any corporation controlling the
Lender, with any Capital Adequacy Regulation; affects or would
affect the amount of capital required or expected to be maintained
by the Lender or any corporation controlling the Lender and (taking
into consideration such Lender's or such corporation's policies with
respect to capital adequacy and such Lender's desired return on
capital) determines that the amount of such capital is increased as
a consequence of its Commitment, loans, credits or obligations under
this Agreement, then, upon demand of such Lender (with a copy to the
Agent), the Borrowers shall upon demand pay to the Lender, from time
to time as specified by the Lender, additional amounts sufficient to
compensate the Lender for such increase.
3.04 Funding Losses. Each Borrower agrees to reimburse each Lender
and to hold each Lender harmless from any loss or expense which the Lender may
sustain or incur as a consequence of:
(a) the failure of such Borrower to make any payment or
prepayment of principal of any Eurodollar Rate Loan (including
payments made after any acceleration thereof);
(b) the failure of such Borrower to borrow, continue or
convert a Loan after such Borrower has given (or is deemed to have
given) a Notice of Borrowing or a Notice of Conversion/Continuation;
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(c) the failure of such Borrower to make any prepayment after
such Borrower has given a notice in accordance with Section 2.06;
(d) the prepayment (including pursuant to Section 2.07) of an
Eurodollar Rate Loan on a day which is not the last day of the
Interest Period with respect thereto; or
(e) the conversion pursuant to Section 2.04 of any Eurodollar
Rate Loan to a Base Rate Loan on a day that is not the last day of
the respective Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its Eurodollar Rate Loans
hereunder or from fees payable to terminate the deposits from which such
funds were obtained. Solely for purposes of calculating amounts payable by
such Borrower to the Lenders under this Section 3.04, each Eurodollar Rate
Loan made by a Lender (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at the LIBOR
used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a
matching deposit or other borrowing in the interbank eurodollar market for a
comparable amount and for a comparable period, whether or not such Eurodollar
Rate Loan is in fact so funded.
3.05 Inability to Determine Rates. If the Agent shall have
determined that for any reason adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for any requested Interest Period with respect
to a proposed Eurodollar Rate Loan or that the Eurodollar Rate applicable
pursuant to Section 2.09(a) for any requested Interest Period with respect to a
proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to
the Lenders of funding such Loan, the Agent will forthwith give notice of such
determination to the relevant Borrower and each Lender. Thereafter, the
obligation of the Lenders to make or maintain
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Eurodollar Rate Loans, as the case may be, hereunder shall be suspended until
the Agent revokes such notice in writing. Upon receipt of such notice, such
Borrower may revoke any Notice of Borrowing or Notice of Conversion/Continuation
then submitted by it. If such Borrower does not revoke such notice, the Lenders
shall make, convert or continue the Loans, as proposed by such Borrower, in the
amount specified in the applicable notice submitted by such Borrower, but such
Loans shall be made, converted or continued as Base Rate Loans instead of
Eurodollar Rate Loans, as the case may be.
3.06 Certificates of Lenders. Any Lender claiming reimbursement or
compensation pursuant to this Article 3 shall deliver to the Borrowers (with a
copy to the Agent) a certificate setting forth in reasonable detail the amount
payable to the Lender hereunder and such certificate shall be conclusive and
binding on the Borrowers in the absence of manifest error.
3.07 Survival. The agreements and obligations of the Borrowers in
this Article 3 shall survive the payment of all other Obligations.
ARTICLE 4
CONDITIONS PRECEDENT
4.01 Conditions of Initial LoansConditions of Initial Loans. The
obligation of each Lender to make its initial Loan hereunder is subject to the
following conditions precedent. All documents delivered hereunder shall, at the
request of the Agent, be delivered in sufficient copies for each Lender, and
shall in any event be in form and substance acceptable to the Agent.
(a) Loan Agreement and Notes. The Agent shall have received
this Agreement executed by the Borrowers, the Agent and each of the
Lenders and the Notes executed by the Borrowers.
(b) Collateral Documents. The Agent shall have received the
Collateral Documents, executed by the Borrowers, and the Parent
Guaranty, and Parent Collateral Documents executed by the Parent,
and the Subsidiary Guaranty and the Subsidiary Collateral Documents
executed by HLG and Cinderlane.
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(c) Unsecured Indemnity Agreement. The Agent shall have
received the Unsecured Indemnity Agreement executed by each of the
Borrowers and the Parent.
(d) Articles of Incorporation; By-laws and Good Standing. The
Agent shall have received each of the following documents:
(i) the articles or certificate of incorporation of the
Parent and of the Borrowers as in effect on the Closing Date,
certified by the Secretary of State of the state of
incorporation of the Parent and of each of the Borrowers as of
a recent date and by the Secretary or Assistant Secretary of
the applicable Borrower as of the Closing Date, and the bylaws
of the Parent and of the Borrowers as in effect on the Closing
Date, certified by the Secretary or Assistant Secretary,
respectively of the Parent and of the applicable Borrower as
of the Closing Date; and
(ii) a good standing certificate for the Parent and for
each Borrower from the Secretary of State of its state of
incorporation and each state where the Parent or the Borrower,
as the case may be, is qualified to do business as a foreign
corporation as of a recent date.
(e) Resolutions; Incumbency. The Agent shall have received the
following:
(i) Copies of the resolutions of the board of directors
of the Parent, each Borrower and each Guarantor approving and
authorizing the execution, delivery and performance by the
Loan Parties of this Agreement and the other Loan Documents to
be delivered hereunder, and authorizing the borrowing of the
Loans, certified as of the Closing Date by the Secretary or an
Assistant Secretary of the appropriate Loan Party;
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(ii) Copies of the resolutions of the board of directors
of each such Loan Party approving and authorizing the
execution, delivery and performance by such Loan Party of the
Loan Documents to be delivered by it hereunder, certified as
of the Closing Date by the Secretary or an Assistant Secretary
thereof; and
(iii) A certificate of the Secretary or Assistant
Secretary of each such Loan Party certifying the names and
true signatures of the officers of that Loan Party who are
authorized to execute, deliver and perform, as applicable,
this Agreement, and all other Loan Documents to be delivered
by such Loan Party hereunder.
(f) Certificate. The Agent shall have received a certificate
signed by a Responsible Officer of the Borrowers, dated as of the
Closing Date:
(i) certifying that the representations and warranties
contained in Article 5 are true and correct on and as of such
date, as though made on and as of such date;
(ii) certifying that no Default or Event of Default
exists or would result from the initial Borrowing;
(iii) certifying that there has occurred since December
31, 1997 no event or circumstance that could reasonably be
expected to result in a Material Adverse Effect;
(iv) certifying as to such other matters as the Agent
and the Lenders may reasonably request.
(g) Financial Statements. The Agent shall have received a
certified copy of financial statements of Parent and its
Subsidiaries referred to in Section 5.11.
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(h) Recordation of Deed of Trust. The Deed of Trust shall have
been duly recorded with the County Recorder's Office of Clark
County, Nevada, second in order of filing only to the deed of trust
filed in connection with the Existing Credit Agreement.
(i) Pledged Collateral. The Agent shall have received all
certificates and instruments representing the Pledged Collateral
(other than the certificates and instruments representing the stock
of Borrowers and any other Persons who are gaming licensees in the
State of Nevada) and undated stock transfer powers executed in
blank, or, in the alternative, arrangements satisfactory to the
Agent shall have been made concerning the Pledged Collateral with
the agent and lenders under the Existing Credit Agreement.
(j) Financing Statements. The Agent shall have received
acknowledgment copies of all UCC-l financing statements filed,
registered or recorded to perfect the security interests of the
Agent for the benefit of the Lenders, or other evidence satisfactory
to the Agent that there has been filed, registered or recorded all
financing statements and other filings, registrations and recordings
necessary and advisable to perfect the Liens of the Agent for the
benefit of the Lenders in accordance with applicable law.
(k) Lien Searches. The Agent shall have received written
advice relating to such Lien and judgment searches as the Agent
shall have requested of the Borrowers, and such termination
statements or other documents as may be necessary to confirm that
the Collateral and the Parent Collateral is subject to no other
Liens in favor of any Persons (other than Permitted Liens).
(l) Worker's Compensation Insurance. The Borrowers shall have
provided such policy or policies of worker's compensation insurance
as may be required
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by applicable worker's compensation insurance laws (including
employer's liability insurance, if required by the Agent), covering
all employees of the Borrowers.
(m) Liability Insurance. The Borrowers shall have provided
comprehensive liability insurance naming Agent as an additional
insured, on an "occurrence" basis against claims for "personal
injury" liability, including bodily injury, death or property damage
liability, with a limit of not less than One Million Dollars
($1,000,000).
(n) Loss Payable Endorsements. The Borrowers shall have
provided the Agent with evidence that the Agent has been named as
loss payee under all policies of casualty insurance, and as
additional insured under all policies of liability insurance,
required by the Deed of Trust and with respect to the insurance
policies or other instruments or documents evidencing insurance
coverage on the properties of the Borrowers in accordance with
Section 6.06.
(o) Environmental Questionnaire. The Agent shall have received
an Environmental Questionnaire and Disclosure Statement prepared and
certified by each Borrower using Agent's prescribed form, and the
information set forth in it shall be acceptable to Agent.
(p) Legal Opinions. The Agent shall have received an opinion
of Kummer, Kaempfer, Bonner & Renshaw, counsel to the Borrowers and
addressed to the Agent and the Lenders.
(q) Payment of Fees. The Borrowers shall have paid all accrued
and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, together with Attorney Costs to the
extent invoiced prior to or on the Closing Date, together with such
additional amounts of Attorney Costs as shall constitute the Agent's
reasonable estimate of Attorney Costs incurred or to be incurred
through the
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closing proceedings, provided that such estimate shall not
thereafter preclude final settling of accounts between the Borrowers
and the Agent; including any such costs, fees and expenses arising
under or referenced in Sections 2.11, 3.01 and 10.04.
(r) Gaming Approvals. The Agent shall have received a copy of
a duly completed and executed form prepared in accordance with
Nevada Gaming Commission Regulation 8.130 with respect to this
Agreement and the Loans thereunder and the Borrowers shall have made
such other filings and disclosures as may be required by the Gaming
Authorities.
(s) Notice of Borrowing; Arrangements for Refinancing. The
Agent shall have received a Notice of Borrowing, and arrangements
acceptable to the Agent for the repurchase and retirement of
Parent's 10-5/8% senior subordinated notes due 2005 (and all related
interest and fees), as contemplated in Section 6.11, shall have been
made.
(t) Intercreditor Agreement. The Agent shall have received
copies of the Intercreditor Agreement signed by the Lenders and the
agent under the Existing Credit Agreement.
(u) Cinderlane Property. Cinderlane shall have executed a Deed
of Trust, substantially in the form of the Deed of Trust executed by
the Company and in any event in form and substance satisfactory to
the Agent, encumbering that portion of the Cinderlane Property
underlying the "Rio Convention Center" and the "Palazzo Suites", and
such Deed of Trust shall have been duly recorded with the County
Recorder's Office of Clark County, Nevada.
(v) Other Documents. The Agent shall have received evidence
that all other actions necessary or, in the opinion of the Agent or
the Lenders, desirable to perfect and protect the first priority
Lien created by the Collateral Documents and the Parent Collateral
Documents and to enhance the
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Agent's ability to preserve and protect its interests in and access
to the Collateral and the Parent Collateral Documents, have been
taken, and shall have received such other approvals, opinions or
documents as the Agent or any Lender may request.
Notwithstanding the provisions of this Section 4.01, the Borrowers shall not be
required to cause the Parent to deliver the stock of Borrowers to the Agent in
pledge pursuant to the Parent Security Agreement, and the Company shall not be
required to deliver the stock of HLG to the Agent in pledge pursuant to the
Borrowers Security Agreement (and no negative pledge with respect to such stock
shall in any manner be effective) unless and until the consents referred to in
Section 6.23 are obtained.
4.02 Conditions to All Borrowings. The obligation of each Lender to
make any Loan to be made by it hereunder (including its initial Loan) or to
continue or convert any Loan pursuant to Section 2.04 is subject to the
satisfaction of the following conditions precedent on the relevant borrowing, or
continuation or conversion date:
(a) Notice of Borrowing or Continuation/ Conversion. The Agent
shall have received (with, in the case of the initial Loan only, a
copy for each Lender) a Notice of Borrowing or a Notice of
Continuation/Conversion, as applicable.
(b) Continuation of Representations and Warranties. The
representations and warranties made by the Borrowers contained in
Article 5 shall be true and correct on and as of such borrowing,
continuation or conversion date with the same effect as if made on
and as of such borrowing or continuation or conversion date.
(c) No Existing Default. No Default or Event of Default shall
exist or shall result from such Borrowing or continuation or
conversion.
(d) Gaming Conditions. No Gaming Authority shall have entered
any order or imposed any
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requirement requiring (i) approval of the Loans prior to further
advances or (ii) rescission or repayment of any Loan or Loan
Document.
(e) Title Insurance. In the case of the initial Loans, a title
insurance company acceptable to the Lenders shall have issued or
committed to issue an ALTA Lender's extended coverage policy of
title insurance, including an LP10 Construction Loan Package or its
equivalent, in a liability amount satisfactory to the Agent and the
Lenders. The title policy shall insure the Deed of Trust and the
similar deed of Trust executed by Cinderlane as first priority liens
on the Real Property, subject only to exceptions consented to by the
Agent in writing, and shall contain such endorsements as the Agent
and/or any of the Lenders may require. In addition, one or more
other title insurance companies acceptable to the Agent and the
Lenders shall have issued such reinsurance as the Agent and the
Lenders may require. No title matter may be insured over by any
title company without the express written consent of the Agent.
Each Notice of Borrowing and Notice of Continuation/Conversion submitted by the
Borrowers hereunder shall constitute a representation and warranty by the
Borrowers hereunder, as of the date of each such notice or application and as of
the date of each Borrowing or continuation or conversion, as applicable, that
the conditions in Section 4.02 are satisfied.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
The Borrowers jointly and severally represent and warrant to the
Agent and each Lender that:
5.01 Corporate Existence and Power. Each Loan Party and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation;
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(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets,
carry on its business and execute, deliver, and perform its
obligations under, the Loan Documents;
(c) is duly qualified as a foreign corporation, licensed and in
good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of
its business requires such qualification; and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent
that the failure to do so could not reasonably be expected to
have a Material Adverse Effect.
5.02 Corporate Authorization; No Contravention. The execution,
delivery and performance by each Loan Party and its Subsidiaries of this
Agreement, and any other Loan Document to which such Person is party, have been
duly authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any of that Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any
Contractual Obligation to which such Person is a party or any order,
injunction, writ or decree of any Governmental Authority to which
such Person or its Property is subject;
(c) violate any Requirement of Law;
(d) constitute a "transfer of an interest" or an "obligation
incurred" that is avoidable by a trustee under Section 548 of the
Bankruptcy Code of 1978, as amended, or constitute a "fraudulent
conveyance," "fraudulent obligation" or "fraudulent
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transfer" within the meaning of the Uniform Fraudulent Conveyances
Act or Uniform Fraudulent Transfer Act, as enacted in any
jurisdiction;
(e) result in or require the creation or imposition of any
Lien or Right of Others upon or with respect to any Property now
owned or leased or hereafter acquired by such party; or
(f) require any consent or approval not heretofore obtained of
any partner, director, stockholder or creditor of such party.
5.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with
the Liens granted to the Agent under the Collateral Documents) is necessary
or required in connection with the execution, delivery or performance by, or
enforcement against, the Loan Parties or any of their respective Subsidiaries
of the Agreement or any other Loan Document.
5.04 Binding EffectBinding Effect. This Agreement and each other
Loan Document to which each Loan Party or any of its Subsidiaries is a party
constitute the legal, valid and binding obligations of each Loan Party and any
of its Subsidiaries to the extent it is a party thereto, enforceable against
such Person in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
5.05 Litigation. Except as specifically disclosed in Schedule
5.05, there are no actions, suits, proceedings, claims or disputes pending,
or to the best knowledge of Loan Parties, threatened or contemplated, at law,
in equity, in arbitration or before any Governmental Authority, against the
Loan Parties or their respective Subsidiaries or any of their respective
Properties which:
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(a) purport to affect or pertain to this Agreement, or any
other Loan Document, or any of the transactions contemplated hereby
or thereby or the Real Property; or
(b) if determined adversely to the Loan Parties or their
respective Subsidiaries, would reasonably be expected to have a
Material Adverse Effect. No injunction, writ, temporary restraining
order or any order of any nature has been issued by any court or
other Governmental Authority purporting to enjoin or restrain the
execution, delivery and performance of this Agreement or any other
Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.
5.06 No Default. No Default or Event of Default exists or would
result from the incurring of any Obligations by the Loan Parties or the grant or
perfection of the Agent's Liens on the Collateral. Neither the Loan Parties nor
any of their respective Subsidiaries is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect.
5.07 ERISA Compliance.
(a) Schedule 5.07 lists all Plans and separately identifies
Plans intended to be Qualified Plans and Multiemployer Plans. All
written descriptions thereof provided to the Agent are true and
complete in all material respects.
(b) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other Federal or
state law, including all requirements under the Code or ERISA for
filing reports (which are true and correct in all material respects
as of the date filed), and benefits have been paid in accordance
with the provisions of the Plan.
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(c) Except for the Qualified Plans and Multiemployer Plans
listed on Schedule 5.07, each Qualified Plan and Multiemployer Plan
has been determined by the IRS to qualify under Section 401 of the
Code, and the trusts created thereunder have been determined to be
exempt from tax under the provisions of Section 501 of the Code, and
to the best knowledge of the Loan Parties nothing has occurred which
would cause the loss of such qualification or tax-exempt status.
With respect to the Qualified Plans and Multiemployer Plans listed
on Schedule 5.07, a favorable determination letter has not yet been
obtained from the Internal Revenue Service under Sections 401(a) and
501(a) of the Code regarding the current status of each such
Qualified Plan and Multiemployer Plan. After due execution of each
such Plan by the Loan Parties, an application for a favorable
determination letter will be submitted to the Internal Revenue
Service within the remedial amendment period prescribed by Section
401(b) of the Code, and each such Plan will be amended to the extent
required to secure a favorable determination letter from the
Internal Revenue Service.
(d) Except as specifically disclosed in Schedule 5.07, there
is no outstanding liability under Title IV of ERISA with respect to
any Plan maintained or sponsored by the Loan Parties or any ERISA
Affiliate, nor with respect to any Plan to which the Loan Parties or
any ERISA Affiliate contributes or is obligated to contribute.
(e) Except as specifically disclosed in Schedule 5.07, no Plan
subject to Title IV of ERISA has any Unfunded Pension Liability.
(f) Except as specifically disclosed in Schedule 5.07, no
member of the Controlled Group has ever represented, promised or
contracted (whether in oral or written form) to any current or
former employee (either individually or to employees as a group)
that such current or former employee(s) would be provided, at any
cost to any member of the
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Controlled Group, with life insurance or employee welfare plan
benefits (within the meaning of section 3(1) of ERISA) following
retirement or termination of employment. To the extent that any
member of the Controlled Group has made any such representation,
promise or contract, such member has expressly reserved the right to
amend or terminate such life insurance or employee welfare plan
benefits with respect to claims not yet incurred.
(g) Members of the Controlled Group have complied in all
material respects with the notice and continuation coverage
requirements of Section 4980B of the Code.
(h) Except as specifically disclosed in Schedule 5.07, no
ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan.
(i) There are no pending or, to the best knowledge of the Loan
Parties, threatened claims, actions or lawsuits, other than routine
claims for benefits in the usual and ordinary course, asserted or
instituted against (i) any Plan maintained or sponsored by the Loan
Parties or its assets, (ii) any member of the Controlled Group with
respect to any Qualified Plan, or (iii) any fiduciary with respect
to any Plan for which the Loan Parties may be directly or indirectly
liable, through indemnification obligations or otherwise.
(j) Except as specifically disclosed in Schedule 5.07, neither
the Loan Parties nor any ERISA Affiliate has incurred nor reasonably
expects to incur (i) any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result
in such liability) under Section 4201 or 4243 of ERISA with respect
to a Multiemployer Plan or (ii) any liability under Title IV of
ERISA (other than premiums due and not delinquent under Section 4007
of ERISA) with respect to a Plan.
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(k) Except as specifically disclosed in Schedule 5.07, neither
the Loan Parties nor any ERISA Affiliate has transferred any
Unfunded Pension Liability to a Person other than the Loan Parties
or an ERISA Affiliate or otherwise engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
(l) No member of the Controlled Group has engaged, directly or
indirectly, in a nonexempt prohibited transaction (as defined in
Section 4975 of the Code or Section 406 of ERISA) in connection with
any Plan which could reasonably be expected to have a Material
Adverse Effect.
5.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans
are intended to be and shall be used solely for the purposes set forth in and
permitted by Section 6.11, and are intended to be and shall be used in
compliance with Section 7.07.
5.09 Title to Properties. The Property subject to the Deed of Trust
constitutes the entire Rio Resort Hotel & Casino and the associated parcel(s) of
real property underlying the associated hotel towers, casino, convention and
meeting facilities, parking garages, kitchens and other amenities associated
therewith. Each Loan Party and each of its Subsidiaries has good record and
marketable title in fee simple to, or valid leasehold interests in, the
Collateral and all Property necessary or used in the ordinary conduct of its
business, except for such defects in title as could not, individually or in the
aggregate, have a Material Adverse Effect. As of the Closing Date, the Property
of each Loan Party and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
5.10 Taxes. Each Loan Party and its Subsidiaries have filed all
Federal and other material tax returns and reports required to be filed, and
have paid all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their Properties, income or
assets otherwise due and payable, except those which are
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being contested in good faith by appropriate proceedings and for which adequate
reserves have been provided in accordance with GAAP and no Notice of Lien has
been filed or recorded. There is no proposed tax assessment against any Loan
Party or any of its Subsidiaries which would, if the assessment were made, have
a Material Adverse Effect.
5.11 Financial Condition/Material Adverse Effect.
(a) The audited consolidated financial statements of financial
condition of the Parent and its Subsidiaries dated December 31,
1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the fiscal year ended on
that date and the unaudited consolidated balance sheet, statement of
operations and cash flow summary of the Company dated December 31,
1997:
(i) except for the cash flow summary of the Company,
were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise
expressly noted therein;
(ii) are complete, accurate and fairly present the
financial condition of the Parent and its Subsidiaries and the
Company and its Subsidiaries, as of the date thereof and
results of operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule 5.11,
show all material indebtedness and other liabilities, direct
or contingent of the Parent and its consolidated Subsidiaries
and of the Company and its consolidated Subsidiaries,
respectively, as of the date thereof, including liabilities
for taxes, material commitments and Contingent Obligations.
(b) The unaudited consolidated statements of financial
condition of the Parent and its
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consolidated Subsidiaries dated September 30, 1998, and the related
consolidated statements of operations, and cash flows for the fiscal
quarter ended on that date and the unaudited consolidated financial
statements of financial condition of Parent and its Subsidiaries
dated September 30, 1998, and the related consolidated statement of
operations and cash flow summary for the fiscal quarter ended on
that date:
(i) except for the cash flow summary of the Company,
were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise
expressly noted therein;
(ii) are complete, accurate and fairly present the
financial condition of both Parent and its Subsidiaries and
the Company and its Subsidiaries as of the date thereof and
results of operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule 5.11,
show all material indebtedness and other liabilities, direct
or contingent of the Company and its consolidated Subsidiaries
as of the date thereof, including liabilities for taxes,
material commitments and Contingent Obligations.
(c) Since December 31, 1997 there has been no Material Adverse
Effect.
5.12 Environmental Matters.
(a) Except as specifically disclosed in Schedule 5.12, the
on-going operations of each Loan Party and each of its Subsidiaries
comply in all respects with all Environmental Laws.
(b) Except as specifically disclosed in Schedule 5.12, each
Loan Party and each of its
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Subsidiaries has obtained all licenses, permits, authorizations and
registrations required under any Environmental Law ("Environmental
Permits") and necessary for its ordinary course operations, all such
Environmental Permits are in good standing, and each Loan Party and
each of its Subsidiaries is in compliance with all material terms
and conditions of such Environmental Permits.
(c) Except as specifically disclosed in Schedule 5.12, none of
the Loan Parties, any of their respective Subsidiaries or any of
their respective present Property or operations is subject to any
outstanding written order from or agreement with any Governmental
Authority nor subject to any judicial or docketed administrative
proceeding, respecting any Environmental Law, Environmental Claim or
Hazardous Material.
(d) Except as specifically disclosed in Schedule 5.12, there
are no Hazardous Materials or other conditions or circumstances
existing with respect to any Property, or arising from operations
prior to the Closing Date, of the Loan Parties or any of their
respective Subsidiaries that would reasonably be expected to give
rise to Environmental Claims with a potential liability of the Loan
Parties and their respective Subsidiaries in excess of $100,000 in
the aggregate for any such condition, circumstance or Property. In
addition, (i) neither the Loan Parties nor any of their respective
Subsidiaries has any underground storage tanks (x) that are not
properly registered or permitted under applicable Environmental
Laws, or (y) that are leaking or disposing of Hazardous Materials
offsite, and (ii) the Loan Parties and their respective Subsidiaries
have notified all of their employees of the existence, if any, of
any health hazard arising from the conditions of their employment
and have met all notification requirements under Title III of CERCLA
and all other Environmental Laws.
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5.13 Collateral Documents.
(a) The provisions of each of the Collateral Documents are
effective to create in favor of the Agent for the benefit of the
Lenders, a legal, valid and enforceable first priority (subject only
to the security interest of BofA as agent for the lenders under the
Existing Credit Agreement) security interest in all right, title and
interest of each Loan Party and its Subsidiaries in the collateral
described therein; and financing statements have been filed in the
appropriate offices of the State of Nevada.
(b) The Deed of Trust and each other Mortgage when delivered
will be effective to grant to the Agent for the benefit of the
Lenders a legal, valid and enforceable deed of trust lien on all the
right, title and interest of the mortgagor under the Deed of Trust
or such Mortgage in the mortgaged Property described therein. When
the Deed of Trust or each such other Mortgage is duly recorded in
Clark County, Nevada and the mortgage recording fees and taxes in
respect thereof are paid and compliance is otherwise had with the
formal requirements of state law applicable to the recording of real
estate mortgages generally, each such mortgaged Property, subject to
the encumbrances and exceptions to title set forth therein and
except as noted in the title policies delivered to the Agent
pursuant to Section 4.01 is subject to a legal, valid, enforceable
and perfected first priority deed of trust (subject to the priority
of the deed of trust in favor of BofA as agent for the lenders under
the Existing Credit Agreement); and when financing statements have
been filed in Clark County, Nevada, such Mortgage also creates a
legal, valid, enforceable and perfected first lien (subject, as to
priority, only to the lien of BofA as agent for the lenders under
the Existing Credit Agreement) on, and security interest in, all
right, title and interest of each Loan Party or such Subsidiary
under the Deed of Trust or such other Mortgage in all personal
property and fixtures which is covered by such Mortgage, subject to
no other Liens, except the
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encumbrances and exceptions to title set forth therein and except as
noted in the title policies delivered to the Agent pursuant to
Section 4.01, and Permitted Liens.
(c) All representations and warranties of each Loan Party, of
any of its Subsidiaries and of the Parent contained in the
Collateral Documents or in any Guaranty or any Parent Collateral
Document are true and correct.
5.14 Regulated Entities. None of the Loan Parties, any Person
controlling the Loan Parties or any Subsidiary of the Loan Parties, is (a) an
"Investment Company" within the meaning of the Investment Company Act of 1940;
or (b) subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code, or any other Federal or state statute or regulation limiting its
ability to incur Indebtedness, with the exception of Nevada Gaming Laws, the
provisions of which have been complied with by each Loan Party.
5.15 No Burdensome Restrictions. Neither the Loan Parties nor any of
their respective Subsidiaries is a party to or bound by any Contractual
Obligation, or subject to any charter or corporate restriction, or any
Requirement of Law, which could reasonably be expected to have a Material
Adverse Effect.
5.16 Solvency. Each Loan Party is and each of its Subsidiaries are
Solvent.
5.17 Labor Relations. There are no strikes, lockouts or other labor
disputes against the Loan Parties or any of their respective Subsidiaries, or,
to the best of the Loan Parties' knowledge, threatened against or affecting the
Loan Parties or any of their respective Subsidiaries, and no significant unfair
labor practice complaints are pending against the Loan Parties or any of their
respective Subsidiaries or, to the best knowledge of the Loan Parties,
threatened against any of them before any Governmental Authority.
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5.18 Copyrights, Patents, Trademarks and Licenses, etc. The Loan
Parties and their consolidated Subsidiaries own or are licensed or otherwise
have the right to use all of the patents, trademarks, service marks, trade
names, copyrights, franchises, authorizations and other rights that are
reasonably necessary for the operation of their respective businesses, without
conflict with the rights of any other Person. To the best knowledge of the Loan
Parties, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed by the Loan Parties or any of their respective Subsidiaries infringes
upon any rights held by any other Person; no claim or litigation regarding any
of the foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Loan Parties, proposed, which, in either
case, could reasonably be expected to have a Material Adverse Effect.
5.19 Subsidiaries and Other Investments. The Parent does not have
any Subsidiaries or any equity investments in any other corporation or entity
other than those specifically disclosed in Schedule 5.19, in each case as such
Schedule is updated from time to time (which updates shall be deemed to update
any previous Schedule from the date received by the Agent without further action
by any party hereto).
5.20 Insurance. The Properties of each Loan Party and its
Subsidiaries are insured with financially sound and reputable insurance
companies, in such amounts, with such deductibles and covering such risks as are
customarily carried by companies engaged in similar businesses and owning
similar Properties in localities where each Loan Party or such Subsidiary
operates.
5.21 Full Disclosure. None of the representations or warranties made
by the Loan Parties or any of their respective Subsidiaries in the Loan
Documents as of the date such representations and warranties are made or deemed
made, and none of the statements contained in each exhibit, report, statement or
certificate furnished by or on behalf of the Loan Parties or any of their
respective Subsidiaries in connection
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with the Loan Documents, contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading.
5.22 Projections. As of the date of their preparation, the
assumptions set forth in the Projections were reasonable and consistent with
each other and with all facts known to the Company and no material assumption
was omitted as a basis for the Projections, and the Projections were reasonably
based on such assumptions. As of the date of this Agreement, and as of the
Closing Date, no fact or circumstance has come to the attention of either
Borrower to cause it to believe, and it does not believe, that such assumptions
are not reasonable or consistent with each other and with all facts known to the
Borrowers or that any material assumption is omitted as a basis for the
Projections or that the Projections are not reasonably based on the assumptions.
Nothing in this Section shall be construed as a representation or covenant that
the Projections in fact will be achieved.
5.23 Gaming Laws. Each Loan Party and each of its Subsidiaries are
in substantial compliance with all Gaming Laws that are applicable to it.
5.24 Management Agreement. The Loan Parties are the sole manager of
the Real Property, the entirety of the existing Rio Hotel and Casino and the Rio
Expansion Project. The Loan Parties have not executed a management agreement
with any other Person with respect to the Real Property.
ARTICLE 6
AFFIRMATIVE COVENANTS
The Borrowers hereby jointly and severally covenant and agree that,
so long as any Lender shall have any Commitment hereunder, or any Loan or other
Obligation shall remain unpaid or unsatisfied, unless the Majority Lenders waive
compliance in writing:
6.01 Financial Statements. The Company shall deliver to the Agent
in form and detail satisfactory to the Agent and the Majority Lenders, with
sufficient copies for each Lender:
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(a) As soon as available, but not later than 120 days after
the end of each fiscal year, a copy of the Form 10-K of Harrah's as
filed with the SEC for such fiscal year, which shall include, or be
accompanied by, the opinion of Arthur Andersen or another nationally
recognized independent public accounting firm which report shall
state that such consolidated and consolidating financial statements
present fairly the financial position of Harrah's for the periods
indicated in conformity with GAAP applied on a basis consistent with
prior years. Such opinion shall not be qualified or limited for any
reason, including without limitation because of a restricted or
limited examination by such accountant of any material portion of
Harrah's, the Parent's, the Company's or any Subsidiary's records
and shall be delivered to the Agent pursuant to a reliance agreement
between the Agent and Lenders and such accounting firm in form and
substance satisfactory to the Agent;
(b) As soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year a
copy of the Form 10-Q of Harrah's as filed with the SEC for such
fiscal quarter accompanied by a certificate of a Responsible Officer
certifying the financial statements appearing therein as being
complete and correct and fairly presenting, in accordance with GAAP,
the financial position and the results of operations of the Parent,
the Borrowers and their respective Subsidiaries;
(c) As soon as available, but not later than 30 days after the
end of each calendar month of each year, a copy of the unaudited
combined balance sheet of the Borrowers and their respective
Subsidiaries as of the end of such month and the related combined
statement of income and for the period commencing on the first day
and ending on the last day of such month, and for the year to date
and, in each case
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showing comparisons with the prior year and certified by an
appropriate Responsible Officer as being complete and correct and
fairly presenting, in accordance with GAAP, the financial position
and the results of operations of the Borrowers and their respective
Subsidiaries; and
(d) As soon as available, and in any event within 60 days
after the commencement of each fiscal year of the Parent and of the
Company, a budget and projection by fiscal quarter for that fiscal
year and for the next two succeeding fiscal years, including for the
first such fiscal year, projected consolidated and consolidating (in
accordance with past consolidating practices of the Parent and the
Company) balance sheets and statements of operations and a summary
of cash flow and, for the second and third such fiscal years
projected consolidated condensed balance sheets and statements of
operations and summaries of cash flow of the Parent, the Company and
their Subsidiaries, all in reasonable detail.
6.02 Certificates; Other Information. The Company shall furnish to
the Agent, with sufficient copies for each Lender:
(a) Concurrently with the delivery of the financial statements
referred to in Section 6.01(a) above, a certificate of the
independent certified public accountants reporting on such financial
statements which accountants' report and opinion shall be
accompanied by a certificate stating that, in making the examination
pursuant to generally accepted auditing standards necessary for the
certification of such financial statements an such report, such
accountants have obtained no knowledge of any Default or Event of
Default or, if, in the opinion of such accountant and such Default
or Event of Default shall exist, stating the nature and status of
such Default or Event of Default;
(b) Concurrently with the delivery of the financial statements
referred to in Sections 6.01(a)
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and (b) above, a Compliance Certificate signed by a Responsible
Officer (i) stating that, to the best of such officer's knowledge,
the Loan Parties, during such period, have observed and performed in
all material respects all of their covenants and other agreements,
and satisfied every condition contained in this Agreement to be
observed, performed or satisfied by them, and that such officer has
obtained no knowledge of any Default or Event of Default except as
specified (by applicable Section reference) in such certificate, and
(ii) showing in detail the calculations supporting such statement in
respect of Sections 7.13, 7.14, 7.15 and 7.16;
(c) Promptly after the same are sent, copies of all financial
statements and reports which the Parent or the Company sends to its
shareholders; and promptly after the same are filed, copies of all
financial statements and regular, periodical or special reports
which the Parent or the Company may make to, or file with, the
Securities and Exchange Commission or any successor or similar
Governmental Authority;
(d) Promptly after the same are available, copies of all
copies of all reports and any correspondence relating thereto
prepared pursuant to Nevada Gaming Commission Regulation 6.090(9)
and 6A.110(2) and copies of any written communications to the Loan
Parties or any of their respective Subsidiaries from any Gaming
Authority relating any order to show cause, any disciplinary action
or to a License Revocation with respect to the Parent, any Borrower
or any of its Subsidiaries;
(e) promptly, such additional business, financial, corporate
affairs and other information as the Agent, at the request of any
Lender, may from time to time reasonably request; and
(f) Concurrently with the delivery of the financial statements
referred to in Sections 6.01(a) and (b), a written report, in form
and detail
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reasonably acceptable to the Agent describing the revenues of the
Rio Secco Golf Course.
6.03 Notices. The Company shall promptly notify the Agent and each
Lender:
(a) of the occurrence of any Default or Event of Default, and
of the occurrence or existence of any event or circumstance that
foreseeably will become a Default or Event of Default;
(b) of any communication, whether written or oral, that the
Loan Parties may receive from any governmental, judicial or legal
authority, giving notice of any claim or assertion that the Real
Property fails in any material respect to comply with any
Requirement of Law;
(c) of any material adverse change in the physical condition
of the Real Property (including any damage suffered as a result of
earthquakes or floods) or any Loan Party's financial condition or
operations;
(d) of (i) any breach or nonperformance of, or any default
under, any Contractual Obligations of the Loan Parties or any of
their respective Subsidiaries which could result in a Material
Adverse Effect; and (ii) any dispute, litigation, investigation,
proceeding or suspension which may exist at any time between the
Loan Parties or any of their respective Subsidiaries and any
Governmental Authority;
(e) of the commencement of, or any material development in,
any litigation or proceedings affecting the Loan Parties or any of
their respective Subsidiaries (i) in which the amount of damages
claimed is $100,000 (or its equivalent in another currency or
currencies) or more, (ii) in which injunctive or similar relief is
sought and which, if adversely determined, would reasonably be
expected to have a Material Adverse Effect, or (iii) in which the
relief sought is an injunction or other stay of the performance of
this Agreement or any Loan Document;
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(f) upon, but in no event later than 10 days after, becoming
aware of (i) any and all enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or
threatened against the Loan Parties or any of their respective
Subsidiaries or any of their respective Properties pursuant to any
applicable Environmental Laws, (ii) all other Environmental Claims,
and (iii) any environmental or similar condition on any real
property adjoining or in the vicinity of the properties of the Loan
Parties or any of their respective Subsidiaries that could
reasonably be anticipated to cause such properties or any parts
thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use of such properties under any
Environmental Laws;
(g) of any other litigation or proceedings affecting the Loan
Parties or any of their respective Subsidiaries which any Loan Party
would be required to report to the SEC pursuant to the Exchange Act,
within four days after reporting the same to the SEC;
(h) of any of the following ERISA events affecting any Loan
Party or any member of its Controlled Group (but in no event more
than 10 days after such event), together with a copy of any notice
with respect to such event that may be required to be filed with a
Governmental Authority and any notice delivered by a Governmental
Authority to any Loan Party or any member or its Controlled Group
with respect to such event:
(i) an ERISA Event;
(ii) the adoption of any new Plan that is subject to
Title IV of ERISA or section 412 of the Code by any member of
the Controlled Group;
(iii) the adoption of any amendment to a Plan that is
subject to Title IV of ERISA or
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section 412 of the Code, if such amendment results in a
material increase in benefits or unfunded liabilities; or
(iv) the commencement of contributions by any member of
the Controlled Group to any Plan that is subject to Title IV
of ERISA or section 412 of the Code;
(i) any Material Adverse Effect subsequent to the date of the
most recent audited financial statements of any Loan Party delivered
to the Lenders pursuant to Sections 6.01(a) or 4.01(g);
(j) of any change in accounting policies or financial
reporting practices by the Loan Parties or any of their respective
Subsidiaries; and
(k) of any labor controversy resulting in or threatening to
result in any strike, work stoppage, boycott, shutdown or other
labor disruption against or involving the Loan Parties or any of
their respective Subsidiaries.
Each notice pursuant to this Section shall be accompanied by a
written statement by a Responsible Officer setting forth details of the
occurrence referred to therein, and stating what action any Loan Party proposes
to take with respect thereto and at what time. Each notice under Section 6.03(a)
shall describe with particularity any and all clauses or provisions of this
Agreement or other Loan Document that have been breached or violated.
6.04 Preservation of Corporate Existence, Etc. Each Loan Party
shall, and shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state or
jurisdiction of incorporation;
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(b) preserve and maintain in full force and effect all
rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its
business;
(c) use its reasonable efforts, in the Ordinary Course of
Business, to preserve its business organization and preserve the
goodwill and business of the customers, suppliers and others having
material business relations with it; and
(d) preserve or renew all of its registered trademarks, trade
names and service marks, the nonpreservation of which could
reasonably be expected to have a Material Adverse Effect.
6.05 Maintenance of Property. Each Loan Party shall maintain, and
shall cause each of its Subsidiaries to maintain, and preserve all their
Properties which are used or useful in their businesses in good working order
and condition, ordinary wear and tear excepted and make all necessary repairs
thereto and renewals and replacements thereof except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect, except as
permitted by Section 7.02.
6.06 Insurance. In addition to insurance requirements set forth in
the Collateral Documents, the Loan Parties shall maintain, and shall cause each
of their respective Subsidiaries to maintain, with financially sound and
reputable independent insurers, insurance with respect to its Properties and
business against loss or damage of the kinds customarily insured against by
Persons engaged in the same or similar business, of such types and in such
amounts as are customarily carried under similar circumstances by such other
Persons; including workers' compensation insurance, flood insurance, earthquake
insurance public liability and property and casualty insurance the amounts of
which shall not be reduced by the Loan Parties in the absence of 30 days' prior
notice to the Agent. All such insurance shall name the Agent as loss
payee/mortgagee and as additional insured, for the benefit of the Lenders, as
their interests may appear. Upon request of the Agent or any Lender, the Loan
Parties shall furnish the Agent, with sufficient copies for each Lender, at
reasonable intervals (but not more than once per calendar year)
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a certificate of a Responsible Officer (and, if requested by the Agent, any
insurance broker of the Loan Parties) setting forth the nature and extent of all
insurance maintained by the Loan Parties and their respective Subsidiaries in
accordance with this Section 6.06 or any Collateral Documents (and which, in the
case of a certificate of a broker, were placed through such broker).
6.07 Payment of Obligations. Each Loan Party shall, and shall cause
its Subsidiaries to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP are being maintained by
each Loan Party or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a
Lien upon its Property; and
(c) all Indebtedness, as and when due and payable, but subject
to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.
6.08 Compliance with Laws. Each Loan Party shall comply, and shall
cause each of its Subsidiaries to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act), except such as
may be contested in good faith or as to which a bona fide dispute may exist.
6.09 Inspection of Property and Books and RecordsInspection of
Property and Books and Records. Each Loan Party shall maintain and shall cause
each of its Subsidiaries to maintain proper books of record and account, in
which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and businesses of
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each Loan Party and such Subsidiaries. Subject to compliance with applicable
Gaming Laws, including restrictions on access to security and surveillance
systems and the casino cage, each Loan Party shall permit, and shall cause each
of its Subsidiaries to permit, representatives and independent contractors of
the Agent or any Lender to visit and inspect any of their respective Properties,
to examine their respective corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, all at such reasonable times during normal business hours
and as often as may be reasonably desired, upon reasonable advance notice to
each Loan Party; provided, however, when an Event of Default exists the Agent or
any Lender may do any of the foregoing at the reasonable expense of each Loan
Party at any time during normal business hours and without advance notice.
6.10 Environmental Laws
(a) Each Loan Party shall, and shall cause each of its
Subsidiaries to, conduct their operations and keep and maintain
their Properties in compliance with all Environmental Laws.
(b) Upon the written request of the Agent or any Lender, each
Loan Party shall submit and cause each of its Subsidiaries to
submit, to the Agent with sufficient copies for each Lender, at each
Loan Party's sole cost and expense, at reasonable intervals, a
report providing an update of the status of any environmental,
health or safety compliance, hazard or liability issue identified in
any notice or report required pursuant to Section 6.03(f), that
could, individually or in the aggregate, result in liability in
excess of $1,000,000.
6.11 Use of Proceeds. The Borrowers shall use the proceeds of the
Loans solely to provide financing for the repurchase and retirement of the
Parent Senior Subordinated Notes as a result of the Harrah's Acquisition and
related transactional expenses.
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6.12 Solvency. Each Loan Party shall at all times be, and shall
cause each of their respective Subsidiaries to be, Solvent.
6.13 New Subsidiaries. Borrowers shall designate each Subsidiary of
Parent formed or acquired after the Closing Date as a Restricted Subsidiary or
an Unrestricted Subsidiary by a writing delivered to the Agent within 30 days
following such formation or acquisition. Borrowers shall cause each such Person
designated as a Restricted Subsidiary to promptly and in any event within 30
days execute and deliver to the Agent a Guaranty and Collateral Documents in
form and substance satisfactory to the Agent pledging substantially all of the
real and personal property of such Restricted Subsidiary, and the corporate
parent of such Restricted Subsidiary shall pledge all of the capital stock of
such Restricted Subsidiary; provided, however, that Cinderlane shall not be
required to pledge any real property other than that described on Schedule 5.28.
No Unrestricted Subsidiaries shall be required to be Guarantors or to pledge any
of their assets, or to have any of their capital stock or other ownership
interests pledged. In connection with any new Subsidiary, the Borrowers shall
deliver a certificate signed by a Responsible Officer certifying that Section
5.12 is true and correct after giving effect to the formation or acquisition of
new Subsidiary, and shall cause such Subsidiary to also deliver documents of the
type referred to in Sections 4.01(d) and (e) and to otherwise comply with
Sections 4.01(h) through (k) and 6.22 with respect thereto.
6.14 Additional Collateral. The Company shall execute and deliver to
the Agent Mortgages as appropriate containing restrictions and granting Liens in
a manner similar to the Deed of Trust and in any event reasonably acceptable to
the Majority Lenders, with respect to each fee, fixture and leasehold interest
in real property acquired by any Borrower or any of their respective
Subsidiaries, except as provided in the proviso to Section 6.13.
6.15 Requirements of Law. The Company shall construct any and all
improvements to the Real Property in a good and workmanlike manner in accordance
with sound building practices. The Company shall comply with all existing and
future laws, regulations, orders, building codes, restrictions
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and requirements of, and all agreements with and commitments to, all
governmental, judicial or legal authorities having jurisdiction over the Real
Property, including those pertaining to the construction, sale, leasing or
financing of such improvements, and with all recorded covenants and restrictions
affecting the Real Property.
6.16 Permits, Licenses and Approvals. Each Loan Party shall properly
obtain, comply with and keep in effect all permits, licenses and approvals which
are required to be obtained from Governmental Authorities in order to construct,
occupy and operate the Real Property. Each Loan Party shall promptly deliver
copies of all such permits, licenses and approvals to the Agent.
6.17 Purchase of Materials; Conditional Sales Contracts. Except as
permitted under Section 7.01(i) or 7.05(e) the Loan Parties shall not purchase
or contract for any materials, equipment, furnishings, fixtures or articles of
personal property to be placed or installed on the Real Property or in any
Improvements in connection with the Rio Expansion Project under any security
agreement or other agreement where the seller reserves or purports to reserve
title or the right of removal or repossession, or the right to consider them
personal property after their incorporation in the work of construction, unless
the Agent in each instance has authorized the Loan Parties to do so in writing.
6.18 Site Visits; Right to Stop Work
(a) The Agent, or any Lender and its agents and
representatives shall have the right at any reasonable time to enter
and visit the Real Property for the purposes of performing an
appraisal, observing the work of construction and examining all
materials, plans, specifications, working drawings and other matters
relating to the construction of the Rio Expansion Project. For
purposes of these site visits, the Loan Parties shall at all times
maintain a full set of working drawings at the construction site.
The Agent shall also have the right to examine, copy and audit the
books, records, accounting data and other documents of the Loan
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Parties and their contractors which relate to the Rio Expansion
Project. In each instance, the Agent or Lender, as the case may be,
shall give the Loan Parties reasonable notice before entering the
Property. The Agent or Lender, as the case may be, shall make
reasonable efforts to avoid interfering with the Loan Parties' use
of the Property when exercising any of the rights granted in this
Section.
(b) If Majority Lenders in their reasonable judgment determine
that any work or materials associated with the Rio Expansion Project
fail to conform to sound building practices, or that they otherwise
depart from any of the requirements of this Agreement, Majority
Lenders may require the work to be stopped and withhold
disbursements until the matter is corrected. If this occurs, the
Loan Parties shall promptly correct the work to the Agent's
satisfaction, and pending completion of such corrective work shall
not allow any other work to proceed.
(c) Neither the Agent nor any Lender is under any duty to
visit the construction site for the Rio Expansion Project, or to
supervise or observe construction or to examine any books or
records. Any site visit, observation or examination shall be solely
for the purpose of protecting the Agent's and the Lenders' rights
and interests. No site visit, observation or examination by the
Agent shall impose any liability on the Agent or the Lenders or
result in a waiver of any default of the Loan Parties. In no event
shall any site visit, observation or examination be a representation
that there has been or shall be compliance with any construction
plans delivered to the Agent or the Lenders, that the construction
is free from defective materials or workmanship, or that the
construction complies with the Requirements of Law or any other
applicable law of a Governmental Authority. Neither the Loan Parties
nor any other party is entitled to rely on any site visit,
observation or examination by the Agent or any Lender. Neither the
Agent nor any
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Lender owes any duty of care to protect the Loan Parties or any
other party against, or to inform the Loan Parties or any other
party of, any negligent or defective design or construction of the
Improvements, or any other adverse condition affecting the Real
Property.
6.19 Protection Against Lien Claims. Each Loan Party shall promptly
pay or otherwise discharge all claims and liens for labor done and materials and
services furnished in connection with the Rio Expansion Project. Each Loan Party
shall have the right to contest in good faith any claim or lien, provided that
they do so diligently and without prejudice to the Agent or delay in completing
the Rio Expansion Project. Upon the Agent's request, each Loan Party shall
promptly provide a bond, cash deposit or other security which the Agent in the
exercise of its reasonable judgment determines to be satisfactory.
6.20 Signs and Publicity. At the Agent's request, The Loan
Parties shall post signs on the Real Property for the purpose of identifying
the Lenders as the construction lenders for the Rio Expansion Project, and
shall use its best efforts to identify the Lenders in publicity concerning
the Rio Expansion Project. In addition, the Agent shall have the right to
refer to the Rio Expansion Project in its own promotional and advertising
materials. The Loan Parties shall not post signs, or otherwise identify any
of the Lenders as the construction lender, except with the Agent's prior
written consent in each instance.
6.21 Leases of Company Premises. Each Loan Party shall notify the
Agent promptly of any lease of all or any portion of the Real Property to any
Person. Except for the leases set forth on Schedule 6.26 all leases to any
Person of any portion of the Real Property (and any renewal or extension of the
leases set forth on Schedule 6.26) shall include provisions requiring the tenant
to provide the Agent with estoppel certificates in form and substance
satisfactory to Majority Lenders within 10 days of the Agent's request. Each
Loan Party shall diligently work to obtain such estoppel certificates within
such 10 day period. The Agent is hereby authorized to execute, on behalf of the
Lenders, non-
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disturbance agreements in favor of the tenants under each lease described on
Schedule 6.26 and in favor of each tenant under any lease hereafter entered into
by a Loan Party with a tenant for retail sales, consumer services or restaurant
space, in each case in a form reasonably acceptable to the Agent.
6.22 Further Assurances.
(a) Each Loan Party shall ensure that all written information,
exhibits and reports furnished to the Agent or the Lenders do not
and will not contain any untrue statement of a material fact and do
not and will not omit to state any material fact or any fact
necessary to make the statements contained therein not misleading in
light of the circumstances in which made, and will promptly disclose
to the Agent and the Lenders and correct any defect or error that
may be discovered therein or in any Loan Document or in the
execution, acknowledgment or recordation thereof.
(b) Promptly upon request by the Agent or the Majority
Lenders, each Loan Party shall (and shall cause any of its
Subsidiaries to) do, execute, acknowledge, deliver, record,
rerecord, file, refile, register and re-register, any and all such
further acts, deeds, conveyances, security agreements, Mortgages,
assignments, estoppel certificates, financing statements and
continuations thereof, termination statements, notices of
assignment, transfers, certificates, assurances and other
instruments the Agent or such Lenders, as the case may be, may
reasonably require from time to time in order (i) to carry out more
effectively the purposes of this Agreement or any other Loan
Document, (ii) to subject to the Liens created by any of the
Collateral Documents any of the Properties, rights or interests
covered by any of the Collateral Documents, (iii) to perfect and
maintain the validity, effectiveness and priority of any of the
Collateral Documents and the Liens intended to be created thereby,
and (iv) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm to the Agent and
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Lenders the rights granted or now or hereafter intended to be
granted to the Lenders under any Loan Document or under any other
document executed in connection therewith.
6.23 Pledge of Borrowers Stock. Not later than 90 days following the
Closing Date, (a) the Borrowers shall cause the Parent obtain the approval of
the Nevada Gaming Commission to the pledge by the Parent to the Agent, pursuant
to the terms of the Parent Security Agreement, of 100% of the capital stock of
Borrowers, and (b) the Company shall obtain the approval of the Nevada Gaming
Commission to the pledge by the Company to the Agent, pursuant to the terms of
the Borrower Security Agreement, of 100% of the capital stock of HLG.
ARTICLE 7
NEGATIVE COVENANTS
The Borrowers hereby jointly and severally covenant and agree that,
so long as any Lender shall have any Commitment hereunder, or any Loan or other
Obligation shall remain unpaid or unsatisfied, unless the Majority Lenders waive
compliance in writing:
7.01 Limitation on Liens. The Loan Parties shall not, and shall not
suffer or permit any of their respective Subsidiaries to, directly or
indirectly, make, create, incur, assume or suffer to exist any Negative Pledges,
Rights of Others or Liens upon or with respect to any parts of their Property,
whether now owned or hereafter acquired, or grant any Negative Pledge to any
other creditor, other than the following ("Permitted Liens"):
(a) any Lien (other than Liens on the Collateral) existing on
the Property of the Loan Parties or their respective Subsidiaries on
the Closing Date and set forth in Schedule 7.01 securing
Indebtedness outstanding on such date;
(b) any Negative Pledge or Lien created under any Loan
Document;
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(c) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty,
or to the extent that nonpayment thereof is permitted by Section
6.07, provided that no Notice of Lien has been filed or recorded
under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the
Ordinary Course of Business which are not delinquent or remain
payable without penalty;
(e) Liens (other than any Lien imposed by ERISA and other than
on the Collateral) consisting of pledges or deposits required in the
Ordinary Course of Business in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(f) Liens (other than Liens on the Collateral) on the Property
of the Loan Parties or any of their respective Subsidiaries securing
(i) the non-delinquent performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, (ii)
contingent obligations on surety and appeal bonds, and (iii) other
non-delinquent obligations of a like nature; in each case, incurred
in the Ordinary Course of Business, provided all such Liens in the
aggregate would not (even if enforced) cause a Material Adverse
Effect;
(g) Liens (other than Liens on the Collateral) consisting of
judgment or judicial attachment liens, provided that the enforcement
of such Liens is effectively stayed and all such liens in the
aggregate at any time outstanding for the Loan Parties and their
respective Subsidiaries do not exceed $1,000,000;
(h) easements, rights of way, restrictions and other similar
encumbrances incurred in the Ordinary Course of Business which, in
the aggregate, are not substantial in amount, and which do not in
any case
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materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the businesses of the Loan
Parties and their respective Subsidiaries;
(i) Purchase money security interests on equipment and slot
machines only, which are acquired or held by the Loan Parties or
their respective Subsidiaries in the Ordinary Course of Business,
securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such equipment or
slot machines; provided that (i) any such Lien attaches to such
equipment or slot machines concurrently with or within 20 days after
the acquisition thereof, (ii) such Lien attaches solely to the
equipment or slot machines so acquired in such transaction, (iii)
the principal amount of the debt secured thereby does not exceed
100% of the cost of such equipment or slot machines, (iv) the
outstanding principal amount of the Indebtedness incurred following
the Existing Credit Agreement Closing Date which is secured by such
purchase money security interests shall not at any time exceed, when
aggregated with Indebtedness permitted under Section 7.05(e),
$30,000,000, and (v) the terms and conditions of any such purchase
money loan and the related security interest are acceptable to
Majority Lenders;
(j) Liens securing Capital Lease Obligations on assets subject
to such Capital Leases, provided that such Capital Leases are
permitted under Section 7.11(c);
(k) Liens on cash in an amount not to exceed $1,000,000
securing obligations of the Loan Parties as account party under
workers' compensation letters of credit permitted under Section
7.08(d);
(l) Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or
similar rights and remedies as to deposit accounts or other funds
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maintained with a creditor depository institution; provided that (i)
such deposit account is not a dedicated cash collateral account and
is not subject to restrictions against access by the Loan Parties in
excess of those set forth by regulations promulgated by the Federal
Reserve Board, and (ii) such deposit account is not intended by the
Loan Parties or any of their respective Subsidiaries to provide
collateral to the depository institution; and
(m) pari passu Liens in favor of the agent and the lenders
under the Existing Credit Agreement in Property of the Parent,
Borrowers and their Restricted Subsidiaries which is not more
extensive than the Liens in favor of the Agent and the Lenders under
this Agreement, and which are subject to the Intercreditor
Agreement.
7.02 Disposition of Assets. The Loan Parties shall not, and shall
not suffer or permit any of their respective Subsidiaries to, directly or
indirectly, sell, assign, lease, convey, transfer or otherwise dispose of
(whether in one or a series of transactions) any Property (including accounts
and notes receivable, with or without recourse) or enter into any agreement to
do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the Ordinary Course of Business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably
promptly applied to the purchase price of such replacement
equipment; and
(c) transfers of assets by any Subsidiary or any Borrower to
any Borrower, or transfers of assets by any Subsidiary or any
Borrower to any Restricted Subsidiaries with respect to which
Sections 6.13 and 6.14 have been complied with.
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7.03 Consolidations and Mergers. The Loan Parties shall not, and
shall not suffer or permit any of their respective Subsidiaries to, merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions all or substantially
all of its assets (whether now owned or hereafter acquired) to or in favor of
any Person, except:
(a) any Subsidiary of the Loan Parties may merge with the Loan
Parties, provided that the Loan Parties shall be the continuing or
surviving corporation, or with any one or more Subsidiaries of the
Loan Parties, provided that if any transaction shall be between a
Subsidiary and a wholly owned Subsidiary, the wholly owned
Subsidiary shall be the continuing or surviving corporation; and
(b) any Subsidiary of the Loan Parties may sell all or
substantially all of its assets (upon voluntary liquidation or
otherwise), to the Loan Parties or another wholly owned Subsidiary
of the Loan Parties.
7.04 Loans and Investments. The Loan Parties shall not purchase or
acquire, or suffer or permit any of their respective Subsidiaries to purchase or
acquire, or make any commitment therefor, any capital stock, equity interest,
all or substantially all of the assets of, or any obligations or other
securities of, or any interest in, any Person, or make any advance, loan,
extension of credit or capital contribution to or any other investment in, any
Person including any Affiliate of the Loan Parties (collectively,
"investments"), except for:
(a) investments in Cash Equivalents;
(b) extensions of credit in the nature of accounts receivable
or notes receivable arising from the sale or lease of goods or
services in the Ordinary Course of Business and all extensions of
credit to gaming customers to the extent, and of amounts,
customarily made available by the Loan Parties in the Ordinary
Course of its Business;
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(c) Investments in Borrowers and Restricted Subsidiaries with
respect to which Sections 6.13 and 6.14 have been complied with;
(d) Existing Investments through Rio Development in the Rio
Secco Golf Course;
(e) Investments made following the Existing Credit Agreement
Closing Date in Rio Development in an aggregate amount not to exceed
$35,000,000 for the purpose of further development of the Rio Secco
Golf Course made when no Default or Event of Default exists or would
result therefrom; and
(f) Investments following the Existing Credit Agreement
Closing Date in Cinderlane or New Project Entities for the purpose
of constructing improvements to the Cinderlane Property, provided
that the aggregate amount of such Investments shall not exceed
$60,000,000 unless (i) Cinderlane, the relevant New Project Entity
or a Borrower, or another Restricted Subsidiary which is the owner
of such real property has granted a guaranty to the Agent pursuant
to Section 6.13 and has executed and delivered a deed of trust with
respect to the Cinderlane Property to the Agent for the benefit of
the Lenders, which deed of trust shall be substantially in the form
of the Deed of Trust, (ii) the Borrowers shall have provided the
Agent with endorsements to its policy of title insurance assuring
the deed of trust to be of first priority, subject only to such
exceptions to title as may be acceptable to the Agent and as are
disclosed in writing to the Lenders, and (iii) Borrowers or the
Restricted Subsidiary owning the Cinderlane Real Property has
provided to the Agent such other assurances, opinions, instruments,
documents and agreements as the Agent may reasonably request.
7.05 Limitation on Indebtedness. The Loan Parties shall not, and
shall not suffer or permit any of their respective Subsidiaries to, create,
incur, assume, suffer to exist, or otherwise become or remain directly or
indirectly liable with respect to, any Indebtedness, except:
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(a) Indebtedness incurred pursuant to this Agreement and
Indebtedness incurred pursuant to the Existing Credit Agreement;
(b) accounts payable to trade creditors for goods and services
and current operating liabilities (not the result of the borrowing
of money) incurred in the Ordinary Course of Business of the Loan
Parties or such Subsidiary in accordance with customary terms and
paid within the specified time, unless contested in good faith by
appropriate proceedings and reserved for in accordance with GAAP;
(c) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 7.08;
(d) Indebtedness existing on the Existing Credit Agreement
Closing Date and set forth in Schedule 7.05;
(e) Indebtedness secured by Liens permitted by Section 7.01(i)
incurred following the Existing Credit Agreement Closing Date in an
aggregate principal amount which does not exceed $30,000,000 at any
time;
(f) Indebtedness incurred in connection with leases permitted
pursuant to Section 7.11;
(g) Indebtedness incurred when no Default or Event of Default
exists having subordination and other terms substantially the same
as the Parent's outstanding 9-1/2% Senior Subordinated Notes Due
2007 (other than pricing, but in any event reasonably satisfactory
to the Agent and its counsel), providing in any event for no
payments of principal prior to the maturity of such Senior
Subordinated Notes; and
(h) unsecured revolving Indebtedness of the Parent (but not of
the Borrowers or their Subsidiaries) to Harrah's in an aggregate
principal amount not to exceed $100,000,000 at any time.
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7.06 Transactions with Affiliates. The Loan Parties shall not, and
shall not suffer or permit any of their respective Subsidiaries to, enter into
any transaction with any Affiliate of the Loan Parties or of any such
Subsidiary, except (a) as expressly permitted by this Agreement, or (b) in the
Ordinary Course of Business and pursuant to the reasonable requirements of the
businesses of the Loan Parties or such Subsidiary; in each case (a) and (b),
upon fair and reasonable terms no less favorable to the Loan Parties or such
Subsidiary than would be obtained in a comparable arm's length transaction with
a Person not an Affiliate of the Loan Parties or such Subsidiary.
7.07 Use of Proceeds. The Loan Parties shall not use any portion of
the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin
Stock, (ii) to repay or otherwise refinance indebtedness of the Loan Parties or
others incurred to purchase or carry Margin Stock, (iii) to extend credit for
the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the Exchange
Act.
7.08 Contingent Obligations. The Loan Parties shall not, and shall
not suffer or permit any of their respective Subsidiaries to, create, incur,
assume or suffer to exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the Ordinary
Course of Business;
(b) Rate Contracts entered into with respect to the
obligations and indebtedness evidenced by this Agreement;
(c) Contingent Obligations of the Loan Parties and their
respective Subsidiaries existing as of the Existing Credit Agreement
Closing Date and listed in Schedule 7.08;
(d) Contingent Obligations of the Loan Parties for workers'
compensation letters of credit the aggregate face amount of which
shall at no time exceed $1,000,000;
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(e) Guaranty Obligations of the Parent Senior Subordinated
Notes not exceeding an aggregate principal potential liability of
$225,000,000 (until the repayment of Parent Senior Subordinated
Notes in connection herewith, at which time such amount shall be
permanently reduced in the principal amount so repaid), together
with interest thereon and of any additional senior subordinated
notes of Parent issued following the Closing Date pursuant to
Section 7.05(g); provided, that any Guaranty Obligations with
respect to Parent Senior Subordinated Notes issued following the
Closing Date shall be subordinated to the Obligations on terms and
conditions which are similar to those in existence as of the Closing
Date with respect to the then outstanding Parent Senior Subordinated
Notes and in any event reasonably satisfactory to the Agent and its
counsel; and
(f) Guaranty Obligations of the Company and/or Rio Resorts
with respect to Indebtedness of Rio Development and/or Rio Resorts
permitted by Section 7.05(e).
(g) Contingent Obligations consisting of guaranties of the
Indebtedness incurred pursuant to the Existing Credit Agreement
issued by Parent and the Restricted Subsidiaries which have
guaranteed the obligations under this Agreement and which are pari
passu with those granted to the Agent and the Lenders.
7.09 Joint Ventures. The Loan Parties shall not, and shall not
suffer or permit any of their respective Subsidiaries to, enter into any Joint
Venture, other than in the Ordinary Course of Business.
7.10 Compliance with. The Loan Parties shall not, and shall not
suffer or permit any of their respective Subsidiaries to, (i) terminate any Plan
subject to Title IV of ERISA so as to result in any material (in the opinion of
the
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Majority Lenders) liability to the Loan Parties or any ERISA Affiliate, (ii)
permit to exist any ERISA Event or any other event or condition, which presents
the risk of a material (in the opinion of the Majority Lenders) liability to any
member of the Controlled Group, (iii) make a complete or partial withdrawal
(within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to
result in any material (in the opinion of the Majority Lenders) liability to
Loan Parties or any ERISA Affiliate, (iv) enter into any new Plan or modify any
existing Plan so as to increase its obligations thereunder which could result in
any material (in the opinion of the Majority Lenders) liability to any member of
the Controlled Group, or (v) permit the present value of all nonforfeitable
accrued benefits under any Plan (using the actuarial assumptions utilized by the
PBGC upon termination of a Plan) materially (in the opinion of the Majority
Lenders) to exceed the fair market value of Plan assets allocable to such
benefits, all determined as of the most recent valuation date for each such
Plan.
7.11 Lease Obligations. The Loan Parties shall not, and shall not
suffer or permit any of their respective Subsidiaries to, create or suffer to
exist any obligations for the payment of rent for any Property under lease or
agreement to lease, except for:
(a) leases of the Loan Parties and their respective
Subsidiaries in existence on the Existing Credit Agreement Closing
Date and any renewal, extension or refinancing thereof;
(b) Operating Leases entered into by the Loan Parties or any
of their respective Subsidiaries after the Existing Credit Agreement
Closing Date in the Ordinary Course of Business;
(c) Capital Leases, other than those permitted under clause
(a) of this Section 7.11, entered into by the Loan Parties or any of
their respective Subsidiaries after the Existing Credit Agreement
Closing Date to finance the acquisition of equipment; provided that
the aggregate annual rental payments for all such Capital Leases
shall not exceed, when
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aggregated with all other Capital Expenditures during such year, the
limits on Capital Expenditures set forth in Section 7.13.
7.12 Restricted Payments. The Loan Parties shall not, and shall not
suffer or permit any of their respective Subsidiaries to, declare or make any
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its capital
stock, or purchase, redeem or otherwise acquire for value any shares of its
capital stock or any warrants, rights or options to acquire such shares, now or
hereafter outstanding, except for:
(a) Dividends, payments or other distributions paid to the
Loan Parties by their wholly-owned Subsidiaries;
(b) Dividends to the Parent made when no Default or Event of
Default exists or would result therefrom; and
(c) Payments of principal and interest with respect to the
Indebtedness described in Section 7.05(h) made when no Default or
Event of Default exists.
7.13 Capital Expenditures. The Loan Parties and their respective
Subsidiaries and Unrestricted Subsidiaries shall not make, or become legally
obligated to make, any Capital Expenditures except:
(a) Capital Expenditures associated with the Rio Expansion
Project in an aggregate amount not to exceed $258,000,000; and
(b) Other Capital Expenditures (including Maintenance Capital
Expenditures) which do not exceed $142,000,000.
7.14 Interest Coverage Ratio. The Borrowers shall not permit the
Interest Coverage Ratio, as of the last day of any fiscal quarter, to be less
than the ratio set forth opposite that fiscal quarter below:
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<TABLE>
<CAPTION>
Fiscal Quarters Ending Ratio
--------------------------- -------
<S> <C>
December 31, 1998 through and
including December 31, 1999 1.75:1.00
Thereafter 2.00:1.00
</TABLE>
7.15 Maximum Total Leverage Ratio. The Borrowers shall not permit
the Total Leverage Ratio, as of the last day of any fiscal quarter, to be
greater than the ratio set forth opposite that fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarters Ending Ratio
--------------------------- ------
<S> <C>
September 30, 1998 5.00:1.00
December 31, 1998 5.25:1.00
March 31, 1999 5.75:1.00
June 30, 1999 5.75:1.00
September 30, 1999 4.75:1.00
December 31, 1999 4.50:1.00
Thereafter 4.00:1.00
</TABLE>
7.16 Maximum Senior Leverage. The Borrowers shall not permit the
Senior Leverage Ratio, (a) as of the last day of any fiscal quarter ending on or
prior to December 31, 1999, to be greater than 3.50:1.00 and (b) as of the last
day of any subsequent fiscal quarter, to be greater than 3.25:1.00.
7.17 Change in Business. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, engage in any material line of
business substantially different from those lines of businesses carried on by
them on the date hereof. The Loan Parties shall not, and shall not permit any of
their respective Subsidiaries to, engage in any activity which would jeopardize
any liquor, casino, gambling or gaming license held by the Loan Parties or which
would cause a License Revocation.
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7.18 Change in Structure. Except as expressly permitted under
Section 7.03 or Section 7.04, the Loan Parties shall not and shall not permit
any of their respective Subsidiaries to, make any changes in its equity capital
structure (including in the terms of its outstanding stock), or amend its
certificate of incorporation or bylaws in any material respect.
7.19 Accounting Changes. The Loan Parties shall not, and shall not
suffer or permit any of their respective Subsidiaries to, make any significant
changes in accounting treatment or reporting practices, except as required by
GAAP or by Gaming Authorities, or change the fiscal year of the Loan Parties or
of any of their consolidated Subsidiaries.
7.20 Other Contracts. The Loan Parties shall not enter into any
employment contracts or other employment or service-retention arrangements whose
terms, including salaries, benefits and other compensation, are not normal and
customary in the industry.
7.21 Management Agreement. The Loan Parties shall not enter into a
management agreement with any other Person with respect to the Real Property and
the Improvements unless the form of such agreement and such Person are approved
by the Agent.
7.22 Improvement District. The Loan Parties shall not vote in favor
of, or directly or indirectly advocate or assist in the incorporation of any
part of the Real Property or the Project into any improvement or community
facilities district, special assessment district or other district without the
Agent's prior written consent in each instance.
ARTICLE 8
EVENTS OF DEFAULT
8.01 Event of Default. Any of the following shall constitute an
"Event of Default":
(a) Non-Payment. Any Loan Party fails to pay, (i) when and as
required to be paid herein, any
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amount of principal of any Loan, or (ii) within 5 days after the
same shall become due, any interest, fee or any other amount payable
hereunder or pursuant to any other Loan Document;
(b) Representation or Warranty. Any representation or warranty
by any Loan Party or any of its Subsidiaries or the Parent made or
deemed made herein, in any Loan Document, or which is contained in
any certificate, document or financial or other statement by any
Loan Party, any of its Subsidiaries, or the Parent or their
respective Responsible Officers, furnished at any time under this
Agreement, or in or under any Loan Document, shall prove to have
been incorrect in any material respect on or as of the date made or
deemed made;
(c) Specific Defaults. Any Loan Party fails to perform or
observe any term, covenant or agreement contained in Sections 6.01,
6.02, 6.03, 6.09, 6.11, 6.15, 6.16 or 6.17 or Article 7;
(d) Other Defaults. Any Loan Party fails to perform or observe
any other term or covenant contained in this Agreement or any Loan
Document, and such default shall continue unremedied for a period of
15 days after the earlier of (i) the date upon which a Responsible
Officer knew or should have known of such failure or (ii) the date
upon which written notice thereof is given to any Loan Party by the
Agent or any Lender;
(e) Abandonment of Construction. If, following commencement
thereof, construction of the Rio Expansion Project is abandoned, or
construction of the Rio Expansion Project is not completed on or
before December 31, 1999;
(f) Government Stoppage. Any Governmental Authority having
jurisdiction over the Project orders or requires that construction
of the Rio Expansion Project, once commenced, be stopped in whole or
in part, or any required approval, license or permit is
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withdrawn or suspended, and the order, requirement, withdrawal or
suspension remains in effect either (i) for a period of thirty (30)
consecutive days ("Initial Cure Period"), or (ii) for a total period
of ninety (90) days, so long as any Loan Party begins within the
Initial Cure Period and diligently continues to take steps to remove
the effect of the order, requirement, withdrawal or suspension, and
the Agent, exercising reasonable judgment, determines that any Loan
Party is reasonably likely to prevail;
(g) Condemnation. All or a substantial or material portion of
the Real Property is condemned, seized or appropriated by any
Governmental Authority; provided, however, that the foregoing shall
not constitute an Event of Default if (i) all sums secured by the
Deed of Trust are paid in full within 30 days after the date of any
such condemnation, seizure or appropriation, and (ii) any Loan Party
has executed such documents as the Agent or the Lenders may require
evidencing the termination of the Lenders' obligation to make any
further Loans under this Agreement;
(h) Cross Default. Any Loan Party or any of its Subsidiaries
(i) fails to make any payment in respect of any Indebtedness or
Contingent Obligation when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such
failure continues after the applicable grace or notice period, if
any, specified in the document relating thereto on the date of such
failure; or (ii) fails to perform or observe any other condition or
covenant, or any other event shall occur or condition exist, under
any agreement or instrument relating to any such Indebtedness or
Contingent Obligation, and such failure continues after the
applicable grace or notice period, if any, specified in the document
relating thereto on the date of such failure if the effect of such
failure, event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such
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holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its
stated maturity, or such Contingent Obligation to become payable or
cash collateral in respect thereof to be demanded;
(i) Insolvency; Voluntary Proceedings. Any Loan Party or any
of its Subsidiaries (i) ceases or fails to be Solvent, or generally
fails to pay, or admits in writing its inability to pay, its debts
as they become due, subject to applicable grace periods, if any,
whether at stated maturity or otherwise; (ii) voluntarily ceases to
conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing;
(j) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against any Loan Party or any
Subsidiary of any Loan Party, or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied
against a substantial part of any Loan Party's or any of its
Subsidiaries' Properties, and any such proceeding or petition shall
not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully
bonded within 60 days after commencement, filing or levy; (ii) any
Loan Party or any of its Subsidiaries admits the material
allegations of a petition against it in any Insolvency Proceeding,
or an order for relief (or similar order under non-U.S. law) is
ordered in any Insolvency Proceeding; or (iii) any Loan Party or any
of its Subsidiaries acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a
substantial portion of its Property or business;
(k) ERISA. (i) A member of the Controlled Group shall fail to
pay when due, after the
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expiration of any applicable grace period, any installment payment
with respect to its withdrawal liability under a Multiemployer Plan;
(ii) any Loan Party or an ERISA Affiliate shall fail to satisfy its
contribution requirements under Section 412(c)(11) of the Code,
whether or not it has sought a waiver under Section 412(d) of the
Code; (iii) in the case of an ERISA Event involving the withdrawal
from a Plan of a "substantial employer" (as defined in Section
4001(a)(2) or Section 4062(e) of ERISA), the withdrawing employer's
proportionate share of that Plan's Unfunded Pension Liabilities is
more than $1,000,000; (iv) in the case of an ERISA Event involving
the complete or partial withdrawal from a Multiemployer Plan, the
withdrawing employer has incurred a withdrawal liability in an
aggregate amount exceeding $1,000,000; (v) in the case of an ERISA
Event not described in clause (iii) or (iv), the Unfunded Pension
Liabilities of the relevant Plan or Plans exceed $1,000,000; (vi) a
Plan that is intended to be qualified under Section 401(a) of the
Code shall lose its qualification, and the loss can reasonably be
expected to impose on members of the Controlled Group liability (for
additional taxes, to Plan participants, or otherwise) in the
aggregate amount of $1,000,000 or more; (vii) the commencement or
increase of contributions to, or the adoption of or the amendment of
a Plan by, a member of the Controlled Group shall result in a net
increase in unfunded liabilities to the Controlled Group in excess
of $1,000,000; (viii) any member of the Controlled Group engages in
or otherwise becomes liable for a non-exempt prohibited transaction
and the initial tax or additional tax under section 4975 of the Code
relating thereto might reasonably be expected to exceed $1,000,000;
(ix) a violation of section 404 or 405 of ERISA or the exclusive
benefit rule under section 401(a) of the Code if such violation
might reasonably be expected to expose a member or members of the
Controlled Group to monetary liability in excess of $1,000,000; (x)
any member of the Controlled Group is assessed a tax under section
4980B of the Code in excess of $1,000,000; or (xi)
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the occurrence of any combination of events listed in clauses (iii)
through (x) that involves a potential liability, net increase in
aggregate Unfunded Pension Liabilities, unfunded liabilities, or any
combination thereof, in excess of $1,000,000;
(l) Monetary Judgments. One or more final (non-interlocutory)
judgments, orders or decrees shall be entered against any Loan Party
or any of its Subsidiaries involving in the aggregate a liability
(not fully covered by independent third-party insurance) as to any
single or related series of transactions, incidents or conditions,
of $1,000,000 or more, and the same shall remain unsatisfied,
unvacated and unstayed pending appeal for a period of 30 days after
the entry thereof; or
(m) Non-Monetary Judgments. Any non-monetary judgment, order
or decree shall be rendered against any Loan Party or any of its
Subsidiaries which does or would reasonably be expected to have a
Material Adverse Effect, and there shall be any period of 10
consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be
in effect;
(n) Guaranties and Collateral.
(i) any provision of any Collateral Document, Guaranty
or any Parent Collateral Document shall for any reason cease
to be valid and binding on or enforceable against any Loan
Party or any Subsidiary of any Loan Party or any Guarantor
party thereto or any Loan Party or any Subsidiary of any Loan
Party or any Guarantor shall so state in writing or bring an
action to limit its obligations or liabilities thereunder; or
(ii) any Collateral Document or Parent Collateral
Documents shall for any reason (other than pursuant to the
terms thereof) cease to create a valid security interest in
the
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Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and
first priority security interest subject only to Permitted
Liens and such failure shall continue unremedied for a period
of 10 days after the earlier of (i) the date upon which a
Responsible Officer knew or should have known of such failure
or (ii) the date upon which written notice thereof is given to
any Loan Party by the Agent or any Lender; and provided that
such failure is remedied with no loss of priority and that the
Lenders or the Agent on behalf of the Lenders are returned to
the position they would have been in had no lapse of the
security interest, or the priority or perfection thereof ever
occurred;
(o) Ownership Parent and Company.
(i) The Parent any time: (A) ceases to maintain in the
aggregate a direct or indirect beneficial equity interest in
any Loan Party at least equal to 100% of the beneficial equity
interest directly or indirectly held by it on the Existing
Credit Agreement Closing Date; or (B) fails to own
beneficially, directly or indirectly, capital stock
representing voting control of any Loan Party; or
(ii) (A) Harrah's ceases to own or control beneficially,
directly or indirectly, at least 75% of the outstanding Voting
Stock of the Parent, or (B) or any Person or group of Persons
(as defined in the Securities Exchange Act of 1934 and
regulations thereunder) shall hold or control a greater amount
of the Voting Stock of the Parent than the amount owned
directly or controlled by Harrah's;
(p) Guaranty Obligations. If any claim, demand or request for
payment shall be made on any Loan Party or any Subsidiary under or
in respect of any Guaranty Obligations permitted by Section 7.08(e);
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(q) Loss of Licenses.
(i) There shall occur any License Revocation; or
(ii) any Governmental Authority (other than a Gaming
Authority shall revoke or fail to renew any material license,
permit or franchise of any Loan Party or any of its
Subsidiaries or any Loan Party or any of its Subsidiaries
shall for any reason lose any material license, permit or
franchise or any Loan Party or any of its Subsidiaries shall
suffer the imposition of any restraining order, escrow,
suspension or impound of funds in connection with any
proceeding (judicial or administrative) with respect to any
material license, permit or franchise;
(r) Adverse Change. There shall occur a Material Adverse
Effect;
(s) Rate Contracts. Any Loan Party shall breach or default
under any Rate Contract to which any Lender is a party, if the
effect of such breach or default is to allow the Lender to proceed
against, or otherwise realize from, any Loan Party or any Collateral
to satisfy any claim of the Lender against any Loan Party in respect
of such Rate Contract;
(t) Guarantor Defaults. The Parent shall fail in any material
respect to perform or observe any term, covenant or agreement in the
Parent Guaranty; or the Parent Guaranty shall for any reason be
partially (including with respect to future advances) or wholly
revoked or invalidated, or otherwise cease to be in full force and
effect, or the Parent or any other Person shall contest in any
manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder; or any event
described at paragraphs (i) or (j) shall occur with respect to any
Guarantor; or
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(u) Use of Dividends by Parent. Any dividends received by the
Parent from any other Loan Party as permitted by Section 7.12(c) are
not promptly (i) used to make required interest payments on the
Parent Senior Subordinated Notes as and when due, or to redeem the
Parent Senior Subordinated Notes, (ii) contributed to the Company,
or (iii) used for operating expenses of the Parent in the Ordinary
Course of Business.
8.02 Remedies. If any Event of Default occurs, the Agent shall, at
the request of, or may, with the consent of, the Majority Lenders,
(a) declare the Commitment of each Lender to make Loans to be
terminated, whereupon such Commitments shall forthwith be
terminated;
(b) declare all or any portion of the unpaid principal amount
of all outstanding Loans, all interest accrued and unpaid thereon,
and all other amounts owing or payable hereunder or under any other
Loan Document to be immediately due and payable; without
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by Borrowers; and
(c) exercise on behalf of itself and the Lenders all rights
and remedies available to it and the Lenders under the Loan
Documents or applicable law (subject to any necessary approvals from
Gaming Authorities);
provided, however, that upon the occurrence of any event specified
in paragraph (i) or (j) of Section 8.01 above (in the case of clause
(i) of paragraph (j) upon the expiration of the 60-day period
mentioned therein), the obligation of each Lender to make Loans
shall automatically terminate and the unpaid principal amount of all
outstanding Loans and all interest and other amounts as aforesaid
shall automatically become due and payable without further act of
the Agent or any Lender.
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Also, if any Event of Default occurs before Completion of the Rio
Expansion Project, the Agent shall have the right in its sole discretion to
enter and take possession of the Real Property, whether in person, by agent or
by court-appointed receiver, and to take any and all actions which the Agent in
its sole discretion may consider necessary to complete construction of the
Improvements, including making changes in the construction plans, work or
materials and entering into, modifying or terminating any contractual
arrangements, all subject to the Agent's right at any time to discontinue any
work without liability. If the Agent chooses to complete the Improvements,
neither it nor the Lenders shall assume any liability to the Company or any
other person for completing the Improvements, or for the manner or quality of
construction of the Improvements, and the Company expressly waives any such
liability. If the Company exercises any of the rights or remedies provided in
this clause, that exercise shall not make the Agent, or cause the Agent to be
deemed to be, a partner or joint venturer of the Company. The Agent in its sole
discretion may choose to complete construction in its own name. All sums which
are expended by the Agent and/or the Lenders in completing construction shall be
considered to have been disbursed to the Company and shall be secured by the
Collateral; any sums of principal shall be considered to be an additional loan
to the Company bearing interest at the Default Rate, as defined in the Note, and
shall be secured by the Collateral.
8.03 Rights Not Exclusive. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE 9
THE AGENT
9.01 Appointment and Authorization. Each Lender hereby irrevocably
appoints, designates and authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise
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such powers and perform such duties as are expressly delegated to it by the
terms of this Agreement or any other Loan Document, together with such powers as
are reasonably incidental thereto. Agent will distribute to Lenders copies of
documents received by the Agent pursuant to Sections 2.03, 6.01 and 6.02 from
the Loan Parties or the Parent, as the case may be. Notwithstanding any
provision to the contrary contained elsewhere in this Agreement or in any other
Loan Document, the Agent shall not have any duties or responsibilities, except
those expressly set forth herein, nor shall the Agent have or be deemed to have
any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
9.02 Delagation of Duties. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
9.03 Liability of Agent. None of the Agent-Related Persons shall (i)
be liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document (except for its own
gross negligence or willful misconduct), or (ii) be responsible in any manner to
any of the Lenders for any recital, statement, representation or warranty made
by the Loan Parties or any Subsidiary or Affiliate of the Loan Parties, or any
officer thereof, contained in this Agreement or in any other Loan Document, or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Agent under or in connection with, this Agreement or
any other Loan Document, or for the value of any Collateral or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Loan Parties or any other
party to any Loan Document to perform its obligations hereunder or thereunder.
No Agent-Related Person shall be under any obligation to any Lender to ascertain
or to inquire as to the observance or performance of any of the agreements
contained
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in, or conditions of, this Agreement or any other Loan Document, or to inspect
the Properties, books or records of the Loan Parties or any of the Loan Party's
Subsidiaries or Affiliates.
9.04 Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation
believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to the Loan Parties),
independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Majority
Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Majority Lenders and
such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Article 4, each Lender that has executed this Agreement
shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter either sent by the
Agent to such Lender for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved
by or acceptable or satisfactory to the Lender, unless an
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officer of the Agent responsible for the transactions contemplated
by the Loan Documents shall have received notice from the Lender
prior to the initial Borrowing specifying its objection thereto and
either such objection shall not have been withdrawn by notice to the
Agent to that effect or the Lender shall not have made available to
the Agent the Lender's ratable portion of such Borrowing.
9.05 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or the Loan Parties referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Lenders. The Agent shall take
such action with respect to such Default or Event of Default as shall be
requested by the Majority Lenders in accordance with Article 8; provided,
however, that unless and until the Agent shall have received any such request,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable or in the best interest of the Lenders.
9.06 Credit Decision. Each Lender expressly acknowledges that none
of the Agent-Related Persons has made any representation or warranty to it and
that no act by the Agent hereinafter taken, including any review of the affairs
of the Loan Parties and their respective Subsidiaries shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their respective Subsidiaries, and all
applicable bank regulatory laws relating to the transactions contemplated
thereby, and made its own decision to enter into this Agreement
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and extend credit to the Loan Parties hereunder. Each Lender also represents
that it will, independently and without reliance upon the Agent and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Loan Parties. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Loan Parties
which may come into the possession of any of the Agent-Related Persons.
9.07 Indemnification. Whether or not the transactions contemplated
hereby shall be consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the Loan
Parties and without limiting the obligations of the Loan Parties to do so),
ratably from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind whatsoever which may at any time (including at any time following the
repayment of the Loans and the termination or resignation of the related Agent)
be imposed on, incurred by or asserted against any such Person any way relating
to or arising out of this Agreement or any document contemplated by or referred
to herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by any such Person under or in connection with any of
the foregoing; provided, however, that no Lender shall be liable for the payment
to the Agent-Related Persons of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Agent in connection with the
preparation,
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execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein to the
extent that the Agent is not reimbursed for such expenses by or on behalf of the
Loan Parties. Without limiting the generality of the foregoing, if the Internal
Revenue Service or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that the Agent did not properly withhold tax
from amounts paid to or for the account of any Lender (because the appropriate
form was not delivered, was not properly executed, or because such Lender failed
to notify the Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses (including
Attorney Costs). The obligation of the Lenders in this Section shall survive the
payment of all Obligations hereunder.
9.08 Agent in Individual Capacity. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory or other business with the Loan Parties and their respective
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Lenders. With respect to its Loans, BofA
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Agent, and the terms
"Lender" and "Lenders" shall include BofA in its individual capacity.
9.09 Successor Agent. The Agent may, and at the request of the
Majority Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If
the Agent shall resign as Agent under this Agreement, the Majority Lenders shall
appoint from among the Lenders a successor agent for the Lenders. If no
successor agent is appointed prior to the effective date of
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the resignation of the Agent, the Agent may appoint, after consulting with the
Lenders and the Loan Parties, a successor agent from among the Lenders. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article 9 and
Sections 10.04 and 10.05 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the Lenders shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Majority Lenders appoint a successor agent as provided for above.
9.10 Collateral Matters.
(a) The Agent is authorized on behalf of all the Lenders,
without the necessity of any notice to or further consent from the
Lenders, from time to time to take any action with respect to any
Collateral, Parent Collateral or the Collateral Documents or Parent
Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the Collateral and
the Parent Collateral.
(b) The Lenders irrevocably authorize the Agent, at its option
and in its discretion, to release any Guaranty and to release any
Lien granted to or held by the Agent upon any Collateral or Parent
Collateral (i) upon termination of the Commitments and payment in
full of all Loans and all other Obligations payable under this
Agreement and under any other Loan Document; (ii) constituting
Property sold or to be sold or disposed of as part of or in
connection with any disposition permitted hereunder; (iii)
constituting Property in which the Loan Parties or any Subsidiary of
Loan Parties, or Guarantor, as
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applicable, owned no interest at the time the Lien was granted or at
any time thereafter; (iv) constituting Property leased to the Loan
Parties or any Subsidiary of the Loan Parties or any Guarantor under
a lease which has expired or been terminated in a transaction
permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Loan Parties or such Subsidiary
or Guarantor to be, renewed or extended; (v) consisting of an
instrument evidencing Indebtedness or other debt instrument, if the
indebtedness evidenced thereby has been paid in full; or (vi) if
approved, authorized or ratified in writing by the Majority Lenders
or all the Lenders, as the case may be, as provided in Section
10.01(f). Upon request by the Agent at any time, the Lenders will
confirm in writing the Agent's authority to release particular types
or items of Collateral or Parent Collateral pursuant to this Section
9.10(b).
(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Loan Parties or any of
their respective Subsidiaries) that the Loan Parties' obligation to
such Lender under this Agreement and the other Loan Documents is not
and shall not be secured by any real property collateral now or
hereafter acquired by such Lender other than the real property
described in the Deed of Trust or any other Mortgage entered into
pursuant to the Loan Documents.
ARTICLE 10
MISCELLANEOUS
10.01 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Borrowers therefrom, shall be effective unless
the same shall be in writing and signed by the Majority Lenders, the Borrowers
and acknowledged by the Agent, and then such waiver shall be effective only in
the specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
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signed by all the Lenders, the Borrowers and acknowledged by the Agent, do any
of the following:
(a) increase the Aggregate Commitment;
(b) increase or extend the Commitment of any Lender (or
reinstate any Commitment terminated pursuant to Section 8.02(a)) or
subject any Lender to any additional obligations without the consent
of that Lender;
(c) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Lenders (or
any of them) hereunder or under any Loan Document;
(d) reduce the principal of, or the rate of interest specified
herein on any Loan, or of any fees or other amounts payable
hereunder or under any Loan Document;
(e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be
required for the Lenders or any of them to take any action
hereunder;
(f) amend this Section 10.01 or Section 2.14; or
(g) discharge any Guarantor, or release any material portion
of the Collateral or Parent Collateral except as otherwise may be
provided in the Collateral Documents or Parent Collateral Documents
or except where the consent of the Majority Lenders only is
specifically provided for;
and, provided further, that no amendment, waiver or consent
shall, unless in writing and signed by the Agent in addition to the Majority
Lenders or all the Lenders, as the case may be, affect the rights or duties
of the Agent under this Agreement or any other Loan Document.
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10.02 Notices.
((a) All notices, requests and other communications provided
for hereunder shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided
that any matter transmitted by any Borrower by facsimile (i) shall
be immediately confirmed by a telephone call to the recipient at the
number specified on the applicable signature page hereof, and (ii)
shall be followed promptly by a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number
specified for notices on the applicable signature page hereof; or,
as directed to any Borrower or the Agent, to such other address as
shall be designated by such party in a written notice to the other
parties, and as directed to each other party, at such other address
as shall be designated by such party in a written notice to any
Borrower and the Agent. Any notice given to any Borrower shall be
deemed to have been given to all Loan Parties.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when
delivered for overnight (next day) delivery, or transmitted by
facsimile machine, respectively, or if delivered, upon delivery,
except that notices pursuant to Article 2 or 9 shall not be
effective until actually received by the Agent.
(c) The Loan Parties acknowledge and agree that any agreement
of the Agent and the Lenders at Article 2 herein to receive certain
notices by telephone and facsimile is solely for the convenience and
at the request of the Loan Parties. The Agent and the Lenders shall
be entitled to rely on the authority of any Person purporting to be
a Person authorized by the Loan Parties to give such notice and the
Agent and the Lenders shall not have any liability to the Loan
Parties or other Person on account of any action taken or not taken
by the Agent or the Lenders in
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reliance upon such telephonic or facsimile notice. The obligation of
the Loan Parties to repay the Loans shall not be affected in any way
or to any extent by any failure by the Agent and the Lenders to
receive written confirmation of any telephonic or facsimile notice
or the receipt by the Agent and the Lenders of a confirmation which
is at variance with the terms understood by the Agent and the
Lenders to be contained in the telephonic or facsimile notice.
10.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
10.04 Costs and Expenses. The Borrowers jointly and severally shall,
whether or not the transactions contemplated hereby shall be consummated:
(a) pay or reimburse Agent and Lead Arranger within five
Business Days after demand (subject to Section 4.01(r)) for all
costs and expenses incurred by Agent or Lead Arranger, as
applicable, in connection with the development, preparation,
delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other
documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby,
including the reasonable Attorney Costs incurred with respect
thereto upon presentation of an invoice therefor together with
reasonable supporting documentation;
(b) pay or reimburse each Lender and the Agent within five
Business Days after demand (subject to Section 4.01(r)) for all
costs and expenses incurred by them in connection with the
enforcement, attempted
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enforcement, or preservation of any rights or remedies (including in
connection with any "workout" or restructuring regarding the Loans,
and including in any Insolvency Proceeding or appellate proceeding)
under this Agreement, any other Loan Document, and any such other
documents, including Attorney Costs incurred by the Agent and any
Lender upon presentation of an invoice therefor together with
reasonable supporting documentation; and
(c) pay or reimburse BofA (including in its capacity as Agent)
within five Business Days after demand (subject to Section 4.01(r)
for all appraisal (including the allocated cost of internal
appraisal services), audit, environmental inspection and review
(including the allocated cost of such internal services), search and
filing costs, fees and expenses, incurred or sustained by BofA
(including in its capacity as Agent) in connection with the matters
referred to under Sections (a) and (b) of this Section upon
presentation of an invoice therefor together with reasonable
supporting documentation.
10.05 Indemnity. Whether or not the transactions contemplated hereby
shall be consummated:
(a) General Indemnity. The Borrowers jointly and severally
shall pay, indemnify, and hold each Lender, the Lead Arranger, the
Agent and each of their respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "Indemnified
Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
and the reasonable costs, charges, expenses or disbursements
(including Attorney Costs) of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and
administration of this Agreement and any other Loan Documents, or
the transactions contemplated hereby and thereby, and with respect
to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to this
Agreement or
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the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that the
Borrowers jointly and severally shall have no obligation hereunder
to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such
Indemnified Person.
(b) Environmental Indemnity.
(i) The Borrowers jointly and severally hereby agree to
indemnify, defend and hold harmless each Indemnified Person,
from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, and the
reasonable costs, charges, expenses or disbursements
(including Attorney Costs and the allocated cost of internal
environmental audit or review services), which may be incurred
by or asserted against such Indemnified Person in connection
with or arising out of any pending or threatened
investigation, litigation or proceeding, or any action taken
by any Person, with respect to any Environmental Claim arising
out of or related to any Property subject to a Mortgage in
favor of the Agent or any Lender. No action taken by legal
counsel chosen by the Agent or any Lender in defending against
any such investigation, litigation or proceeding or requested
remedial, removal or response action shall vitiate or any way
impair the Borrowers' obligation and duty hereunder to
indemnify and hold harmless the Agent and each Lender.
(ii) In no event shall any site visit, observation, or
testing by the Agent or any Lender be deemed a representation
or warranty that Hazardous Materials are or are not present
in, on, or under the site, or that there has been or shall be
compliance with any Environmental Law. Neither the Borrowers
nor
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any other Person is entitled to rely on any site visit,
observation, or testing by the Agent or any Lender. Neither
the Agent nor any Lender owes any duty of care to protect the
Borrowers or any other Person against, or to inform the
Borrowers or any other party of, any Hazardous Materials or
any other adverse condition affecting any site or Property.
Neither the Agent nor any Lender shall be obligated to
disclose to the Borrowers or any other Person any report or
findings made as a result of, or in connection with, any site
visit, observation, or testing by the Agent or any Lender.
(c) Survival; Defense. The obligations in this Section 10.05
shall survive payment of all other Obligations. At the election of
any Indemnified Person, the Company shall defend such Indemnified
Person using legal counsel satisfactory to such Indemnified Person
in such Person's sole discretion, at the sole reasonable cost and
expense of the Company. All amounts owing under this Section 10.05
shall be paid within 30 days after demand.
10.06 Marshaling; Payments Set Aside. Neither the Agent nor the
Lenders shall be under any obligation to marshall any assets in favor of the
Borrowers or any other Person or against or in payment of any or all of the
Obligations. To the extent that the Borrowers makes a payment or payments to
the Agent or the Lenders, or the Agent or the Lenders enforce their Liens or
exercise their rights of set-off, and such payment or payments or the
proceeds of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, receiver or any other party in connection with any
Insolvency Proceeding, or otherwise, then to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not
been made or such enforcement or set-off had not occurred.
10.07 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit
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of the parties hereto and their respective successors and assigns, except that
the Borrowers may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Agent and each Lender.
10.08 Assignments, Participations, etc
(a) Any Lender may, with the written consent of the Borrowers
at all times other than during the existence of an Event of Default
and the Agent, which consents shall not be unreasonably withheld, at
any time assign and delegate to one or more Eligible Assignees
(provided that no written consent of the Borrowers or the Agent
shall be required in connection with any assignment and delegation
by a Lender to a Lender Affiliate of such Lender or to another
Lender) (each an "Assignee") all, or any ratable part of all, of the
Loans, the Commitments and the other rights and obligations of such
Lender hereunder, in a minimum amount of the lesser of $5,000,000 or
such Lender's entire remaining interest in the Loans, the
Commitments and the other rights and obligations hereunder;
provided, however, that (i) the Borrowers and the Agent may continue
to deal solely and directly with such Lender in connection with the
interest so assigned to an Assignee until (A) written notice of such
assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been
given to the Borrowers and the Agent by such Lender and the
Assignee; (B) such Lender and its Assignee shall have delivered to
the Borrowers and the Agent an Assignment and Acceptance in the form
of Exhibit E ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (C) the assignor Lender or
Assignee has paid to the Agent a processing fee in the amount of
$2500.
(b) From and after the date that the Agent notifies the
assignor Lender that it has received an executed Assignment and
Acceptance and payment of the above-referenced processing fee, (i)
the Assignee thereunder shall be a party hereto and, to the extent
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that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents.
(c) Within five Business Days after its receipt of notice by
the Agent that it has received an executed Assignment and Acceptance
and payment of the processing fee, the Borrowers shall execute and
deliver to the Agent, new Notes evidencing such Assignee's assigned
Loans and Commitment and, if the assignor Lender has retained a
portion of its Loans and its Commitment, replacement Notes in the
principal amount of the Loans retained by the assignor Lender (such
Notes to be in exchange for, but not in payment of, the Notes held
by such Lender). Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this
Agreement, shall be deemed to be amended to the extent, but only to
the extent, necessary to reflect the addition of the Assignee and
the resulting adjustment of the Commitments arising therefrom. The
Commitment allocated to each Assignee shall reduce such Commitments
of the assigning Lender pro tanto.
(d) Any Lender may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrowers (a
"Participant") participating interests in any Loans, the Commitment
of that Lender and the other interests of that Lender (the
"originating Lender") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating
Lender shall remain solely responsible for the performance of such
obligations, (iii) the Borrowers and the
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Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's
rights and obligations under this Agreement and the other Loan
Documents, and (iv) no Lender shall transfer or grant any
participating interest under which the Participant shall have rights
to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of
the Lenders as described in the first proviso to Section 10.01. In
the case of any such participation, the Participant shall be
entitled to the benefit of Sections 3.01, 3.03 and 10.05 as though
it were also a Lender hereunder, and if amounts outstanding under
this Agreement are due and unpaid, or shall have been declared or
shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of
setoff in respect of its participating interest in amounts owing
under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under
this Agreement.
(e) Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of
all information identified as "confidential" by the Borrowers and
provided to it by the Borrowers or any Subsidiary of the Borrowers,
or by the Agent on such Borrower's or Subsidiary's behalf, in
connection with this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information
for any purpose or in any manner other than pursuant to the terms
contemplated by this Agreement; except to the extent such
information (i) was or becomes generally available to the public
other than as a result of a disclosure by the Lender, or (ii) was or
becomes available on a nonconfidential basis from a source other
than the Borrowers, provided that such source is not bound by a
confidentiality agreement with the Borrowers known to
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the Lender; provided further, however, that any Lender may disclose
such information (A) at the request or pursuant to any requirement
of any Governmental Authority to which the Lender is subject or in
connection with an examination of such Lender by any such authority;
(B) pursuant to subpoena or other court process; (C) when required
to do so in accordance with the provisions of any applicable
Requirement of Law; and (D) to such Lender's independent auditors
and other professional advisors. Notwithstanding the foregoing, the
Borrowers authorizes each Lender to disclose to any Participant or
Assignee (each, a "Transferee") and to any prospective Transferee,
such financial and other information in such Lender's possession
concerning the Borrowers or its Subsidiaries which has been
delivered to Agent or the Lenders pursuant to this Agreement or
which has been delivered to the Agent or the Lenders by the
Borrowers in connection with the Lenders' credit evaluation of the
Borrowers prior to entering into this Agreement; provided that,
unless otherwise agreed by the Borrowers, such Transferee agrees in
writing to such Lender to keep such information confidential to the
same extent required of the Lenders hereunder.
The Borrowers acknowledge that from time to time financial
advisory, investment banking and other services may be offered or
provided to the Borrowers, or one or more of its Affiliates (in
connection with this Agreement or otherwise) by any Lender or by one
or more Subsidiaries or Affiliates of such Lender and the Borrowers
hereby authorize each Lender to share any information delivered to
such Lender by the Borrowers and their Affiliates pursuant to this
Agreement, or in connection with the decision of such Lender to
enter into this Agreement, to any such Subsidiary or Affiliate of
such Lender, it being understood that any such Subsidiary or
Affiliate of any Lender receiving such information shall be bound by
any obligation of confidentiality as if it were a Lender hereunder.
Such Authorization shall survive the repayment of the Loans and
other Obligations and the termination of the Commitments.
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(f) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Lender may
assign all or any portion of the Loans or Notes held by it to any
Federal Reserve Bank or the United States Treasury as collateral
security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such
Federal Reserve Bank, provided that any payment in respect of such
assigned Loans or Notes made by the Borrowers to or for the account
of the assigning or pledging Lender in accordance with the terms of
this Agreement shall satisfy the Borrowers' obligations hereunder in
respect to such assigned Loans or Notes to the extent of such
payment. No such assignment shall release the assigning Lender from
its obligations hereunder.
(g) Upon the assignment pursuant to this Section 10.08 of all,
or any ratable part of, the Loans, the Commitments and the other
rights and obligations of a Lender to an Assignee, such Assignee
shall become a party to the Intercreditor Agreement and be bound by
all terms and conditions contained therein.
10.09 Setoff. In addition to any rights and remedies of the Lenders
provided by law, if an Event of Default exists, each Lender is authorized at any
time and from time to time, without prior notice to the Borrowers, any such
notice being waived by the Borrowers to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing to, such Lender to or for the credit or the account of the Borrowers
against any and all Obligations owing to such Lender, now or hereafter existing,
irrespective of whether or not the Agent or such Lender shall have made demand
under this Agreement or any Loan Document and although such Obligations may be
contingent or unmatured. Each Lender agrees promptly to notify the Borrowers and
the Agent after any such setoff and application made by
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such Lender; provided, however, that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Lender
under this Section 10.09 are in addition to the other rights and remedies
(including other rights of setoff) which the Lender may have. NOTWITHSTANDING
THE FOREGOING, NO LENDER SHALL EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT OF
SETOFF, BANKER'S LIEN, OR THE LIKE, AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF
THE BORROWERS OR ANY SUBSIDIARY OF THE BORROWERS HELD OR MAINTAINED BY THE
LENDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE MAJORITY LENDERS.
10.10 Notification of Addresses, Lending Offices, Etc. Each Lender
shall notify the Agent in writing of any changes in the address to which notices
to the Lender should be directed, of addresses of its Eurodollar Lending Office,
of payment instructions in respect of all payments to be made to it hereunder
and of such other administrative information as the Agent shall reasonably
request.
10.11 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement in any number of separate counterparts, each of
which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrowers and the Agent.
10.12 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
10.13 No Third Parties Benefited. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrowers, the
Lenders and the Agent, and their permitted successors and assigns, and no
other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents. Neither the
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Agent nor any Lender shall have any obligation to any Person not a party to this
Agreement or other Loan Documents.
10.14 Time. Time is of the essence as to each term or provision of
this Agreement and each of the other Loan Documents.
10.15 Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEVADA;
PROVIDED THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS
OF THE STATE OF NEVADA OR OF THE UNITED STATES FOR THE DISTRICT OF
NEVADA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
BORROWERS, THE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS. EACH OF THE BORROWERS, THE AGENT AND THE LENDERS IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO. THE BORROWERS, THE AGENT AND THE LENDERS EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
MADE BY ANY OTHER MEANS PERMITTED BY NEVADA LAW.
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10.16 Waiver of Jury Trial. THE BORROWERS, THE LENDERS AND THE AGENT
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE BORROWERS, THE LENDERS AND THE AGENT EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
10.17 Notice of Claims; Claims Bar. THE BORROWERS HEREBY AGREE
THAT IT SHALL GIVE PROMPT WRITTEN NOTICE OF ANY CLAIM OR CAUSE OF ACTION IT
BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST THE AGENT OR ANY
LENDER, WHETHER SUCH
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CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR RELATED TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, OR TO THE LOANS (OR THE COLLATERAL THEREFOR),
OR ANY ACT OR OMISSION TO ACT BY THE AGENT OR ANY LENDER WITH RESPECT HERETO OR
THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH PROMPT NOTICE TO THE AGENT WITH
REGARD TO ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED,
AND SHALL BE FOREVER BARRED FROM BRINGING OR ASSERTING SUCH CLAIM OR CAUSE OF
ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY GOVERNMENTAL
AGENCY.
10.18 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrowers,
the Lenders and the Agent, and supersedes all prior or contemporaneous
Agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof, except for the fee letter referenced in
Sections 2.10, and any prior arrangements made with respect to the payment by
the Borrowers of (or any indemnification for) any fees, costs or expenses
payable to or incurred (or to be incurred) by or on behalf of the Agent or the
Lenders.
10.19 Interpretation. This Agreement is the result of negotiations
between and has been reviewed by counsel to the Agent, the Borrowers and other
parties, and is the product of all parties hereto. Accordingly, this Agreement
and the other Loan Documents shall not be construed against the Lenders or the
Agent merely because of the Agent's or Lenders' involvement in the preparation
of such documents and agreements.
10.20 Guarantor and Suretyship Provisions.
(a) Each Borrower shall be jointly and severally liable for
the repayment of all Loans.
(b) Conditions to Exercise of Rights. Each Borrower hereby
waives any right it may now or hereafter have to require the Agent
or the Lenders, as a condition to the exercise of any remedy or
other right against such Debtor hereunder or under any other
document executed by such Debtor in connection with any Obligation,
(i) to proceed against any
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Borrower or other Person, or against any other collateral assigned
to the Agent by such Debtor or any other Person, (ii) to pursue any
other right or remedy in the Agent or any Lender's power, (iii) to
give notice of the time, place or terms of any public or private
sale of real or personal property collateral assigned to the Agent
by any Borrower or other Person (other than such Borrower), or
otherwise to comply with the Nevada enactment of the Uniform
Commercial Code (as modified or recodified from time to time) with
respect to any such personal property collateral, or (iv) to make or
give (except as otherwise expressly provided in the Loan Documents)
any presentment, demand protest, notice of dishonor, notice of
protest or other demand or notice of any kind in connection with any
Obligation.
(c) Defenses. Each Borrower hereby waives any defense it may
now or hereafter have that relates to: (i) any disability or other
defense of any Borrower or other Person; (ii) the cessation, from
any cause other than full performance, of the obligations of any
Borrower or other Person; (iii) the application of the proceeds of
any Obligation, by any Borrower or other Person, for purposes other
than the purposes represented to such Debtor by any Borrower or
otherwise intended or understood by such Debtor; (iv) any act or
omission by the Agent or the Lenders which directly or indirectly
results in or contributes to the release of any Borrower or other
Person or any collateral for any Obligations; (v) the
unenforceability or invalidity of any collateral assignment or
guaranty with respect to any Obligation, or the lack of perfection
or continuing perfection or lack of priority of any lien which
secures any Obligation; (vi) any failure of the Agent or the Lenders
to marshal assets in favor of such Borrower or any other Person;
(vii) any modification of any Obligation, including any renewal,
extension, acceleration or increase in interest rate; (viii) any
election of remedies by the Agent or the Lenders that impairs any
subrogation or other right of any Borrower to proceed against any
other Borrower or
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other Person, including any loss of rights resulting from
anti-deficiency laws relating to nonjudicial foreclosures of real
property or other laws limiting, qualifying or discharging
obligations or remedies; (ix) any law which provides that the
obligation of a surety or guarantor must neither be larger in amount
nor in other respects more burdensome than that of the principal or
which reduces a surety's or guarantor's obligation in proportion to
the principal obligation; (x) any failure of the Agent or the
Lenders to file or enforce a claim in any bankruptcy or other
proceeding with respect to any Person; (xi) the election by the
Agent or the Lenders, in any bankruptcy proceeding of any Person, of
the application or non-application of Section 1111(b)(2) of the
United States Bankruptcy Code; (xii) any extension of credit or the
grant of any lien under Section 364 of the United States Bankruptcy
Code; (xiii) any use of cash collateral under Section 363 of the
United States Bankruptcy Code; or (xiv) any agreement or stipulation
with respect to the provision of adequate protection in any
bankruptcy proceeding of any Person.
(d) Subrogation. Each Borrower hereby waives (i) any right of
subrogation which such Borrower may now or hereafter have against
any other Borrower that relates to any Obligation, (ii) any right to
enforce any remedy such Borrower may now or hereafter have against
any other Borrower that relates to any Obligation (including without
limitation any right of reimbursement, indemnity or contribution),
and (iii) any right to participate in any collateral now or
hereafter assigned to the Agent or the Lenders with any collateral
now or hereafter assigned to the Agent or the Lenders with respect
to any Obligation (and each Borrower further agrees that, if and to
the extent that any waiver set forth in this section is ever held to
be unenforceable, all such rights of subrogation, enforcement and
participation shall be junior and subordinate to the right of the
Agent or the Lenders to obtain payment and performance of the
Obligations and to all rights of the Agent or the
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Lenders in and to any property which now or hereafter serves as
collateral security for any Obligation).
(e) Borrower Information. Each Borrower warrants and agrees:
(i) that such Borrower has not relied, and will not rely, on any
representations or warranties by the Agent or the Lenders to such
Borrower with respect to the creditworthiness of any Borrower or the
prospects of payment of any Obligation from sources other than the
Collateral; (ii) that such Borrower has established and/or will
establish adequate means of obtaining from each Borrower on a
continuing basis financial and other information pertaining to the
business operations, if any, and financial condition of such
Borrower; (iii) that such Borrower assumes full responsibility for
keeping informed with respect to any Borrower's business operation,
if any, and financial condition; and (iv) that the Agent or the
Lenders shall have no duty to disclose or report to such Borrower
any information now or hereafter known to the Agent or the Lenders
with respect to any information now or hereafter known to the Agent
or the Lenders with respect to any Borrower, including without
limitation information relating to any Borrower's business operation
or financial condition.
(f) Other Rights of Sureties. Each Borrower hereby waives all
other rights it may now or hereafter have, whether or not similar to
any of the foregoing, by reason of laws of the State of Nevada
pertaining to sureties or guarantors.
(g) Subordination. Until all of the Obligations have been
fully paid and performed, (i) each Borrower hereby agrees that all
existing and future indebtedness and other obligations of such
Borrower to any other Borrower (collectively, the "Subordinated
Debt") shall be and are hereby subordinated to all Obligations which
constitute obligations of the applicable Borrower, and the payment
thereof is hereby deferred in right of payment to the prior payment
and performance of all
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such Obligations; (ii) such Borrower shall not collect or receive
any cash or non-cash payments on any Subordinated Debt or transfer
all or any portion of the Subordinated Debt; and (iii) in the event
that, notwithstanding the foregoing, any payment by, or distribution
of assets of, any Borrower with respect to any Subordinated Debt is
received by such Borrower such payment or distribution shall be held
in trust and immediately paid over to the Agent or the Lenders, is
hereby assigned to the Agent or the Lenders as security for the
Obligations, and shall by held by the Agent or the Lenders in an
interest bearing account until all Obligations have been fully paid
and preformed.
(h) Lawfulness and Reasonableness. Each Borrower warrants that
all of the waivers in this Agreement are made with full knowledge of
their significance, and of the fact that events giving rise to any
defense or other benefit waived by such Borrower may destroy or
impair right which such Borrower would otherwise have against the
Agent or the Lenders, any Borrower and other Persons, or against
collateral. Each Borrower agrees that all such waivers are
reasonable under the circumstances and further agrees that, if any
such waiver is determined (by a court of competent jurisdiction) to
be contrary to any law or public policy, such waiver shall be
effective to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
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RIO PROPERTIES, INC.,
a Nevada corporation
By: /s/ Ronald J. Radcliffe
-------------------------
Title: Treasurer
----------------------
By: /s/ I. Scott Bogatz
------------------------
Title: Secretary
----------------------
RIO LEASING, INC.,
a Nevada corporation
By: /s/ Ronald J. Radcliffe
------------------------
Title: Secretary
---------------------
By: /s/ I. Scott Bogatz
------------------------
Title: Counsel
---------------------
Address for notices for both Borrowers:
3700 West Flamingo Road
Las Vegas, Nevada 89103
Attn: Chief Executive Officer
Facsimile: (702)
Tel: (702)
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BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
as Agent
By: /s/ Janice Hammond
-------------------------------------
Title: Vice President, Agency
Specialist
-----------------------------------
Address for notices:
555 South Flower Street, 11th Floor
Los Angeles, CA 90017
Attn: Global Agency #5596
Facsimile: (213) 228-9861
Tel: (213) 228-2299
Address for payments:
1850 Gateway Blvd.
Concord, California 94520
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BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Lender
By: /s/ Scott L. Faber
--------------------------------------
Title: Vice President
Bank of America NT&SA
-----------------------------------
Address for notices:
Domestic and Eurodollar Lending
Office:
1850 Gateway Boulevard
Concord, California 94520
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LENDERS
BANKS
WELLS FARGO BANK, N.A.
By: /s/ Sue Fuller
-------------------------------
Title: Vice President
----------------------------
Address for notices:
1 East First Street, Suite 300
MAC 4611-031
Reno, NV 89504
Attn: Sue Fuller, Vice President
Facsimile: (702) 334-5637
Tel: (702) 334-5633
Address for Domestic and Eurodollar
Lending Office:
201 3rd Street, 8th Floor
San Francisco, CA 94103
Attn: Oscar Enriquez
Facsimile: (415) 979-0675
Tel: (415) 477-5425
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THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Mark A. Isley
--------------------------------
Title: First Vice President
-----------------------------
Address for notices and Domestic and
Eurodollar Lending Office:
Robert F. Simon, CSA
The First National Bank of Chicago
1132/1-10
One First National Plaza
Chicago, Illinois 60670
312/732-8543
312/732-4840 FAX
SOCIETE GENERALE
By: /s/ Donald L. Schubert
--------------------------------
Title: Managing Director
-----------------------------
Address for notices and Domestic and
Eurodollar Lending Office:
2029 Century Park East, Suite 2900
Los Angeles, CA 90067
Attn: Donald L. Schubert
Facsimile: (310) 551-1537
Tel: (310) 788-7104
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<PAGE>
ABN AMRO BANK N.V.
By: /s/ Jeffrey A. French
---------------------------------
Title: Group Vice President &
Director
------------------------------
By: /s/ Michael M. Tolentino
---------------------------------
Title: Vice President
------------------------------
Address for notices:
ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, California 94111-5812
Attn: Jeffrey A. French
Group Vice President & Director
415/984-3703 telephone
415/362-3524 telecopier
Address for Domestic and Eurodollar
Lending Office:
ABN AMRO Bank N.V.
Loan Administration
208 South LaSalle Street, Suite 1500
Chicago, Illinois 60604-1003
312/992-5153 telephone
312/992-5158 telecopier
-147-
<PAGE>
U.S. BANK OF NEVADA
By: /s/ David Walquist
-----------------------------------
Title: Vice President
--------------------------------
Address for notices:
2300 W. Sahara, Suite 120
Las Vegas, NV 89102
Attn: David Walquist, Vice President
Facsimile: (702) 386-3916
Tel: (702) 386-3938
Domestic and Eurodollar Lending Office:
U.S. Bank, N.A.
555 Southwest Oak Street
Portland, OR 97204
Attn: J. Rameriz
Commercial Loan Servicing West
PL-7
-148-
<PAGE>
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
----------------------------------
Title: Senior Vice President
-------------------------------
By:
----------------------------------
Title:
-------------------------------
Address for notices:
Bank of Scotland
565 5th Avenue, 5th Floor
New York, New York 10017
Attn: Annie Chin Tat, Senior Vice
President
Telephone: 212/450-0871
Facsimile: 212/557-9460
and
Bank of Scotland
Suite 1760
660 South Figueroa Street
Los Angeles, California 90017-3548
Attn: Allan Jackson, Regional Director
213/629-3057
213/489-3594 FAX
-149-
<PAGE>
Address for Domestic and Eurodollar
Lending Office:
Bank of Scotland
565 5th Avenue, 5th Floor
New York, New York 10017
Attn: Annie Chin Tat, Senior Vice
President
Telephone: 212/450-0871
Facsimile: 212/557-9460
-150-
<PAGE>
Schedule 2.01
RIO PROPERTIES, INC./
RIO LEASING, INC.
$125,000,000 SENIOR SECURED CREDIT FACILITY
<TABLE>
<CAPTION>
Lender Amount Percentage
- ---------------------------------- ------------ -----------
<S> <C> <C>
Bank of America National Trust and
Savings Association $ 23,000,000 18.40000000%
SG $ 20,000,000 16.00000000%
The First National Bank of Chicago $ 20,000,000 16.00000000%
Wells Fargo Bank, N.A $ 20,000,000 16.00000000%
ABN AMRO Bank N.V $ 14,000,000 11.20000000%
U.S. Bank, National Association $ 14,000,000 11.20000000%
Bank of Scotland $ 14,000,000 11.20000000%
Total $125,000,000 100.00000000%
</TABLE>
<PAGE>
EXHIBIT 4(26)
NOTE
[$Amount] Las Vegas, Nevada
December 18, 1998
FOR VALUE RECEIVED, RIO PROPERTIES, INC., a Nevada corporation (the
"Company") and RIO LEASING, INC., a Nevada corporation ("Rio Leasing" and
collectively with the Company, "Borrowers"), jointly and severally promise to
pay to the order of [Bank] (the "Lender"), the principal amount of [Amount] or,
if different, the aggregate principal amount of Loans made by the Lender to the
Company and Rio Leasing under the Loan Agreement referred to below outstanding
on the Maturity Date.
The Borrowers also jointly and severally promise to pay interest on
the unpaid principal amount hereof from the date hereof until paid at the rates
and at the times which shall be determined in accordance with the provisions of
the Loan Agreement dated as of December 18, 1998, among the Company and Rio
Leasing, as co-borrowers, the Lenders named therein and Bank of America National
Trust and Savings Association, as Agent (as further amended from time to time,
the "Loan Agreement").
This Note is one of the Notes issued pursuant to and entitled to the
benefits of the Loan Agreement to which reference is hereby made for a more
complete statement of the terms and conditions under which the Loans evidenced
hereby are made and are to be repaid. Capitalized terms used herein without
definition shall have the meanings set forth in the Loan Agreement.
All payments of principal and interest in respect of this Note
shall be made in lawful money of the United States of America in same day
funds at the office of Bank of America for credit to: BANCONTROL Account No.
12337-14196, Reference: Rio Properties, Inc., at 1850 Gateway Boulevard,
Concord, California 94520 or at such other place as shall be designated in
writing for such purpose in accordance with the terms of the Loan Agreement.
Each of the Lender and any subsequent holder of this Note agrees that before
disposing of this Note or any part hereof it will make a notation hereon of
all principal payments previously made hereunder and of the date to which
interest hereon has been paid; provided that the failure to make a notation
of any payment made on this Note shall not limit or otherwise affect the
obligation
<PAGE>
of the Company hereunder with respect to payments of principal or interest on
this Note.
This Note is subject to prepayment as provided in the Loan
Agreement. Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note may become, or may be declared to be, due and
payable in the manner, upon the conditions and with the effect provided in the
Loan Agreement.
The Company and Rio Leasing jointly and severally promise to pay all
actual and reasonable costs and expenses, including reasonable attorneys' fees
and the reasonably allocated cost of in-house counsel and staff, incurred in the
collection and enforcement of this Note. The Company, Rio Leasing and endorsers
of this Note hereby consent to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waive diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
THE LOAN AGREEMENT AND THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEVADA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the Company and Rio Leasing have caused this
Note to be executed and delivered by its duly authorized officers, as of the day
and year and the place first above written.
RIO PROPERTIES, INC.
By
-------------------------------------
Title
----------------------------------
RIO LEASING, INC.
By
------------------------------------
Title
----------------------------------
-2-
<PAGE>
TRANSACTIONS ON NOTE
<TABLE>
<CAPTION>
Amount of
Principal Outstanding
Type of Amount of End of or Interest Principal
Loan Made Loan Made Interest Paid This Balance This Notation
Date This Date This Date Period Date Date Made by
- ---- --------- --------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 4(27)
RIO HOTEL AND CASINO, INC.
GUARANTY
THIS GUARANTY (as amended, supplemented or otherwise modified from time
to time, this "Guaranty") is made as of December 18, 1998 by the undersigned
("Guarantor") in favor of Bank of America National Trust and Savings
Association, as agent (the "Agent"), with reference to the Loan Agreement of
even date herewith among Rio Properties, Inc. (the "Company"), Rio Leasing,
Inc. ("Rio Leasing" and collectively with the Company, the "Borrowers"), the
Lenders therein named, and the Agent (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement"). All terms used herein and
not otherwise defined in this Guaranty are used as defined in the Loan
Agreement.
RECITALS
A. Financial accommodations extended by the Lenders and the Agent
(collectively, the "Guaranteed Parties") to Borrowers will benefit the
Guarantor directly and indirectly.
B. The Guaranteed Parties are willing to extend such financial
accommodations to Borrowers on the condition that such accommodations be
guaranteed by the Guarantor.
Now, therefore, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby agreed and
acknowledged:
1. As set forth in this Guaranty, Guarantor unconditionally guarantees and
promises to pay to the Guaranteed Parties, on order, or demand, in lawful money
of the United States, any and all of the Indebtedness (as hereafter defined)
owing to each of the Guaranteed Parties. This guarantee is a guarantee of prompt
payment and performance of the guaranteed obligations when due and is not merely
a guarantee of collection.
2. "Indebtedness" as used herein shall mean all principal, interest, fees,
charges, penalties, expenses, payments, and all other amounts due from Borrowers
to the Guaranteed Parties or any of them from time to time under the Loan
Agreement or any other Loan Document whether now existing or hereafter arising,
whether by reason of amendment or otherwise, whether due or to become
<PAGE>
due, absolute or contingent, liquidated or unliquidated, whether Borrowers may
be liable individually or jointly with others.
3. The liability of Guarantor under this Guaranty shall be absolute and
unconditional, and shall not be affected or released in any way, irrespective
of:
(a) any lack of validity or enforceability of the Loan Agreement or
any other Loan Document or other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Indebtedness or of any of the Loan
Documents, or any other amendment or waiver of or any consent to any
departure from the Loan Agreement or any other Loan Document including,
without limitation, any increase in the Indebtedness or other obligations
under the Loan Documents resulting from the extension of additional credit
to Borrowers or otherwise;
(c) any enforcement of any Loan Document, including the taking,
holding or sale of any collateral or any termination or release of any
Collateral from the Liens created by any Collateral Documents, or the
non-perfection of any Liens created by any Collateral Documents;
(d) whether recovery upon such Indebtedness may be or hereafter
become barred by any statute of limitation; or
(e) any change, restructuring or termination of the corporate
structure or existence of the Company, Rio Leasing or any other party.
This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Indebtedness is
rescinded or must otherwise be returned by any Guaranteed Party or any other
Person upon the insolvency, bankruptcy or reorganization of the Company, Rio
Leasing, Guarantor or otherwise, all as though such payment had not been made.
-2-
<PAGE>
4. This is a continuing Guaranty relating to any Indebtedness, including
Indebtedness arising under successive transactions which shall either continue
the Indebtedness or from time to time renew any portion of it after
satisfaction. Any payment by Guarantor shall not reduce its obligations
hereunder, unless written notice to that effect be actually received by the
Agent at or prior to the time of such payment.
5. The obligations hereunder are independent of the obligations of
Borrowers or Guarantor, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Borrowers or
Guarantor or whether Borrowers or Guarantor be joined in any such action or
actions; and Guarantor waives the benefit of any statute of limitations
affecting its liability hereunder.
6. Guarantor authorizes each of the Guaranteed Parties, without notice or
demand and without affecting its liability hereunder, from time to time, either
before or after revocation hereof, to (a) renew, compromise, extend, accelerate
or otherwise change the time for payment of, or otherwise change the terms of
the Indebtedness or any part thereof, including increase or decrease of the
principal amount of such Indebtedness or the rate of interest thereon; (b) take
and hold security for the payment of this Guaranty or the Indebtedness
guaranteed, and exchange, enforce, waive, release, fail to perfect, sell, or
otherwise dispose of any such security; (c) apply such security and direct the
order or manner of sale thereof; and (d) release or substitute any one or more
of the endorsers or guarantors.
7. Guarantor hereby waives, to the extent permitted by applicable law: (a)
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Indebtedness or any other obligations under the Loan Documents or
this Guaranty; (b) any requirement that the Agent, any other Guaranteed Party or
any other Person protect, secure or insure any Lien or any collateral or other
property subject thereto or exhaust any right or take any action against
Borrowers or any other Person or any Collateral; (c) any defense arising by
reason of any claim or defense based upon an election of remedies by the Agent
or any other Guaranteed Party which in any manner impairs, reduces, releases or
otherwise adversely affects its subrogation,
-3-
<PAGE>
contribution or reimbursement rights or other rights to proceed against
Borrowers or any other Person or any Collateral; (d) any duty on the part of the
Agent or any other Guaranteed Party to disclose to the Guarantor any matter,
fact or thing relating to the business, operation or condition of Borrowers or
any other party to any of the Loan Documents and its assets now known or
hereafter known by the Agent or any other Guaranteed Party; (e) all
presentments, demands for performance, demands for payment, notices of
nonperformance, protests, notices of protests, notices of dishonor or default to
the Guarantor or any other party with respect to the Indebtedness or Loan
Documents, and notices of acceptance of this Guaranty and of the existence,
creation, or incurrence of new or additional Indebtedness; (f) any rights to
extension, composition or otherwise under the Bankruptcy Code or any amendments
thereof, or under any state or other federal statute; and (i) any right to claim
or claim of right to cause a marshaling of Borrowers' assets. No notice to or
demand on the Guarantor shall be deemed a waiver of the obligation of the
Guarantor or the right of the Guaranteed Parties to take further action without
notice or demand as provided herein; nor in any event shall any modification or
waiver of the provisions of this Guaranty be effective unless in writing nor
shall any such waiver be applicable except in the specific instance for which
given.
8. Except to the extent otherwise permitted under the Loan Agreement,
Guarantor hereby irrevocably waives any claim or other rights which it may now
or hereafter acquire against Borrowers or Guarantor, whether due or to become
due, voluntary or involuntary, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether in respect of reimbursement,
exoneration, contribution, indemnification, any right to participate in any
claim or remedy of any Guaranteed Party against Borrowers or Guarantor or any
Collateral which any Guaranteed party now has or hereafter acquires, or
otherwise, whether or not such claim, remedy or right arises in equity, or under
contract, statute or common law, including without limitation, the right to take
or receive from Borrowers, directly or indirectly, in cash or other property or
by set-off or in any other manner, payment or security on account of such claim
or other rights. If any amount shall be paid to Guarantor in violation of the
preceding sentence and the Indebtedness shall not have been paid in full, such
amount shall be deemed to have been paid to Guarantor for the benefit of, and
held in trust for
-4-
<PAGE>
the benefit of, the Guaranteed Parties and shall forthwith be paid to the Agent
for the benefit of the Guaranteed Parties to be credited and applied to the
Indebtedness. Guarantor understands that if the Guaranteed Parties foreclose
against any Property securing the Indebtedness, that foreclosure may impair or
destroy any ability that Guarantor may have to seek reimbursement, contribution
or indemnification from Borrowers or others based on any right Guarantor may
have of subrogation, reimbursement, contribution or indemnification for any
amount paid by Guarantor under this Guaranty. By executing this Guaranty,
guarantor (i) waives and relinquishes any defense based on the foregoing and
agrees that Guarantor will be fully liable under this Guaranty even though the
Guaranteed Parties foreclose against any Property security for the Indebtedness;
and (ii) agrees that Guarantor will not assert any such defense in any action or
proceeding which any of the Guaranteed Parties may commence to enforce this
Guaranty and (iii) in accordance with NRS 40.495, waives the provisions of NRS
40.430. Guarantor acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Loan Agreement and that the
waivers set forth in this Section 8 are knowingly made in contemplation of such
benefits and that such waivers are a material part of the consideration the
Guaranteed Parties are receiving for extending financial accommodations to
Borrowers.
9. Guarantor agrees that, to the extent that any of Borrowers or Guarantor
makes a payment or payments to any Guaranteed Party or any Guaranteed Party
receives any proceeds of Collateral, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or otherwise required to be repaid to Borrowers or Guarantor, any
estate, trustee, receiver or other party in respect thereof, including, without
limitation, under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, the obligation
or part thereof which has been paid, reduced or satisfied by such amount shall
be reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred. Guarantor shall defend and
indemnify each Guaranteed Party from and against any claim or loss under this
Section 9 (including reasonable attorneys' fees and expenses (including the
allocated costs of inhouse counsel)) in the defense of any such action or suit.
-5-
<PAGE>
10. Guarantor acknowledges and agrees that it shall have the sole
responsibility for obtaining from Borrowers such information concerning
Borrowers' financial condition or business operations as Guarantor may require,
and that no Guaranteed Party has any duty at any time to disclose to Guarantor
any information relating to the business operations or financial condition of
Borrowers.
11. To secure all of the Guarantor's obligations hereunder, Guarantor
assigns, pledges and grants to each of the Guaranteed Parties a security
interest in property of Guarantor as more fully set forth in the Parent Pledge
and Security Agreement.
12. To the extent not otherwise waived hereby, any obligations of
Borrowers to Guarantor, now or hereafter existing are hereby subordinated to the
Indebtedness. Such obligations of Borrowers to Guarantor, if the Agent so
requests after the occurrence of any Event of Default, shall be enforced and
performance received by the Guarantor as trustee for each of the Guaranteed
Parties and the proceeds thereof shall be paid over to the Agent, for the
benefit of the Guaranteed Parties, on account of the Indebtedness, but without
reducing or affecting in any manner the maximum liability of Guarantor under the
other provisions of this Guaranty.
13. This Guarantee may not be revoked at any time by the Guarantor. If
Guarantor seeks to revoke, return, or cancel its obligations under this
Guaranty, and subsequently any payment or transfer of any interest in property
by Borrowers to any Guaranteed Party is rescinded or must be returned by such
Guaranteed party to Borrowers, this Guaranty by Guarantor shall be reinstated
with respect to any such payment or transfer, regardless of any such prior
revocation, return, or cancellation.
14. Guarantor hereby represents and warrants as follows:
(a) Corporate Existence and Power. It is a corporation duly
organized or formed, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated or formed, has all
requisite power and authority, including, without limitation, all
licenses,
-6-
<PAGE>
permits, franchises, patents, copyrights, trademarks, trade names,
consents and approvals, to owns its property and assets and to carry on
its business as presently conducted and is duly qualified and is in good
standing as a foreign corporation and is authorized to do business in each
jurisdiction where such qualification or authorization is required, except
where the failure to so qualify, to be authorized or to be in good
standing would not result in a Material Adverse Effect upon the business,
operations, assets or financial or other condition of Guarantor. It has
the corporate power to execute, deliver and perform its obligations under
this Guaranty and the Parent Pledge and Security Agreement.
(b) Corporate authorization; No Contravention. The execution,
delivery and performance by it of this Guaranty and the Parent Pledge and
Security Agreement (i) have been duly authorized by all requisite
corporate and, if required, stockholder or other action, and (ii) will not
(A) violate (1) any Requirement of Law or its certificate or articles of
incorporation or other constitutive documents or its by-laws or
regulations, (2) any order of any court, or any rule, regulation or order
of any other agency of government bringing upon it, or (3) any provisions
of any indenture, agreement or other instrument to which it is a party, or
by which it or any of its properties or assets is or may be bound, which
violation would be likely to result in a Material Adverse Effect upon its
business assets or financial or other condition, (B) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time
or both) a default under any indenture, agreement or other instrument
referred to in (ii)(A)(3) above which violation would be likely to result
in a Material Adverse Effect upon its business assets or financial or
other condition, or (iii) result in the creation or imposition of any
Lien, charge or encumbrance of any nature whatsoever upon any of its
Property other than as contemplated by the Parent Pledge and Security
Agreement.
(c) Governmental Authorization. All consents and approvals of,
filings and registrations with, and other actions in respect of, all
governmental agencies, authorities or instrumentalities which are or will
be required by it in connection with the execution, delivery
-7-
<PAGE>
and performance of this Guaranty and the Parent Pledge and Security
Agreement have been, obtained, given, filed or taken and are in full force
and effect, other than any which the failure to obtain, give, file or take
would not have a Material Adverse Effect upon the legality, validity,
binding effect or enforceability of or its ability to perform under this
Guaranty or the Parent Pledge and Security Agreement to perform timely its
obligations under or in connection with this Guaranty or the Parent Pledge
and Security Agreement.
(d) Binding Effect. This Guaranty and any other Loan Document to
which it is a party constitutes its legal, valid and binding obligations
enforceable in accordance with their respective terms (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors' rights
generally and to general principles of equity).
(e) Litigation. There are no actions, suits, proceedings, claims or
disputes pending, at law, in equity, in arbitration or before any
Governmental Authority, against it or its Subsidiaries or any of their
respective properties (or to its best knowledge, threatened or
contemplated by any Governmental Authority against it or its Subsidiaries
or any of its properties) which:
(i) purport to affect or pertain to this Guaranty or any Loan
Document, or any of the transactions contemplated hereby or thereby; or
(ii) is reasonably likely to have a Material Adverse Effect
upon (A) the consummation of the transactions contemplated by the Loan
Agreement, (B) the legality, validity or enforceability of this Guaranty
or any other Loan Document, or (C) its the business, operations, assets or
financial or other condition. No injunction, writ, temporary restraining
order or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the execution,
delivery and performance of this Guaranty or any other Loan Document.
(f) Conditions Precedent. There are no conditions precedent to the
effectiveness of this Guaranty that have not been satisfied or waived.
-8-
<PAGE>
(g) No Reliance. It has, independently and without reliance upon any
Guaranteed Party and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter
into this Guaranty.
15. Guarantor hereby covenants and agrees that it will comply with all of
the obligation, requirements and restrictions in the covenants contained in
Articles 6 and 7 of the Loan Agreement to the extent that they are applicable to
such Guarantor. Guarantor further covenants and agrees that it will cause each
of its Subsidiaries to comply with all terms of the Loan Agreement and each
other Loan Document. Guarantor further covenants and agrees that, except as
otherwise permitted by the Loan Agreement, it will:
(a) Unless otherwise delivered by Borrowers, deliver to the Agent,
with sufficient copies for each of the other Guaranteed Parties, in form
and detail satisfactory to the Agent and the Majority Lenders, financial
information relating to Guarantor as set forth in Sections 6.01 and 6.02
of the Loan Agreement;
(b) Not sell or exchange its assets (including the stock of any
Subsidiary thereof), other than as may be permitted by any Loan Document;
and
(c) Not merge into or consolidate or combine with any other Person,
except that it may be merged, consolidated or liquidated into or combined
with either Borrower (i) if permitted under the Loan Documents and (ii)
the Person which shall become the legal or beneficial owner of one or more
shares of the capital stock of the applicable Borrower or other interest
in, or right to acquire an interest in, the applicable Borrower shall,
prior to the consummation of such merger, enter into a security agreement
with the Agent, for the benefit of the other Guaranteed Parties, upon
substantially the same terms and conditions as the Parent Pledge and
Security Agreement and in all respects satisfactory to the Guaranteed
Parties, pursuant to which such Person shall agree to pledge all of such
shares, interests and rights to the Agent for the benefit of the
Guaranteed Parties.
-9-
<PAGE>
16. Each Guaranteed Party may, without notice to Guarantor and without
affecting Guarantor's obligations hereunder, assign the Indebtedness and this
Guaranty, in whole or in part in accordance with the provisions of the Loan
Agreement. Guarantor agrees that each Guaranteed Party may, subject to the
provisions of the Loan Agreement, disclose to any prospective purchaser and any
purchaser of all or part of the Indebtedness any and all information in such
Guaranteed Party's possession concerning such Guarantor, this Guaranty and any
security for this Guaranty.
17. Guarantor agrees to pay all reasonable attorneys' fees, the allocated
costs of the Agent's in-house counsel, and all other and expenses which may be
incurred by any Guaranteed Party in the enforcement of this Guaranty.
18. This Guaranty shall be governed by and construed according to the laws
of the State of Nevada.
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
GUARANTOR:
RIO HOTEL AND CASINO, INC.,
a Nevada corporation
By: /s/ Ronald J. Radcliffe
------------------------------------
Title: Vice President - Treasurer
---------------------------------
By:
------------------------------------
Title:
---------------------------------
Address:
3700 W. Flamingo Road
Las Vegas, Nevada, 89103
Attn: Chief Executive Officer
-10-
<PAGE>
EXHIBIT 4(28)
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (as amended, supplemented or
otherwise modified from time to time, this "Security Agreement"), dated as of
December 18, 1998, is jointly and severally executed by RIO PROPERTIES, INC., a
Nevada corporation (the "Company") and RIO LEASING, INC., a Nevada corporation
(each a "Debtor" and collectively, the "Debtors"), in favor of BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("Secured Party"), as agent for itself
and the other lenders (individually, a "Lender" and collectively, the"Lenders")
now or hereafter a party to that certain Loan Agreement (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement") of
even date herewith among Debtors, as borrowers, Secured Party and the Lenders.
This Security Agreement is executed to induce the Lenders to make the loans
(collectively, the "Loan") to Debtors described in the Loan Agreement and
evidenced in whole or in part by promissory notes of even date herewith
(collectively, the "Notes"). Capitalized terms used and not otherwise defined
herein shall have the same meanings as set forth in the Loan Agreement.
1. Assignment. Subject to approval of the applicable Gaming Authorities as
to the Pledged Stock of HLG only, for valuable consideration, Debtors hereby
jointly and severally pledge and assign to Secured Party (and grant to Secured
Party, pursuant to Article 104.9101 et seq. of the Nevada Revised Statutes (the
Nevada enactment of the Uniform Commercial Code), a security interest in and to,
and a lien upon) all of Debtors' right, title and interest, whether now existing
or hereafter arising, in and to the tangible and intangible property
(collectively, the "Collateral") described in Schedule 1 attached hereto and
incorporated herein by this reference, as security for the prompt payment and
performance of each of the obligations described in Section 2, below
(collectively, the "Secured Obligations").
2. Obligations Secured. This Security Agreement secures the prompt payment
and performance of each of the following Secured Obligations:
<PAGE>
2.1 The Indebtedness evidenced by the Notes.
2.2 Each of Debtors' obligations to Secured Party and the Lenders
under the Loan Agreement and all other Loan Documents (but not including the
Unsecured Indemnity Agreement).
2.3 Each of Debtors' obligations hereunder.
2.4 All other obligations owing to Secured Party and/or the Lenders,
but only to the extent that any such obligation is described or referred to in a
document, executed by Debtors at Secured Party's request, which states that such
obligation is secured hereby.
2.5 Any and all amendments, extensions and other modifications of
any of the foregoing, including without limitation amendments, extensions and
other modifications that are evidenced by new or additional documents or that
change the rate of interest on any Secured Obligation.
3. Representations and Warranties. Each Debtor hereby jointly and
severally represents and warrants that:
3.1 Each Debtor is the true and lawful owner of and has good and
clear title to its portion of the Collateral, subject only to the rights of
Secured Party hereunder and to the rights of other lenders with respect to each
security interest granted by Debtors that is described in the Loan Agreement as
a "Permitted Lien" or that is described therein as a "Permitted Right of
Others".
3.2 Debtors' principal place of business and chief executive and
accounting offices are located at 3700 West Flamingo Road, Las Vegas, Nevada
89103.
3.3 The Company owns all of the issued and outstanding stock of
Cinderlane, Inc., a Nevada corporation ("Cinderlane") and HLG, Inc., a Nevada
corporation ("HLG"), and there are no outstanding warrants, options or other
rights to subscribe to or acquire any of such stock in favor of any third
person.
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<PAGE>
4. Covenants by Debtors. Each Debtor hereby jointly and severally agrees,
subject to all rights such Debtor has under the Loan Agreement, that:
4.1 Prior to or simultaneously with Debtors' execution of this
Security Agreement, Debtors will execute and cause to be filed in accordance
with the Nevada Uniform Commercial Code, financing statements in form and
substance satisfactory to Secured Party. Thereafter at any time and from time to
time, upon demand of Secured Party, Debtors shall give, execute, acknowledge,
file and record any notice, financing statement, continuation statement,
assignment, instrument, document or agreement that Secured Party reasonably
deems necessary or desirable to create, preserve, continue, perfect or validate
any security interest intended to be created hereunder or to enable Secured
Party to enforce its rights with respect to any such security interest.
4.2 Concurrently with the execution of this Security Agreement or,
as to the stock of HLG, upon the approval of the relevant Gaming Authorities to
the pledge by Debtors to Secured Party of all shares of stock of HLG owned by
Debtors, Debtors shall deliver to Secured Party all of the certificates
("Certificates") evidencing the Pledged Stock. Debtors agree that they will upon
obtaining any additional shares of stock of any issuer of Pledged Stock or any
other securities that may be converted into, or exchanged for Pledged Stock,
including any options or other rights with respect thereto, upon the approval of
the relevant Gaming Authorities, if required, to the pledge by Debtors to
Secured Party of such additional shares or other securities, promptly deliver to
Secured Party: (i) a duly executed Security Agreement Supplement in
substantially the form of Schedule 3 hereto (a "Security Agreement Supplement")
identifying the additional shares of stock which are pledged pursuant to this
second sentence of this Section 4.2 and (ii) Certificates evidencing such shares
of stock. Debtors hereby authorize Secured Party to attach the Security
Agreement Supplement to this Security Agreement and agree that all shares of
stock listed on the Security Agreement Supplement delivered to Secured Party
shall for all purposes hereunder constitute Pledged Stock.
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4.3 Debtors shall notify Secured Party prior to changing its
principal place of business and chief executive and accounting offices from the
location set forth in Section 3.2 of this Security Agreement.
4.4 Debtors shall at all times maintain the Collateral in good
condition and will from time to time make all needed and proper replacements,
repairs, renewals and improvements so that the value of the Collateral is not
impaired.
4.5 Debtors shall keep the Collateral free of all liens, claims,
security interests and encumbrances other than those described in Section 3.1,
above.
4.6 Notwithstanding Secured Party's claim to proceeds, Debtors shall
not sell, lease or otherwise transfer or dispose of any Collateral (and shall
not permit any such act) unless Debtors shall concurrently replace such
Collateral with other Collateral that is of equivalent quality and quantity and
reasonably acceptable to Secured Party; provided, however, that, so long as
Debtors are not in default hereunder, Debtors may sell or lease any Collateral
but only in accordance with Sections 7.02 and 7.05 and other applicable sections
of the Loan Agreement.
4.7 Debtors shall not, without Secured Party's prior written
consent, remove any of the Collateral from the Real Property described in
Exhibit "A" to Schedule 1 of this Security Agreement.
4.8 Debtors shall, at Debtors' own cost, defend any and all actions,
proceedings and claims affecting the Collateral, including without limitation
actions, proceedings and claims challenging Debtors' title to the Collateral or
the validity or priority of Secured Party's security interest hereunder.
4.9 Debtors shall promptly pay all taxes, assessments, license fees
and other public or private charges levied or assessed against any Collateral,
this Security Agreement or any promissory note evidencing any debt secured
hereunder.
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4.10 Debtors shall maintain such insurance with respect to the
Collateral as Secured Party reasonably requires from time to time, with insurers
satisfactory to Secured Party and with loss payable to Secured Party as its
interests may appear. Debtor shall, if so requested, deliver the original of any
such policy to Secured Party.
4.11 Debtors shall not use any Collateral in violation of any
applicable laws, rules or regulations.
4.12 All of the Collateral shall at all times remain personal
property unless otherwise determined by Secured Party.
4.13 Debtors shall fully perform all of their respective obligations
under and with respect to the Collateral and shall diligently enforce all of the
obligations of each obligor thereunder.
4.14 Debtors shall not modify, amend, supplement or cancel any of
the Collateral without the prior written consent of Secured Party.
4.15 Debtors will at all times keep accurate and complete records
with respect to the Collateral and agrees that the representatives of Secured
Party shall have the right, at any time during normal business hours or at any
other reasonable time, and from time to time, to call at Debtors' places of
business where the Collateral or any part thereof may be located or the records
pertaining to the Collateral may be kept and to inspect the Collateral and/or
examine such records and to make abstracts therefrom or copies thereof; in
addition, Debtors shall furnish Secured Party with periodic reports as to the
Collateral, in such form and detail and at such times as Secured Party may
require.
4.16 Monies received because of any court or arbitration award or
settlement or insurance payment, for any loss or damage to the Collateral, and
proceeds from any condemnation award or settlement relating to the Collateral
shall be treated as provided in the Loan Documents with regard to the related
Property.
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4.17 As soon as practicable, and in any event within ten (10) days,
Debtors shall notify Secured Party of:
(a) Any attachment or other legal process levied against any
of the Collateral;
(b) Any information received by Debtors which may in any
manner materially and adversely affect the value of the Collateral or the rights
and remedies of Secured Party with respect thereto; and
(c) The removal of any of the Collateral to a new location and
the removal of any records of Debtors relating to the Collateral to any location
other than that set forth in Section 3.2, above.
Any notice delivered pursuant to this Section 4.16 shall set forth the nature of
such event and the action which Debtors proposes to take with respect thereto.
5. Events of Default. The occurrence of any of the following shall
constitute a default hereunder:
5.1 The occurrence of any Event of Default under the Loan Agreement.
5.2 Default in any other obligation secured hereunder.
5.3 Default in any obligation contained herein.
5.4 Any statement, representation or warranty made by Debtors herein
or in any document secured hereunder proves to have been false or inaccurate in
any material respect when made.
6. Remedies. In the event of any default hereunder, and subject to
applicable Gaming Laws (as defined in the Loan Agreement), Secured Party shall
have all of the following rights and remedies, each of which may be exercised
with or without further notice to Debtors:
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6.1 To notify any and all obligors on any and all accounts assigned
hereunder (collectively, the "Accounts") that such Accounts have been assigned
to Secured Party and/or that all payments on such Accounts are to be made
directly to Secured Party;
6.2 To settle, compromise or release on terms acceptable to Secured
Party, in whole or in part, any amounts owing on any and all Accounts;
6.3 To enforce payment and prosecute any action or proceeding with
respect to any and all Accounts;
6.4 To extend the time of payment, make allowances and adjustments
and issue credits with respect to Accounts in Secured Party's name or in the
name of Debtors;
6.5 To foreclose the liens and security interests created under this
Security Agreement or under any other agreement relating to any Collateral by
any available judicial procedure or without judicial process;
6.6 To sell, assign, lease, or otherwise dispose of the Collateral
or any part thereof, either at public or private sale, in lots or in bulk, for
cash, on credit or otherwise, with or without representations or warranties, and
upon such terms as shall be acceptable to Secured Party, all at Secured Party's
sole option and as Secured Party may deem advisable in its sole discretion;
6.7 To hold, operate, and manage the same and from time to time make
all needed repairs and such alterations, additions, advances and improvements as
Secured Party shall deem appropriate;
6.8 To manage, or retain a manager for, the operation of the
business or businesses being conducted on the Real Property;
6.9 To declare all Secured Obligations immediately due and payable;
and
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6.10 To exercise any and all other rights and remedies that Secured
Party may have in any jurisdiction where enforcement of this Security Agreement
is sought, including without limitation all rights and remedies of a secured
party under any applicable Uniform Commercial Code. Secured Party shall have the
right to enforce one or more of its remedies successively or concurrently, and
such action shall neither estop nor prevent Secured Party from pursuing any and
all further remedies that it may have. In the event that Debtors fails to
perform any obligation set forth herein, Secured Party may, but shall not be
obligated to, perform the same, and the cost thereof shall be payable by Debtors
to Secured Party on demand and shall bear interest at the default rate of
interest set forth in the Loan Agreement (or, if there is no such default rate,
at the rate of interest set forth in the Loan Agreement). No failure on the part
of Secured Party to exercise, and no delay in exercising, any right or remedy
shall operate as a waiver thereof or of any default, nor shall any single or
partial exercise of any right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
7. Sale of Collateral. The following shall apply with respect to any sale,
assignment, lease or other disposition of the Collateral by Secured Party
pursuant to Article 6, above, after Secured Party's compliance with applicable
Gaming Laws.
7.1 Debtors shall, at Secured Party's request, assemble any and all
Collateral and make it available to Secured Party at such places as Secured
Party designates that are reasonably convenient to both parties, whether at the
premises of Debtors or elsewhere, and shall make available to Secured Party all
premises and facilities of Debtors for the purpose of Secured Party's taking
possession of the Collateral or removing or putting the Collateral in saleable
form.
7.2 If any Collateral requires repair, maintenance, preparation or
the like, or is in process or other unfinished state, Secured Party shall have
the right to perform all repairs, maintenance, preparation and other processing
and completion of manufacture required to put the same in such saleable form as
Secured Party deems appropriate, but Secured Party shall also have the right to
sell or dispose of such Collateral without any such processing.
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7.3 Secured Party shall give Debtors ten (10) days' prior written
notice of any such sale, assignment, lease or other disposition. Debtors agree
that such notice is commercially reasonable and Debtors hereby waive all other
notices, demands and advertisements of any kind.
7.4 Secured Party may bid or purchase at any such sale, if public,
free from any right of redemption that Debtors may have, which right of
redemption is hereby waived, and Secured Party may restrict the prospective
bidders or purchasers at any such sale to persons who will represent and warrant
that they are acquiring the Collateral for their own account and otherwise in
compliance with the federal Securities Act of 1933, as amended.
7.5 Because of present or future circumstances, a question may arise
under the federal Securities Act of 1933, as amended, as now or hereafter in
effect, or any similar statute hereafter enacted analogous in purpose or effect
(such Act and any such similar statute as from time to time in effect being
hereinafter called the Federal Securities Laws) with respect to any disposition
of the Collateral. Debtors acknowledge that compliance with the Federal
Securities Laws and/or Gaming Laws may strictly limit Secured Party's course of
conduct in disposing of all or any part of the Collateral and may also limit the
extent to which or the manner in which any subsequent transferee of the
Collateral may dispose of the same, and that there may be other legal
restrictions or limitations affecting Secured Party in any attempts to dispose
of all or any part of the Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or effect.
8. Facilitation of Rights and Remedies. To facilitate the exercise by
Secured Party of the rights and remedies set forth in this Security Agreement,
Debtors authorize Secured Party, subject to Secured Party's compliance with
applicable Gaming Laws, to exercise any or all of the following powers:
8.1 To enter any premises where any Collateral may be located for
the purpose of taking possession of or removing such Collateral, to remove from
any premises where any Collateral may be located the Collateral and any and all
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documents, instruments, files and records relating to the Collateral, and any
receptacles and cabinets containing the same, and to use the supplies and space
of Debtors at any or all of its places of business as may be necessary or
appropriate to properly administer and control the Collateral or the handling of
collections and realizations thereon, at Debtors' cost and expense;
8.2 To receive, open and dispose of all mail addressed to Debtors
and notify postal authorities to change the address for delivery thereof to such
address as Secured Party may designate;
8.3 To manage, or to retain a manager for, the operation of the
business or businesses being conducted on the Real Property;
8.4 To take or bring, in Secured Party's name or in the name of
Debtors, all steps, actions, suits or proceedings deemed necessary or desirable
by Secured Party to effect collection or to realize upon Accounts and any other
Collateral; and
8.5 To prepare, sign and file or record, for Debtors in Debtors'
name, financing statements, applications for registration and like papers.
9. Application of Proceeds. The net cash proceeds resulting from any
collection, liquidation, sale or other disposition of the Collateral by Secured
Party shall be applied first to the expenses (including reasonable attorneys'
fees) of retaking, holding, storing, processing, preparing for sale, selling,
collecting, liquidating and the like, and then to the satisfaction of other
Secured Obligations then due, application as to particular obligations or
against principal or interest to be in Secured Party's absolute discretion.
10. Actions by Secured Party Following Default. While any default
hereunder remains uncured, Secured Party shall have the right (but no
obligation) to take such actions (in its name or in the name of Debtors) as
Secured Party reasonably deems appropriate to cure any default by Debtors under
any agreement which constitutes part of the Collateral or to otherwise
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protect the rights and interests of Debtors and/or Secured Party under any such
agreement. Neither Secured Party nor any of the Lenders shall incur any
liability as a result of any such action if such action is taken in good faith
in accordance with the foregoing, and Debtors shall defend, indemnify and hold
Secured Party and each of the Lenders harmless from and against all claims,
demands, causes of action, liabilities, losses, costs and expenses (including
cost of suit and reasonable attorneys' fees) arising from or in connection with
any such good faith action.
11. Specific Assignments and Consents. Upon Secured Party's demand from
time to time, (a) Debtors shall execute and deliver to Secured Party an
assignment of contract(s), in form and substance satisfactory to Secured Party,
which specifically describes one or more of the agreements assigned hereunder
and (b) Debtors shall use their best efforts to obtain and deliver to Secured
Party a consent to assignment, in form and substance satisfactory to Secured
Party, pursuant to which any party other than Debtors to any agreement assigned
hereunder consents to such assignment and agrees to recognize Secured Party as
Debtors' successor in the event that Secured Party succeeds to Debtors'
interests.
12. Secured Party's Costs and Expenses. Debtors shall reimburse Secured
Party on demand for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with the enforcement of
this Security Agreement, regardless of whether any suit is filed, including
without limitation all reasonable costs and expenses incurred in checking,
retaking, holding, handling, preparing for sale and selling or otherwise
disposing of any and all Collateral, or for managing, or retaining a manager
for, the operation of the business or businesses being conducted on the Real
Property. Such reimbursement obligations shall bear interest from the date of
demand at the default rate of interest set forth in the Loan Agreement (or, if
there is no such default rate, at the rate of interest set forth in the Loan
Agreement).
13. Obligations Unconditional. Debtors's obligation to perform and observe
the agreements and covenants contained herein shall be absolute and
unconditional. Until such time as all Secured Obligations have been fully paid
and performed,
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Debtors (i) shall perform and observe all of its agreements and covenants
contained in this Security Agreement; and (ii) shall not terminate this Security
Agreement for any cause, including without limitation any acts or circumstances
that may constitute failure of consideration, destruction of, or damage to, the
Collateral, commercial frustration of purpose, any change in the laws of the
United States of America or of the State of Nevada or any political subdivision
of either, or any failure of Secured Party to perform or observe any agreement,
whether express or implied, or any duty, liability or obligation, arising out of
or in connection with this Security Agreement.
14. Nonliability and Indemnity of Secured Party. Debtors hereby agree that
neither Secured Party's acceptance of the security interests granted hereunder
nor any exercise by Secured Party of its rights and remedies hereunder shall be
deemed to be an assumption by Secured Party or any of the Lenders of any of
Debtors' obligations and liabilities under the terms of any of the Collateral,
and Debtors jointly and severally agree to indemnify and hold Secured Party and
each of the Lenders harmless against any and all claims, damages, costs and
expenses (including reasonable attorneys' fees) suffered or incurred by Secured
Party in connection therewith.
15. Miscellaneous Waivers. Presentment, protest, notice of protest, notice
of dishonor and notice of nonpayment are waived with respect to any proceeds to
which Secured Party is entitled hereunder.
16. Successors and Assigns. Subject to any applicable restrictions on
assignment contained herein or in any of the Loan Documents, this Security
Agreement shall bind, and shall inure to the benefit of, the respective heirs,
executors, administrators, successors and assigns of Debtors and Secured Party.
The term "Secured Party" shall include any successor agent for the Lenders, the
Lenders individually if there is no agent representing then, and any other
holder and owner from time to time (including any pledgee or assignee) of any of
the Notes or any other Secured Obligation.
17. Attorney-in-Fact. Debtors hereby constitute and appoint Secured Party
as their respective attorney-in-fact for the purposes of (a) carrying out the
provisions of this
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Security Agreement and (b) taking any and all actions and executing any and all
instruments that Secured Party reasonably deems necessary or advisable to
accomplish the purposes of this Security Agreement and/or to protect Secured
Party's interests with respect to the Collateral, and (c) while any default
hereunder remains uncured, enforcing Debtors' rights (in Secured Party's name or
in Debtors' name) under any agreement which constitutes part of the Collateral.
In furtherance of clause (c), Debtors shall deliver to Secured Party, upon
Secured Party's demand while any default hereunder remains uncured, all
documents which Secured Party reasonably deems appropriate to permit Secured
Party's succession to Debtors' rights and interests and to facilitate the
enforcement by Secured Party of Debtors' rights with respect to such agreements.
The power of attorney granted hereunder is coupled with an interest and is
irrevocable.
18. Voting Rights; Dividends; Etc.
18.1 Rights in Absence of Default. So long as no Default remains
uncured:
18.1.1 Voting Rights. Debtors shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Pledged Stock,
or any part thereof, for any purpose not inconsistent with the terms of the Loan
Agreement, this Security Agreement, or any other Loan Document; provided, that
Debtors shall not exercise any such right if it would result in a default
hereunder.
18.1.2 Dividend and Distribution Rights. Debtors shall be
entitled to receive and to retain and use any and all dividends or distributions
paid in respect of the Pledged Stock; provided, that any and all such dividends
or distributions received in the form of capital stock shall be Pledged Stock,
and the Certificates representing such capital stock shall be delivered to
Secured Party immediately upon receipt by Debtors, subject, in the case of stock
of HLG, to the approval of the applicable Gaming Authorities, to be held by
Secured Party hereunder; and such stock shall, if received by Debtors and until
so delivered, be received and held in trust for the benefit of Secured Party.
18.2 Rights Following Event of Default. While any Default remains uncured,
subject to compliance with applicable Gaming Laws:
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18.2.1 Voting, Dividend and Distribution Rights. At the option
of Secured Party exercised by written notice to Debtors, all rights of Debtors
to exercise the voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to Section 18.1.1, above, and to receive the
dividends and distributions which it would otherwise be authorized to receive
and retain pursuant to Section 18.1.2, above, shall cease, and all such rights
shall thereupon become vested in Secured Party, who shall thereupon have the
sole right to exercise such voting and other consensual rights and to receive
and to hold as Collateral such dividends and distributions.
18.2.2 Dividends and Distributions Held in Trust. All
dividends and other distributions which are received by Debtors contrary to the
provisions of this Security Agreement shall be received and held in trust for
the benefit of Secured Party and shall be delivered to Secured Party as
Collateral immediately upon receipt, in the same form as received (with any
necessary endorsements).
18.2.3 Irrevocable Proxy. Debtors hereby revoke all previous
proxies with regard to the Pledged Stock and appoints Secured Party as its
proxyholder to attend and vote at any and all meetings of the shareholders of
the issuer of any Pledged Stock held on or after the date of the giving of this
proxy and prior to the termination of this proxy, and to execute any and all
written consents of shareholders of any such issuer executed on or after the
date of the giving of this proxy and prior to the termination of this proxy,
with the same effect as if Debtors had attended the meetings or voted its
respective shares or signed the written consents, as applicable; provided, that
the proxyholder shall only have the rights described in this paragraph while any
default hereunder remains uncured. Debtors hereby authorize Secured Party as the
proxyholder and hereby authorizes and directs any such proxyholder to file this
proxy and the substitution instrument with the secretary of the appropriate
issuer of the Pledged Stock. This proxy is coupled with an interest and is
irrevocable until such time as no part of any Secured Obligation remains
outstanding.
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19. Additional Provisions re Pledged Stock.
19.1 No Obligation to Act. Secured Party shall have no
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Stock.
19.2 Reliance on Agreement. Subject to compliance with applicable
Gaming Laws, Debtors hereby consent and agree that the issuers of any Pledged
Stock, or any registrar or transfer agent or trustee for any of the Pledged
Stock, shall be entitled to accept the provisions of this Security Agreement as
conclusive evidence of the right of Secured Party to effect any transfer or
exercise any right hereunder, notwithstanding any other notice or direction to
the contrary heretofore or hereafter given by Debtors or any other Person to
such issuers or obligors or to any such registrar, transfer agent or trustee.
19.3 Covenant Not to Issue Uncertificated Securities. Debtors
jointly and severally represent and warrant to Secured Party that all of the
capital stock of Cinderlane and HLG are in certificated form (as contemplated by
Article 104.8101 et seq. of the Nevada Revised Statutes), and covenant to
Secured Party that it will not cause or permit Cinderlane or HLG (or any other
issuer of any Pledged Stock) to issue any capital stock in uncertificated form
or seek to convert all or any part of its existing capital stock into
uncertificated form (as contemplated by Article 104.8101 et seq. of the Nevada
Revised Statutes).
19.4 Covenant Not to Dilute Interests of Secured Party. Debtors
shall not at any time cause or permit Cinderlane or HLG (or any other issuer of
any Pledged Stock) to issue any additional capital stock, or any warrants,
options or other rights to acquire any additional capital stock, if the effect
thereof would be to dilute in any way the interests of Secured Party in
Cinderlane or HLG or any such issuer.
19.5 Foreclosure By Private Sale. By virtue of the Securities Act of
1933, as amended ("1933 Act"), or any other Laws or regulations, legal
restrictions or limitations may
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apply and affect Secured Party in any attempts to dispose of all or any portion
of the Collateral in the enforcement of Secured Party's rights and remedies
hereunder. For these reasons, Secured Party is hereby authorized by Debtors, but
not obligated, in the event of any Event of Default giving rise to Secured
Party's rights to sell or otherwise dispose of any Collateral consisting of
securities, to sell all or any part of the securities at private sale, subject
to investment letter restrictions or in any other manner which will not require
the securities, or any part thereof, to be registered in accordance with the
1933 Act, as amended, or the rules and regulations promulgated thereunder, or
any other law or regulation ("Registration"), at the best price reasonably
obtainable by Secured Party at any such private sale or other disposition in any
such manner mentioned above. Secured Party is hereby further authorized by
Debtors, provided Secured Party has complied with all applicable portions of the
Gaming Laws, but not obligated, in the event of any Event of Default giving rise
to Secured Party's rights to sell or otherwise dispose of Collateral, to sell
all or any part of Collateral consisting of securities at a public sale at the
best price obtainable by Secured Party at any such public sale. A commercially
reasonable public sale of securities shall be deemed to include, but not be
limited to, the following: (i) Secured Party shall publish a notice of the sale
in a newspaper of general circulation in the county of the office of the Secured
Party or the county of the place of sale chosen by Secured Party, if not at its
office, and elsewhere as chosen by the Secured Party; (ii) the notice of sale
shall state that Secured Party reserves the right to bid for and purchase the
collateral; (iii) all securities of equal class and series of the same issuer
shall be sold only as a block and shall not be sold jointly or broken down; (iv)
the purchaser of the securities shall provide an investment letter; (v) the
securities sold shall bear a legend to the effect that the securities are
restricted and may not be sold or transferred without registration under the
1933 Act and under applicable state securities laws or under a valid exemption
from the 1933 Act and from applicable state securities laws; and (vi) any other
procedures or restrictions necessary to sell or dispose of the securities, or
any part thereof, without Registration of the securities or to comply with any
other express requirements of the Uniform Commercial Code. Secured Party is also
hereby
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authorized by Debtors, but not obligated, to take such actions, give such
notices, obtain such consents, and do such other things as Secured Party may
deem required or appropriate in the event of a sale or disposition of any of
Collateral consisting of securities. Debtors understand that Secured Party may
in its discretion approach a restricted number of potential purchasers in a
private sale and that a sale under such circumstances may yield a lower price
for Collateral, or any part or parts thereof, than would otherwise be obtainable
if the same were registered and sold in the open market. Debtors also understand
that a public sale of securities in any manner that will not require the
registration of the securities or any part thereof, may yield a lower price for
the securities, or any part or parts thereof, than would otherwise be obtainable
if the same were registered and sold in the open market. Debtors agree (i) that
in the event Secured Party shall, upon any default hereunder, sell Collateral
consisting of securities, or any portion thereof, at such private sale or sales
or at such public sale, Secured Party shall have the right to rely upon the
advice and opinion of any member firm of a national securities exchange as to
the best price reasonably obtainable upon such private sale or public sale
thereof, and (ii) that such reliance shall be conclusive evidence that Secured
Party handled such matter in a commercially reasonable manner under the Uniform
Commercial Code.
20. Notices. All notices or communications herein required or permitted to
be given shall be in writing and shall be governed in all respects by the notice
provisions of the Loan Agreement.
21. Entire Agreement; Amendment; Waiver. This Security Agreement, together
with any and all other documents referred to herein, constitutes the entire
agreement between Debtors and Secured Party pertaining to the subject matter
contained herein. This Security Agreement may not be amended, changed, modified,
altered or terminated except by a written instrument signed by Secured Party and
Debtors. Neither Secured Party nor Debtors may waive any right hereunder except
by a signed written instrument.
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22. Severability. In the event any provision of this Security Agreement is
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
23. Section Headings. The subject headings and the sections and
subsections of this Security Agreement are included for convenience only and
shall not affect the construction or interpretation of any provision.
24. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of Nevada.
25. Definitions. Unless otherwise defined, words used herein have the
meanings given them in the Uniform Commercial Code of Nevada.
26. Execution of Counterparts. This Security Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, and
all of which shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, Debtors have caused this Security Agreement to
be duly executed as of the date first written above.
"Debtors":
RIO PROPERTIES, INC.,
a Nevada corporation
By /s/ Ronald J. Radcliffe
-------------------------------------
Its Treasurer
---------------------------------
By
-------------------------------------
Its
---------------------------------
RIO LEASING, INC.,
a Nevada corporation
By /s/ Ronald J. Radcliffe
-------------------------------------
Its Secretary
---------------------------------
By
-------------------------------------
Its
---------------------------------
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SCHEDULE 1
All of Debtors' right, title and interest in, to and under the following:
(a) All Accounts of Debtors;
(b) All Chattel Paper of Debtors;
(c) All Contracts of Debtors;
(d) All Documents of Debtors;
(e) All Equipment of Debtors;
(f) All Fixtures of Debtors;
(g) All General Intangibles of Debtors;
(h) All Instruments of Debtors;
(i) All Inventory of Debtors;
(j) All Pledged Stock;
(k) The Restricted Loan Proceeds Account;
(l) All property of Debtors held by Secured Party, or any
other party for whom Secured Party is acting as agent hereunder,
including, without limitation, all property of every description now or
hereafter in the possession or custody of or in transit to Secured Party
or such other party for any purpose, including, without limitation,
safekeeping, collection or pledge, for the account of Debtors, or as to
which Debtors may have any right or power;
(m) To the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of each of the foregoing.
<PAGE>
(n) In addition to the foregoing, and without limiting any of
the foregoing, all present and future personal property of every kind and
nature whatsoever, tangible or intangible, now or hereafter located at,
upon or about the real property described in Exhibit "A" attached hereto
and incorporated herein by this reference (the "Real Property") or used or
to be used in connection with the Real Property, or relating or arising
with respect to the Real Property and/or the use thereof or any
improvements thereto, including without limitation:
(1) All present and future goods, inventory and
equipment, as those terms are defined in the Nevada Uniform
Commercial Code, including without limitation: furniture and
furnishings; fixtures and trade fixtures; gaming equipment (to the
extent permitted under applicable law); consumer goods; appliances;
machinery; cabinets; doors; plumbing and plumbing material and
supplies; electrical wiring and electrical material and supplies;
heating, air conditioning and ventilation material and supplies;
roofing material and supplies; window material and supplies; ceramic
material and supplies; flooring and carpeting; insulation; fencing;
landscaping; concrete, lumber, hardware, paint, drywall, and all
other building materials, supplies and equipment of every kind and
nature.
(2) All present and future accounts, accounts
receivable, general intangibles, chattel paper, contract rights,
rights to payment, deposit accounts, and instruments and documents
as those terms are defined in the Nevada Uniform Commercial Code,
including without limitation: (i) all rights to the payment of
money, including escrow proceeds arising out of the sale or other
disposition of all or any portion of the Real Property; (ii) all
plans, specifications, drawings, soils tests, appraisals,
engineering reports and other documents and materials relating to
the development of the Real Property and/or any construction
thereon; (iii) all use permits, occupancy permits, construction and
building
-2-
<PAGE>
permits, zoning authorizations, development agreements, and all
other permits, approvals and other authorizations of any
governmental or quasi-governmental authority in connection with the
ownership, development, construction, use or operation of the Real
Property; (iv) all easements, covenants running with the land,
equitable servitudes, tract and/or parcel maps, surveys, appraisals,
entitlements, subdivision or other bonds, and all engineering,
architectural and governmental compliance papers; (v) any and all
agreements relating to the development, use, occupancy and/or
operation of the Real Property, including without limitation
construction, engineering, architectural, service, property
management, landscaping, gardening, consulting and other contracts
of every nature; (vi) all leases, licenses and other agreements
relating to the occupancy or use of any portion of the Real
Property; (vii) all names under which the Real Property is now or
hereafter known and all rights to carry on business under any such
names or any variant thereof; (viii) all trademarks, trade names,
logos, designs and symbols (collectively, "names and marks")
relating to the Property and/or the development, construction, use,
occupancy or operation thereof, including without limitation any
name or mark now or hereafter used in connection with any
restaurant, cocktail lounge, night club, banquet room or meeting
rooms on the Property, together with the goodwill appurtenant to
each such name and mark; (ix) all goodwill, chooses in action, trade
secrets, computer programs, software, customer lists, advertising
material, patents, licenses, copyrights, technology, processes and
proprietary information relating to the Real Property and/or the
development, construction, use, occupancy or operation thereof; (x)
all insurance proceeds and condemnation awards arising out of or
incidental to the ownership, development, construction, use,
occupancy or operation of the Real Property; (xi) all reserves,
deferred payments, deposits, refunds, cost savings, bonds, insurance
policies and payments of any kind
-3-
<PAGE>
relating to the Real Property; (xii) all loan commitments issued to
Debtors in connection with any sale or financing of the Real
Property; (xiii) all water stock, if any, relating to any Real
Property and all shares of stock or other evidence of ownership of
any part of or interest in any property that is owned by Debtors in
common with others; (xiv) all accounts receivable and rights to
payment relating to the development, operation, use, occupancy or
maintenance of, and the services rendered in connection with, the
Real Property, whether or not yet earned by performance and whether
or not evidenced by an instrument, including without limitation all
rights to payment from any consumer credit or charge card
organization or entity, and all leases, issues, profits, room
charges, utility deposits, rent, security and/or cleaning deposits,
service charges, food and beverage charges, sundry and gift shop
receipts, conference and meeting room charges, equipment rental fees
and laundry service charges, and all other forms of obligations
owing to Debtors or in which Debtors may have any interest, however
created or arising; (xv) that certain Standard Form of Agreement
Between Owner and Architect dated September 21, 1992, between
Debtors and Anthony A. Marnell II, Chtd. ("Architect"), (xvi) that
certain Standard Form of Agreement Between Owner and Architect dated
May 3, 1993, between Debtors and Architect, (xvii) that certain
Building Contract dated January 4, 1993, between Debtors and Marnell
Corrao Associates, Inc., a Nevada corporation ("Contractor"),
(xviii) that certain Building Contract dated June 11, 1993, between
Debtors and Contractor, (xix) all credit instruments commonly known
as "markers" and (xx) all supplements, modifications and amendments
to the foregoing.
(3) All fixtures located upon or within the Real
Property or now or hereafter attached to, installed in, or used or
intended for use in connection with the Real Property, including
without limitation any and all signs, partitions, generators,
screens, awnings, boilers, furnaces, pipes, plumbing,
-4-
<PAGE>
elevators, cleaning, call and sprinkler systems, fire extinguishing
apparatus and equipment, water tanks, hot water heaters, heating,
ventilating, air conditioning and air cooling equipment, and gas and
electric machinery and equipment.
(4) All present and future books and records used in
connection with the development, operation, use, occupancy or
maintenance of the Real Property, including without limitation books
of account and ledgers of every kind and nature, all electronically
recorded data relating to Debtors or the business thereof, all
receptacles and containers for such records, and all files and
correspondence;
(5) All present and future inventory and merchandise
located upon or within the Real Property, including without
limitation all present and future goods held for sale or lease or to
be furnished under a contract of service, all raw materials, work in
process and finished goods, all packing materials, supplies and
containers relating to or used in connection with any of the
foregoing, and all bills of lading, warehouse receipts or documents
of title relating to any of the foregoing;
(6) All present and future stocks, bonds, debentures,
securities, subscription rights, options, warrants, puts, calls,
certificates, partnership interests, joint venture interests,
investments and/or brokerage accounts relating to or affecting the
Real Property and all rights, preferences, privileges, dividends,
distributions, redemption payments, or liquidation payments with
respect thereto;
(7) All trees, plants, irrigation systems and other
items of landscaping and decoration;
(8) All rights and interests relating to any parking
facilities used in connection with or related to the Real Property,
including without limitation all covenants, conditions and
-5-
<PAGE>
restrictions, easements, accounts, accounts receivable and other
rights to payment arising in connection with the use and operation
thereof, including without limitation, parking fees, valet parking
fees and other parking charges;
(9) All present and future interests of Debtors in and
to any franchise, hotel or restaurant operator's agreement,
management agreement, license agreement or reservation agreement
used in connection with the development, operation, use, occupancy
or maintenance of the Real Property, including without limitation
all related service, maintenance, union and employment contracts
(including pension plans);
(10) All appliances, furnishings, furniture, machinery,
systems, apparatus, equipment, trade fixtures and personal property
located upon or used in connection with the development, operation,
use, occupancy or maintenance of the Real Property, including
without limitation:
(i) all furniture and furnishings, including
without limitation tables, chairs, desks, sofas, beds,
dressers, cabinets, office furniture and all other indoor and
outdoor furniture of every kind; carpets, rugs and other floor
coverings; wall coverings; shades, venetian blinds, drapes,
drapery rods and brackets, curtains and other window
coverings; tapestries, pictures, paintings and other artworks
and decorative elements; screens; shelves; lockers, safes and
vaults; mirrors; clocks; lamps and other lighting fixtures and
elements; and sinks, tubs, toilets and all other bathroom
fixtures and furniture;
(ii) all machinery and equipment of every kind,
including without limitation laundry equipment, washers,
dryers, vacuum cleaners, stoves, ovens, ranges, refrigerators,
ice boxes, microwave ovens and timers, dishwashers, disposals,
air conditioning
-6-
<PAGE>
equipment, beauty shop and barber equipment, fire
extinguishers and other safety equipment and systems,
dumbwaiters, conveyors, motors, engines, and food and drink
preparation, storing and service apparatus and systems;
(iii) all office equipment, including without
limitation safes and cash registers; and accounting,
duplicating, data processing, communication, switchboard and
reservation equipment;
(iv) all operating supplies, including without
limitation chinaware, glassware, linens, bedding, silverware,
tableware, uniforms, inventories of food, liquor and
beverages, kitchen utensils, upholstery supplies, cleaning
supplies, paint supplies, janitor's equipment and supplies,
laundry supplies, unlaid carpeting, mechanical stores and
printed hotel forms;
(v) all recreation equipment and supplies,
including without limitation equipment and supplies used in
connection with any gymnasium, sauna, hot tub, steam room or
swimming pool and game and sports equipment;
(vi) all entertainment equipment, including
without limitation radios, tape players, phonograph sets,
speakers, phonograph records, tapes, arcade games, television
sets, antennas and antenna systems, intercoms, and public
address systems; and
(vii) all surveillance and security systems;
(11) All rights in connection with any business, trade,
advertising or promotional association or similar group;
-7-
<PAGE>
(12) All present and future accessions, additions,
attachments, replacements and substitutions of or to any or all of
the foregoing.
(13) All cash and noncash proceeds and products of any
or all of the foregoing, including without limitation all monies,
deposit accounts, insurance proceeds and other tangible or
intangible property received upon a sale or other disposition of any
of the foregoing, whether voluntary or involuntary.
Defined Terms.
As used in this Schedule 1, the following terms shall have the
following meanings (such meanings being equally applicable to both the singular
and plural forms of the terms defined):
"Account Debtors" means any "account Debtors," as such term is
defined in Section 9105(1)(a) of the UCC.
"Accounts" means any "account," as such term is defined in
Section 9106 of the UCC, now owned or hereafter acquired by Debtors and,
in any event, shall include, without limitation, all gaming accounts,
accounts receivable, book debts and other forms of obligations (other than
forms of obligations evidenced by Chattel Paper, Documents or Instruments)
now owned or hereafter received or acquired by or belonging or owing to
Debtors (including, without limitation, under any trade name, style or
division thereof) whether arising out of goods sold or services rendered
by Debtors or from any other transaction, whether or not the same involves
the sale of goods or services (including, without limitation, any such
obligation which may be characterized as an account or contract right
under the UCC) and all of Debtors' rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Debtors' rights to any goods represented by any of
the foregoing (including, without limitation, unpaid seller's rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or
-8-
<PAGE>
repossessed goods), and all monies due or to become due to Debtors under
all purchase orders and contracts for the sale of goods or the performance
of services or both by Debtors (whether or not yet earned by performance
on the part of Debtors or in connection with any other transaction), now
in existence or hereafter occurring, including, without limitation, the
right to receive the proceeds of said purchase orders and contracts, and
all collateral security and guarantees of any kind given by any Person
with respect to any of the foregoing.
"Chattel Paper" means any "chattel paper," as such term is
defined in Section 9105(l)(b) of the UCC, now owned or hereafter acquired
by Debtors.
"Contracts" means all contracts, undertakings, franchise
agreements or other agreements (other than rights evidenced by Chattel
Paper, Documents or Instruments) in or under which Debtors may now or
hereafter have any right, title or interest, including, without
limitation, with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof.
"Documents" means any "document," as such term is defined in
Section 9105(l)(f) of the UCC, now owned or hereafter acquired by Debtors.
"Equipment" means any "equipment," as such term is defined in
Section 9109(2) of the UCC, now or hereafter owned or acquired by Debtors
and, in any event, shall include, without limitation, all ambulances and
other vehicles, gaming equipment, machinery, furnishings, computers and
other electronic data-processing equipment of any nature whatsoever, any
and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Fixtures" means "fixtures," as such term is defined in
Section 9313-(1)(a) of the UCC, now or hereafter owned or acquired by
Debtors and, in any event shall include, without limitation, regardless of
where
-9-
<PAGE>
located, all of the fixtures, systems, machinery, apparatus, equipment and
fittings of every kind and nature whatsoever and all appurtenances and
additions thereto and substitutions or replacements thereof, now or
hereafter attached or affixed to or constituting a part of, or located in
or upon, real property wherever located, including, without limitation,
all security systems, heating, electrical, mechanical, lighting, lifting,
plumbing, ventilating, air-conditioning and air cooling, refrigerating,
food preparation, incinerating and power, loading and unloading, signs,
escalators, elevators, boilers, communication, switchboards, sprinkler and
other fire prevention and extinguishing fixtures, systems, machinery,
apparatus and equipment, and all engines, motors, dynamos, machinery,
pipes, pumps, tanks, conduits and ducts constituting a part of any of the
foregoing, together with all right, title and interest of Debtors in and
to all extensions, improvements, betterments, renewals, substitutes, and
replacements of, and all additions and appurtenances to any of the
foregoing property, and all conversions of the security constituted
thereby, immediately upon any acquisition or release thereof or any such
conversion, as the case may be.
"General Intangibles" means any "general intangibles," as such
term is defined in Section 9106 of the UCC now owned or hereafter acquired
by Debtors and, in any event shall include, without limitation, all right,
title and interest which Debtors may now or hereafter have in or under any
Contract, all customer lists, Trademarks, Patents, rights or intellectual
property, interests in partnerships, joint ventures and other business
associations, Licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge,
know-how, software, data bases, data, skill, expertise, recipes,
experience, processes, models, drawings, materials and records, goodwill
(including, without limitation, the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any
Trademark License), claims in or under insurance policies,
-10-
<PAGE>
including unearned premiums, uncertificated securities, deposit accounts,
rights to receive tax refunds and other payments and rights of
indemnification.
"Instruments" means any "instrument," as such term is defined
in Section 9105(1)(i) of the UCC now owned or hereafter acquired by
Debtors, including, without limitation, all notes, certificated
securities, credit instruments commonly known as "markers" and other
evidences of indebtedness, other than instruments that constitute or are a
part of a group of writings that constitute, Chattel Paper.
"Inventory" means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or
acquired by, Debtors and, in any event, shall include, without limitation,
all inventory, merchandise, goods and other personal property which are
held by or on behalf of Debtors for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw
materials, work in process or materials used or consumed or to be used or
consumed in Debtors' business, or the processing, packaging, promotion,
delivery or shipping of the same, and all furnished goods whether or not
such inventory is listed on any schedules, assignments or reports
furnished to Secured Party from time to time and whether or not the same
is in transit or in the constructive, actual or exclusive occupancy or
possession of Debtors or is held by Debtors or by others for Debtors'
account, including, without limitation, all goods covered by purchase
orders and contracts with suppliers and all goods billed and held by
suppliers and all inventory which may be located on premises of Debtors or
of any carriers, forwarding agents, truckers, warehousemen, vendors,
selling agents or other persons.
"License" means any Patent License, Trademark License or other
license of rights or interests now held or hereafter acquired by Debtors.
-11-
<PAGE>
"Patent License" means any of the following now owned or
hereafter acquired by Debtors: any written agreement granting any right
with respect to any invention on which a Patent is in existence.
"Patents" means all of the following in which Debtors now hold
or hereafter acquire any interest: (a) letters patent of the United States
or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including, without limitation, registrations, recordings and applications
in the United States Patent and Trademark Office or in any similar office
or agency of the United States, any State thereof or any other country and
(b) all reissues, continuations, continuations-in-part or extensions
thereof; all petty patents, divisionals, and patents of addition; and (c)
all patents to issue on such applications.
"Pledged Stock" means all of the shares of stock described in
Schedule 2 hereto and issued by the issuers named therein and all
additional shares of stock of any such issuer from time to time acquired
by Debtors in any manner and any other securities, options or rights
received by Debtors pursuant to any reclassification, reorganization,
increase or reduction of capital or stock dividend or in substitution of
or in exchange for any such shares of stock (all of which shares of stock
shall be deemed part of the Pledged Stock) and all shares of stock
acquired, received or owned by Debtors of any issuer who, after the date
of this Security Agreement, becomes, as a result of any occurrence, a
Subsidiary (as that term is defined in the Loan Agreement) of Parent or
either Debtor.
"Proceeds" means "proceeds," as such term is defined in
Section 9306(1) of the UCC and, in any event, shall include, without
limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or
other proceeds payable to Debtors from time to time in respect of the
Collateral or any Contract, (b) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtors from time to time with
respect to any of the Collateral or any Contract, (c) any and all payments
(in any form whatsoever) made or due and payable
-12-
<PAGE>
to Debtors from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of
the Collateral above by any governmental body, authority, bureau or agency
(or any person acting under color of governmental authority), (d) any
claim of Debtors against third parties (i) for past, present or future
infringement of any Patent or Patent License or (ii) for past, present or
future infringement or dilution of any Trademark or Trademark License or
for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark License and (e) any
and all other amounts from time to time paid or payable under or in
connection with any of the Collateral or any Contract.
"Restricted Loan Proceeds Account" means the Restricted Loan
Proceeds Account defined in Section 2.01(a) of the Loan Agreement.
"Trademark License" means any of the following now owned or
hereafter acquired by Debtors: any written agreement granting any right to
use any Trademark or Trademark registration.
"Trademarks" means any of the following now owned or hereafter
acquired by Debtors: (a) any trademarks, tradenames, corporate names,
business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and
recordings thereof, and any applications in connection therewith,
including, without limitation, registrations, recordings and applications
in the United States Patent and Trademark Office or in any similar office
or agency of the United States, any State thereof or any other country or
any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Nevada; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of
the attachment,
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<PAGE>
perfection or priority of Secured Party's security interest in any
collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Nevada, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection
of priority and for purposes of definitions related to such provisions.
-14-
<PAGE>
EXHIBIT "A"
All that certain real property located in the County of Clark, State
of Nevada, described as follows:
<PAGE>
SCHEDULE 2
PLEDGED STOCK
<TABLE>
<CAPTION>
Percentage Number
of of
Stock Issuer Class of Stock Ownership Shares Cert. No.
- ------------ -------------- --------- ------ ---------
<S> <C> <C> <C> <C>
Cinderlane, Inc. common 100% 100 1
HLG, Inc. common 100% 100 2
</TABLE>
<PAGE>
SCHEDULE 3
SECURITY AGREEMENT SUPPLEMENT
This Security Agreement Supplement, dated as of ,
is delivered pursuant to Section 4.2 of the Security Agreement referred to
below. The undersigned hereby agrees that this Security Agreement Supplement may
be attached to the Pledge and Security Agreement, dated as of ,
1998 (as amended, supplemented or otherwise modified, from time to time, the
"Security Agreement", the terms defined therein and not otherwise defined herein
being used as therein defined), made by Rio Properties, Inc. and Rio Leasing,
Inc. in favor of Bank of America National Trust and Savings Association as agent
for itself and the Lenders and that the shares of stock listed on this Security
Agreement Supplement shall be and become part of the Pledged Stock referred to
in the Security Agreement and shall secure all Secured Obligations in accordance
therewith.
The undersigned agrees that the securities listed on Exhibit A
attached to this Security Agreement Supplement shall for all purposes constitute
Pledged Stock and shall be subject to the security interest created by the
Security Agreement in favor of the Secured Party.
The undersigned hereby certifies that the representations and
warranties set forth in Section 3 of the Security Agreement and Article 5 of the
Loan Agreement are true and correct as to the Pledged Stock listed herein on and
as of the date hereof.
RIO PROPERTIES, INC.
By:
------------------------------------
Title:
---------------------------------
RIO LEASING, INC.
By:
------------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT A
TO SECURITY AGREEMENT SUPPLEMENT
<TABLE>
<CAPTION>
Percentage Number
of of
Stock Issuer Class of Stock Ownership Shares Cert. No.
- ------------ -------------- --------- ------ ---------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 4(29)
PARENT PLEDGE AND SECURITY AGREEMENT
THIS PARENT PLEDGE AND SECURITY AGREEMENT (as amended, supplemented
or otherwise modified from time to time, the "Security Agreement"), dated as of
December 18, 1998, is executed by RIO HOTEL AND CASINO, INC., a Nevada
corporation ("Debtor"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("Secured Party"), as agent for itself and the other lenders
(individually, a "Lender" and collectively, the"Lenders") now or hereafter a
party to that certain Loan Agreement (the "Loan Agreement") of even date
herewith among Rio Properties, Inc., a Nevada corporation (the"Company"), Rio
Leasing, Inc., a Nevada corporation ("Rio Leasing"; collectively with the
Company, the "Borrowers") as borrowers, Secured Party and the Lenders. This
Security Agreement is the Parent Pledge and Security Agreement referred to in
the Loan Agreement. This Security Agreement is executed to induce the Lenders to
make the loans (collectively, the "Loan") to Borrowers described in the Loan
Agreement and evidenced in whole or in part by promissory notes of even date
herewith (collectively, the "Notes"). Debtor has guaranteed the obligations of
Borrowers under the Loan Agreement (and all documents executed in connection
therewith) under the Rio Hotel and Casino, Inc. Guaranty (as amended,
supplemented or otherwise modified from time to time, the "Parent Guaranty") of
even date herewith executed by Debtor in favor of Secured Party. Capitalized
terms used and not otherwise defined herein or in Schedule 1 attached hereto
shall have the same meanings as set forth in the Loan Agreement.
1. Assignment. Subject to approval of the applicable Gaming Authorities as
to the Pledged Stock of the Company and Rio Leasing only, for valuable
consideration, Debtor hereby pledges and assigns to Secured Party (and grants to
Secured Party, pursuant to Article 104.9101 et seq. 9 of the Nevada Revised
Statutes (the Nevada enactment of the Uniform Commercial Code), a security
interest in and to, and a lien upon), all of Debtor's right, title and interest,
whether now existing or hereafter arising, in and to the tangible and intangible
property (collectively, the "Collateral") described in Schedule 1 attached
hereto and incorporated herein by this reference, as security for the prompt
payment and performance of each of the obligations described in Section 2, below
(collectively, the "Secured Obligations").
<PAGE>
2. Obligations Secured. This Security Agreement secures the prompt payment
and performance of each of the following Secured Obligations:
2.1 Each of Debtor's obligations to Secured Party and the Lenders
under the Parent Guaranty.
2.2 Each of Debtor's obligations hereunder.
2.3 All other obligations owing to Secured Party and/or the Lenders,
but only to the extent that any such obligation is described or referred to in a
document, executed by Debtor at Secured Party's request, which states that such
obligation is secured hereby.
2.4 Any and all amendments, extensions and other modifications of
any of the foregoing, including without limitation amendments, extensions and
other modifications that are evidenced by new or additional documents or that
change the rate of interest on any Secured Obligation.
3. Representations and Warranties. Debtor hereby represents and warrants
that:
3.1 Debtor is the true and lawful owner of and has good and clear
title to the Collateral, subject only to the rights of Secured Party hereunder.
3.2 Debtor owns all of the issued and outstanding stock of
Borrowers, and there are no outstanding warrants, options or other rights to
subscribe to or acquire any of such stock in favor of any third person.
3.3 True and complete copies of all of the existing documents
respecting the Collateral (the "Collateral Documents") together with all the
amendments, supplements and other modifications to each, written or oral, have
been or will be promptly delivered to Secured Party.
3.4 Debtor is not presently in default under any Collateral Document
nor has any event occurred which, with the giving of notice or the passage of
time or both, would constitute such a default, and there are no existing
defenses or offsets against any amounts due or to become due from any party to
Debtor under any Collateral Document.
-2-
<PAGE>
3.5 Debtor is the legal and equitable owner of the Collateral, free
and clear of all liens, encumbrances and other rights and claims of other
persons (other than Secured Party's interest hereunder).
3.6 Except as disclosed to Secured Party in writing prior to the
execution of this Security Agreement or the incorporation of such Collateral
into this Security Agreement, each of the presently existing and future
Collateral Documents is genuine, valid and enforceable against all applicable
parties in accordance with its terms (except to the extent that enforceability
is limited by bankruptcy, insolvency or other laws affecting the enforcement of
creditors' rights generally).
3.7 No consent, license, approval, or authorization of, exemption
by, or registration with any governmental instrumentality is required to be
obtained by Debtor in connection with the execution, delivery, performance,
validity, or enforceability of this Security Agreement, except for (i) the
approval, if required, of the applicable Gaming Authorities as to the Pledged
Stock only and (ii) the filing of applicable financing statements; and no
consent of any other party is required for any of the foregoing.
3.8 Subject to the approval, if required, of the applicable Gaming
Authorities as to the Pledged Stock only, the execution, delivery, and
performance of this Security Agreement does not and will not violate any
provision of applicable law, rule or regulation or of any order, judgment, writ,
award or decree of any court, arbitrator, or governmental instrumentality,
domestic or foreign, applicable to Debtor, or of any indenture, contract,
agreement (including any trust agreement), or other undertaking to which Debtor
is a party or which affects any of its properties and does not and will not
result in a creation or position of any lien, charge, or encumbrance on or
security interest in any of the properties of Debtor except as contemplated by
this Security Agreement.
3.9 All financial information furnished to Secured Party and/or the
Lenders with respect to Debtor (a) is complete and correct in all material
respects, (b) accurately presents the financial condition of Debtor and (c) has
been prepared in accordance with generally accepted accounting principles
-3-
<PAGE>
consistently applied. All other documents and information furnished Secured
Party and/or the Lenders with respect to Debtor are correct and all material
respects and complete in so far as completeness is necessary to give Secured
Party and the Lenders an accurate knowledge of their subject matter.
3.10 Debtor's principal place of business and chief executive and
accounting offices are located at 3700 West Flamingo Road, Las Vegas, Nevada
89103.
4. Covenants by Debtor. Debtor hereby agrees, subject to all rights
Debtor, as Guarantor, has under the Loan Agreement, that:
4.1 Prior to or simultaneously with the Debtor's execution of this
Security Agreement, Debtor will execute and cause to be filed in accordance with
the Nevada Uniform Commercial Code financing statements in form and substance
satisfactory to Secured Party. Thereafter, at any time and from time to time,
upon demand of Secured Party, Debtor shall give, execute, acknowledge, file and
record any notice, financing statement, continuation statement, assignment,
instrument, document or agreement that Secured Party reasonably deems necessary
or desirable to create, preserve, continue, perfect or validate any security
interest intended to be created hereunder, including, without limitation, any
security interest in after-acquired property, or to enable Secured Party to
enforce its rights with respect to any such security interest.
4.2 Upon the approval of the relevant Gaming Authorities to the
pledge by Debtor to Secured Party of all shares of stock of the Company and Rio
Leasing owned by Debtor, and, as to all other Pledged Stock, concurrently with
the execution of this Security Agreement, Debtor shall deliver to Secured Party
all of the certificates ("Certificates") evidencing the Pledged Stock. Debtor
agrees that it will upon obtaining any additional shares of stock of any issuer
of Pledged Stock or any other securities that may be converted into, or
exchanged for Pledged Stock, including any options or other rights with respect
thereto, upon the approval of the relevant Gaming Authorities, if required, to
the pledge by Debtors to Secured Party of such additional shares or other
securities, promptly deliver to Secured Party: (i) a duly
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executed Security Agreement Supplement in substantially the form of Schedule 3
hereto (a "Security Agreement Supplement") identifying the additional shares of
stock which are pledged pursuant to this second sentence of this Section 4.2 and
(ii) Certificates evidencing such shares of stock. Debtor hereby authorizes
Secured Party to attach the Security Agreement Supplement to this Security
Agreement and agrees that all shares of stock listed on the Security Agreement
Supplement delivered to Secured Party shall for all purposes hereunder
constitute Pledged Stock.
4.3 Debtor shall notify Secured Party prior to changing its
principal place of business and chief executive and accounting offices from the
location set forth in Section 3.10 of this Security Agreement.
4.4 Debtor shall at all times maintain the Collateral in good
condition and will from time to time make all needed and proper replacements,
repairs, renewals and improvements so that the value of the Collateral is not
impaired.
4.5 Debtor shall keep the Collateral, including, without limitation,
all after-acquired property included in the definition of Collateral, free of
all liens, claims, security interests and encumbrances other than those
described in Section 3.1, above.
4.6 Notwithstanding Secured Party's claim to proceeds, Debtor shall
not sell, lease or otherwise transfer or dispose of any Collateral (and shall
not permit any such act) unless Debtor shall concurrently replace such
Collateral with other Collateral that is of equivalent quality and quantity and
reasonably acceptable to Secured Party; provided, however, that, (i) so long as
Debtor is not in default hereunder, Debtor may sell any Collateral consisting of
inventory in the ordinary course of Debtor's business and may receive and
dispose of collections on the same, and (ii) notwithstanding the foregoing,
Debtor shall not sell, transfer or otherwise dispose of any of the Pledged Stock
without the prior written consent of Secured Party.
4.7 Debtor shall keep Secured Party informed as to the location of
the Collateral and shall not relocate any of the Collateral without Secured
Party's prior written consent.
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4.8 Debtor shall, at Debtor's own cost, defend any and all actions,
proceedings and claims affecting the Collateral, including without limitation
actions, proceedings and claims challenging Debtor's title to the Collateral or
the validity or priority of Secured Party's security interest hereunder, and pay
the cost of all license approvals affecting the Collateral.
4.9 Debtor shall promptly pay all taxes, assessments, license fees
and other public or private charges levied or assessed against any Collateral,
this Security Agreement or any promissory note evidencing any debt secured
hereunder.
4.10 Debtor shall maintain such insurance with respect to the
Collateral as Secured Party reasonably requires from time to time, with insurers
satisfactory to Secured Party and with loss payable to Secured Party as its
interests may appear. Debtor shall, if so requested, deliver the original of any
such policy to Secured Party.
4.11 Debtor shall not use any Collateral in violation of any
applicable laws, rules or regulations.
4.12 All of the Collateral shall at all times remain personal
property.
4.13 Debtor shall fully perform all of its obligations under and
with respect to the Collateral and shall diligently enforce all of the
obligations of each obligor thereunder.
4.14 Debtor shall not modify, amend, supplement or cancel any of the
Collateral without the prior written consent of Secured Party.
4.15 Debtor will at all times keep accurate and complete records
with respect to the Collateral and agrees that the representatives of Secured
Party shall have the right, at any time during normal business hours or at any
other reasonable time, and from time to time, to call at Debtor's places of
business where the Collateral or any part thereof may be located or the records
pertaining to the Collateral may be
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kept and to inspect the Collateral and/or examine such records and to make
abstracts therefrom or copies thereof; in addition, Debtor shall furnish Secured
Party with periodic reports as to the Collateral, in such form and detail and at
such times as Secured Party may require.
4.16 Monies received because of any court or arbitration award or
settlement or insurance payment, for any loss or damage to the Collateral, and
proceeds from any condemnation award or settlement relating to the Collateral
shall be treated as provided in the Loan Documents.
4.17 As soon as practicable, and in any event within ten (10) days,
Debtor shall notify Secured Party of:
(a) Any attachment or other legal process levied against any
of the Collateral;
(b) Any information received by Debtor which may in any manner
materially and adversely affect the value of the Collateral or the rights and
remedies of Secured Party with respect thereto;
(c) The removal of any of the Collateral to a new location and
the removal of any records of Debtor relating to the Collateral to any location
other than that set forth in Section 3.10, above; and
(d) An adequate description and the location of any tangible
or intangible property acquired by Debtor after the execution of this Security
Agreement, which after-acquired property shall be included, subject to the
approval, if required, of the applicable Gaming Authorities as to after-acquired
Pledged Stock only, within the definition of "Collateral" hereunder.
Any notice delivered pursuant to this Section 4.17 shall set forth the nature of
such event and the action which Debtor proposes to take with respect thereto.
5. Events of Default. The occurrence of any of the following shall
constitute a default hereunder:
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5.1 The occurrence of any Event of Default under the Parent
Guaranty.
5.2 The occurrence of any Event of Default under the Loan Agreement
or any other Loan Document.
5.3 Default in any other obligation secured hereunder.
5.4 Default in any obligation contained herein.
5.5 Any statement, representation or warranty made by Debtor herein
or in any document secured hereunder proves to have been false or inaccurate in
any material respect when made.
6. Remedies. In the event of any default hereunder, Secured Party shall
have all of the following rights and remedies, each of which may be exercised
with or without further notice to Debtor, subject to applicable Gaming Laws (as
defined in the Loan Agreement):
6.1 To notify any and all obligors on any and all Accounts (as that
term is defined in Schedule 1 attached hereto) assigned hereunder that such
Accounts have been assigned to Secured Party and/or that all payments on such
Accounts are to be made directly to Secured Party;
6.2 To settle, compromise or release on terms acceptable to Secured
Party, in whole or in part, any amounts owing on any and all Accounts;
6.3 To enforce payment and prosecute any action or proceeding with
respect to any and all Accounts;
6.4 To extend the time of payment, make allowances and adjustments
and issue credits with respect to Accounts in Secured Party's name or in the
name of Debtor;
6.5 To foreclose the liens and security interests created under this
Security Agreement or under any other agreement relating to any Collateral by
any available judicial procedure or without judicial process;
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6.6 To sell, assign, lease, or otherwise dispose of the Collateral
or any part thereof, either at public or private sale, in lots or in bulk, for
cash, on credit or otherwise, with or without representations or warranties, and
upon such terms as shall be acceptable to Secured Party, all at Secured Party's
sole option and as Secured Party may deem advisable in its sole discretion;
6.7 To hold, operate, and manage the same and from time to time make
all needed repairs and such alterations, additions, advances and improvements as
Secured Party shall deem appropriate;
6.8 To manage, or retain a manager for, the operation of the
business or businesses being conducted on any real property, including, without
limitation, any after-acquired real property, which is part of the Collateral;
6.9 To collect interest, dividends, principal and or other sums
payable upon or on account of the Collateral;
6.10 To declare all Secured Obligations immediately due and payable;
and
6.11 To exercise any and all other rights and remedies that Secured
Party may have in any jurisdiction where enforcement of this Security Agreement
is sought, including without limitation all rights and remedies of a secured
party under any applicable Uniform Commercial Code. Secured Party shall have the
right to enforce one or more of its remedies successively or concurrently, and
such action shall neither estop nor prevent Secured Party from pursuing any and
all further remedies that it may have. In the event that Debtor fails to perform
any obligation set forth herein, Secured Party may, but shall not be obligated
to, perform the same, and the cost thereof shall be payable by Debtor to Secured
Party on demand and shall bear interest at the default rate of interest set
forth in the Notes evidencing the Loan (or, if there is no such default rate, at
the rate of interest set forth in the Notes). No failure on the part of Secured
Party to exercise, and no delay in exercising, any right or remedy shall operate
as a waiver thereof or of any default, nor shall any single or partial exercise
of any right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
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7. Sale of Collateral. The following shall apply with respect to any sale,
assignment, lease or other disposition of the Collateral by Secured Party
pursuant to Article 6, above, after Secured Party has complied with applicable
Gaming Laws.
7.1 Debtor shall, at Secured Party's request, assemble any and all
Collateral and make it available to Secured Party at such places as Secured
Party designates that are reasonably convenient to both parties, whether at the
premises of Debtor or elsewhere, and shall make available to Secured Party all
premises and facilities of Debtor for the purpose of Secured Party's taking
possession of the Collateral or removing or putting the Collateral in saleable
form.
7.2 If any Collateral requires repair, maintenance, preparation or
the like, or is in process or other unfinished state, Secured Party shall have
the right to perform all repairs, maintenance, preparation and other processing
and completion of manufacture required to put the same in such saleable form as
Secured Party deems appropriate, but Secured Party shall also have the right to
sell or dispose of such Collateral without any such processing.
7.3 Secured Party shall give Debtor ten (10) days' prior written
notice of any such sale, assignment, lease or other disposition. Debtor agrees
that such notice is commercially reasonable and Debtor hereby waives all other
notices, demands and advertisements of any kind.
7.4 Secured Party may bid or purchase at any such sale, if public,
free from any right of redemption that Debtor may have, which right of
redemption is hereby waived, and Secured Party may restrict the prospective
bidders or purchasers at any such sale to persons who will represent and warrant
that they are acquiring the Collateral for their own account and otherwise in
compliance with the federal Securities Act of 1933, as amended.
7.5 Because of present or future circumstances, a question may arise
under the federal Securities Act of 1933, as amended, as now or hereafter in
effect, or any similar statute hereafter enacted analogous in purpose or effect
(such Act and any such similar statute as from time to time in effect being
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hereinafter called the Federal Securities Laws) with respect to any disposition
of the Collateral. Debtor acknowledges that compliance with the Federal
Securities Laws and/or Gaming Laws may strictly limit Secured Party's course of
conduct in disposing of all or any part of the Collateral and may also limit the
extent to which or the manner in which any subsequent transferee of the
Collateral may dispose of the same, and that there may be other legal
restrictions or limitations affecting Secured Party in any attempts to dispose
of all or any part of the Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or effect.
8. Facilitation of Rights and Remedies. To facilitate the exercise by
Secured Party of the rights and remedies set forth in this Security Agreement,
Debtor authorizes Secured Party, subject to Secured Party's compliance with
applicable Gaming Laws, to exercise any or all of the following powers:
8.1 To enter any premises where any Collateral may be located for
the purpose of taking possession of or removing such Collateral, to remove from
any premises where any Collateral may be located the Collateral and any and all
documents, instruments, files and records relating to the Collateral, and any
receptacles and cabinets containing the same, and to use the supplies and space
of Debtor at any or all of its places of business as may be necessary or
appropriate to properly administer and control the Collateral or the handling of
collections and realizations thereon, at Debtor's cost and expense;
8.2 To receive, open and dispose of all mail addressed to Debtor and
notify postal authorities to change the address for delivery thereof to such
address as Secured Party may designate;
8.3 To manage, or to retain a manager for, the operation of the
business or businesses being conducted on any real property, including, without
limitation, after-acquired real property, which is part of the Collateral;
8.4 To take or bring, in Secured Party's name or in the name of
Debtor, all steps, actions, suits or proceedings deemed necessary or desirable
by Secured Party to effect collection or to realize upon Accounts and any other
Collateral; and
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8.5 To prepare, sign and file or record, for Debtor in Debtor's
name, financing statements, applications for registration, applications for
approval by the Gaming Authorities of the assignment to Secured Party of all
stock of Borrowers owned by Debtor, and like papers.
9. Application of Proceeds. The net cash proceeds resulting from any
collection, liquidation, sale or other disposition of the Collateral by Secured
Party shall be applied first to the expenses (including reasonable attorneys'
fees) of retaking, holding, storing, processing, preparing for sale, selling,
collecting, liquidating and the like, and then to the satisfaction of other
Secured Obligations then due, application as to particular obligations or
against principal or interest to be in Secured Party's absolute discretion.
10. Actions by Secured Party Following Default. While any default
hereunder remains uncured, Secured Party shall have the right (but no
obligation) to take such actions (in its name or in the name of Debtor) as
Secured Party reasonably deems appropriate to cure any default by Debtor under
any agreement which constitutes part of the Collateral or to otherwise protect
the rights and interests of Debtor and/or Secured Party under any such
agreement. Neither Secured Party nor any of the Lenders shall incur any
liability as a result of any such action if such action is taken in good faith
in accordance with the foregoing, and Debtor shall defend, indemnify and hold
Secured Party and each of the Lenders harmless from and against all claims,
demands, causes of action, liabilities, losses, costs and expenses (including
costs of suit and reasonable attorneys' fees) arising from or in connection with
any such good faith action.
11. Specific Assignments and Consents. Upon Secured Party's demand from
time to time, (a) Debtor shall execute and deliver to Secured Party an
assignment of contract(s), in form and substance satisfactory to Secured Party,
which specifically describes one or more of the agreements assigned hereunder
and (b) Debtor shall use its best efforts to obtain and deliver to Secured Party
a consent to assignment, in form and substance satisfactory to Secured Party,
pursuant to which any party other than Debtor to any agreement assigned
hereunder consents to such assignment and agrees to recognize Secured Party as
Debtor's successor in the event that Secured Party succeeds to Debtor's
interests.
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12. Secured Party's Costs and Expenses. Debtor shall reimburse Secured
Party on demand for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Secured Party in connection with the enforcement of
this Security Agreement, regardless of whether any suit is filed, including
without limitation all reasonable costs and expenses incurred in checking,
retaking, holding, handling, preparing for sale and selling or otherwise
disposing of any and all Collateral, or for managing, or retaining a manager
for, the operation of the business or businesses being conducted on the Real
Property. Such reimbursement obligations shall bear interest from the date of
demand at the maximum rate permitted by law.
13. Obligations Unconditional. Debtor's obligation to perform and observe
the agreements and covenants contained herein shall be absolute and
unconditional. Until such time as all Secured Obligations have been fully paid
and performed, Debtor (i) shall perform and observe all of its agreements and
covenants contained in this Security Agreement; and (ii) shall not terminate
this Security Agreement for any cause, including without limitation any acts or
circumstances that may constitute failure of consideration, destruction of, or
damage to, the Collateral, commercial frustration of purpose, any change in the
laws of the United States of America or of the State of Nevada or any political
subdivision of either, or any failure of Secured Party to perform or observe any
agreement, whether express or implied, or any duty, liability or obligation,
arising out of or in connection with this Security Agreement.
14. Nonliability and Indemnity of Secured Party. Debtor hereby agrees that
neither Secured Party's acceptance of the security interests granted hereunder
nor any exercise by Secured Party of its rights and remedies hereunder shall be
deemed to be an assumption by Secured Party or any of the Lenders of any of
Debtor's obligations and liabilities under the terms of any of the Collateral,
and Debtor agrees to indemnify and hold Secured Party and each of the Lenders
harmless against any and all claims, damages, costs and expenses (including
reasonable attorneys' fees) suffered or incurred by Secured Party in connection
therewith.
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15. Waiver of NRS 40.430. Debtor hereby waives all defenses and benefits
that it would otherwise have under Section 40.430 of the Nevada Revised
Statutes.
16. Miscellaneous Waivers. Presentment, protest, notice of protest, notice
of dishonor and notice of nonpayment are waived with respect to any proceeds to
which Secured Party is entitled hereunder.
17. Successors and Assigns. Subject to any applicable restrictions on
assignment contained herein or in any of the Loan Documents, this Security
Agreement shall bind, and shall inure to the benefit of, the respective heirs,
executors, administrators, successors and assigns of Debtor and Secured Party.
The term "Secured Party" shall include any successor agent for the Lenders, the
Lenders individually if there is no agent representing them, and any other
holder and owner from time to time (including any pledgee or assignee) of any of
the Notes or any other Secured Obligation.
18. Attorney-in-Fact. Debtor hereby constitutes and appoints Secured Party
as its attorney-in-fact for the purposes of (a) carrying out the provisions of
this Security Agreement and (b) taking any and all actions and executing any and
all instruments that Secured Party reasonably deems necessary or advisable to
accomplish the purposes of this Security Agreement and/or to protect Secured
Party's interests with respect to the Collateral, and (c) while any default
hereunder remains uncured, enforcing Debtor's rights (in Secured Party's name or
in Debtor's name) under any agreement which constitutes part of the Collateral.
In furtherance of clause (c), Debtor shall deliver to Secured Party, upon
Secured Party's demand while any default hereunder remains uncured, all
documents which Secured Party reasonably deems appropriate to permit Secured
Party's succession to Debtor's rights and interests and to facilitate the
enforcement by Secured Party of Debtor's rights with respect to such agreements.
The power of attorney granted hereunder is coupled with an interest and is
irrevocable.
19. Voting Rights; Dividends; Etc.
19.1 Rights in Absence of Default. So long as no default hereunder
remains uncured:
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19.1.1 Voting Rights. Debtor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Pledged Stock, or
any part thereof, for any purpose not inconsistent with the terms of this
Security Agreement, or the Parent Guaranty; provided, that Debtor shall not
exercise any such right if it would result in a default hereunder.
19.1.2 Dividend and Distribution Rights. Debtor shall be
entitled to receive and to retain and use any and all dividends or distributions
paid in respect of the Pledged Stock; provided, that any and all such dividends
or distributions received in the form of capital stock shall be Pledged Stock,
and the Certificates representing such capital stock shall be delivered to
Secured Party immediately upon receipt by Debtor, subject, in the case of stock
of the Company and Rio Leasing, to the approval of the applicable Gaming
Authorities, to be held by Secured Party hereunder; and such stock shall, if
received by Debtor and until so delivered, be received and held in trust for the
benefit of Secured Party.
19.2 Rights Following Event of Default. While any default hereunder
remains uncured, subject to compliance with applicable Gaming Laws:
19.2.1 Voting, Dividend and Distribution Rights. At the option
of Secured Party exercised by written notice to Debtor, all rights of Debtor to
exercise the voting and other consensual rights which it would otherwise be
entitled to exercise pursuant to Section 19.1.1, above, and to receive the
dividends and distributions which it would otherwise be authorized to receive
and retain pursuant to Section 19.1.2, above, shall cease, and all such rights
shall thereupon become vested in Secured Party, who shall thereupon have the
sole right to exercise such voting and other consensual rights and to receive
and to hold as Collateral such dividends and distributions.
19.2.2 Dividends and Distributions Held in Trust. All
dividends and other distributions which are received by Debtor contrary to the
provisions of this Security Agreement shall be received and held in trust for
the benefit of Secured Party and shall be delivered to Secured Party as
Collateral immediately upon receipt, in the same form as received (with any
necessary endorsements).
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19.2.3 Irrevocable Proxy. Debtor hereby revokes all previous
proxies with regard to the Pledged Stock and appoints Secured Party as its
proxyholder to attend and vote at any and all meetings of the shareholders of
the issuer of any Pledged Stock held on or after the date of the giving of this
proxy and prior to the termination of this proxy, and to execute any and all
written consents of shareholders of any such issuer executed on or after the
date of the giving of this proxy and prior to the termination of this proxy,
with the same effect as if Debtor had attended the meetings or voted its shares
or signed the written consents, as applicable; provided, that the proxyholder
shall only have the rights described in this paragraph while any default
hereunder remains uncured. Debtor hereby authorizes Secured Party as the
proxyholder and hereby authorizes and directs any such proxyholder to file this
proxy and the substitution instrument with the secretary of the appropriate
issuer of the Pledged Stock. This proxy is coupled with an interest and is
irrevocable until such time as no part of any Secured Obligation remains
outstanding.
20. Additional Provisions re Pledged Stock.
20.1 No Obligation to Act. Secured Party shall have no
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Stock.
20.2 Reliance on Agreement. Subject to compliance with applicable
Gaming Laws, Debtor hereby consents and agrees that the issuers of any Pledged
Stock, or any registrar or transfer agent or trustee for any of the Pledged
Stock, shall be entitled to accept the provisions of this Security Agreement as
conclusive evidence of the right of Secured Party to effect any transfer or
exercise any right hereunder, notwithstanding any other notice or direction to
the contrary heretofore or hereafter given by Debtor or any other Person to such
issuers or obligors or to any such registrar, transfer agent or trustee.
20.3 Covenant Not to Issue Uncertificated Securities. Debtor
represents and warrants to Secured Party that all of the capital stock of
Borrowers is in certificated form (as contemplated by Article 104.8101 et seq.
of the Nevada Revised Statutes), and covenants to Secured Party that it will
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not cause or permit Borrowers (or any other issuer of any Pledged Stock) to
issue any capital stock in uncertificated form or seek to convert all or any
part of its existing capital stock into uncertificated form (as contemplated by
Article 104.8101 et seq. of the Nevada Revised Statutes).
20.4 Covenant Not to Dilute Interests of Secured Party. Debtor shall
not at any time cause or permit Borrowers (or any other issuer of any Pledged
Stock) to issue any additional capital stock, or any warrants, options or other
rights to acquire any additional capital stock, if the effect thereof would be
to dilute in any way the interests of Secured Party in Borrowers or any such
issuer.
20.5 Foreclosure By Private Sale. By virtue of the Securities Act of
1933, as amended ("1933 Act"), or any other Laws or regulations, legal
restrictions or limitations may apply and affect Secured Party in any attempts
to dispose of all or any portion of the Collateral in the enforcement of Secured
Party's rights and remedies hereunder. For these reasons, Secured Party is
hereby authorized by Debtor, but not obligated, in the event of any Event of
Default giving rise to Secured Party's rights to sell or otherwise dispose of
any Collateral consisting of securities, to sell all or any part of the
securities at private sale, subject to investment letter restrictions or in any
other manner which will not require the securities, or any part thereof, to be
registered in accordance with the 1933 Act, as amended, or the rules and
regulations promulgated thereunder, or any other law or regulation
("Registration"), at the best price reasonably obtainable by Secured Party at
any such private sale or other disposition in any such manner mentioned above.
Secured Party is hereby further authorized by Debtor, provided Secured Party has
complied with all applicable portions of the Gaming Laws, but not obligated, in
the event of any Event of Default giving rise to Secured Party's rights to sell
or otherwise dispose of Collateral, to sell all or any part of Collateral
consisting of securities at a public sale at the best price obtainable by
Secured Party at any such public sale. A commercially reasonable public sale of
securities shall be deemed to include, but not be limited to, the following: (i)
Secured Party shall publish a notice of the sale in a newspaper of general
circulation in the county of the office of the Secured Party or the county of
the place of sale chosen by Secured
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Party, if not at its office, and elsewhere as chosen by the Secured Party; (ii)
the notice of sale shall state that Secured Party reserves the right to bid for
and purchase the collateral; (iii) all securities of equal class and series of
the same issuer shall be sold only as a block and shall not be sold jointly or
broken down; (iv) the purchaser of the securities shall provide an investment
letter; (v) the securities sold shall bear a legend to the effect that the
securities are restricted and may not be sold or transferred without
registration under the 1933 Act and under applicable state securities laws or
under a valid exemption from the 1933 Act and from applicable state securities
laws; and (vi) any other procedures or restrictions necessary to sell or dispose
of the securities, or any part thereof, without Registration of the securities
or to comply with any other express requirements of the Uniform Commercial Code.
Secured Party is also hereby authorized by Debtor, but not obligated, to take
such actions, give such notices, obtain such consents, and do such other things
as Secured Party may deem required or appropriate in the event of a sale or
disposition of any of Collateral consisting of securities. Debtor understands
that Secured Party may in its discretion approach a restricted number of
potential purchasers in a private sale and that a sale under such circumstances
may yield a lower price for Collateral, or any part or parts thereof, than would
otherwise be obtainable if the same were registered and sold in the open market.
Debtor also understands that a public sale of securities in any manner that will
not require the registration of the securities or any part thereof, may yield a
lower price for the securities, or any part or parts thereof, than would
otherwise be obtainable if the same were registered and sold in the open market.
Debtor agrees (i) that in the event Secured Party shall, upon any default
hereunder, sell Collateral consisting of securities, or any portion thereof, at
such private sale or sales or at such public sale, Secured Party shall have the
right to rely upon the advice and opinion of any member firm of a national
securities exchange as to the best price reasonably obtainable upon such private
sale or public sale thereof, and (ii) that such reliance shall be conclusive
evidence that Secured Party handled such matter in a commercially reasonable
manner under the Uniform Commercial Code.
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21. Guarantor and Suretyship Provisions. The following provisions shall
apply to the extent that all or any portion of the Secured Obligations now or
hereafter constitute obligations of person(s) (collectively, "Borrowers") other
than, or in addition to, Debtor:
21.1 Conditions to Exercise of Rights. Debtor hereby waives any
right it may now or hereafter have to require Secured Party, as a condition to
the exercise of any remedy or other right against Debtor hereunder or under any
other document executed by Debtor in connection with any Secured Obligation, (a)
to proceed against any Borrower or other person, or against any other collateral
assigned to Secured Party by Debtor or any other person, (b) to pursue any other
right or remedy in Secured Party's power, (c) to give notice of the time, place
or terms of any public or private sale of real or personal property collateral
assigned to Secured Party by any Borrower or other person (other than Debtor),
or otherwise to comply with the Nevada enactment of the Uniform Commercial Code
(as modified or recodified from time to time) with respect to any such personal
property collateral, or (d) to make or give (except as otherwise expressly
provided in the Loan Documents) any presentment, demand, protest, notice of
dishonor, notice of protest or other demand or notice of any kind in connection
with any Secured Obligation or any collateral (other than the Collateral) for
any Secured Obligation.
21.2 Defenses. Debtor hereby waives any defense it may now or
hereafter have that relates to: (a) any disability or other defense of any
Borrower or other person; (b) the cessation, from any cause other than full
performance, of the obligations of any Borrower or other person; (c) the
application of the proceeds of any Secured Obligation, by any Borrower or other
person, for purposes other than the purposes represented to Debtor by any
Borrower or otherwise intended or understood by Debtor; (d) any act or omission
by Secured Party which directly or indirectly results in or contributes to the
release of any Borrower or other person or any collateral for any Secured
Obligation; (e) the unenforceability or invalidity of any collateral assignment
(other than this Security Agreement) or guaranty with respect to any Secured
Obligation, or the lack of perfection or continuing perfection or lack of
-19-
<PAGE>
priority of any lien (other than the lien hereof) which secures any Secured
Obligation; (f) any failure of Secured Party to marshal assets in favor of
Debtor or any other person; (g) any modification of any Secured Obligation,
including any renewal, extension, acceleration or increase in interest rate; (h)
any election of remedies by Secured Party that impairs any subrogation or other
right of Debtor to proceed against any Borrower or other person, including any
loss of rights resulting from anti-deficiency laws relating to nonjudicial
foreclosures of real property or other laws limiting, qualifying or discharging
obligations or remedies; (i) any law which provides that the obligation of a
surety or guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or guarantor's
obligation in proportion to the principal obligation; (j) any failure of Secured
Party to file or enforce a claim in any bankruptcy or other proceeding with
respect to any person; (k) the election by Secured Party, in any bankruptcy
proceeding of any person, of the application or non-application of Section
1111(b)(2) of the United States Bankruptcy Code; (l) any extension of credit or
the grant of any lien under Section 364 of the United States Bankruptcy Code;
(m) any use of cash collateral under Section 363 of the United States Bankruptcy
Code; or (n) any agreement or stipulation with respect to the provision of
adequate protection in any bankruptcy proceeding of any person.
21.3 Subrogation. Debtor hereby waives (a) any right of subrogation
which Debtor may now or hereafter have against any Borrower that relates to any
Secured Obligation, (b) any right to enforce any remedy Debtor may now or
hereafter have against any Borrowers that relates to any Secured Obligation
(including without limitation any right of reimbursement, indemnity or
contribution), and (c) any right to participate in any collateral now or
hereafter assigned to Secured Party with respect to any Secured Obligation (and
Debtor further agrees that, if and to the extent that any waiver set forth in
this paragraph is ever held to be unenforceable, all such rights of subrogation,
enforcement and participation shall be junior and subordinate to the right of
Secured Party to obtain payment and performance of the Secured Obligations and
to all rights of Secured Party in and to any property which now or hereafter
serves as collateral security for any Secured Obligation).
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<PAGE>
21.4 Borrowers' Information. Debtor warrants and agrees: (a) that
Debtor has not relied, and will not rely, on any representations or warranties
by Secured Party to Debtor with respect to the creditworthiness of any Borrower
or the prospects of payment of any Secured Obligation from sources other than
the Collateral; (b) that Debtor has established and/or will establish adequate
means of obtaining from each Borrower on a continuing basis financial and other
information pertaining to the business operations, if any, and financial
condition of such Borrower; (c) that Debtor assumes full responsibility for
keeping informed with respect to any Borrower's business operations, if any, and
financial condition; and (d) that Secured Party shall have no duty to disclose
or report to Debtor any information now or hereafter known to Secured Party with
respect to any Borrower, including without limitation information relating to
any Borrower's business operations or financial condition.
21.5 Other Rights of Sureties. Debtor hereby waives all other rights
it may now or hereafter have, whether or not similar to any of the foregoing, by
reason of laws of the State of Nevada pertaining to sureties or guarantors.
21.6 Duration. The lien of this Security Agreement on the Collateral
shall continue until the expiration of all periods within which any amount at
any time paid on account of the obligations secured hereby may be required to be
restored or returned by Secured Party upon the bankruptcy, insolvency or
reorganization of any Borrower, any guarantor or surety or any other person. In
the event that any amount at any time paid on account of the obligations secured
hereby is required to be restored or returned by Secured Party as a result of
any such bankruptcy, insolvency or reorganization, this Security Agreement shall
secure such amount as if such amount was never paid.
21.7 Subordination. Until all of the Secured Obligations have been
fully paid and performed, (a) Debtor hereby agrees that all existing and future
indebtedness and other obligations of each Borrower to Debtor (collectively, the
"Subordinated Debt") shall be and are hereby subordinated to all Secured
Obligations which constitute obligations of the
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<PAGE>
applicable Borrower, and the payment thereof is hereby deferred in right of
payment to the prior payment and performance of all such Secured Obligations;
(b) Debtor shall not collect or receive any cash or non-cash payments on any
Subordinated Debt or transfer all or any portion of the Subordinated Debt; and
(c) in the event that, notwithstanding the foregoing, any payment by, or
distribution of assets of, any Borrower with respect to any Subordinated Debt is
received by Debtor such payment or distribution shall be held in trust and
immediately paid over to Secured Party, is hereby assigned to Secured Party as
security for the Secured Obligations, and shall be held by Secured Party in an
interest bearing account until all Secured Obligations have been fully paid and
performed.
21.8 Lawfulness and Reasonableness. Debtor warrants that all of the
waivers in this Security Agreement are made with full knowledge of their
significance, and of the fact that events giving rise to any defense or other
benefit waived by Debtor may destroy or impair rights which Debtor would
otherwise have against Secured Party, any Borrower and other persons, or against
collateral. Debtor agrees that all such waivers are reasonable under the
circumstances and further agrees that, if any such waiver is determined (by a
court of competent jurisdiction) to be contrary to any law or public policy,
such waiver shall be effective to the fullest extent permitted by law.
220 Waiver of Jury Trial. DEBTOR, AGENT AND THE LENDERS EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED ON OR
ARISING OUT OF OR RELATED TO THIS SECURITY AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. DEBTOR, THE LENDERS AND
THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT.
-22-
<PAGE>
23. Notices. All notices or communications herein required or permitted to
be given shall be in writing and shall be governed in all respects by the notice
provisions of the Loan Agreement.
24. Entire Agreement; Amendment; Waiver. This Security Agreement, together
with any and all other documents referred to herein, constitutes the entire
agreement between Debtor and Secured Party pertaining to the subject matter
contained herein. This Security Agreement may not be amended, changed, modified,
altered or terminated except by a written instrument signed by Secured Party and
Debtor. Neither Secured Party nor Debtor may waive any right hereunder except by
a signed written instrument.
25. Severability. In the event any provision of this Security Agreement is
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
26. Section Headings. The subject headings and the sections and
subsections of this Security Agreement are included for convenience only and
shall not affect the construction or interpretation of any provision.
27. Governing Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of Nevada.
28. Definitions. Unless otherwise defined, words used herein have the
meanings given them in the Uniform Commercial Code of Nevada.
-23-
<PAGE>
29. Execution of Counterparts. This Security Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, and
all of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be
duly executed as of the date first written above.
"Debtor":
RIO HOTEL AND CASINO, INC.,
a Nevada corporation
By /s/ Ronald J. Radcliffe
-------------------------------------
Its Vice President - Treasurer
----------------------------------
By
-------------------------------------
Its
----------------------------------
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<PAGE>
SCHEDULE 1
DESCRIPTION OF COLLATERAL
All of Debtor's right, title and interest in, to and under the following:
(a) All Accounts of Debtor;
(b) All Chattel Paper of Debtor;
(c) All Contracts of Debtor;
(d) All Documents of Debtor;
(e) All Equipment of Debtor;
(f) All Fixtures of Debtor;
(g) All General Intangibles of Debtor;
(h) All Instruments of Debtor;
(i) All Inventory of Debtor;
(j) All Pledged Stock;
(k) All property of Debtor held by Secured Party, or any other
party for whom Secured Party is acting as agent hereunder, including,
without limitation, all property of every description now or hereafter in
the possession or custody of or in transit to Secured Party or such other
party for any purpose, including, without limitation, safekeeping,
collection or pledge, for the account of Debtor, or as to which Debtor may
have any right or power; and
(l) To the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to, substitutions and replacements
for, and rents, profits and products of each of the foregoing.
<PAGE>
Defined Terms.
As used in this Schedule 1, the following terms shall have the
following meanings (such meanings being equally applicable to both the singular
and plural forms of the terms defined):
"Account Debtor" means any "account debtor," as such term is
defined in Section 9105(1)(a) of the UCC.
"Accounts" means any "account," as such term is defined in
Section 9106 of the UCC, now owned or hereafter acquired by Debtor and, in
any event, shall include, without limitation, all accounts receivable,
book debts and other forms of obligations (other than forms of obligations
evidenced by Chattel Paper, Documents or Instruments) now owned or
hereafter received or acquired by or belonging or owing to Debtor
(including, without limitation, under any trade name, style or division
thereof) whether arising out of goods sold or services rendered by Debtor
or from any other transaction, whether or not the same involves the sale
of goods or services (including, without limitation, any such obligation
which may be characterized as an account or contract right under the UCC)
and all of Debtor's rights in, to and under all purchase orders or
receipts now owned or hereafter acquired by it for goods or services, and
all of Debtor's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods), and all monies due or to become due to
Debtor under all purchase orders and contracts for the sale of goods or
the performance of services or both by Debtor (whether or not yet earned
by performance on the part of Debtor or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by
any Person with respect to any of the foregoing.
-2-
<PAGE>
"Chattel Paper" means any "chattel paper," as such term is
defined in Section 9105(l)(b) of the UCC, now owned or hereafter acquired
by Debtor.
"Contracts" means all contracts, undertakings, franchise
agreements or other agreements (other than rights evidenced by Chattel
Paper, Documents or Instruments) in or under which Debtor may now or
hereafter have any right, title or interest, including, without
limitation, with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof.
"Documents" means any "documents," as such term is defined in
Section 9105(l)(f) of the UCC, now owned or hereafter acquired by Debtor.
"Equipment" means any "equipment," as such term is defined in
Section 9109(2) of the UCC, now or hereafter owned or acquired by Debtor
and, in any event, shall include, without limitation, all ambulances and
other vehicles, gaming equipment, machinery, furnishings, computers and
other electronic data-processing equipment of any nature whatsoever, any
and all additions, substitutions and replacements of any of the foregoing,
wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Fixtures" means "fixtures," as such term is defined in
Section 9313-(1)(a) of the UCC, now or hereafter owned or acquired by
Debtor and, in any event shall include, without limitation, regardless of
where located, all of the fixtures, systems, machinery, apparatus,
equipment and fittings of every kind and nature whatsoever and all
appurtenances and additions thereto and substitutions or replacements
thereof, now or hereafter attached or affixed to or constituting a part
of, or located in or upon, real property wherever located, including,
without limitation, all security systems, heating, electrical, mechanical,
lighting, lifting, plumbing, ventilating, air-conditioning and air
cooling, refrigerating, food preparation, incinerating and power,
-3-
<PAGE>
loading and unloading, signs, escalators, elevators, boilers,
communication, switchboards, sprinkler and other fire prevention and
extinguishing fixtures, systems, machinery, apparatus and equipment, and
all engines, motors, dynamos, machinery, pipes, pumps, tanks, conduits and
ducts constituting a part of any of the foregoing, together with all
right, title and interest of Debtor in and to all extensions,
improvements, betterments, renewals, substitutes, and replacements of, and
all additions and appurtenances to any of the foregoing property, and all
conversions of the security constituted thereby, immediately upon any
acquisition or release thereof or any such conversion, as the case may be.
"General Intangibles" means any "general intangibles," as such
term is defined in Section 9106 of the UCC now owned or hereafter acquired
by Debtor and, in any event shall include, without limitation, all right,
title and interest which Debtor may now or hereafter have in or under any
Contract, all customer lists, Trademarks, Patents, rights or intellectual
property, interests in partnerships, joint ventures and other business
associations, Licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge,
know-how, software, data bases, data, skill, expertise, recipes,
experience, processes, models, drawings, materials and records, goodwill
(including, without limitation, the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any
Trademark License), claims in or under insurance policies, including
unearned premiums, uncertificated securities, deposit accounts, rights to
receive tax refunds and other payments and rights of indemnification.
"Instruments" means any "instrument," as such term is defined
in Section 9105(1)(i) of the UCC now owned or hereafter acquired by
Debtor, including, without limitation, all notes, certificated securities,
and other evidences of indebtedness, other than instruments that
constitute or are a part of a group of writings that constitute, Chattel
Paper.
-4-
<PAGE>
"Inventory" means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or
acquired by, Debtor and, in any event, shall include, without limitation,
all inventory, merchandise, goods and other personal property which are
held by or on behalf of Debtor for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw
materials, work in process or materials used or consumed or to be used or
consumed in Debtor's business, or the processing, packaging, promotion,
delivery or shipping of the same, and all furnished goods whether or not
such inventory is listed on any schedules, assignments or reports
furnished to Secured Party from time to time and whether or not the same
is in transit or in the constructive, actual or exclusive occupancy or
possession of Debtor or is held by Debtor or by others for Debtor's
account, including, without limitation, all goods covered by purchase
orders and contracts with suppliers and all goods billed and held by
suppliers and all inventory which may be located on premises of Debtor or
of any carriers, forwarding agents, truckers, warehousemen, vendors,
selling agents or other persons.
"License" means any Patent License, Trademark License or other
license of rights or interests now held or hereafter acquired by Debtor.
"Patent License" means any of the following now owned or
hereafter acquired by Debtor: any written agreement granting any
right with respect to any invention on which a Patent is in
existence.
"Patents" means all of the following in which Debtor now holds
or hereafter acquires any interest: (a) letters patent of the United
States or any other country, all registrations and recordings thereof, and
all applications for letters patent of the United States or any other
country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof
-5-
<PAGE>
or any other country and (b) all reissues, continuations,
continuations-in-part or extensions thereof; all petty patents,
divisionals, and patents of addition; and (c) all patents to issue on such
applications.
"Pledged Stock" means all of the shares of stock described in
Schedule 2 hereto and issued by the issuers named therein and all
additional shares of stock of any such issuer from time to time acquired
by Debtor in any manner and any other securities, options or rights
received by Debtor pursuant to any reclassification, reorganization,
increase or reduction of capital or stock dividend or in substitution of
or in exchange for any such shares of stock (all of which shares of stock
shall be deemed part of the Pledged Stock) and all shares of stock
acquired, received or owned by Debtor of any issuer who, after the date of
this Security Agreement, becomes, as a result of any occurrence, a
Subsidiary (as that term is defined in the Loan Agreement) of Debtor.
"Proceeds" means "proceeds," as such term is defined in
Section 9306(1) of the UCC and, in any event, shall include, without
limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or
other proceeds payable to Debtor from time to time in respect of the
Collateral or any Contract, (b) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with
respect to any of the Collateral or any Contract, (c) any and all payments
(in any form whatsoever) made or due and payable to Debtor from time to
time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral above by any
governmental body, authority, bureau or agency (or any person acting under
color of governmental authority), (d) any claim of Debtor against third
parties (i) for past, present or future infringement of any Patent or
Patent License or (ii) for past, present or future infringement or
dilution of any Trademark or Trademark License or for injury to the
goodwill associated with any Trademark, Trademark registration or
Trademark licensed under any Trademark License and (e) any and all other
amounts from time to time paid or payable under or in connection with any
of the Collateral or any Contract.
-6-
<PAGE>
"Trademark License" means any of the following now owned or
hereafter acquired by Debtor: any written agreement granting any right to
use any Trademark or Trademark registration.
"Trademarks" means any of the following now owned or hereafter
acquired by Debtor: (a) any trademarks, tradenames, corporate names,
business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and
recordings thereof, and any applications in connection therewith,
including, without limitation, registrations, recordings and applications
in the United States Patent and Trademark Office or in any similar office
or agency of the United States, any State thereof or any other country or
any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
"UCC" or "Uniform Commercial Code" means the Uniform
Commercial Code as the same may, from time to time, be in effect in the
State of Nevada; provided, however, in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of Secured Party's security interest in any collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction
other than the State of Nevada, the term "UCC" or "Uniform Commercial
Code" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection of priority and for purposes of definitions related
to such provisions.
-7-
<PAGE>
SCHEDULE 2
PLEDGED STOCK
<TABLE>
<CAPTION>
Percentage Number
of of
Stock Issuer Class of Stock Ownership Shares Cert. No.
- ------------ -------------- ---------- ------ ---------
<S> <C> <C> <C> <C>
Rio Properties, Inc. Common 100% 100 1
Rio Leasing, Inc. Common 100% 99,000 12
</TABLE>
<PAGE>
SCHEDULE 3
SECURITY AGREEMENT SUPPLEMENT
This Security Agreement Supplement, dated as of ,
is delivered pursuant to Section 4.2 of the Security Agreement referred to
below. The undersigned hereby agrees that this Security Agreement Supplement may
be attached to the Parent Pledge and Security Agreement, dated as of
, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Security Agreement", the terms defined therein and not
otherwise defined herein being used as therein defined), made by Rio Hotel and
Casino, Inc. in favor of Bank of America National Trust and Savings Association
as agent for itself and the Lenders and that the shares of stock listed on this
Security Agreement Supplement shall be and become part of the Pledged Stock
referred to in the Security Agreement and shall secure all Secured Obligations
in accordance therewith.
The undersigned agrees that the securities listed on Exhibit A
attached to this Security Agreement Supplement shall for all purposes constitute
Pledged Stock and shall be subject to the security interest created by the
Security Agreement in favor of the Secured Party.
The undersigned hereby certifies that the representations and
warranties set forth in Section 3 of the Security Agreement are true and correct
as to the Pledged Stock listed herein on and as of the date hereof.
RIO HOTEL AND CASINO, INC.,
a Nevada corporation
By:
------------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT A
TO SECURITY AGREEMENT SUPPLEMENT
<TABLE>
<CAPTION>
Percentage Number
of of
Stock Issuer Class of Stock Ownership Shares Cert. No.
- ------------ -------------- ---------- ------- ---------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 4(30)
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Sheppard, Mullin, Richter & Hampton, LLP
333 South Hope Street, 48th Floor Los
Angeles, California 90071
Attention: William M.Scott IV, Esq.
INSTRUCTIONS TO COUNTY RECORDER:
Index this document as
(1) a deed of trust and
(2) a fixture filing.
- --------------------------------------------------------------------------------
(Space above for Recorder's Use)
DEED OF TRUST
with Assignment of Rents and Fixture Filing
NOTICE: THE OBLIGATIONS SECURED HEREBY PROVIDE THE PERIODIC INCREASES AND/OR
DECREASES IN THE APPLICABLE INTEREST RATE.
NOTICE: THE OBLIGATIONS SECURED HEREBY INCLUDE REVOLVING CREDIT OBLIGATIONS
WHICH PERMIT BORROWING, REPAYMENT AND REBORROWING.
This Deed of Trust with Assignment of Rents and Fixture Filing ("Deed of
Trust") is made as of December 18, 1998 by RIO PROPERTIES, INC., a Nevada
corporation, as trustor ("Trustor"), in favor of EQUITABLE DEED COMPANY, a
California corporation, as trustee ("Trustee"), for the benefit of BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association
("Beneficiary"), as agent ("Agent") for itself and the other lenders
(collectively, the "Lenders") now or hereafter a party to that certain Loan
Agreement (the "Loan Agreement") of even date herewith, among Beneficiary (in
its individual capacity) and the Lenders as the lenders, Trustor and Rio
Leasing, Inc., a Nevada corporation ("Rio Leasing"), as the borrowers
(collectively, the "Borrowers"), and Beneficiary as Agent. Pursuant to the Loan
Agreement, Beneficiary and the Lenders have agreed to make loans to Borrowers in
the aggregate maximum principal amount (including future advances) of
$125,000,000 (collectively, the "Loan").
<PAGE>
1. Grant in Trust and Secured Obligations.
1.1 Grant in Trust. For the purpose of securing payment and
performance of the Secured Obligations defined and described in Section 1.2,
Trustor hereby irrevocably and unconditionally grants, conveys, transfers and
assigns to Trustee, in trust for the benefit of Beneficiary, with power of sale
and right of entry and possession, all estate, right, title and interest which
Trustor now has or may later acquire in and to the following property (all or
any part of such property, or any interest in all or any part of it, as the
context may require, the "Property"):
(a) The real property located in the County of Clark, State of
Nevada, as described in Exhibit A, together with all existing and future
easements and rights affording access to it (the "Land"); together with
(b) All buildings, structures and improvements now located or
later to be constructed on the Land (the "Improvements"); together with
(c) All existing and future appurtenances, privileges,
easements, franchises, hereditaments and tenements of the Land, including
all minerals, oil, gas, other hydrocarbons and associated substances,
sulphur, nitrogen, carbon dioxide, helium and other commercially valuable
substances which may be in, under or produced from any part of the Land,
all development rights and credits, air rights, water, water rights
(whether riparian, appropriative or otherwise, and whether or not
appurtenant) and water stock, and any land lying in the streets, roads or
avenues, open or proposed, in front of or adjoining the Land and
Improvements; together with
(d) All existing and future leases, subleases, subtenancies,
licenses, occupancy agreements and concessions (collectively the "Leases")
relating to the use and enjoyment of all or any part of the Land and
Improvements, and any and all guaranties and other agreements relating to
or made in connection with any of such leases; together with
-2-
<PAGE>
(e) All real property and improvements on it, and all
appurtenances and other property and interests of any kind or character,
whether described in Exhibit A or not, which may be reasonably necessary
or desirable to promote the present and any reasonable future beneficial
use and enjoyment of the Land and Improvements; together with
(f) All goods, materials, supplies, chattels, furniture,
fixtures, equipment and machinery now or later to be attached to, placed
in or on, or used in connection with the use, enjoyment, occupancy or
operation of all or any part of the Land and Improvements, whether stored
on the Land or elsewhere, including all pumping plants, engines, pipes,
ditches and flumes, and also all gas, electric, cooking, heating, cooling,
air conditioning, lighting, refrigeration and plumbing fixtures and
equipment, all of which shall be considered to the fullest extent of the
law to be real property for purposes of this Deed of Trust; together with
(g) All building materials, equipment, work in process or
other personal property of any kind, whether stored on the Land or
elsewhere, which have been or later will be acquired for the purpose of
being delivered to, incorporated into or installed in or about the Land or
Improvements; together with
(h) All rights to the payment of money and all value arising
from any and all existing and future Interest Rate Protection Agreements,
and any and all other existing and future transactions between Trustor and
Beneficiary or any other party which may afford interest rate protection
to all or part of the Loan; together with
(i) All rights to the payment of money, accounts, accounts
receivable, reserves, deferred payments, refunds, cost savings, payments
and deposits, room revenues, food revenues, beverage revenues and casino
revenues, whether now or later to be received from third parties or
deposited by Trustor with third parties (including all utility deposits),
contract rights, development and use rights, governmental permits and
licenses, applications, architectural and engineering
-3-
<PAGE>
plans, specifications and drawings, as-built drawings, chattel paper,
instruments, documents, notes, drafts and letters of credit (other than
letters of credit in favor of Beneficiary), which arise from or relate to
construction on the Land or to any business now or later to be conducted
on it, or to the Land and Improvements generally; together with
(j) All proceeds, including all claims to and demands for
them, of the voluntary or involuntary conversion of any of the Land,
Improvements or the other property described above into cash or liquidated
claims, including proceeds of all present and future fire, hazard or
casualty insurance policies and all condemnation awards or payments now or
later to be made by any public body or decree by any court of competent
jurisdiction for any taking or in connection with any condemnation or
eminent domain proceeding, and all causes of action and their proceeds for
any damage or injury to the Land, Improvements or the other property
described above or any part of them, or breach of warranty in connection
with the construction of the Improvements, including causes of action
arising in tort, contract, fraud or concealment of a material fact;
together with
(k) All books and records pertaining to any and all of the
property described above, including computer readable memory and any
computer hardware or software necessary to access and process such memory
("Books and Records"); together with
(l) All proceeds of, additions and accretions to,
substitutions and replacements for, and changes in any of the property
described above, including all proceeds of any voluntary or involuntary
disposition or claim respecting any such property (arising out of any
judgment, condemnation or award, or otherwise arising) and all goods,
documents, general intangibles, chattel paper and accounts, wherever
located, acquired with cash proceeds of any of the foregoing or its
proceeds.
Capitalized terms used above without definition have the meanings given them in
the Loan Agreement.
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1.2 Secured Obligations.
(a) Trustor makes the grant, conveyance, transfer and
assignment set forth in Section 1.1 for the purpose of securing the
following obligations (the "Secured Obligations") in any order of priority
that Beneficiary may choose:
(i) Payment of all obligations at any time owing under
each of the promissory notes (collectively, the "Notes") issued from
time to time pursuant to the Loan Agreement, payable by Trustor
and\or Rio Leasing, as makers, in the aggregate principal amount of
One Hundred Twenty-Five Million Dollars ($125,000,000);
(ii) Payment and performance of all obligations of
Trustor under this Deed of Trust;
(iii) Payment and performance of all obligations of
Trustor and Rio Leasing under the Loan Agreement;
(iv) Except as specified in subsection 1.2(b) below,
payment and performance of any obligations of Trustor and\or Rio
Leasing under any of the "Loan Documents," as defined in the Loan
Agreement, which are executed by Trustor and the other Loan
Documents referred to therein, including without limitation any and
all interest rate and currency rate hedging arrangements hereafter
entered into by Trustor and\or Rio Leasing and any Lender (the "Rate
Contracts" referred to in the Loan Agreement);
(v) Payment and performance of all future advances and
other obligations that Trustor or any successor in ownership of all
or part of the Property may agree to pay and/or perform (whether as
principal, surety or guarantor) for the benefit of Beneficiary
and/or any of the Lenders, when a writing evidences the parties'
agreement that the advance or obligation be secured by this Deed of
Trust; and
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(vi) Payment and performance of all modifications,
amendments, extensions and renewals, however evidenced, of any of
the Secured Obligations.
(b) In addition to certain other Loan Documents, Trustor is
executing an Unsecured Indemnity Agreement (the "Indemnity Agreement") in
connection with the Loan. Notwithstanding any provision of this Deed of Trust or
any other Loan Document, the obligations of Trustor arising from the Indemnity
Agreement are not and shall not be Secured Obligations under this Deed of Trust.
(c) All persons who may have or acquire an interest in all or any
part of the Property will be considered to have notice of, and will be bound by,
the terms of the Secured Obligations and each other agreement or instrument made
or entered into in connection with each of the Secured Obligations. Such terms
include any provisions in the Notes or the Loan Agreement which permit
borrowing, repayment and reborrowing, or which provide that the interest rate on
one or more of the Secured Obligations may vary from time to time.
2. Assignment of Rents.
2.1 Assignment. Effective upon the recordation of this Deed of
Trust, Trustor hereby irrevocably, absolutely, presently and unconditionally
assigns to Beneficiary all rents, royalties, issues, profits, revenue, income
and proceeds of the Property, whether now due, past due or to become due,
including all prepaid rents and security deposits, and further including,
without limitation, all rights to payment for hotel room occupancy by hotel
guests or otherwise, which includes any payment or monies received or to be
received in whole or in part, whether actual or deemed to be, for the sale of
services or products in connection with such occupancy, advance registration
fees by hotel guests, tour or junket proceeds and deposits, deposits for
convention and/or party reservations, and other benefits from the Property (some
or all collectively, as the context may require, "Rents"). This is an absolute
assignment, not an assignment for security only.
2.2 Grant of License. Beneficiary hereby confers upon Trustor a
license ("License") to collect and retain the Rents as they become due and
payable, so long as no Event of Default, as defined in Section 5.2, shall exist
and be
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continuing. If an Event of Default has occurred and is continuing, Beneficiary
shall have the right, which it may choose to exercise in its sole discretion, to
terminate this License without notice to or demand upon Trustor, and without
regard to the adequacy of Beneficiary's security under this Deed of Trust.
2.3 Collection and Application of Rents. Subject to the License
granted to Trustor under Section 2.2, Beneficiary has the right, power and
authority to collect any and all Rents. Subject to applicable Gaming Laws,
Trustor hereby appoints Beneficiary its attorney-in-fact to perform any and all
of the following acts, if and at the times when Beneficiary in its sole
discretion may so choose:
(a) Demand, receive and enforce payment of any and all Rents;
or
(b) Give receipts, releases and satisfactions for any and all
Rents; or
(c) Sue either in the name of Trustor or in the name of
Beneficiary for any and all Rents.
Beneficiary's right to the Rents does not depend on whether or not
Beneficiary takes possession of the Property as permitted under subsection
5.3(c). In Beneficiary's sole discretion, Beneficiary may choose to collect
Rents either with or without taking possession of the Property. Beneficiary
shall apply all Rents collected by it in the manner provided under Section 5.6.
If an Event of Default occurs while Beneficiary is in possession of all or part
of the Property and is collecting and applying Rents as permitted under this
Deed of Trust, Beneficiary, Trustee and any receiver shall nevertheless be
entitled to exercise and invoke every right and remedy afforded any of them
under this Deed of Trust and at law and in equity, including the right to
exercise the power of sale granted under Section 1.1 and subsection 5.3(g).
2.4 Beneficiary Not Responsible. Under no circumstances shall
Beneficiary have any duty to produce Rents from the Property. Regardless of
whether or not Beneficiary, in person or by agent, takes actual possession of
the Land and Improvements, Beneficiary is not and shall not be deemed to be:
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(a) A "mortgagee in possession" for any purpose; or
(b) Responsible for performing any of the obligations of the
lessor under any lease; or
(c) Responsible for any waste committed by lessees or any
other parties, any dangerous or defective condition of the Property, or
any negligence in the management, upkeep, repair or control of the
Property; or
(d) Liable in any manner for the Property or the use,
occupancy, enjoyment or operation of all or any part of it.
2.5 Leasing. Except for the leases listed in Schedule 6.26 of the
Loan Agreement, Trustor shall not accept any deposit or prepayment of Rents for
any rental period exceeding one (1) month without Beneficiary's prior written
consent. Trustor shall not lease the Property or any part of it except strictly
in accordance with the Loan Agreement. Trustor shall apply all Rents in the
manner required by the Loan Agreement.
3. Fixture Filing. This Deed of Trust shall be effective as a financing
statement filed as a fixture filing from the date of the recording hereof in
accordance with NRS 104.9402. In connection therewith, the addresses of the
Trustor as debtor ("Debtor") and Beneficiary as secured party ("Secured Party")
are as set forth in the signature pages hereof. This address of Beneficiary, as
the Secured Party, is also the address from which information concerning the
security interest may be obtained by any interested party.
(a) The property subject to this fixture filing is described
in Section 1.1 above.
(b) Portions of the property subject to this fixture filing as
identified in (a) above are or are to become fixtures related to the real
estate described on Exhibit "A" to this Deed of Trust.
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(c) Secured Party is: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, AS AGENT, under the Loan Agreement referred to above,
whose address is set forth after the signatures as the Notice address.
(d) Debtor is: RIO PROPERTIES, INC., whose address is set
forth after the signatures as the Notice address.
4. Rights and Duties of the Parties.
4.1 Representations and Warranties. Trustor represents and warrants
that, except as previously disclosed to Beneficiary in a writing making
reference to this Section 4.1:
(a) Trustor lawfully possesses and holds fee simple title to
all of the Land and Improvements;
(b) Trustor has or will have good title to all Property other
than the Land and Improvements;
(c) Trustor has the full and unlimited power, right and
authority to encumber the Property and assign the Rents;
(d) This Deed of Trust creates a first and prior lien on the
Property;
(e) The Property includes all property and rights which may be
reasonably necessary or desirable to promote the present and any
reasonable future beneficial use and enjoyment of the Land and
Improvements;
(f) Trustor owns any Property which is personal property free
and clear of any security agreements, reservations of title or conditional
sales contracts, and there is no financing statement affecting such
personal property on file in any public office; and
(g) Trustor's place of business, or its chief executive office
if it has more than one place of business, is located at the address
specified below.
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4.2 Taxes and Assessments. Trustor shall pay prior to delinquency
all taxes, levies, charges and assessments, including assessments on appurtenant
water stock, imposed by any public or quasi-public authority or utility company
(collectively, "Impositions") which are (or if not paid, may become) a lien on
all or part of the Property or any interest in it, or which may cause any
decrease in the value of the Property or any part of it. If any such taxes,
levies, charges or assessments become delinquent, Beneficiary may require
Trustor to present evidence that they have been paid in full, on ten (10) days'
written notice by Beneficiary to Trustor. Notwithstanding the foregoing, Trustor
shall not be required to pay any Imposition so long as (i) its validity is being
actively contested in good faith and by appropriate proceedings, and (ii)
Trustor has demonstrated to Beneficiary's reasonable satisfaction that leaving
such Imposition unpaid pending the outcome of such proceedings could not result
in conveyance of the Property in satisfaction of such Imposition or otherwise
impair Beneficiary's interest under this Deed of Trust.
4.3 Performance of Secured Obligations. Trustor shall promptly pay
and perform each Secured Obligation in accordance with its terms.
4.4 Liens, Charges and Encumbrances. Trustor shall immediately
discharge any lien on the Property which Beneficiary has not consented to in
writing. Trustor shall pay when due each obligation secured by or reducible to a
lien, charge or encumbrance which now does or later may encumber or appear to
encumber all or part of the Property or any interest in it, whether the lien,
charge or encumbrance is or would be senior or subordinate to this Deed of
Trust. This Section 4.4 is subject to Trustor's right, granted in the Loan
Agreement, to contest in good faith claims and liens for labor done and
materials and services furnished in connection with construction of the
Improvements.
4.5 Damages and Insurance and Condemnation Proceeds.
(a) Trustor hereby absolutely and irrevocably assigns to
Beneficiary, and authorizes the payor to pay to Beneficiary the following
claims, causes of action, awards, payments and rights to payment:
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(i) All awards of damages and all other compensation
payable directly or indirectly because of a condemnation, proposed
condemnation or taking for public or private use which affects all
or part of the Property or any interest in it; and
(ii) All other awards, claims and causes of action,
arising out of any warranty affecting all or any part of the
Property, or for damage or injury to or decrease in value of all or
part of the Property or any interest in it; and
(iii) All proceeds of any insurance policies payable
because of loss sustained to all or part of the Property in excess
of $1,000,000; and
(iv) All interest which may accrue on any of the
foregoing.
(b) Trustor shall immediately notify Beneficiary in writing
if:
(i) Any damage occurs or any injury or loss is sustained
in the amount of $1,000,000 or more to all or part of the Property,
or any action or proceeding relating to any such damage, injury or
loss is commenced; or
(ii) Any offer is made, or any action or proceeding is
commenced, which relates to any actual or proposed condemnation or
taking of all or part of the Property.
(c) If Beneficiary chooses to do so, Beneficiary may in its
own name appear in or prosecute any action or proceeding to enforce any
cause of action based on warranty, or for damage, injury or loss to all or
part of the Property, and Beneficiary may make any compromise or
settlement of the action or proceeding. Beneficiary, if it so chooses, may
participate in any action or proceeding relating to condemnation or taking
of all or part of the Property, and may join Trustor in adjusting any loss
covered by insurance.
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(d) All proceeds of these assigned claims, other property and
rights which Trustor may receive or be entitled to shall be paid to
Beneficiary. In each instance, Beneficiary shall apply such proceeds first
toward reimbursement of all of Beneficiary's reasonable costs and expenses
of recovering the proceeds, including reasonable attorneys' fees. Such
attorneys' fees shall include the allocated costs for services of in-house
counsel. If, in any instance, each and all of the following conditions are
satisfied in Beneficiary's reasonable judgment, Beneficiary must permit
Trustor to use the balance of such proceeds ("Net Claims Proceeds") to pay
costs of repairing or reconstructing the Property in the manner described
below:
(i) The plans and specifications, cost breakdown,
construction contract, construction schedule, contractor and payment
and performance bond for the work of repair or reconstruction must
all be acceptable to Beneficiary; and
(ii) Beneficiary must receive evidence satisfactory to
it that after repair or reconstruction, the Property would be at
least as valuable as it was immediately before the damage or
condemnation occurred; and
(iii) The Net Claims Proceeds must be sufficient in
Beneficiary's determination to pay for the total cost of repair or
reconstruction, including all associated development costs and
interest projected to be payable on the Secured Obligations until
the repair or reconstruction is complete; or Trustor must provide
its own funds in an amount equal to the difference between the Net
Claims Proceeds and a reasonable estimate, made by Trustor and found
acceptable by Beneficiary, of the total cost of repair or
reconstruction; and
(iv) Beneficiary must receive evidence satisfactory to
it that all leases which Beneficiary may find acceptable will
continue after the repair or reconstruction is complete; and
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(v) No Event of Default shall have occurred and be
continuing.
If Beneficiary finds that such conditions have been met, Beneficiary shall
hold the Net Claims Proceeds and any funds which Trustor is required to
provide in a noninterest-bearing account and shall disburse them to
Trustor to pay costs of repair or reconstruction upon presentation of
evidence reasonably satisfactory to Beneficiary that repair or
reconstruction has been completed satisfactorily and lien-free. However,
if Beneficiary finds that one or more of such conditions have not been
satisfied, Beneficiary may apply the Net Claims Proceeds to pay or prepay
(without premium) some or all of the Secured Obligations in such order and
proportions as Beneficiary in its sole discretion may choose.
(e) Trustor hereby specifically, unconditionally and
irrevocably waives all rights of a property owner under all laws which
provide for allocation of condemnation proceeds between a property owner
and a lienholder, and any other law or successor statute of similar
import.
4.6 Maintenance and Preservation of Property.
(a) Trustor shall insure the Property as required by the Loan
Agreement and keep the Property in good condition and repair.
(b) Trustor shall not remove or demolish any material portion
of the Property or any part of it, or make any material alteration,
restoration or addition to the Property (other than the Rio Expansion
Project referred to in the Loan Agreement), or initiate or allow any
change in any zoning or other land use classification which affects the
Property or any part of it, except as permitted or required by the Loan
Agreement or with Beneficiary's express prior written consent in each
instance.
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(c) If all or part of the Property becomes damaged or
destroyed, Trustor shall promptly and completely repair and/or restore the
Property in a good and workmanlike manner in accordance with sound
building practices, regardless of whether or not Beneficiary agrees to
disburse insurance proceeds or other sums to pay costs of the work of
repair or reconstruction under Section 4.5.
(d) Trustor shall not commit or allow any act upon or use of
the Property which would violate: (i) any applicable law or order of any
governmental authority, whether now existing or later to be enacted and
whether foreseen or unforeseen; or (ii) any public or private covenant,
condition, restriction or equitable servitude affecting the Property.
Trustor shall not bring or keep any article on the Property or cause or
allow any condition to exist on it, if that could invalidate or would be
prohibited by any insurance coverage required to be maintained by Trustor
on the Property or any part of it under the Loan Agreement.
(e) Trustor shall not commit or allow waste of the Property.
(f) Trustor shall perform all other acts which from the
character or use of the Property may be reasonably necessary to maintain
and preserve its value.
4.7 Trustee's Acceptance of Trust. Trustee accepts this trust when
this Deed of Trust is recorded.
4.8 Releases, Extensions, Modifications and Additional Security.
(a) From time to time, Beneficiary may perform any of the
following acts without incurring any liability or giving notice to any
person, and without affecting the personal liability of any person for the
payment of the Secured Obligations (except as provided below), and without
affecting the security hereof for the full amount of the Secured
Obligations on all Property remaining subject hereto, and without the
necessity that any sum representing the value of any portion of the
Property affected by the Beneficiary's action be credited on the Secured
Obligations:
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(i) Release any person liable for payment of any Secured
Obligation;
(ii) Extend the time for payment, or otherwise alter the
terms of payment, of any Secured Obligation;
(iii) Accept additional real or personal property of any
kind as security for any Secured Obligation, whether evidenced by
deeds of trust, mortgages, security agreements or any other
instruments of security; or
(iv) Alter, substitute or release any property securing
the Secured Obligations.
(b) From time to time when requested to do so by Beneficiary
in writing, Trustee may perform any of the following acts without
incurring any liability or giving notice to any person:
(i) Consent to the making of any plat or map of the
Property or any part of it;
(ii) Join in granting any easement or creating any
restriction affecting the Property;
(iii) Join in any subordination or other agreement
affecting this Deed of Trust or the lien of it; or
(iv) Reconvey the Property or any part of it without any
warranty.
4.9 Reconveyance. When all of the Secured Obligations have been paid
in full and the commitments to extend credit to Borrowers under the Loan
Agreement have been terminated, Beneficiary shall request Trustee in writing to
reconvey the Property, and shall surrender this Deed of Trust and all notes and
instruments evidencing the Secured Obligations to Trustee. When Trustee receives
Beneficiary's written request for reconveyance and all fees and other sums owing
to Trustee by Trustor under Section 4.10, Trustee shall reconvey the Property,
or so much of it as is then held under
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this Deed of Trust, without warranty to the person or persons legally entitled
to it. Such person or persons shall pay any costs of recordation. In the
reconveyance, the grantee may be described as "the person or persons legally
entitled thereto," and the recitals of any matters or facts shall be conclusive
proof of their truthfulness. Neither Beneficiary nor Trustee shall have any duty
to determine the rights of persons claiming to be rightful grantees of any
reconveyance.
4.10 Compensation, Exculpation, Indemnification.
(a) Trustor agrees to pay fees in the maximum amounts legally
permitted, or reasonable fees as may be charged by Beneficiary and Trustee
when the law provides no maximum limit, for any services that Beneficiary
or Trustee may render in connection with this Deed of Trust, including
Beneficiary's providing a statement of the Secured Obligations or
Trustee's rendering of services in connection with a reconveyance. Trustor
shall also pay or reimburse all of Beneficiary's and Trustee's reasonable
costs and expenses which may be incurred in rendering any such services.
Trustor further agrees to pay or reimburse Beneficiary for all reasonable
costs, expenses and other advances which may be incurred or made by
Beneficiary or Trustee in any efforts to enforce any terms of this Deed of
Trust, including any rights or remedies afforded to Beneficiary or Trustee
or both of them under Section 5.3, whether any lawsuit is filed or not, or
in defending any action or proceeding arising under or relating to this
Deed of Trust, including reasonable attorneys' fees and other legal costs,
costs of any Foreclosure Sale (as defined in subsection 5.3(h)) and any
cost of evidence of title. If Beneficiary chooses to dispose of Property
through more than one Foreclosure Sale, Trustor shall pay all costs,
expenses or other advances that may be incurred or made by Trustee or
Beneficiary in each of such Foreclosure Sales.
(b) Beneficiary shall not be directly or indirectly liable to
Trustor or any other person as a consequence of any of the following:
(i) Beneficiary's exercise of or failure to exercise any
rights, remedies or powers granted to Beneficiary in this Deed of
Trust;
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(ii) Beneficiary's failure or refusal to perform or
discharge any obligation or liability of Trustor under any agreement
related to the Property or under this Deed of Trust; or
(iii) Any loss sustained by Trustor or any third party
resulting from Beneficiary's failure to lease the Property, or from
any other act or omission of Beneficiary in managing the Property,
after an Event of Default, unless the loss is caused by the willful
misconduct and bad faith of Beneficiary.
To the extent permitted by applicable law, Trustor hereby expressly waives
and releases all liability of the types described above, and agrees that
no such liability shall be asserted against or imposed upon Beneficiary.
(c) Trustor agrees to indemnify Trustee and Beneficiary
against and hold them harmless from all losses, damages, liabilities,
claims, causes of action, judgments, court costs, attorneys' fees and
other reasonable legal expenses, cost of evidence of title, cost of
evidence of value, and other reasonable costs and expenses which either
may suffer or incur:
(i) In performing any act required or permitted by this
Deed of Trust or any of the other Loan Documents or by law;
(ii) Because of any failure of Trustor to perform any of
Trustor's obligations; or
(iii) Because of any alleged obligation of or
undertaking by Beneficiary to perform or discharge any of the
representations, warranties, conditions, covenants or other
obligations in any document relating to the Property other than the
Loan Documents.
This agreement by Trustor to indemnify Trustee and Beneficiary shall
survive the release and cancellation of any or all of the Secured
Obligations and the full or partial release and/or reconveyance of this
Deed of Trust.
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(d) Trustor shall pay all obligations to pay money arising
under this Section 4.10 immediately upon demand by Trustee or Beneficiary.
Each such obligation shall be added to, and considered to be part of, the
principal of the Notes, and shall bear interest from the date the
obligation arises at the "Base Rate" plus the "Applicable Margin," as
defined in the Loan Agreement.
4.11 Defense and Notice of Claims and Actions. At Trustor's sole
expense, Trustor shall protect, preserve and defend the Property and title to
and right of possession of the Property, and the security of this Deed of Trust
and the rights and powers of Beneficiary and Trustee created under it, against
all adverse claims. Trustor shall give Beneficiary and Trustee prompt notice in
writing if any claim is asserted which does or could affect any of such matters,
or if any action or proceeding is commenced which alleges or relates to any such
claim.
4.12 Substitution of Trustee. From time to time, Beneficiary may
substitute a successor to any Trustee named in or acting under this Deed of
Trust in any manner now or later to be provided at law, or by a written
instrument executed and acknowledged by Beneficiary and recorded in the
office(s) of the recorder(s) of the county or counties where the Land and
Improvements are situated. Any such instrument shall be conclusive proof of the
proper substitution of the successor Trustee, who shall automatically upon
recordation of the instrument succeed to all estate, title, rights, powers and
duties of the predecessor Trustee, without conveyance from it.
4.13 Subrogation. Beneficiary shall be subrogated to the liens of
all encumbrances, whether released of record or not, which are discharged in
whole or in part by Beneficiary in accordance with this Deed of Trust or with
the proceeds of any loan secured by this Deed of Trust.
4.14 Site Visits, Observation and Testing. Subject to compliance
with Gaming Laws, including restrictions on access to security and surveillance
systems and the casino cage, Beneficiary and its agents and representatives
shall have the right at any reasonable time to enter and visit the Property for
the purpose of performing appraisals. In addition, the Indemnified Parties (as
defined in the Indemnity Agreement) and their agents and representatives shall
have the
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right at any reasonable time to enter and visit the Property for the purposes of
observing the Property, taking and removing soil or groundwater samples, and
conducting tests on any part of the Property. The Indemnified Parties have no
duty, however, to visit or observe the Property or to conduct tests, and no site
visit, observation or testing by any Indemnified Party shall impose any
liability on any Indemnified Party. In no event shall any site visit,
observation or testing by any Indemnified Party be a representation that
"Hazardous Substances" (as defined in the Indemnity Agreement) are or are not
present in, on, or under the Property, or that there has been or shall be
compliance with any law, regulation or ordinance pertaining to Hazardous
Substances or any other applicable governmental law. Neither Trustor nor any
other party is entitled to rely on any site visit, observation or testing by any
Indemnified Party. The Indemnified Parties owe no duty of care to protect
Trustor or any other party against, or to inform Trustor or any other party of,
any Hazardous Substances or any other adverse condition affecting the Property.
Any Indemnified Party shall give Trustor reasonable notice before entering the
Property. The Indemnified Party shall make reasonable efforts to avoid
interfering with Trustor's use of the Property in exercising any rights provided
in this Section.
4.15 Notice of Change. Trustor shall give Beneficiary prior written
notice of any change in (a) the location of Trustor's place of business or its
chief executive office if it has more than one place of business, (b) the
location of any of the Property, including the Books and Records and (c)
Trustor's name or business structure. Unless otherwise approved by Lender in
writing, all Property that consists of personal property (other than the Books
and Records) will be located on the Land and all Books and Records will be
located at Trustor's place of business or chief executive office if Trustor has
more than one place of business.
5. Accelerating Transfers, Default and Remedies.
5.1 Accelerating Transfers.
(a) "Accelerating Transfer" means any sale, contract to sell,
conveyance, encumbrance, lease not expressly permitted under the Loan
Agreement, or other transfer of all or any material part of the Property
or
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any interest in it, whether voluntary, involuntary, by operation of law or
otherwise. If Trustor is a corporation, "Accelerating Transfer" also means
any transfer or transfers of shares possessing, in the aggregate, more
than fifty percent (50%) of the voting power. If Trustor is a partnership,
"Accelerating Transfer" also means withdrawal or removal of any general
partner, dissolution of the partnership under Nevada law, or any transfer
or transfers of, in the aggregate, more than fifty percent (50%) of the
partnership interests.
(b) Trustor acknowledges that Beneficiary is making advances
under the Loan Agreement in reliance on the expertise, skill and
experience of Trustor; thus, the Secured Obligations include material
elements similar in nature to a personal service contract. In
consideration of Beneficiary's reliance, Trustor agrees that Trustor shall
not make any Accelerating Transfer, unless the transfer is preceded by
Beneficiary's express written consent to the particular transaction and
transferee. Beneficiary may withhold such consent in its sole discretion.
If any Accelerating Transfer occurs, Beneficiary, in its sole discretion
may declare all of the Secured Obligations to be immediately due and
payable, and Beneficiary and Trustee may invoke any rights and remedies
provided by Section 5.3 of this Deed of Trust.
5.2 Events of Default. Trustor will be in default under this Deed
of Trust upon the occurrence of any one or more of the following events (some or
all collectively, "Events of Default;" any one singly, an "Event of Default"):
(a) Trustor fails to perform any obligation to pay money which
arises under this Deed of Trust, and does not cure that failure within
fifteen (15) days after written notice from Beneficiary or Trustee; or
(b) Trustor fails to perform any obligation arising under this
Deed of Trust other than one to pay money, and does not cure that failure
either within thirty (30) days ("Initial Cure Period") after written
notice from Beneficiary or Trustee, or within ninety (90) days after such
written notice, so long as Trustor begins within the Initial Cure Period
and diligently continues to
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cure the failure, and Beneficiary, exercising reasonable judgment,
determines that the cure cannot reasonably be completed at or before
expiration of the Initial Cure Period; or
(c) An Event of Default (as defined in the Loan Agreement)
occurs under the Loan Agreement.
5.3 Remedies. At any time after an Event of Default, Beneficiary
and Trustee will be entitled to invoke any and all of the following rights and
remedies, all of which will be cumulative, and the exercise of any one or more
of which shall not constitute an election of remedies:
(a) Acceleration. Subject to applicable Gaming Laws,
Beneficiary may declare any or all of the Secured Obligations to be due
and payable immediately.
(b) Receiver. Subject to applicable Gaming Laws, Beneficiary
may apply to any court of competent jurisdiction for, and obtain
appointment of, a receiver for the Property.
(c) Entry. Subject to applicable Gaming Laws, Beneficiary, in
person, by agent or by court-appointed receiver, may enter, take
possession of, manage and operate all or any part of the Property, and may
also do any and all other things in connection with those actions that
Beneficiary may in its sole discretion consider necessary and appropriate
to protect the security of this Deed of Trust. Such other things may
include: taking and possessing all of Trustor's or the then owner's Books
and Records; entering into, enforcing, modifying, or canceling leases on
such terms and conditions as Beneficiary may consider proper; obtaining
and evicting tenants; fixing or modifying Rents; collecting and receiving
any payment of money owing to Trustor; completing construction; and/or
contracting for and making repairs and alterations. If Beneficiary so
requests, Trustor shall assemble all of the Property that has been removed
from the Land and make all of it available to Beneficiary at the site of
the Land. Trustor hereby irrevocably constitutes and appoints Beneficiary
as Trustor's attorney-in-fact to perform such acts and execute such
documents as Beneficiary in its sole
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discretion may consider to be appropriate in connection with taking these
measures, including endorsement of Trustor's name on any instruments.
Regardless of any provision of this Deed of Trust or the Loan Agreement,
Beneficiary shall not be considered to have accepted any property other
than cash or immediately available funds in satisfaction of any obligation
of Trustor to Beneficiary, unless Beneficiary has given express written
notice of Beneficiary's election of that remedy in accordance with the
Nevada Uniform Commercial Code, as it may be amended or recodified from
time to time.
(d) Cure; Protection of Security. Either Beneficiary or
Trustee may cure any breach or default of Trustor, and if it chooses to do
so in connection with any such cure, Beneficiary or Trustee may also,
subject to applicable Gaming Laws, enter the Property and/or do any and
all other things which it may in its sole discretion consider necessary
and appropriate to protect the security of this Deed of Trust, including,
without limitation, the right to complete the Improvement. Such other
things may include: appearing in and/or defending any action or proceeding
which purports to affect the security of, or the rights or powers of
Beneficiary or Trustee under, this Deed of Trust; paying, purchasing,
contesting or compromising any encumbrance, charge, lien or claim of lien
which in Beneficiary's or Trustee's sole judgment is or may be senior in
priority to this Deed of Trust, such judgment of Beneficiary or Trustee to
be conclusive as among the parties to this Deed of Trust; obtaining
insurance and/or paying any premiums or charges for insurance required to
be carried under the Loan Agreement; otherwise caring for and protecting
any and all of the Property; and/or employing counsel, accountants,
contractors and other appropriate persons to assist Beneficiary or
Trustee. Beneficiary and Trustee may take any of the actions permitted
under this subsection 5.3(d) either with or without giving notice to any
person.
(e) Uniform Commercial Code Remedies. Subject to applicable
Gaming Laws, Beneficiary may exercise any or all of the remedies granted
to a secured party under the Nevada enactment of the Uniform Commercial
Code.
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(f) Judicial Action. Beneficiary may bring an action in any
court of competent jurisdiction to foreclose this instrument or to obtain
specific enforcement of any of the covenants or agreements of this Deed of
Trust.
(g) Power of Sale. Under the power of sale hereby granted,
Beneficiary shall have the discretionary right to cause some or all of the
Property, including any Property which constitutes personal property to be
sold or otherwise disposed of in any combination and in any manner
permitted by applicable law.
(i) Sales of Personal Property.
(A) For purposes of this power of sale,
Beneficiary may elect to treat as personal property any
Property which is intangible or which can be severed from the
Land or Improvements without causing structural damage. If it
chooses to do so, Beneficiary may dispose of any personal
property separately from the sale of real property, in any
manner permitted by or under Nevada Revised Statues Article
104.9101 et seq. (the Nevada enactment of the Uniform
Commercial Code), including any public or private sale, or in
any manner permitted by any other applicable law.
(B) The following provision shall apply in the
absence of any specific statutory requirement which permits or
requires a different notice period: In connection with any
sale or other disposition of such Property, Trustor agrees
that the following procedures constitute a commercially
reasonable sale: Beneficiary shall mail written notice of the
sale to Trustor not later than forty-five (45) days prior to
such sale. Once per week during the four weeks immediately
preceding such sale, Beneficiary will publish notice of the
sale in a local daily newspaper of general circulation. Upon
receipt of any written request, Beneficiary will make the
Property available to any bona fide prospective purchaser for
inspection during
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reasonable business hours. Notwithstanding, Beneficiary shall
be under no obligation to consummate a sale if, in its
judgment, none of the offers received by it equals the fair
value of the Property offered for sale. The foregoing
procedures do not constitute the only procedures that may be
commercially reasonable.
(ii) Trustee's Sales of Real Property or Mixed
Collateral.
(A) Beneficiary may choose to dispose of some or
all of the Property which consists solely of real property in
any manner then permitted by applicable law. In its
discretion, Beneficiary may also or alternatively choose to
dispose of some or all of the Property, in any combination
consisting of both real and personal property, together in one
sale to be held in accordance with the law and procedures
applicable to real property. Trustor agrees that such a sale
of personal property together with real property constitutes a
commercially reasonable sale of the personal property. For
purposes of this power of sale, either a sale of real property
alone, or a sale of both real and personal property together
in accordance with law, will sometimes be referred to as a
"Trustee's Sale."
(B) Before any Trustee's Sale, Beneficiary or
Trustee shall give and record such notice of default and
election to sell as may then be required by law. When all time
periods then legally mandated have expired, and after such
notice of sale as may then be legally required has been given,
Trustee shall sell the property being sold at a public auction
to be held at the time and place specified in the notice of
sale. Neither Trustee nor Beneficiary shall have any
obligation to make demand on Trustor before any Trustee's
Sale. From time to time in accordance with then applicable
law, Trustee may, and in any event at Beneficiary's request
shall, postpone any Trustee's Sale by public announcement at
the time and place noticed for that sale.
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(C) At any Trustee's Sale, Trustee shall sell to
the highest bidder at public auction for cash in lawful money
of the United States. Trustee shall execute and deliver to the
purchaser(s) a deed or deeds conveying the property being sold
without any covenant or warranty whatsoever, express or
implied. The recitals in any such deed of any matters or
facts, including any facts bearing upon the regularity or
validity of any Trustee's Sale, shall be conclusive proof of
their truthfulness. Any such deed shall be conclusive against
all persons as to the facts recited in it.
(h) Single or Multiple Foreclosure Sales. If the Property
consists of more than one lot, parcel or item of property, Beneficiary
may:
(i) Designate the order in which the lots, parcels
and/or items shall be sold or disposed of or offered for sale or
disposition; and
(ii) Elect to dispose of the lots, parcels and/or items
through a single consolidated sale or disposition to be held or made
under the power of sale granted in subsections 5.3(g) and 5.7, or in
connection with judicial proceedings, or by virtue of a judgment and
decree of foreclosure and sale; or through two or more such sales or
dispositions; or in any other manner Beneficiary may deem to be in
its best interests (any such sale or disposition, a "Foreclosure
Sale;" any two or more, "Foreclosure Sales").
If Beneficiary chooses to have more than one Foreclosure Sale, Beneficiary
at its option may cause the Foreclosure Sales to be held simultaneously or
successively, on the same day, or on such different days and at such
different times and in such order as Beneficiary may deem to be in its
best interests. No Foreclosure Sale shall terminate or affect the liens of
this Deed of Trust on any part of the Property which has not been sold,
until all of the Secured Obligations have been paid in full.
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5.4 Credit Bids. At any Foreclosure Sale, any person, including
Trustor, Trustee or Beneficiary, may bid for and acquire the Property or any
part of either to the extent permitted by then applicable law. Instead of paying
cash for such property, Beneficiary may settle for the purchase price by
crediting the sales price of the property against the following obligations:
(a) First, the portion of the Secured Obligations attributable
to the expenses of sale, costs of any action and any other sums for which
Trustor is obligated to pay or reimburse Beneficiary or Trustee under
Section 4.10; and
(b) Second, all other Secured Obligations in any order and
proportions as Beneficiary in its sole discretion may choose.
5.5 Application of Foreclosure Sale Proceeds. Beneficiary and
Trustee shall apply the proceeds of any Foreclosure Sale in the following
manner:
(a) First, to pay the portion of the Secured Obligations
attributable to the expenses of sale, costs of any action and any other
sums for which Trustor is obligated to reimburse Beneficiary or Trustee
under Section 4.10;
(b) Second, to pay the portion of the Secured Obligations
attributable to any sums expended or advanced by Beneficiary or Trustee
under the terms of this Deed of Trust which then remain unpaid;
(c) Third, to pay all other Secured Obligations in any order
and proportions as Beneficiary in its sole discretion may choose; and
(d) Fourth, to remit the remainder, if any to the person or
persons entitled to it.
5.6 Application of Rents and Other Sums. Beneficiary shall apply
any and all Rents collected by it, and any and all sums other than proceeds of a
Foreclosure Sale which Beneficiary may receive or collect under Section 5.3, in
the following manner:
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(a) First, to pay the portion of the Secured Obligations
attributable to the costs and expenses of operation and collection that
may be incurred by Trustee, Beneficiary or any receiver;
(b) Second, to pay all other Secured Obligations in any order
and proportions as Beneficiary in its sole discretion may choose; and
(c) Third, to remit the remainder, if any, to the person or
persons entitled to it. Beneficiary shall have no liability for any funds
which it does not actually receive.
5.7 Incorporation of Certain Nevada Covenants. The following
covenants nos. 1, 2 (full replacement value), 3, 4 (at the applicable Default
Rate), 5, 6, 7 (reasonable), 8 and 9 of NRS 107.030, where not in conflict with
the provisions of the Loan Documents, are hereby adopted and made a part of this
Deed of Trust. Upon any Event of Default by Trustor hereunder, Beneficiary may
(a) declare all sums secured immediately due and payable without demand or
notice or (b) have a receiver appointed as a matter of right without regard to
the sufficiency of said property or any other security or guaranty and without
any showing as required by NRS.ss. 107.100, but subject to applicable Gaming
Laws. All remedies provided in this Deed of Trust are distinct and cumulative to
any other right or remedy under this Deed of Trust or afforded by law or equity
and may be exercised concurrently, independently or successively. The sale of
said property conducted pursuant to Covenants Nos. 6, 7 and 8 of NRS 107.030 may
be conducted either as to the whole of said property or in separate parcels and
in such order as Trustee may determine.
6. Miscellaneous Provisions.
6.1 Additional Provisions. The Loan Documents fully state all of
the terms and conditions of the parties' agreement regarding the matters
mentioned in or incidental to this Deed of Trust. The Loan Documents also grant
further rights to Beneficiary and contain further agreements and affirmative and
negative covenants by Trustor which apply to this Deed of Trust and to the
Property.
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6.2 No Waiver or Cure.
(a) Each waiver by Beneficiary or Trustee must be in writing,
and no waiver shall be construed as a continuing waiver. No waiver shall
be implied from any delay or failure by Beneficiary or Trustee to take
action on account of any default of Trustor. Consent by Beneficiary or
Trustee to any act or omission by Trustor shall not be construed as a
consent to any other or subsequent act or omission or to waive the
requirement for Beneficiary's or Trustee's consent to be obtained in any
future or other instance.
(b) If any of the events described below occurs, that event
alone shall not: cure or waive any breach, Event of Default or notice of
default under this Deed of Trust or invalidate any act performed pursuant
to any such default or notice; or nullify the effect of any notice of
default or sale (unless all Secured Obligations then due have been paid
and performed and all other defaults under the Loan Documents have been
cured); or impair the security of this Deed of Trust; or prejudice
Beneficiary, Trustee or any receiver in the exercise of any right or
remedy afforded any of them under this Deed of Trust; or be construed as
an affirmation by Beneficiary of any tenancy, lease or option, or a
subordination of the lien of this Deed of Trust.
(i) Beneficiary, its agent or a receiver takes
possession of all or any part of the Property in the manner provided
in subsection 5.3(c).
(ii) Beneficiary collects and applies Rents as permitted
under Sections 2.3 and 5.6, either with or without taking possession
of all or any part of the Property.
(iii) Beneficiary receives and applies to any Secured
Obligation proceeds of any Property, including any proceeds of
insurance policies, condemnation awards, or other claims, property
or rights assigned to Beneficiary under Section 4.5.
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<PAGE>
(iv) Beneficiary makes a site visit, observes the
Property and/or conducts tests as permitted under Section 4.14 or
under the Loan Agreement.
(v) Beneficiary receives any sums under this Deed of
Trust or any proceeds of any collateral held for any of the Secured
Obligations, and applies them to one or more Secured Obligations.
(vi) Beneficiary, Trustee or any receiver invokes any
right or remedy provided under this Deed of Trust.
6.3 Powers of Beneficiary and Trustee.
(a) Trustee shall have no obligation to perform any act which
it is empowered to perform under this Deed of Trust unless it is requested
to do so in writing and is reasonably indemnified against loss, cost,
liability and expense.
(b) If either Beneficiary or Trustee performs any act which it
is empowered or authorized to perform under this Deed of Trust, including
any act permitted by Section 4.8 or subsection 5.3(d) or by the Loan
Agreement, that act alone shall not release or change the personal
liability of any person for the payment and performance of the Secured
Obligations then outstanding, or the lien of this Deed of Trust on all or
the remainder of the Property for full payment and performance of all
outstanding Secured Obligations. The liability of the original Trustor
shall not be released or changed if Beneficiary grants any successor in
interest to Trustor any extension of time for payment, or modification of
the terms of payment, of any Secured Obligation. Beneficiary shall not be
required to comply with any demand by the original Trustor that
Beneficiary refuse to grant such an extension or modification to, or
commence proceedings against, any such successor in interest.
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(c) Beneficiary may take any of the actions permitted under
subsections 5.3(b), 5.3(c), 5.7 and/or the Loan Agreement regardless of
the adequacy of the security for the Secured Obligations, or whether any
or all of the Secured Obligations have been declared to be immediately due
and payable, or whether notice of default and election to sell has been
given under this Deed of Trust.
(d) From time to time, Beneficiary or Trustee may apply to any
court of competent jurisdiction for aid and direction in executing the
trust and enforcing the rights and remedies created under this Deed of
Trust. Beneficiary or Trustee may from time to time obtain orders or
decrees directing, confirming or approving acts in executing this trust
and enforcing these rights and remedies.
6.4 Merger. No merger shall occur as a result of Beneficiary's
acquiring any other estate in or any other lien on the Property unless
Beneficiary consents to a merger in writing.
6.5 Joint and Several Liability. If Trustor consists of more than
one person, each shall be jointly and severally liable for the faithful
performance of all of Trustor's obligations under this Deed of Trust.
6.6 Applicable Law. This Deed of Trust shall be governed by Nevada
law.
6.7 Successors in Interest. The terms, covenants and conditions of
this Deed of Trust shall be binding upon and inure to the benefit of the heirs,
successors and assigns of the parties. However, this Section 6.7 does not waive
the provisions of Section 5.1.
6.8 Interpretation.
(a) Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
sections of this Deed of Trust are for convenience only and do not
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<PAGE>
define or limit any terms or provisions. The word "include(s)" means
"include(s), without limitation," and the word "including" means
"including, but not limited to."
(b) The word "obligations" is used in its broadest and most
comprehensive sense, and includes all primary, secondary, direct,
indirect, fixed and contingent obligations. It further includes all
principal, interest, prepayment charges, late charges, loan fees and any
other fees and charges accruing or assessed at any time, as well as all
obligations to perform acts or satisfy conditions.
(c) No listing of specific instances, items or matters in any
way limits the scope or generality of any language of this Deed of Trust.
The Exhibits to this Deed of Trust are hereby incorporated in this Deed of
Trust.
(d) The terms of the Loan Agreement shall prevail over the
terms of this Deed of Trust in the event of any conflict.
6.9 In-House Counsel Fees. Whenever Trustor is obligated to pay or
reimburse Beneficiary or Trustee for any attorneys' fees, those fees shall
include the allocated costs for services of in-house counsel.
6.10 Waiver of Marshaling. Trustor waives all rights, legal and
equitable, it may now or hereafter have to require marshalling of assets or to
require upon foreclosure sales of assets in a particular order. Each successor
and assign of Trustor, including any holder of a lien subordinate to this Deed
of Trust, by acceptance of its interest or lien agrees that it shall be bound by
the above waiver, as if it had given the waiver itself.
6.11 Severability. If any provision of this Deed of Trust should be
held unenforceable or void, that provision shall be deemed severable from the
remaining provisions and in no way affect the validity of this Deed of Trust,
except that if such provision relates to the payment of any monetary sum, then
Beneficiary may, at its option, declare all Secured Obligations immediately due
and payable.
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<PAGE>
6.12 Notices. Trustor hereby requests that a copy of notice of
default and notice of sale be mailed to it at the address set forth below. That
address is also the mailing address of Trustor as debtor under the Nevada
Uniform Commercial Code. Beneficiary's address given below is the address for
Beneficiary as secured party under the Nevada Uniform Commercial Code.
"Trustor":
RIO PROPERTIES, INC.,
a Nevada corporation
By /s/ Ronald J. Radcliffe
------------------------------------
Ronald J. Radcliffe,
Treasurer
------------------------------------
(Printed Name and Title)
By /s/ I. Scott Bogatz
------------------------------------
I. Scott Bogatz, Secretary
------------------------------------
(Printed Name and Title)
Addresses Where Notices to
Trustor Are to Be Sent:
Rio Properties, Inc.
3700 West Flamingo Road
Las Vegas, Nevada 89103
Attn: Chief Executive Officer
Accepted and Agreed:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION,
as Agent under the Loan Agreement
By: /s/ Gina Meador
-----------------------------------
Gina Meador, Vice President
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Address Where Notices to Beneficiary
Are to Be Sent:
Bank of America NT & SA
555 South Flower Street 11th Floor
Los Angeles, CA 90017
Attn: Agency Management Services
Address Where
Notices to Trustee
Are to Be Sent:
Equitable Deed Company
555 South Flower Street
11th Floor
Los Angeles, CA 90017
Attn: Agency Management Services
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<PAGE>
Acknowledgement for Rio Properties, Inc.
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On December 18, 1998, personally appeared before me, a notary public (or judge
or other authorized person, as the case may be), Ronald J. Radcliffe, personally
known (or proved) to me to be the person whose name is subscribed to the above
instrument, and who acknowledged that (s)he executed the instrument.
/s/ Suzanne V. Hall
---------------------------------------
(Signature)
Notary Public-State of Nevada
COUNTY OF CLARK
SUZANNE V. HALL
My Appointment Expires
September 26, 2001
No. 97-4138-1
Acknowledgment for Rio Properties, Inc.
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On December 18, 1998, personally appeared before me, a notary public (or judge
or other authorized person, as the case may be), I. Scott Bogatz, personally
known (or proved) to me to be the person whose name is subscribed to the above
instrument, and who acknowledged that (s)he executed the instrument.
/s/ Lea Ann Spalding
---------------------------------------
(Signature)
Notary Public-State of Nevada
COUNTY OF CLARK
LEA ANN SPALDING
My Appointment Expires
February 19, 2000
No. 96-1306-1
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<PAGE>
Acknowledgement for Bank of America National Trust and Savings Association
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On December 22, 1998, personally appeared before me, a notary public (or judge
or other authorized person, as the case may be), Gina Meador, personally known
(or proved) to me to be the person whose name is subscribed to the above
instrument, and who acknowledged that (s)he executed the instrument.
/s/ Hilda Espy
---------------------------------------
(Signature)
HILDA ESPY
Commission #1128821
Notary Public - California
Los Angeles County
My Comm. Expires Mar. 24, 2001
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<PAGE>
EXHIBIT 4(31)
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Sheppard, Mullin, Richter & Hampton,
LLP 333 South Hope Street, 48th Floor
Los Angeles, California 90071
Attention: William M.Scott IV, Esq.
INSTRUCTIONS TO COUNTY RECORDER:
Index this document as
(1) a deed of trust and
(2) a fixture filing.
- --------------------------------------------------------------------------------
(Space above for Recorder's Use)
DEED OF TRUST
with Assignment of Rents and Fixture Filing
NOTICE: THE OBLIGATIONS SECURED HEREBY PROVIDE THE PERIODIC INCREASES AND/OR
DECREASES IN THE APPLICABLE INTEREST RATE.
NOTICE: THE OBLIGATIONS SECURED HEREBY INCLUDE REVOLVING CREDIT OBLIGATIONS
WHICH PERMIT BORROWING, REPAYMENT AND REBORROWING.
This Deed of Trust with Assignment of Rents and Fixture Filing ("Deed of
Trust") is made as of December 18, 1998 by CINDERLANE, INC., a Nevada
corporation, as trustor ("Trustor"), in favor of CHICAGO TITLE INSURANCE COMPANY
("Trustee"), for the benefit of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association ("Beneficiary"), as agent ("Agent")
for itself and the other lenders (collectively, the "Lenders") now or hereafter
a party to that certain Loan Agreement (the "Loan Agreement") of even date
herewith, among Beneficiary (in its individual capacity) and the Lenders as the
lenders, Rio Properties, Inc., a Nevada corporation ("Rio Properties") and Rio
Leasing, Inc., a Nevada corporation ("Rio Leasing"), as the borrowers
(collectively, the "Borrowers"), and Beneficiary as Agent. Pursuant to the Loan
Agreement, Beneficiary and the Lenders have agreed to make loans to Borrowers in
the aggregate maximum principal amount (including future advances) of
$125,000,000 (collectively, the "Loan").
<PAGE>
Trustor has issued a Subsidiary Guaranty in favor of Beneficiary dated as of the
date hereof pursuant to which Trustor guarantees the obligations of Borrowers
under the Loan Agreement and the other Loan Documents as further set forth
therein (the "Guaranty").
1. Grant in Trust and Secured Obligations.
1.1 Grant in Trust. For the purpose of securing payment and
performance of the Secured Obligations defined and described in Section 1.2,
Trustor hereby irrevocably and unconditionally grants, conveys, transfers and
assigns to Trustee, in trust for the benefit of Beneficiary, with power of sale
and right of entry and possession, all estate, right, title and interest which
Trustor now has or may later acquire in and to the following property (all or
any part of such property, or any interest in all or any part of it, as the
context may require, the "Property"):
(a) The real property located in the County of Clark, State of
Nevada, as described in Exhibit A, together with all existing and future
easements and rights affording access to it (the "Land"); together with
(b) All buildings, structures and improvements now located or
later to be constructed on the Land (the "Improvements"); together with
(c) All existing and future appurtenances, privileges,
easements, franchises, hereditaments and tenements of the Land, including
all minerals, oil, gas, other hydrocarbons and associated substances,
sulphur, nitrogen, carbon dioxide, helium and other commercially valuable
substances which may be in, under or produced from any part of the Land,
all development rights and credits, air rights, water, water rights
(whether riparian, appropriative or otherwise, and whether or not
appurtenant) and water stock, and any land lying in the streets, roads or
avenues, open or proposed, in front of or adjoining the Land and
Improvements; together with
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(d) All existing and future leases, subleases, subtenancies,
licenses, occupancy agreements and concessions (collectively the "Leases")
relating to the use and enjoyment of all or any part of the Land and
Improvements, and any and all guaranties and other agreements relating to
or made in connection with any of such leases; together with
(e) All real property and improvements on it, and all
appurtenances and other property and interests of any kind or character,
whether described in Exhibit A or not, which may be reasonably necessary
or desirable to promote the present and any reasonable future beneficial
use and enjoyment of the Land and Improvements; together with
(f) All goods, materials, supplies, chattels, furniture,
fixtures, equipment and machinery now or later to be attached to, placed
in or on, or used in connection with the use, enjoyment, occupancy or
operation of all or any part of the Land and Improvements, whether stored
on the Land or elsewhere, including all pumping plants, engines, pipes,
ditches and flumes, and also all gas, electric, cooking, heating, cooling,
air conditioning, lighting, refrigeration and plumbing fixtures and
equipment, all of which shall be considered to the fullest extent of the
law to be real property for purposes of this Deed of Trust; together with
(g) All building materials, equipment, work in process or
other personal property of any kind, whether stored on the Land or
elsewhere, which have been or later will be acquired for the purpose of
being delivered to, incorporated into or installed in or about the Land or
Improvements; together with
(h) All rights to the payment of money and all value arising
from any and all existing and future Interest Rate Protection Agreements,
and any and all other existing and future transactions between Trustor and
Beneficiary or any other party which may afford interest rate protection
to all or part of the Loan; together with
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<PAGE>
(i) All rights to the payment of money, accounts, accounts
receivable, reserves, deferred payments, refunds, cost savings, payments
and deposits, room revenues, food revenues, beverage revenues and casino
revenues, whether now or later to be received from third parties or
deposited by Trustor with third parties (including all utility deposits),
contract rights, development and use rights, governmental permits and
licenses, applications, architectural and engineering plans,
specifications and drawings, as-built drawings, chattel paper,
instruments, documents, notes, drafts and letters of credit (other than
letters of credit in favor of Beneficiary), which arise from or relate to
construction on the Land or to any business now or later to be conducted
on it, or to the Land and Improvements generally; together with
(j) All proceeds, including all claims to and demands for
them, of the voluntary or involuntary conversion of any of the Land,
Improvements or the other property described above into cash or liquidated
claims, including proceeds of all present and future fire, hazard or
casualty insurance policies and all condemnation awards or payments now or
later to be made by any public body or decree by any court of competent
jurisdiction for any taking or in connection with any condemnation or
eminent domain proceeding, and all causes of action and their proceeds for
any damage or injury to the Land, Improvements or the other property
described above or any part of them, or breach of warranty in connection
with the construction of the Improvements, including causes of action
arising in tort, contract, fraud or concealment of a material fact;
together with
(k) All books and records pertaining to any and all of the
property described above, including computer readable memory and any
computer hardware or software necessary to access and process such memory
("Books and Records"); together with
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<PAGE>
(l) All proceeds of, additions and accretions to,
substitutions and replacements for, and changes in any of the property
described above, including all proceeds of any voluntary or involuntary
disposition or claim respecting any such property (arising out of any
judgment, condemnation or award, or otherwise arising) and all goods,
documents, general intangibles, chattel paper and accounts, wherever
located, acquired with cash proceeds of any of the foregoing or its
proceeds.
Capitalized terms used herein without definition have the meanings given them in
the Loan Agreement.
1.2 Secured Obligations.
(a) Trustor makes the grant, conveyance, transfer and
assignment set forth in Section 1.1 for the purpose of securing the
following obligations (the "Secured Obligations") in any order of priority
that Beneficiary may choose:
(i) Payment of all obligations at any time owing under
the Guaranty;
(ii) Payment and performance of all obligations of
Trustor under this Deed of Trust;
(iii) Payment and performance of all future advances and
other obligations that Trustor or any successor in ownership of all
or part of the Property may agree to pay and/or perform (whether as
principal, surety or guarantor) for the benefit of Beneficiary
and/or any of the Lenders, when a writing evidences the parties'
agreement that the advance or obligation be secured by this Deed of
Trust; and
(iv) Payment and performance of all modifications,
amendments, extensions and renewals, however evidenced, of any of
the Secured Obligations.
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(b) All persons who may have or acquire an interest in all or any
part of the Property will be considered to have notice of, and will be bound by,
the terms of the Secured Obligations and each other agreement or instrument made
or entered into in connection with each of the Secured Obligations.
2. Assignment of Rents.
2.1 Assignment. Effective upon the recordation of this Deed of
Trust, Trustor hereby irrevocably, absolutely, presently and unconditionally
assigns to Beneficiary all rents, royalties, issues, profits, revenue, income
and proceeds of the Property, whether now due, past due or to become due,
including all prepaid rents and security deposits, and further including,
without limitation, all rights to payment for hotel room occupancy by hotel
guests or otherwise, which includes any payment or monies received or to be
received in whole or in part, whether actual or deemed to be, for the sale of
services or products in connection with such occupancy, advance registration
fees by hotel guests, tour or junket proceeds and deposits, deposits for
convention and/or party reservations, and other benefits from the Property (some
or all collectively, as the context may require, "Rents"). This is an absolute
assignment, not an assignment for security only.
2.2 Grant of License. Beneficiary hereby confers upon Trustor a
license ("License") to collect and retain the Rents as they become due and
payable, so long as no Event of Default, as defined in Section 5.2, shall exist
and be continuing. If an Event of Default has occurred and is continuing,
Beneficiary shall have the right, which it may choose to exercise in its sole
discretion, to terminate this License without notice to or demand upon Trustor,
and without regard to the adequacy of Beneficiary's security under this Deed of
Trust.
2.3 Collection and Application of Rents. Subject to the License
granted to Trustor under Section 2.2, Beneficiary has the right, power and
authority to collect any and all Rents. Subject to applicable Gaming Laws,
Trustor hereby appoints Beneficiary its attorney-in-fact to perform any and all
of the following acts, if and at the times when Beneficiary in its sole
discretion may so choose:
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(a) Demand, receive and enforce payment of any and all Rents;
or
(b) Give receipts, releases and satisfactions for any and all
Rents; or
(c) Sue either in the name of Trustor or in the name of
Beneficiary for any and all Rents.
Beneficiary's right to the Rents does not depend on whether or not
Beneficiary takes possession of the Property as permitted under subsection
5.3(c). In Beneficiary's sole discretion, Beneficiary may choose to collect
Rents either with or without taking possession of the Property. Beneficiary
shall apply all Rents collected by it in the manner provided under Section 5.6.
If an Event of Default occurs while Beneficiary is in possession of all or part
of the Property and is collecting and applying Rents as permitted under this
Deed of Trust, Beneficiary, Trustee and any receiver shall nevertheless be
entitled to exercise and invoke every right and remedy afforded any of them
under this Deed of Trust and at law and in equity, including the right to
exercise the power of sale granted under Section 1.1 and subsection 5.3(g).
2.4 Beneficiary Not Responsible. Under no circumstances shall
Beneficiary have any duty to produce Rents from the Property. Regardless of
whether or not Beneficiary, in person or by agent, takes actual possession of
the Land and Improvements, Beneficiary is not and shall not be deemed to be:
(a) A "mortgagee in possession" for any purpose; or
(b) Responsible for performing any of the obligations of the
lessor under any lease; or
(c) Responsible for any waste committed by lessees or any
other parties, any dangerous or defective condition of the Property, or
any negligence in the management, upkeep, repair or control of the
Property; or
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(d) Liable in any manner for the Property or the use,
occupancy, enjoyment or operation of all or any part of it.
2.5 Leasing. Except for the leases listed in Schedule 6.26 of the
Loan Agreement, Trustor shall not accept any deposit or prepayment of Rents for
any rental period exceeding one (1) month without Beneficiary's prior written
consent. Trustor shall not lease the Property or any part of it except strictly
in accordance with the Loan Agreement. Trustor shall apply all Rents in the
manner required by the Loan Agreement.
3. Fixture Filing. This Deed of Trust shall be effective as a financing
statement filed as a fixture filing from the date of the recording hereof in
accordance with NRS 104.9402. In connection therewith, the addresses of the
Trustor as debtor ("Debtor") and Beneficiary as secured party ("Secured Party")
are as set forth in the signature pages hereof. This address of Beneficiary, as
the Secured Party, is also the address from which information concerning the
security interest may be obtained by any interested party.
(a) The property subject to this fixture filing is described
in Section 1.1 above.
(b) Portions of the property subject to this fixture filing as
identified in (a) above are or are to become fixtures related to the real
estate described on Exhibit "A" to this Deed of Trust.
(c) Secured Party is: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, AS AGENT, under the Loan Agreement referred to above,
whose address is set forth after the signatures as the Notice address.
(d) Debtor is: CINDERLANE, INC., whose address is set forth
after the signatures as the Notice address.
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4. Rights and Duties of the Parties.
4.1 Representations and Warranties. Trustor represents and warrants
that, except as previously disclosed to Beneficiary in a writing making
reference to this Section 4.1:
(a) Trustor lawfully possesses and holds fee simple title to
all of the Land and Improvements;
(b) Trustor has or will have good title to all Property other
than the Land and Improvements;
(c) Trustor has the full and unlimited power, right and
authority to encumber the Property and assign the Rents;
(d) This Deed of Trust creates a first and prior lien on the
Property;
(e) The Property includes all property and rights which may be
reasonably necessary or desirable to promote the present and any
reasonable future beneficial use and enjoyment of the Land and
Improvements;
(f) Trustor owns any Property which is personal property free
and clear of any security agreements, reservations of title or conditional
sales contracts, and there is no financing statement affecting such
personal property on file in any public office; and
(g) Trustor's place of business, or its chief executive office
if it has more than one place of business, is located at the address
specified below.
4.2 Taxes and Assessments. Trustor shall pay prior to delinquency
all taxes, levies, charges and assessments, including assessments on appurtenant
water stock, imposed by any public or quasi-public authority or utility company
(collectively, "Impositions") which are (or if not paid, may become) a lien on
all or part of the Property or any interest in it, or which may cause any
decrease in the value of the Property or any part of it. If any such taxes,
levies, charges or assessments become delinquent, Beneficiary may require
Trustor to present evidence that they have been paid in full, on ten (10) days'
written notice by Beneficiary to Trustor.
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Notwithstanding the foregoing, Trustor shall not be required to pay any
Imposition so long as (i) its validity is being actively contested in good faith
and by appropriate proceedings, and (ii) Trustor has demonstrated to
Beneficiary's reasonable satisfaction that leaving such Imposition unpaid
pending the outcome of such proceedings could not result in conveyance of the
Property in satisfaction of such Imposition or otherwise impair Beneficiary's
interest under this Deed of Trust.
4.3 Performance of Secured Obligations. Trustor shall promptly pay
and perform each Secured Obligation in accordance with its terms.
4.4 Liens, Charges and Encumbrances. Trustor shall immediately
discharge any lien on the Property which Beneficiary has not consented to in
writing. Trustor shall pay when due each obligation secured by or reducible to a
lien, charge or encumbrance which now does or later may encumber or appear to
encumber all or part of the Property or any interest in it, whether the lien,
charge or encumbrance is or would be senior or subordinate to this Deed of
Trust.
4.5 Damages and Insurance and Condemnation Proceeds.
(a) Trustor hereby absolutely and irrevocably assigns to
Beneficiary, and authorizes the payor to pay to Beneficiary the following
claims, causes of action, awards, payments and rights to payment:
(i) All awards of damages and all other compensation
payable directly or indirectly because of a condemnation, proposed
condemnation or taking for public or private use which affects all
or part of the Property or any interest in it; and
(ii) All other awards, claims and causes of action,
arising out of any warranty affecting all or any part of the
Property, or for damage or injury to or decrease in value of all or
part of the Property or any interest in it; and
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(iii) All proceeds of any insurance policies payable
because of loss sustained to all or part of the Property in excess
of $1,000,000; and
(iv) All interest which may accrue on any of the
foregoing.
(b) Trustor shall immediately notify Beneficiary in writing
if:
(i) Any damage occurs or any injury or loss is sustained
in the amount of $1,000,000 or more to all or part of the Property,
or any action or proceeding relating to any such damage, injury or
loss is commenced; or
(ii) Any offer is made, or any action or proceeding is
commenced, which relates to any actual or proposed condemnation or
taking of all or part of the Property.
(c) If Beneficiary chooses to do so, Beneficiary may in its
own name appear in or prosecute any action or proceeding to enforce any
cause of action based on warranty, or for damage, injury or loss to all or
part of the Property, and Beneficiary may make any compromise or
settlement of the action or proceeding. Beneficiary, if it so chooses, may
participate in any action or proceeding relating to condemnation or taking
of all or part of the Property, and may join Trustor in adjusting any loss
covered by insurance.
(d) All proceeds of these assigned claims, other property and
rights which Trustor may receive or be entitled to shall be paid to
Beneficiary. In each instance, Beneficiary shall apply such proceeds first
toward reimbursement of all of Beneficiary's reasonable costs and expenses
of recovering the proceeds, including reasonable attorneys' fees. Such
attorneys' fees shall include the allocated costs for services of in-house
counsel. If, in any instance, each and all of the following conditions are
satisfied in Beneficiary's
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reasonable judgment, Beneficiary must permit Trustor to use the balance of
such proceeds ("Net Claims Proceeds") to pay costs of repairing or
reconstructing the Property in the manner described below:
(i) The plans and specifications, cost breakdown,
construction contract, construction schedule, contractor and payment
and performance bond for the work of repair or reconstruction must
all be acceptable to Beneficiary; and
(ii) Beneficiary must receive evidence satisfactory to
it that after repair or reconstruction, the Property would be at
least as valuable as it was immediately before the damage or
condemnation occurred; and
(iii) The Net Claims Proceeds must be sufficient in
Beneficiary's determination to pay for the total cost of repair or
reconstruction, including all associated development costs and
interest projected to be payable on the Secured Obligations until
the repair or reconstruction is complete; or Trustor must provide
its own funds in an amount equal to the difference between the Net
Claims Proceeds and a reasonable estimate, made by Trustor and found
acceptable by Beneficiary, of the total cost of repair or
reconstruction; and
(iv) Beneficiary must receive evidence satisfactory to
it that all leases which Beneficiary may find acceptable will
continue after the repair or reconstruction is complete; and
(v) No Event of Default shall have occurred and be
continuing.
If Beneficiary finds that such conditions have been met, Beneficiary shall
hold the Net Claims Proceeds and any funds which Trustor is required to
provide in a noninterest-bearing account and shall disburse them to
Trustor to pay costs of repair or reconstruction upon presentation of
evidence reasonably satisfactory to Beneficiary that repair or
reconstruction has been
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completed satisfactorily and lien-free. However, if Beneficiary finds that
one or more of such conditions have not been satisfied, Beneficiary may
apply the Net Claims Proceeds to pay or prepay (without premium) some or
all of the Secured Obligations in such order and proportions as
Beneficiary in its sole discretion may choose.
(e) Trustor hereby specifically, unconditionally and
irrevocably waives all rights of a property owner under all laws which
provide for allocation of condemnation proceeds between a property owner
and a lienholder, and any other law or successor statute of similar
import.
4.6 Maintenance and Preservation of Property.
(a) Trustor shall insure the Property as required by the Loan
Agreement and keep the Property in good condition and repair.
(b) Trustor shall not remove or demolish any material portion
of the Property or any part of it, or make any material alteration,
restoration or addition to the Property, or initiate or allow any change
in any zoning or other land use classification which affects the Property
or any part of it, except as permitted or required by the Loan Agreement
or with Beneficiary's express prior written consent in each instance.
(c) If all or part of the Property becomes damaged or
destroyed, Trustor shall promptly and completely repair and/or restore the
Property in a good and workmanlike manner in accordance with sound
building practices, regardless of whether or not Beneficiary agrees to
disburse insurance proceeds or other sums to pay costs of the work of
repair or reconstruction under Section 4.5.
(d) Trustor shall not commit or allow any act upon or use of
the Property which would violate: (i) any applicable law or order of any
governmental authority, whether now existing or later to be enacted and
whether foreseen or unforeseen; or (ii) any public or private covenant,
condition, restriction or equitable servitude affecting the Property.
Trustor shall not bring or keep
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any article on the Property or cause or allow any condition to exist on
it, if that could invalidate or would be prohibited by any insurance
coverage required to be maintained by Trustor on the Property or any part
of it under the Loan Agreement.
(e) Trustor shall not commit or allow waste of the Property.
(f) Trustor shall perform all other acts which from the
character or use of the Property may be reasonably necessary to maintain
and preserve its value.
4.7 Trustee's Acceptance of Trust. Trustee accepts this trust when
this Deed of Trust is recorded.
4.8 Releases, Extensions, Modifications and Additional Security.
(a) From time to time, Beneficiary may perform any of the
following acts without incurring any liability or giving notice to any
person, and without affecting the personal liability of any person for the
payment of the Secured Obligations (except as provided below), and without
affecting the security hereof for the full amount of the Secured
Obligations on all Property remaining subject hereto, and without the
necessity that any sum representing the value of any portion of the
Property affected by the Beneficiary's action be credited on the Secured
Obligations:
(i) Accept additional real or personal property of any
kind as security for any Secured Obligation, whether evidenced by
deeds of trust, mortgages, security agreements or any other
instruments of security; or
(ii) Alter, substitute or release any property securing
the Secured Obligations.
(b) From time to time when requested to do so by Beneficiary
in writing, Trustee may perform any of the following acts without
incurring any liability or giving notice to any person:
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(i) Consent to the making of any plat or map of the
Property or any part of it;
(ii) Join in granting any easement or creating any
restriction affecting the Property;
(iii) Join in any subordination or other agreement
affecting this Deed of Trust or the lien of it; or
(iv) Reconvey the Property or any part of it without any
warranty.
4.9 Reconveyance. When all of the Secured Obligations have been paid
in full and the commitments to extend credit to Borrowers under the Loan
Agreement have been terminated, Beneficiary shall request Trustee in writing to
reconvey the Property, and shall surrender this Deed of Trust and all notes and
instruments evidencing the Secured Obligations to Trustee. When Trustee receives
Beneficiary's written request for reconveyance and all fees and other sums owing
to Trustee by Trustor under Section 4.10, Trustee shall reconvey the Property,
or so much of it as is then held under this Deed of Trust, without warranty to
the person or persons legally entitled to it. Such person or persons shall pay
any costs of recordation. In the reconveyance, the grantee may be described as
"the person or persons legally entitled thereto," and the recitals of any
matters or facts shall be conclusive proof of their truthfulness. Neither
Beneficiary nor Trustee shall have any duty to determine the rights of persons
claiming to be rightful grantees of any reconveyance.
4.10 Compensation, Exculpation, Indemnification.
(a) Trustor agrees to pay fees in the maximum amounts legally
permitted, or reasonable fees as may be charged by Beneficiary and Trustee
when the law provides no maximum limit, for any services that Beneficiary
or Trustee may render in connection with this Deed of Trust, including
Beneficiary's providing a statement of the Secured Obligations or
Trustee's rendering of services in connection with a reconveyance. Trustor
shall also pay or reimburse all of Beneficiary's and Trustee's reasonable
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costs and expenses which may be incurred in rendering any such services.
Trustor further agrees to pay or reimburse Beneficiary for all reasonable
costs, expenses and other advances which may be incurred or made by
Beneficiary or Trustee in any efforts to enforce any terms of this Deed of
Trust, including any rights or remedies afforded to Beneficiary or Trustee
or both of them under Section 5.3, whether any lawsuit is filed or not, or
in defending any action or proceeding arising under or relating to this
Deed of Trust, including reasonable attorneys' fees and other legal costs,
costs of any Foreclosure Sale (as defined in subsection 5.3(h)) and any
cost of evidence of title. If Beneficiary chooses to dispose of Property
through more than one Foreclosure Sale, Trustor shall pay all costs,
expenses or other advances that may be incurred or made by Trustee or
Beneficiary in each of such Foreclosure Sales.
(b) Beneficiary shall not be directly or indirectly liable to
Trustor or any other person as a consequence of any of the following:
(i) Beneficiary's exercise of or failure to exercise any
rights, remedies or powers granted to Beneficiary in this Deed of
Trust;
(ii) Beneficiary's failure or refusal to perform or
discharge any obligation or liability of Trustor under any agreement
related to the Property or under this Deed of Trust; or
(iii) Any loss sustained by Trustor or any third party
resulting from Beneficiary's failure to lease the Property, or from
any other act or omission of Beneficiary in managing the Property,
after an Event of Default, unless the loss is caused by the willful
misconduct and bad faith of Beneficiary.
To the extent permitted by applicable law, Trustor hereby expressly waives
and releases all liability of the types described above, and agrees that
no such liability shall be asserted against or imposed upon Beneficiary.
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(c) Trustor agrees to indemnify Trustee and Beneficiary
against and hold them harmless from all losses, damages, liabilities,
claims, causes of action, judgments, court costs, attorneys' fees and
other reasonable legal expenses, cost of evidence of title, cost of
evidence of value, and other reasonable costs and expenses which either
may suffer or incur:
(i) In performing any act required or permitted by this
Deed of Trust or any of the other Loan Documents or by law;
(ii) Because of any failure of Trustor to perform any of
Trustor's obligations; or
(iii) Because of any alleged obligation of or
undertaking by Beneficiary to perform or discharge any of the
representations, warranties, conditions, covenants or other
obligations in any document relating to the Property other than the
Loan Documents.
This agreement by Trustor to indemnify Trustee and Beneficiary shall
survive the release and cancellation of any or all of the Secured
Obligations and the full or partial release and/or reconveyance of this
Deed of Trust.
(d) Trustor shall pay all obligations to pay money arising
under this Section 4.10 immediately upon demand by Trustee or Beneficiary.
Each such obligation shall bear interest from the date the obligation
arises at the "Base Rate" plus the "Applicable Margin," as defined in the
Loan Agreement.
4.11 Defense and Notice of Claims and Actions. At Trustor's sole
expense, Trustor shall protect, preserve and defend the Property and title to
and right of possession of the Property, and the security of this Deed of Trust
and the rights and powers of Beneficiary and Trustee created under it, against
all adverse claims. Trustor shall give Beneficiary and Trustee prompt notice in
writing if any claim is asserted which does or could affect any of such matters,
or if any action or proceeding is commenced which alleges or relates to any such
claim.
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4.12 Substitution of Trustee. From time to time, Beneficiary may
substitute a successor to any Trustee named in or acting under this Deed of
Trust in any manner now or later to be provided at law, or by a written
instrument executed and acknowledged by Beneficiary and recorded in the
office(s) of the recorder(s) of the county or counties where the Land and
Improvements are situated. Any such instrument shall be conclusive proof of the
proper substitution of the successor Trustee, who shall automatically upon
recordation of the instrument succeed to all estate, title, rights, powers and
duties of the predecessor Trustee, without conveyance from it.
4.13 Subrogation. Beneficiary shall be subrogated to the liens of
all encumbrances, whether released of record or not, which are discharged in
whole or in part by Beneficiary in accordance with this Deed of Trust.
4.14 Site Visits. Subject to compliance with Gaming Laws, including
restrictions on access to security and surveillance systems and the casino cage,
Beneficiary and its agents and representatives shall have the right at any
reasonable time to enter and visit the Property for the purpose of performing
appraisals.
4.15 Notice of Change. Trustor shall give Beneficiary prior written
notice of any change in (a) the location of Trustor's place of business or its
chief executive office if it has more than one place of business, (b) the
location of any of the Property, including the Books and Records and (c)
Trustor's name or business structure. Unless otherwise approved by Beneficiary
in writing, all Property that consists of personal property (other than the
Books and Records) will be located on the Land and all Books and Records will be
located at Trustor's place of business or chief executive office if Trustor has
more than one place of business.
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5. Accelerating Transfers, Default and Remedies.
5.1 Accelerating Transfers.
(a) "Accelerating Transfer" means any sale, contract to sell,
conveyance, encumbrance, lease not expressly permitted under the Loan
Agreement, or other transfer of all or any material part of the Property
or any interest in it, whether voluntary, involuntary, by operation of law
or otherwise. If Trustor is a corporation, "Accelerating Transfer" also
means any transfer or transfers of shares possessing, in the aggregate,
more than fifty percent (50%) of the voting power. If Trustor is a
partnership, "Accelerating Transfer" also means withdrawal or removal of
any general partner, dissolution of the partnership under Nevada law, or
any transfer or transfers of, in the aggregate, more than fifty percent
(50%) of the partnership interests.
(b) Trustor acknowledges that Beneficiary is making advances
under the Loan Agreement in reliance on the expertise, skill and
experience of Trustor; thus, the Secured Obligations include material
elements similar in nature to a personal service contract. In
consideration of Beneficiary's reliance, Trustor agrees that Trustor shall
not make any Accelerating Transfer, unless the transfer is preceded by
Beneficiary's express written consent to the particular transaction and
transferee. Beneficiary may withhold such consent in its sole discretion.
If any Accelerating Transfer occurs, Beneficiary, in its sole discretion
may declare all of the Secured Obligations to be immediately due and
payable, and Beneficiary and Trustee may invoke any rights and remedies
provided by Section 5.3 of this Deed of Trust.
5.2 Events of Default. Trustor will be in default under this Deed of
Trust upon the occurrence of any one or more of the following events (some or
all collectively, "Events of Default;" any one singly, an "Event of Default"):
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(a) Trustor fails to perform any obligation to pay money which
arises under this Deed of Trust, and does not cure that failure within
fifteen (15) days after written notice from Beneficiary or Trustee; or
(b) Trustor fails to perform any obligation arising under this
Deed of Trust other than one to pay money, and does not cure that failure
either within thirty (30) days ("Initial Cure Period") after written
notice from Beneficiary or Trustee, or within ninety (90) days after such
written notice, so long as Trustor begins within the Initial Cure Period
and diligently continues to cure the failure, and Beneficiary, exercising
reasonable judgment, determines that the cure cannot reasonably be
completed at or before expiration of the Initial Cure Period; or
(c) An Event of Default (as defined in the Loan Agreement)
occurs under the Loan Agreement.
5.3 Remedies. At any time after an Event of Default, Beneficiary and
Trustee will be entitled to invoke any and all of the following rights and
remedies, all of which will be cumulative, and the exercise of any one or more
of which shall not constitute an election of remedies:
(a) Acceleration. Subject to applicable Gaming Laws,
Beneficiary may declare any or all of the Secured Obligations to be due
and payable immediately.
(b) Receiver. Subject to applicable Gaming Laws, Beneficiary
may apply to any court of competent jurisdiction for, and obtain
appointment of, a receiver for the Property.
(c) Entry. Subject to applicable Gaming Laws, Beneficiary, in
person, by agent or by court-appointed receiver, may enter, take
possession of, manage and operate all or any part of the Property, and may
also do any and all other things in connection with those actions that
Beneficiary may in its sole discretion consider necessary and appropriate
to protect the security of this Deed of Trust. Such other things may
include: taking and
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possessing all of Trustor's or the then owner's Books and Records;
entering into, enforcing, modifying, or canceling leases on such terms and
conditions as Beneficiary may consider proper; obtaining and evicting
tenants; fixing or modifying Rents; collecting and receiving any payment
of money owing to Trustor; completing construction; and/or contracting for
and making repairs and alterations. If Beneficiary so requests, Trustor
shall assemble all of the Property that has been removed from the Land and
make all of it available to Beneficiary at the site of the Land. Trustor
hereby irrevocably constitutes and appoints Beneficiary as Trustor's
attorney-in-fact to perform such acts and execute such documents as
Beneficiary in its sole discretion may consider to be appropriate in
connection with taking these measures, including endorsement of Trustor's
name on any instruments. Regardless of any provision of this Deed of
Trust, the Loan Agreement or the Guaranty, Beneficiary shall not be
considered to have accepted any property other than cash or immediately
available funds in satisfaction of any obligation of Trustor to
Beneficiary, unless Beneficiary has given express written notice of
Beneficiary's election of that remedy in accordance with the Nevada
Uniform Commercial Code, as it may be amended or recodified from time to
time.
(d) Cure; Protection of Security. Either Beneficiary or
Trustee may cure any breach or default of Trustor, and if it chooses to do
so in connection with any such cure, Beneficiary or Trustee may also,
subject to applicable Gaming Laws, enter the Property and/or do any and
all other things which it may in its sole discretion consider necessary
and appropriate to protect the security of this Deed of Trust, including,
without limitation, the right to complete the Improvements. Such other
things may include: appearing in and/or defending any action or proceeding
which purports to affect the security of, or the rights or powers of
Beneficiary or Trustee under, this Deed of Trust; paying, purchasing,
contesting or compromising any encumbrance, charge, lien or claim of lien
which in Beneficiary's or Trustee's sole judgment is or may be senior in
priority to this Deed of Trust, such judgment of Beneficiary or Trustee to
be conclusive as
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among the parties to this Deed of Trust; obtaining insurance and/or paying
any premiums or charges for insurance required to be carried under the
Loan Agreement; otherwise caring for and protecting any and all of the
Property; and/or employing counsel, accountants, contractors and other
appropriate persons to assist Beneficiary or Trustee. Beneficiary and
Trustee may take any of the actions permitted under this subsection 5.3(d)
either with or without giving notice to any person.
(e) Uniform Commercial Code Remedies. Subject to applicable
Gaming Laws, Beneficiary may exercise any or all of the remedies granted
to a secured party under the Nevada enactment of the Uniform Commercial
Code.
(f) Judicial Action. Beneficiary may bring an action in any
court of competent jurisdiction to foreclose this instrument or to obtain
specific enforcement of any of the covenants or agreements of this Deed of
Trust.
(g) Power of Sale. Under the power of sale hereby granted,
Beneficiary shall have the discretionary right to cause some or all of the
Property, including any Property which constitutes personal property to be
sold or otherwise disposed of in any combination and in any manner
permitted by applicable law.
(i) Sales of Personal Property.
(A) For purposes of this power of sale,
Beneficiary may elect to treat as personal property any
Property which is intangible or which can be severed from the
Land or Improvements without causing structural damage. If it
chooses to do so, Beneficiary may dispose of any personal
property separately from the sale of real property, in any
manner permitted by or under Nevada Revised Statutes Article
104.9101 et seq. (the Nevada enactment of the Uniform
Commercial Code), including any public or private sale, or in
any manner permitted by any other applicable law.
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(B) The following provision shall apply in the
absence of any specific statutory requirement which permits or
requires a different notice period: In connection with any
sale or other disposition of such Property, Trustor agrees
that the following procedures constitute a commercially
reasonable sale: Beneficiary shall mail written notice of the
sale to Trustor not later than forty-five (45) days prior to
such sale. Once per week during the four weeks immediately
preceding such sale, Beneficiary will publish notice of the
sale in a local daily newspaper of general circulation. Upon
receipt of any written request, Beneficiary will make the
Property available to any bona fide prospective purchaser for
inspection during reasonable business hours. Notwithstanding,
Beneficiary shall be under no obligation to consummate a sale
if, in its judgment, none of the offers received by it equals
the fair value of the Property offered for sale. The foregoing
procedures do not constitute the only procedures that may be
commercially reasonable.
(ii) Trustee's Sales of Real Property or Mixed
Collateral.
(A) Beneficiary may choose to dispose of some or
all of the Property which consists solely of real property in
any manner then permitted by applicable law. In its
discretion, Beneficiary may also or alternatively choose to
dispose of some or all of the Property, in any combination
consisting of both real and personal property, together in one
sale to be held in accordance with the law and procedures
applicable to real property. Trustor agrees that such a sale
of personal property together with real property constitutes a
commercially reasonable sale of the personal property. For
purposes of this power of sale, either a sale of real property
alone, or a sale of both real and personal property together
in accordance with law, will sometimes be referred to as a
"Trustee's Sale."
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<PAGE>
(B) Before any Trustee's Sale, Beneficiary or
Trustee shall give and record such notice of default and
election to sell as may then be required by law. When all time
periods then legally mandated have expired, and after such
notice of sale as may then be legally required has been given,
Trustee shall sell the property being sold at a public auction
to be held at the time and place specified in the notice of
sale. Neither Trustee nor Beneficiary shall have any
obligation to make demand on Trustor before any Trustee's
Sale. From time to time in accordance with then applicable
law, Trustee may, and in any event at Beneficiary's request
shall, postpone any Trustee's Sale by public announcement at
the time and place noticed for that sale.
(C) At any Trustee's Sale, Trustee shall sell to
the highest bidder at public auction for cash in lawful money
of the United States. Trustee shall execute and deliver to the
purchaser(s) a deed or deeds conveying the property being sold
without any covenant or warranty whatsoever, express or
implied. The recitals in any such deed of any matters or
facts, including any facts bearing upon the regularity or
validity of any Trustee's Sale, shall be conclusive proof of
their truthfulness. Any such deed shall be conclusive against
all persons as to the facts recited in it.
(h) Single or Multiple Foreclosure Sales. If the Property
consists of more than one lot, parcel or item of property, Beneficiary
may:
(i) Designate the order in which the lots, parcels
and/or items shall be sold or disposed of or offered for sale or
disposition; and
(ii) Elect to dispose of the lots, parcels and/or items
through a single consolidated sale or disposition to be held or made
under the power of sale granted in subsections 5.3(g) and 5.7, or in
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<PAGE>
connection with judicial proceedings, or by virtue of a judgment and
decree of foreclosure and sale; or through two or more such sales or
dispositions; or in any other manner Beneficiary may deem to be in
its best interests (any such sale or disposition, a "Foreclosure
Sale;" any two or more, "Foreclosure Sales").
If Beneficiary chooses to have more than one Foreclosure Sale, Beneficiary
at its option may cause the Foreclosure Sales to be held simultaneously or
successively, on the same day, or on such different days and at such
different times and in such order as Beneficiary may deem to be in its
best interests. No Foreclosure Sale shall terminate or affect the liens of
this Deed of Trust on any part of the Property which has not been sold,
until all of the Secured Obligations have been paid in full.
5.4 Credit Bids. At any Foreclosure Sale, any person, including
Trustor, Trustee or Beneficiary, may bid for and acquire the Property or any
part of either to the extent permitted by then applicable law. Instead of paying
cash for such property, Beneficiary may settle for the purchase price by
crediting the sales price of the property against the following obligations:
(a) First, the portion of the Secured Obligations attributable
to the expenses of sale, costs of any action and any other sums for which
Trustor is obligated to pay or reimburse Beneficiary or Trustee under
Section 4.10; and
(b) Second, all other Secured Obligations in any order and
proportions as Beneficiary in its sole discretion may choose.
5.5 Application of Foreclosure Sale Proceeds. Beneficiary and
Trustee shall apply the proceeds of any Foreclosure Sale in the following
manner:
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(a) First, to pay the portion of the Secured Obligations
attributable to the expenses of sale, costs of any action and any other
sums for which Trustor is obligated to reimburse Beneficiary or Trustee
under Section 4.10;
(b) Second, to pay the portion of the Secured Obligations
attributable to any sums expended or advanced by Beneficiary or Trustee
under the terms of this Deed of Trust which then remain unpaid;
(c) Third, to pay all other Secured Obligations in any order
and proportions as Beneficiary in its sole discretion may choose; and
(d) Fourth, to remit the remainder, if any to the person or
persons entitled to it.
5.6 Application of Rents and Other Sums. Beneficiary shall apply any
and all Rents collected by it, and any and all sums other than proceeds of a
Foreclosure Sale which Beneficiary may receive or collect under Section 5.3, in
the following manner:
(a) First, to pay the portion of the Secured Obligations
attributable to the costs and expenses of operation and collection that
may be incurred by Trustee, Beneficiary or any receiver;
(b) Second, to pay all other Secured Obligations in any order
and proportions as Beneficiary in its sole discretion may choose; and
(c) Third, to remit the remainder, if any, to the person or
persons entitled to it. Beneficiary shall have no liability for any funds
which it does not actually receive.
5.7 Incorporation of Certain Nevada Covenants. The following
covenants nos. 1, 2 (full replacement value), 3, 4 (at the applicable Default
Rate), 5, 6, 7 (reasonable), 8 and 9 of NRS 107.030, where not in conflict with
the provisions of the Loan Documents, are hereby adopted and made a part of this
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Deed of Trust. Upon any Event of Default by Trustor hereunder, Beneficiary may
(a) declare all sums secured immediately due and payable without demand or
notice or (b) have a receiver appointed as a matter of right without regard to
the sufficiency of said property or any other security or guaranty and without
any showing as required by NRS.ss. 107.100, but subject to applicable Gaming
Laws. All remedies provided in this Deed of Trust are distinct and cumulative to
any other right or remedy under this Deed of Trust or afforded by law or equity
and may be exercised concurrently, independently or successively. The sale of
said property conducted pursuant to Covenants Nos. 6, 7 and 8 of NRS 107.030 may
be conducted either as to the whole of said property or in separate parcels and
in such order as Trustee may determine.
6. Miscellaneous Provisions.
6.1 Additional Provisions. The Loan Documents fully state all of the
terms and conditions of the parties' agreement regarding the matters mentioned
in or incidental to this Deed of Trust. The Loan Documents also grant further
rights to Beneficiary and contain further agreements and affirmative and
negative covenants by Trustor which apply to this Deed of Trust and to the
Property.
6.2 No Waiver or Cure.
(a) Each waiver by Beneficiary or Trustee must be in writing,
and no waiver shall be construed as a continuing waiver. No waiver shall
be implied from any delay or failure by Beneficiary or Trustee to take
action on account of any default of Trustor. Consent by Beneficiary or
Trustee to any act or omission by Trustor shall not be construed as a
consent to any other or subsequent act or omission or to waive the
requirement for Beneficiary's or Trustee's consent to be obtained in any
future or other instance.
(b) If any of the events described below occurs, that event
alone shall not: cure or waive any breach, Event of Default or notice of
default under this Deed of Trust or invalidate any act performed pursuant
to any such default or notice; or nullify the effect of any notice of
default or sale (unless all Secured Obligations
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<PAGE>
then due have been paid and performed and all other defaults under the
Loan Documents have been cured); or impair the security of this Deed of
Trust; or prejudice Beneficiary, Trustee or any receiver in the exercise
of any right or remedy afforded any of them under this Deed of Trust; or
be construed as an affirmation by Beneficiary of any tenancy, lease or
option, or a subordination of the lien of this Deed of Trust.
(i) Beneficiary, its agent or a receiver takes
possession of all or any part of the Property in the manner provided
in subsection 5.3(c).
(ii) Beneficiary collects and applies Rents as permitted
under Sections 2.3 and 5.6, either with or without taking possession
of all or any part of the Property.
(iii) Beneficiary receives and applies to any Secured
Obligation proceeds of any Property, including any proceeds of
insurance policies, condemnation awards, or other claims, property
or rights assigned to Beneficiary under Section 4.5.
(iv) Beneficiary makes a site visit, observes the
Property and/or conducts tests as permitted under Section 4.14 or
under the Loan Agreement.
(v) Beneficiary receives any sums under this Deed of
Trust or any proceeds of any collateral held for any of the Secured
Obligations, and applies them to one or more Secured Obligations.
(vi) Beneficiary, Trustee or any receiver invokes any
right or remedy provided under this Deed of Trust.
6.3 Powers of Beneficiary and Trustee.
(a) Trustee shall have no obligation to perform any act which
it is empowered to perform under this Deed of Trust unless it is requested
to do so in writing and is reasonably indemnified against loss, cost,
liability and expense.
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<PAGE>
(b) If either Beneficiary or Trustee performs any act which it
is empowered or authorized to perform under this Deed of Trust, including
any act permitted by Section 4.8 or subsection 5.3(d) or by the Loan
Agreement, that act alone shall not release or change the personal
liability of any person for the payment and performance of the Secured
Obligations then outstanding, or the lien of this Deed of Trust on all or
the remainder of the Property for full payment and performance of all
outstanding Secured Obligations. The liability of the original Trustor
shall not be released or changed if Beneficiary grants any successor in
interest to Trustor any extension of time for payment, or modification of
the terms of payment, of any Secured Obligation. Beneficiary shall not be
required to comply with any demand by the original Trustor that
Beneficiary refuse to grant such an extension or modification to, or
commence proceedings against, any such successor in interest.
(c) Beneficiary may take any of the actions permitted under
subsections 5.3(b), 5.3(c), 5.7 and/or the Loan Agreement regardless of
the adequacy of the security for the Secured Obligations, or whether any
or all of the Secured Obligations have been declared to be immediately due
and payable, or whether notice of default and election to sell has been
given under this Deed of Trust.
(d) From time to time, Beneficiary or Trustee may apply to any
court of competent jurisdiction for aid and direction in executing the
trust and enforcing the rights and remedies created under this Deed of
Trust. Beneficiary or Trustee may from time to time obtain orders or
decrees directing, confirming or approving acts in executing this trust
and enforcing these rights and remedies.
6.4 Merger. No merger shall occur as a result of Beneficiary's
acquiring any other estate in or any other lien on the Property unless
Beneficiary consents to a merger in writing.
6.5 Joint and Several Liability. If Trustor consists of more than
one person, each shall be jointly and severally liable for the faithful
performance of all of Trustor's obligations under this Deed of Trust.
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<PAGE>
6.6 Applicable Law. This Deed of Trust shall be governed by Nevada
law.
6.7 Successors in Interest. The terms, covenants and conditions of
this Deed of Trust shall be binding upon and inure to the benefit of the heirs,
successors and assigns of the parties. However, this Section 6.7 does not waive
the provisions of Section 5.1.
6.8 Interpretation.
(a) Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
sections of this Deed of Trust are for convenience only and do not define
or limit any terms or provisions. The word "include(s)" means "include(s),
without limitation," and the word "including" means "including, but not
limited to."
(b) The word "obligations" is used in its broadest and most
comprehensive sense, and includes all primary, secondary, direct,
indirect, fixed and contingent obligations. It further includes all
principal, interest, prepayment charges, late charges, loan fees and any
other fees and charges accruing or assessed at any time, as well as all
obligations to perform acts or satisfy conditions.
(c) No listing of specific instances, items or matters in any
way limits the scope or generality of any language of this Deed of Trust.
The Exhibits to this Deed of Trust are hereby incorporated in this Deed of
Trust.
(d) The terms of the Loan Agreement shall prevail over the
terms of this Deed of Trust in the event of any conflict.
6.9 In-House Counsel Fees. Whenever Trustor is obligated to pay or
reimburse Beneficiary or Trustee for any attorneys' fees, those fees shall
include the allocated costs for services of in-house counsel.
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<PAGE>
6.10 Waiver of Marshaling. Trustor waives all rights, legal and
equitable, it may now or hereafter have to require marshalling of assets or to
require upon foreclosure sales of assets in a particular order. Each successor
and assign of Trustor, including any holder of a lien subordinate to this Deed
of Trust, by acceptance of its interest or lien agrees that it shall be bound by
the above waiver, as if it had given the waiver itself.
6.11 Severability. If any provision of this Deed of Trust should be
held unenforceable or void, that provision shall be deemed severable from the
remaining provisions and in no way affect the validity of this Deed of Trust,
except that if such provision relates to the payment of any monetary sum, then
Beneficiary may, at its option, declare all Secured Obligations immediately due
and payable.
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<PAGE>
6.12 Notices. Trustor hereby requests that a copy of notice of
default and notice of sale be mailed to it at the address set forth below. That
address is also the mailing address of Trustor as debtor under the Nevada
Uniform Commercial Code. Beneficiary's address given below is the address for
Beneficiary as secured party under the Nevada Uniform Commercial Code.
"Trustor":
CINDERLANE, INC.,
a Nevada corporation
By /s/ Ronald J. Radcliffe
-----------------------
Ronald J. Radcliffe,
Secretary
-------------------------
(Printed Name and Title)
By /s/ I. Scott Bogatz
-------------------------
I. Scott Bogatz, Counsel
-------------------------
(Printed Name and Title)
Addresses Where Notices to
Trustor Are to Be Sent:
Cinderlane, Inc.
3700 West Flamingo Road
Las Vegas, Nevada 89103
Attn: Chief Executive Officer
Accepted and Agreed:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Agent under the Loan Agreement
By: /s/ Gina Meador
---------------------------
Gina Meador, Vice President
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<PAGE>
Address Where Notices to Beneficiary
Are to Be Sent:
Bank of America NT & SA
555 South Flower Street
11th Floor
Los Angeles, CA 90017
Attn: Agency Management Services
Address Where
Notices to Trustee
Are to Be Sent:
Chicago Title Insurance Company
555 South Flower Street
11th Floor
Los Angeles, CA 90017
Attn: Agency Management Services
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<PAGE>
Acknowledgment for Cinderlane, Inc.
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
On December 18, 1998, personally appeared before me, a notary public (or judge
or other authorized person, as the case may be), Ronald J. Radcliffe, personally
known (or proved) to me to be the person whose name is subscribed to the above
instrument, and who acknowledged that (s)he executed the instrument.
/s/ Suzanne V. Hall
---------------------------
(Signature)
<TABLE>
<S> <C>
Notary Public - State of Nevada Notary Public - State of Nevada
COUNTY OF CLARK COUNTY OF CLARK
SUZANNE V. HALL LEA ANN SPALDING
My Appointment Expires My Appointment Expires
September 26, 2001 February 19, 2000
No. 97-4136-1 No. 96-1306-1
(Lea Ann Spalding, Notary Public
for I. Scott Bogatz)
</TABLE>
Acknowledgment for Bank of America National Trust and Savings Association
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On December 22, 1998, personally appeared before me, a notary public (or judge
or other authorized person, as the case may be), Gina Meador, personally known
(or proved) to me to be the person whose name is subscribed to the above
instrument, and who acknowledged that (s)he executed the instrument.
/s/ Hilda Espy
----------------------------
(Signature)
HILDA ESPY
Commission # 1128821
Notary Public - California
Los Angeles County
My Comm. Expires Mar. 24, 2001
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EXHIBIT 4(32)
INTERCREDITOR AGREEMENT
This Intercreditor Agreement dated as of December 18, 1998, is
entered into between Bank of America National Trust and Savings Association, as
Agent under the Existing Credit Agreement referred to below, and the New Lenders
(as defined herein) under the Supplemental Bank Facility described below, with
reference to the following facts:
A. Pursuant to an Amended and Restated Credit Agreement dated as of
February 24, 1998 ("the "Existing Credit Agreement") entered into by
and among Rio Properties, Inc., a Nevada corporation ("Properties"),
Rio Leasing, Inc., a Nevada corporation ("Leasing" and collectively
with Properties, the "Borrowers"), the Banks named therein, and Bank
of America National Trust and Savings Association, as Agent, the
Banks have committed to extend credit facilities in an amount of
$275,000,000 to Borrowers.
B. The obligations of Borrowers under the Existing Credit Agreement
have been guaranteed by the Rio Hotel & Casino, Inc. ("Parent"),
HLG, Inc. and Cinderlane, Inc. (the "Guarantors") and are secured by
substantially all of the property of Borrowers, Parent and the other
Guarantors.
C. Borrowers propose to enter into a $125,000,000 credit facility (the
"Supplemental Bank Facility") with the lenders initially party to
this Agreement and described as such on the signature pages hereto
(with assignees thereof, the "New Lenders") pursuant to a Loan
Agreement of even date herewith among Borrowers, the New Lenders and
Bank of America National Trust and Savings Association, as Agent
(the "New Agent").
D. The obligations and indebtedness of Borrowers under the Supplemental
Bank Facility (i) are to be guaranteed by the Parent and the other
Guarantors, and (ii) shall be secured by the same property of
Borrowers, Parent and the other Guarantors which acts
<PAGE>
as security for the Existing Credit Agreement and the related Loan
Documents referred to therein (subject, as to certain capital stock,
to Section 6 of this Agreement).
E. By and subject to the terms of this Agreement, the parties desire to
provide that the Agent's Liens and the New Lenders' Liens shall be
pari passu and of equal priority.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. As used herein, the following terms have the
meanings set forth after each:
"Agent's Liens" means each of the liens and security interests now
held or hereafter acquired by the Agent for the benefit of the Banks under
the Existing Credit Agreement in the property of Borrowers, the Parent and
the other Guarantors.
"Banks" means the Banks described in the Existing Credit Agreement,
including without limitation the Banks and the Agent.
"Existing Facility Obligations" means all obligations and
indebtedness of Borrowers, the Parent and the Guarantors under the
Existing Credit Agreement and the related Loan Documents described
therein.
"Creditor Group" means, (a) in respect of the Agent, the Banks, and
(b) in respect of the New Agent, the New Lenders.
"Supplemental Bank Facility" means the Supplemental Bank Facility
described in the recitals hereto, as it may from time to time be amended,
supplemented, modified, amended, restated or extended.
"Supplemental Bank Facility Obligations" means all obligations and
indebtedness of Borrowers, the Parent and the Guarantors under the
Supplemental Bank Facility, and the related Loan Documents described
therein.
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<PAGE>
"Existing Credit Agreement" means the Amended and Restated Credit
Agreement described in the recitals hereto, as it may from time to time be
further amended, supplemented, modified, amended, restated or extended.
"Obligations" means, collectively, the Existing Facility Obligations
and the Supplemental Bank Facility Obligations.
"Qualified Obligations" means (a) in the case of the New Agent and
the New Lenders, all principal Supplemental Bank Facility Obligations
which are incurred prior to the delivery of notice by the Agent to the New
Agent of a Trigger Event, provided that the aggregate amount thereof shall
not exceed the principal amount of $125,000,000, together with interest,
fees, premiums, costs and expenses allocable to such principal, and (b) in
the case of the Banks, all principal Existing Facility Obligations which
are incurred prior to the delivery of notice by the New Agent to the Agent
of a Trigger Event (including, without limitation, the amount of any
letters of credit and related reimbursement obligations or other
contingent obligations issued by the Agent and the Banks and any currency
or interest rate hedging arrangements entered into with the Agent or any
Bank).
"Guarantors" means HLG, Inc., Cinderlane, Inc. and each other
guarantor of the obligations under the Existing Credit Agreement and the
Supplemental Bank Facility.
"Trigger Event" means any of the following:
(a) the occurrence of any Event of Default of the type described in
Section 9.1(k) of the Existing Credit Agreement with respect to Parent,
any Borrower or any Guarantor having assets in excess of $50,000,000; or
(b) the actual acceleration of any Obligations by the holder or
holders thereof or their representatives.
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<PAGE>
"New Lenders' Liens" means each of the liens and security interests
now held or hereafter acquired by the New Agent for the benefit of the New
Lenders under the Supplemental Bank Facility in the property of Borrowers,
the Parents and the Guarantors.
2. Liens Pari Passu. Subject to Section 4 hereof, the parties hereto
hereby agree that, to the extent that the same are perfected and unavoidable
(whether by means of preference, fraudulent conveyance or transfer or
otherwise), and in each case to the extent that the same secure Qualified
Obligations, the Agent's Liens and the New Lenders' Liens shall be pari passu
and entitled to equal priority in distribution. The relative priority of such
liens and security interests described in this Agreement shall apply
irrespective of the time, order or manner of attachment or perfection of such
liens and security interests, and shall not be affected by any bankruptcy,
insolvency or similar event with respect to Borrowers, the Parent or any
Guarantors.
3. Sharing of Proceeds; Turnover. The Agent agrees on behalf of
itself and the Banks, and the New Lenders agree that:
(a) if, through the exercise of the Agent's Liens and the New
Lenders' Liens, either Creditor Group receives any amount which is in
excess of the amount to which that Creditor Group would otherwise be
entitled to pursuant to Section 2, then, subject to applicable laws, the
members of that Creditor Group shall purchase, and shall be deemed to have
simultaneously purchased, from the members of the other Creditor Group,
participations in the Obligations held by the other Creditor Group, and
shall pay a purchase price for such participations in the amount which is
necessary to ssure that the total amount received by the each Creditor
Group is in the amount contemplated by Section 2; and
(b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that the Agent and
the Banks and the New Agent and the New Lenders share the proceeds of
their respective liens and security interests ratably in accordance with
Section 2;
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<PAGE>
provided that, if all or any portion of a disproportionate payment obtained as a
result of the exercise of the Agent's Liens or the New Lenders' Liens is
thereafter recovered from the purchasing Creditor Group by Borrowers, the Parent
or any Guarantor or any other person claiming through or succeeding to the
rights of a Borrower, Parent, or a Guarantor the purchase of a participation
shall be rescinded and the purchase price thereof shall be restored to the
extent of the recovery, but without interest.
4. Limitation on Indebtedness Entitled to the Benefits Hereof. The
aggregate principal amount of Supplemental Bank Facility Obligations (whether
for loans or for any other credit accommodations) which are entitled to the
benefits of this Agreement shall be limited to indebtedness of Borrower to the
New Lenders in an aggregate amount not to exceed the principal amount of
$125,000,000, plus interest, fees, premiums, costs and expenses allocable to
such principal. No other obligations or indebtedness to the New Agent or the New
Lenders for the payment of principal under the Supplemental Bank Facility (nor
any interest, fees, premiums, cost, expenses or other amounts payable with
respect to any such excess principal) shall be entitled to the benefits of this
Agreement, but the priority of any liens or security interests therefor shall
instead be as determined by applicable law; provided that, (a) notwithstanding
the existence of any such excess principal amount, the benefits of this
Agreement shall continue to apply to the principal amount described in the first
sentence of this Section (plus any interest, fees, premiums, expenses or other
amounts payable with respect to any such principal), and (b) subject to the
limitation as to the amount of such Supplemental Bank Facility Obligations set
forth in (a), nothing contained herein shall limit the right of the New Agent
and the New Lenders to amend, modify or extend the Supplemental Bank Facility,
the Loan Documents described therein and the related notes as set forth in
Section 9(b) of this Agreement.
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<PAGE>
5. Increase to Bank Facility. The New Agent and the New Lenders
agree that the Agent and the Banks may enter into any amendment, modification or
extension of the Existing Credit Agreement without affecting the relative
priority of the Agent's Liens contemplated herein, it being understood that
there is no limit to the amount of the indebtedness entitled to the benefits of
the Agent's Liens and that in the event that the credit commitments of the Banks
under the Existing Credit Agreement are hereafter increased, such increased
commitments shall be entitled to the equal, ratable and pari passu benefit of
the Agent's Liens.
6. Stock and Instruments Held By Agent. The Agent hereby agrees to
hold any capital stock and instruments delivered to it in pledge pursuant to the
terms of the Existing Credit Agreement and the other Loan Documents for the
mutual benefit of the Banks and the New Lenders in accordance with the terms of,
and subject to the limitations contained in, this Agreement, provided that the
Agent:
(a) shall not be deemed to hold the capital stock of Properties or
Leasing (or of any other subsidiary of Parent which is now or hereafter
becomes the holder of a gaming license under the law of the State of
Nevada or any other State) unless and until all required approvals of the
Nevada Gaming Commission and the Nevada State Gaming Control Board (or the
relevant gaming authorities of such other State) are obtained by the
beneficiaries of such pledge;
(b) may designate any bank, trust company or other financial
institution (which in the case of any person holding stock of a Nevada
Gaming Licensee shall be a person located in the State of Nevada
acceptable to the Nevada Gaming Commission) to hold any and all such
collateral in accordance with the terms of this Agreement in lieu of the
Agent (which designee shall be deemed the representative of both the New
Agent and the Agent) at the sole expense of Borrowers;
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<PAGE>
(c) shall not be deemed to be in a relation of trust or confidence
with the New Agent or the New Lenders by reason of this Agreement, and
shall not owe any fiduciary, trust or other special duties to the New
Agent or the New Lenders by reason of this Agreement.
(d) shall be deemed to have exercised reasonable care in the custody
and preservation of such collateral if it is accorded treatment
substantially similar to that which the Agent accords its own property, it
being understood that the Agent shall not have any responsibility for
ascertaining or taking action with respect to maturities, calls,
conversions, exchanges, tenders or other matters relative to any such
collateral, whether or not the Agent has or is deemed to have knowledge of
such matters, or taking any necessary steps to preserve rights with
respect to any such collateral.
(e) shall not be under any duty or obligation to preserve, maintain
or protect any such collateral, exercise any voting rights with respect
thereto, or make or give any notices of default, presentments, demands for
performance, notices of nonperformance or dishonor, protests, notices of
protest or notice of any other nature whatsoever in connection therewith.
(f) in the event of any dispute regarding any such pledged
collateral may implead the same with a court of competent jurisdiction.
(g) shall not be liable to the New Agent or any New Lender for any
act or omission of the Agent, unless and to the extent that the same is
determined, by the final decision of a court of competent jurisdiction, to
arise solely from the gross negligence or willful misconduct of the Agent.
(h) shall not be deemed to have made any representation about the
existence, condition or sufficiency of any such collateral or its liens
therein.
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<PAGE>
7. Title Insurance; Insurance, Casualty and Condemnation Proceeds.
(a) It is the intention of both the Agent and the New Agent that
they shall cooperatively arrange for an increase in the amount of the
lenders' policy of title insurance now held by the Agent with respect to
the Rio Hotel & Casino, in Las Vegas, Nevada, to an aggregate coverage of
$400,000,000.
(b) The proceeds of policy of title insurance referred to in (a),
and all other policies of insurance maintained by Borrower and its
Subsidiaries as to which each of the parties are loss payees or additional
insureds, or in which the parties hereto have any other interest, shall be
shared in the same manner as the proceeds of collateral described above.
In the event that any insurance or condemnation proceeds are payable to
the Agent or the New Agent pursuant to the Loan Documents executed in
connection with the Existing Bank Facility or the Supplemental Bank
Facility, but are conditionally available to Borrower or any of its
Subsidiaries for the purpose of repair, reconstruction or replacement of
the related collateral, the Agent and the New Agent shall cooperate with
one another to establish an escrow for the retention of such proceeds
pending such repair, reconstruction or replacement (subject to the
application of such proceeds in the manner contemplated by such Loan
Documents), and shall be entitled to ratable and pari passu application,
in accordance with the terms hereof, of any funds not returned to Borrower
and the Guarantors.
8. Amendments; Marshaling of Assets; Election of Remedies.
(a) Each of the parties hereto waives any right it may now or
hereafter have to require the other party to marshal assets, to exercise
rights or remedies in a particular manner, or to forbear exercising such
rights and remedies in any particular manner or order.
-8-
<PAGE>
(b) Each of the parties hereto will be free to exercise in such
manner and order as it elects in its discretion, fail to exercise, waive,
suspend, terminate or suffer expiration of, any of its rights and remedies
with respect to the collateral for the Obligations to its Creditor Group.
Each of the parties hereto will have the unfettered right, at any time or
from time to time, to release, subordinate or otherwise diminish (whether
intentionally, negligently or otherwise) any lien or security interest on
any collateral not required to be released hereunder, without affecting
the liens and security interests of the other party in such collateral or
the rights of the releasing or subordinating party hereunder with respect
to other collateral.
9. Notice of Foreclosure; Sharing of Proceeds. Each of the parties
agrees to give notice to the other party of any action to foreclosure upon or
enforce a lien or security interest upon collateral securing both the Existing
Facility Obligations and the Supplemental Bank Facility Obligations promptly as
practicable and in any event no later than the time that any legally required
notices are given to Borrower or its affiliates. In the event of any realization
upon collateral securing both the Existing Facility Obligations and the
Supplemental Bank Facility Obligations, whether as a result of any action to
foreclose upon or enforce a lien or security interest against particular
property or otherwise, the proceeds of such realization of collateral (net of
expenses incurred in connection with such realization of collateral) shall be
shared so that the then outstanding amount of Existing Facility Obligations and
the then outstanding amount of Supplemental Bank Facility Obligations are repaid
on a pro rata basis (or in the event such realization of collateral does not
result in cash available for payment, such property shall be shared as
collateral on the basis set forth in this Agreement).
10. Further Assurances, etc. Each party hereto shall execute and
deliver such other documents and instruments, in form and substance reasonably
satisfactory to the other parties hereto, and shall take such other action, in
each case as any other party hereto may reasonably have requested (at the cost
and expense of Borrower) to effectuate and carry out the provisions of this
Agreement, including by recording or filing this Agreement or short form
memoranda hereof or such other
-9-
<PAGE>
documents or instruments in such places as the requesting party may reasonably
request. In the event that the Obligations under the Supplemental Bank Facility
or the Existing Credit Agreement are repaid in full, each party agrees that they
shall enter into a replacement intercreditor agreement on substantially
identical terms with this agreement with any institutional creditor holding
indebtedness designated by Borrower which (a) is permitted by the surviving
agreement, and (b) substantially refinances or replaces the Obligations so
repaid, provided that the Agent or the New Agent, as the case may be, shall be
provided at the expense of Borrower with any instruments, documents, opinions
and certificates as may reasonably be requested by such party or required by law
to confirm the authority and obligation of such party to enter into such an
agreement.
11. Attorneys Fees. In the event of any litigation between the
parties to this Agreement arising out of the subject matter hereof, the
prevailing party shall be entitled, in addition to any other relief awarded by
the court, arbitrator or other tribunal, to an award of its reasonable
attorneys' fees and expenses.
12. Notices. All notices, requests, demands, directions and other
communications provided for hereunder must be in writing and must be mailed (by
registered or certified mail), telecopied, dispatched by commercial courier or
delivered to the appropriate party at the address set forth in the records of
the Administrative Agent or to such other address as may be designated by a
party in a written notice sent to all other parties in accordance with this
Section.
13. Additional New Lenders. Each New Lender which hereafter becomes
a party to the Supplemental Facility shall be deemed to be a party hereto in
accordance with Section 10.08 of the Loan Agreement governing the Supplemental
Bank Facility, and shall be bound by and entitled to the benefits of this
Agreement.
14. Integration. This Agreement sets forth the entire understanding
of the Parties with respect to the within matters and may not be modified or
amended except upon a writing signed by all parties.
-10-
<PAGE>
15. Counterparts. This Agreement may be executed in one or more
counterparts, each one of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
16. No Third Parties Benefitted. This Agreement is solely for the
benefit of the Agent and the Banks from time to time party to the Existing
Credit Agreement, the New Agent (in such capacity) and the New Lenders under the
Supplemental Bank Facility, and their respective successors and assigns, and
neither Parent, Borrowers, the Guarantors or their respective affiliates nor any
other persons or entities are intended to be third party beneficiaries hereunder
or to have any right, benefit, priority, or interest under, or because of the
existence of, or to have any right to enforce, this Agreement, provided that
Borrowers shall be entitled to rely upon the last sentence of Section 10 hereof.
17. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
Nevada, without reference to the choice of law or conflicts of law provisions
thereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Intercreditor Agreement as of the date first written above by their duly
authorized representatives.
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent under the Existing Credit
Agreement and as New Agent under the
Supplemental Bank Facility
By: /s/ Janice Hammond
------------------------------
Janice Hammond, Vice President
Address for Notices:
Bank of America National Trust and Savings
Association
Agency Management Services
555 South Flower Street, 11th Floor
Los Angeles, California 90017
Attn: Janice Hammond, Vice President
Telecopier: (213) 228-2299
Telephone: (213) 228-9861
-12-
<PAGE>
WELLS FARGO BANK, N.A.
By: /s/ Sue Fuller
------------------------
Title: Vice President
---------------------
Address for notices:
1 East First Street, Suite 300
MAC 4611-031
Reno, NV 89504
Attn: Sue Fuller, Vice President
Facsimile: (702) 334-5637
Tel: (702) 334-5633
Address for Domestic and Eurodollar
Lending Office:
201 3rd Street, 8th Floor
San Francisco, CA 94103
Attn: Oscar Enriquez
Facsimile: (415) 979-0675
Tel: (415) 477-5425
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Mark A. Isley
------------------------
Title: First Vice President
---------------------
Address for notices and Domestic and
Eurodollar Lending Office:
Robert F. Simon, CSA
The First National Bank of Chicago
1132/1-10
One First National Plaza
Chicago, Illinois 60670
312/732-8543
312/732-4840 FAX
-13-
<PAGE>
SOCIETE GENERALE
By: /s/ Donald L. Schubert
------------------------
Title: Managing Director
---------------------
Address for notices and Domestic and
Eurodollar Lending Office:
2029 Century Park East, Suite 2900
Los Angeles, CA 90067
Attn: Donald L. Schubert
Facsimile: (310) 551-1537
Tel: (310) 788-7104
-14-
<PAGE>
ABN AMRO BANK N.V.
By: /s/ Jeffrey A. French
------------------------
Title: Group Vice President
& Director
---------------------
By: /s/ Michael M. Tolentino
------------------------
Title: Vice President
---------------------
Address for notices:
ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, California 94111-5812
Attn: Jeffrey A. French
Group Vice President & Director
415/984-3703 telephone
415/362-3524 telecopier
Address for Domestic and Eurodollar
Lending Office:
ABN AMRO Bank N.V.
Loan Administration
208 South LaSalle Street, Suite 1500
Chicago, Illinois 60604-1003
312/992-5153 telephone
312/992-5158 telecopier
-15-
<PAGE>
U.S. BANK OF NEVADA
By: /s/ David Walquist
-------------------------
Title: Vice President
---------------------
2300 W. Sahara, Suite 120
Las Vegas, NV 89102
Attn: David Walquist, Vice President
Facsimile: (702) 386-3916
Tel: (702) 386-3938
Domestic and Eurodollar Lending Office:
U.S. Bank, N.A.
555 Southwest Oak Street
Portland, OR 97204
Attn: J. Rameriz
Commercial Loan Servicing West PL-7
-16-
<PAGE>
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
-------------------------
Title: Senior Vice President
---------------------
Address for notices:
565 5th Avenue, 5th Floor
New York, New York 10017
Attn: Annie Chin Tat, Senior Vice President
Telephone: 212/450-0871
Facsimile: 212/557-9460
and
660 South Figueroa Street, Suite 1760
Los Angeles, California 90017-3548
Attn: Allan Jackson, Regional Director
213/629-3057
213/489-3594 FAX
Address for Domestic and Eurodollar
Lending Office:
Bank of Scotland
565 5th Avenue, 5th Floor
New York, New York 10017
Attn: Annie Chin Tat, Senior Vice President
Telephone: 212/450-0871
Facsimile: 212/557-9460
-17-
<PAGE>
EXHIBIT 4(44)
$140,000,000
13 1/2% First Mortgage Notes due 2003
of
Showboat Marina Casino Partnership
Showboat Marina Finance Corporation
--------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of March 1, 1999
to the
INDENTURE
Dated as of March 28, 1996
--------------------
Firstar Bank of Minnesota, N.A.
(formerly known as American Bank National Association),
as Trustee
<PAGE>
This FIRST SUPPLEMENTAL INDENTURE, dated as of March 1, 1999 (this "Supplemental
Indenture"), to the Indenture (as defined below) is by and between FIRSTAR BANK
OF MINNESOTA, N.A. (formerly known as AMERICAN BANK NATIONAL ASSOCIATION), as
Trustee (the "Trustee"), and SHOWBOAT MARINA CASINO PARTNERSHIP, an Indiana
general partnership, and SHOWBOAT MARINA FINANCE CORPORATION, a Nevada
corporation (collectively, the "Company").
RECITALS
A. The Company is a party to that certain Indenture, dated as of
March 28, 1996 (the "Indenture"), pursuant to which the Company's First Mortgage
Notes due 2003 (the "Notes") were originally issued.
B. Section 9.02 of the Indenture provides that, with the consent of
at least a majority in principal amount of the outstanding Notes, the Company
and the Trustee may amend the Indenture and the Notes as set forth below (other
than Section 4.16), and, with the consent of at least two-thirds of the
principal amount of the outstanding Notes, the Company and the Trustee may amend
Section 4.16 of the Indenture as set forth below.
C. Harrah's Operating Company, Inc., a Delaware corporation, has
offered to purchase any and all of the Notes for cash, upon the terms and
subject to the conditions set forth in that certain Offer to Purchase and
Consent Solicitation dated February 12, 1999 and accompanying Letter of
Transmittal and Consent (collectively, the "Offer to Purchase").
D. Under the terms of the Offer to Purchase, holders that tender
their Notes in accordance with the terms of the Offer to Purchase and who
deliver a duly executed Letter of Transmittal and Consent are deemed to consent
to certain amendments to the Indenture which would permanently delete or amend
certain of the covenants, events of default and other related provisions of the
Indenture (the "Proposed Amendments").
E. In accordance with the terms of the Indenture, holders of more
than two-thirds in principal amount of the Notes have tendered their Notes and
consented to the Proposed Amendments to be effected by this Supplemental
Indenture.
<PAGE>
F. The Company has authorized the execution and delivery of this
Supplemental Indenture and the Trustee has received an Opinion of Counsel
pursuant to Section 9.06 and 12.04 of the Indenture and an Officers' Certificate
of the Company pursuant to Section 9.06 and 12.04 of the Indenture, and
therefore the Company and the Trustee are authorized to execute and deliver this
Supplemental Indenture.
G. All other conditions precedent and requirements necessary to make
this Supplemental Indenture, when duly executed and delivered, a valid and
binding agreement, enforceable in accordance with its terms (subject to the
provisions of this Supplemental Indenture becoming operative as provided in
Section 2 below), have been performed and fulfilled.
NOW, THEREFORE, the parties hereto agree as follows (defined terms
used herein and not otherwise defined herein shall have the meanings ascribed to
them in the Indenture):
1. Amendments to the Indenture.
1.1 Deletions.
(a) The text contained in each of the following Sections of the
Indenture is hereby deleted in its entirety and replaced, in each case, with
"Intentionally omitted.":
Section 4.03 (Reports); Section 4.04 (Compliance Certificate);
Section 4.05 (Taxes); Section 4.06 (Stay, Extension and Usury Laws);
Section 4.07 (Restricted Payments); Section 4.08 (Dividend and Other
Payment Restrictions Affecting Subsidiaries); Section 4.09
(Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock); Section 4.10 (Asset Sales); Section 4.11 (Event
of Loss); Section 4.12 (Transactions with Affiliates); Section 4.13
(Liens); Section 4.14 (Line of Business); Section 4.15 (Corporate or
Partnership Existence); Section 4.16 (Change of Control); Section
4.17 (Designation of Unrestricted Subsidiary); Section 4.18
(Maintenance of
-2-
<PAGE>
Insurance); Section 4.22 (Restrictions on Leasing and Dedication of
Property); Section 4.23 (Note Guarantees); Section 4.24 (Excess Cash
Flow Offers); Section 4.25 (Use of Proceeds); Section 4.26 (Gaming
Licenses); Section 4.27 (Construction); Section 4.28 (Transfer of
Certificate of Suitability; Section 4.29 (Filing of First Preferred
Ship Mortgage); Section 4.30 (Payment and Performance Bond); Section
4.31 (Transfer of Certificate of Suitability).
(b) All definitions set forth in Section 1.01 of the Indenture that
relate to defined terms used solely in sections deleted hereby are deleted in
their entirety.
1.2 Amendments. The following Sections of the Indenture are hereby amended
as set forth below:
1.2.1 Section 5.01. Merger, Consolidation or Sale of Assets. Section
5.01 of the Indenture is hereby amended by (a) deleting the text in clause (iv)
and replacing the deleted text with "Intentionally omitted;" (b) deleting the
text in clause (v) and replacing the deleted text with "Intentionally omitted;
and" and (c) deleting the text in clause (vi) and replacing the deleted text
with "Intentionally omitted."
1.2.2 Section 5.02. Successor Corporation Substituted. Section 5.02
of the Indenture is hereby amended by (a) deleting the text in clause (ii)(B)
and replacing the deleted text with "Intentionally omitted," and (b) deleting
the text in clause (ii)(C) and replacing the deleted text with "Intentionally
omitted."
1.2.3 Section 6.01. Events of Default and Remedies. Section 6.01 of
the Indenture is hereby amended by (a) deleting the text contained in clauses
(iii), (vi) and (vii) and in each case, replacing the deleted text with
"Intentionally omitted;" (b) deleting the text contained in clause (x) and
replacing the deleted text with "Intentionally omitted; or" (c) deleting the
text contained in clause (xi) and replacing the deleted text with "Intentionally
omitted." and (d) deleting all references to "Note Guarantee or any" from clause
(viii).
-3-
<PAGE>
1.2.4 Section 8.04. Conditions to Legal or Covenant Defeasance.
Section 8.04 of the Indenture is hereby amended by (a) deleting the text
contained in clauses (iii) and (iv) and, in each case, replacing it with
"Intentionally omitted;" and (b) deleting "and an opinion of counsel in the
United States (which opinion of counsel may be subject to customary assumptions
and exclusions), each" from clause (viii).
1.3 Additions. The following section is added to the Indenture:
Section 11.07. No New Note Guarantees.
Notwithstanding anything in this Article 11 to the contrary, the
provisions of this Article 11 shall apply only to Subsidiaries of the Company
that exist on or prior to the Acceptance Date (as such term is defined in the
Offer to Purchase).
2. Confirmations; Effectiveness. As amended by this Supplemental Indenture, the
Indenture and the Notes are ratified and confirmed in all respects, and the
Indenture as so amended shall be read, taken and construed as one and the same
instrument. The provisions of this Supplemental Indenture shall become operative
only upon the Acceptance Date. This Supplemental Indenture may be executed in
any number of counterparts, each of which counterparts together shall constitute
but one and the same instrument.
3. Trust Indenture Act. If and to the extent that any provision of this
Supplemental Indenture limits, qualifies or conflicts with another provision
included in this Supplemental Indenture or in the Indenture, which is required
to be included in this Supplemental Indenture or the Indenture by the Trust
Indenture Act of 1939, as amended (the "TIA"), such required provision of the
TIA shall control.
4. Exchanged Notes. Pursuant to Section 9.05 of the Indenture, all Notes
authenticated and delivered after the date hereof in exchange for or in lieu of
any Notes theretofore issued shall have imprinted or stamped thereon a legend in
substantially the following form:
-4-
<PAGE>
"The Indenture has been amended pursuant to a First
Supplemental Indenture dated as of March 1, 1999, copies of which
are available from the Company or the Trustee."
5. Governing Law. This Supplemental Indenture shall be deemed governed by, and
construed in accordance with, the internal laws of the State of New York, but
without giving effect to applicable principles of conflicts of law thereof to
the extent that the application of the laws of another jurisdiction would be
required thereby.
6. Rights of Trustee. Without limiting any other protections or rights afforded
the Trustee at law, by contract or otherwise, the Trustee will be entitled to
the full benefits afforded by Sections 7.02 and 7.03 of the Indenture in
connection with its execution and delivery of this Supplemental Indenture. The
Trustee shall not be responsible in any manner whatsoever for or in respect of
the validity or sufficiency of this Supplemental Indenture or for or in respect
of the recitals contained herein, all of which recitals are made solely by the
Company.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to
be duly executed as of the date first written above.
SHOWBOAT MARINA CASINO PARTNERSHIP,
an Indiana general partnership
By: SHOWBOAT MARINA PARTNERSHIP, an Indiana
general partnership, its general partner
By: SHOWBOAT INDIANA INVESTMENT LIMITED
PARTNERSHIP, a Nevada limited
partnership, its general partner
By: SHOWBOAT INDIANA, INC., a Nevada
corporation, its general partner
By: /s/ Colin V. Reed
-----------------
Colin V. Reed
Executive Vice President
and Secretary
SHOWBOAT MARINA FINANCE CORPORATION,
a Nevada corporation
By: /s/ Charles L. Atwood
-----------------------------
Charles L. Atwood
Vice President
and Treasurer
[Seal]
Attest:
By: /s/ George W. Loveland, II
----------------------------
George W. Loveland
Assistant Secretary
-6-
<PAGE>
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
By: /s/ Frank Leslie
-----------------------------
Frank Leslie
Vice President
[Seal]
Attest:
By: /s/ Angela M. Weidell-LaBathe
-----------------------------------
Angela M. Weidell-LaBathe
Assistant Vice President
-7-
<PAGE>
EXHIBIT-10(11)
Amendment dated
December 10, 1998 to
the Harrah's Entertainment, Inc.
Annual Management Bonus Plan (the "Plan")
-----------------------------------------
Pursuant to approval by the Human Resources Committee of the Harrah's
Entertainment, Inc. Board of Directors, the Plan is amended as follows:
1. The following paragraph is added at the end of the Section "Personal
Eligibility":
"Commencing with the plan year 1999, eligibility is extended to
employees of an Operating Unit who are in grades 18 and 19, with the
Chief Executive Officer having discretion to make exceptions
regarding the eligibility of positions within these grade levels."
2. The following paragraph is added at the end of the Section"Meeting
Operating Unit Objectives, The Bonus Pool":
"The Chief Executive shall have discretion to approve and modify the
Bonus Matrix for employees in grades 18 through 29."
3. The following paragraph is added at the end of the Section "Approval
and Payment of Annual Bonus Plan Awards":
"The Chief Executive Officer shall have discretion to resolve and
approve exceptions and adjustments to objectives and bonus points
and other bonus plan issues that have their source or basis at
operating properties, which decisions will also roll up to Division
bonus calculations."
<PAGE>
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
---------------------------
-2-
<PAGE>
EXHIBIT 10(14)
HARRAH'S ENTERTAINMENT, INC
October 29, 1998
Mr. Gary W. Loveman
c/o Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Severance Agreement
Dear Mr. Loveman:
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
<PAGE>
this letter agreement ("this Agreement") in the event your employment with the
Company or its subsidiaries terminates upon or subsequent to a "Change in
Control of the Company" (as defined in Section 2 hereof) under the circumstances
described below.
1. Term of Agreement. This Agreement shall commence on May 3, 1998 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 January 1 of the preceding year, the Company with the approval of the
Board of Directors shall have given you written 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) occurs:
(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
-2-
<PAGE>
(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:
(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
-3-
<PAGE>
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 any of the following occurs:
(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;
(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
-4-
<PAGE>
(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
the occurrence, without your express written consent, 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 employees at grade levels 26 and above and all
employees in similar grade levels of any person, corporation or other
entity (a "Person") in control of the Company;
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(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
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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;
(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), hereof; 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 (or Prior to a Change in
Control in Specific Circumstances). If any of the events described in Subsection
2(a) hereof constituting a Change in Control of the Company shall have occurred,
then following such Change in Control, you shall be entitled to the benefits
provided in Subsection 4(c) hereof: (1) if your employment was terminated during
the term of this Agreement within six months prior to a Change of Control under
the circumstances described in Section 4.(2) below, or (2) if your employment is
terminated
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during the term of this Agreement after such Change in Control if such
termination is (y) by the Company, other than for Cause, 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". Any such termination shall be a termination by
the Company other than for Cause for purposes of Section 4(c) hereof.
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 "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
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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. Upon or 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
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(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. Nothing herein
shall be construed as limiting your right to take other employment, or engage in
self-employment, before the resolution of a dispute described in this Section
3(e). A Date of Termination extended pursuant to this Section 3(e) which by
reason of such extension falls outside the twenty-four month
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period described in the first sentence of this Section 3 or the two-year period
described in Section 3(c) shall be deemed to have fallen within such period for
purposes of ensuring your entitlement to the benefits described at Section 4(c)
below.
4. Compensation Upon Termination Following a Change of Control (or if
Termination Occurs Prior to a Change in Specific Circumstances). Following a
Change in Control of the Company as defined in Subsection 2(a), then: (1) upon
termination of your employment after such Change in Control, or (2)
notwithstanding anything in this Agreement to the contrary, if termination of
your employment occurred within six months prior to the Change in Control if
such termination was by the Company without Cause by reason of the request of
the person or persons (or their representatives) who subsequently acquire
control of the Company in the Change of Control transaction, 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 or benefit 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 shall be terminated (y) after a Change of Control,
by the Company other than for Cause or (z) after a Change of Control, by you for
Good Reason or by your Voluntary Termination as provided in Subsection 3(c)(ii),
or (yy) within six months prior to a Change of Control, by the Company under the
circumstances described in Section 4.(2) above, then you shall be entitled to
the benefits provided below:
(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;
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(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
1.5 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
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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.
(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
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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 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 as a result of any of
the Severance
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Payments or any other payments or benefits provided you, you 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 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
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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
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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 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 and
penalties 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 (or following the date of the Change in Control if your
employment is terminated under the circumstances described in Section
4.(2) above), 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 (or following the date of the Change in Control if your
employment is terminated under the circumstances described in Section
4.(2) above). 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, or by the Company within six months prior to a Change in Control
under the circumstances described in Section 4.(2) hereof, then for a
twenty-four month period after such termination, the Company shall arrange to
provide you with life, disability, accident and health insurance
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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
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.
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(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 a trustee or escrow agent (an
"escrow agent"), pursuant to a trust or escrow agreement ("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 trust or escrow
("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.
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(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
-20-
<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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 American Arbitration Association National Rules
of the Resolution of Employment Disputes then in effect and the federal
Arbitration Act. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that you shall be entitled to seek in
any court having jurisdiction 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. Severance Payment made under
this Agreement shall be in lieu of severance payments under any previous
agreement between you and the Company or its subsidiaries.
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/ Stephen H. Brammell
-------------------------
Stephen H. Brammell
Vice President
Agreed:
/s/ Gary W. Loveman
- ---------------------
Gary W. Loveman
-23-
<PAGE>
EXHIBIT 10(15)
HARRAH'S ENTERTAINMENT, INC.
October 29, 1998
Mr. Philip G. Satre
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Amendment to Severance Agreement
Dear Phil:
This letter agreement ("this Amendment") will amend the Severance
Agreement (the "Agreement") between you and Harrah's Entertainment, Inc.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. Effective Date. This Amendment is effective October 29, 1998.
2. Amendment of Section 1, "Term of Agreement". The language of this
section stating "September 30 of the preceding year, the Company shall have
given notice" is changed to read as follows:
"January 1 of the preceding year, the Company with the approval of the
Board of Directors shall have given you written notice"
3. Amendment of Section 3, "Termination Following Change in Control."
Section 3 is amended by changing the opening paragraph to read as follows:
<PAGE>
"3. Termination Following Change in Control (or Prior to a Change in
Control in Specific Circumstances). If any of the events described in
Subsection 2(a) hereof constituting a Change in Control of the Company
shall have occurred, then following such Change in Control, you shall be
entitled to the benefits provided in Subsection 4(c) hereof: (1) if your
employment was terminated during the term of this Agreement within six
months prior to the Change of Control under the circumstances described in
Section 4.(2) below, or (2) if your employment is terminated (whether or
not such termination is voluntary) during the term of this Agreement after
such Change in Control, unless such termination is (y) because of your
death or (z) by the Company for Cause."
4. Amendment of Section 4, "Compensation Upon Termination Following a
Change in Control."
(a) Section 4 is amended by changing the language prior to Subsection (a)
to read as follows:
"4. Compensation Upon Termination Following a Change in Control (or if
Termination Occurs Prior to a Change in Control in Specific
Circumstances). Following a Change in Control of the Company as defined in
Subsection 2(a), then: (1) upon termination of your employment after such
Change in Control, or (2) notwithstanding anything in this Agreement to
the contrary, if termination of your employment occurred within six months
prior to the Change in Control if such termination was by the Company
without Cause by reason of the request of the person or persons (or their
representatives) who subsequently acquire control of the Company in the
Change of Control transaction, you shall be entitled to the following
benefits:"
(b) Subsection 4(c) is amended by changing the language before
subparagraph (i) to read as follows:
"(c) If your employment shall be terminated (y) after the Change of
Control, by the Company other than for Cause, or (z) after the Change of
Control, by you by voluntary resignation, or (yy) within six months prior
to the Change of Control, by the Company under the circumstances described
in Section 4.(2) above, then you shall be entitled to the following
benefits:"
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<PAGE>
(c) Subsection 4(c)(vii) is amended by adding the following language after
the words "Date of Termination" wherever these words appear in this Subsection :
"(or following the date of the Change in Control if your employment is
terminated under the circumstances described in Section 4.(2) above)"
(d) Subsection 4(d) is amended by changing the language in the first
sentence that reads: ", then for a twenty-four month period after such
termination," to read as follows:
", or by the Company within six months prior to a Change in Control under
the circumstances described in Section 4.(2) hereof, then for a
twenty-four month period after such termination,"
5. Defined Terms. Unless otherwise defined herein, all terms used in this
Amendment that are defined in the Agreement will have the meanings given to such
terms in the Agreement.
6. No Other Modifications. Except as specifically modified herein, all
terms and conditions of the Agreement will remain unchanged and in full force
and effect.
If this letter sets forth our agreement on the subject matter hereof,
please 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 to:
/s/ Philip G. Satre
- -------------------
Philip G. Satre
-3-
<PAGE>
EXHIBIT 10(16)
HARRAH'S ENTERTAINMENT, INC.
October 29, 1998
[Name of Officer]
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Amendment to Severance Agreement
Dear [Officer]:
This letter agreement ("this Amendment") will amend the Severance
Agreement (the "Agreement") between you and Harrah's Entertainment, Inc.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. Effective Date. This Amendment is effective October 29, 1998.
2. Amendment of Section 1, "Term of Agreement". The language of this
section stating "September 30 of the preceding year, the Company shall have
given notice" is changed to read as follows:
"January 1 of the preceding year, the Company with the approval of the
Board of Directors shall have given you written notice"
3. Amendment of Section 3, "Termination Following Change in Control."
Section 3 is amended by changing the opening paragraph to read as follows:
<PAGE>
"3. Termination Following Change in Control (or Prior to a Change in
Control in Specific Circumstances). If any of the events described in
Subsection 2(a) hereof constituting a Change in Control of the Company
shall have occurred, then following such Change in Control, you shall be
entitled to the benefits provided in Subsection 4(c) hereof: (1) if your
employment was terminated during the term of this Agreement within six
months prior to the Change of Control under the circumstances described in
Section 4.(2) below, or (2) if your employment is terminated during the
term of this Agreement after such Change in Control if such termination is
(y) by the Company, other than for Cause, 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."
4. Amendment of Section 4, "Compensation Upon Termination Following a
Change in Control."
(a) Section 4 is amended by changing the language prior to Subsection (a)
to read as follows:
"4. Compensation Upon Termination Following a Change in Control (or if
Termination Occurs Prior to a Change in Control in Specific
Circumstances). Following a Change in Control of the Company as defined in
Subsection 2(a), then: (1) upon termination of your employment after such
Change in Control, or (2) notwithstanding anything in this Agreement to
the contrary, if termination of your employment occurred within six months
prior to the Change in Control if such termination was by the Company
without Cause by reason of the request of the person or persons (or their
representatives) who subsequently acquire control of the Company in the
Change of Control transaction, you shall be entitled to the following
benefits:"
(b) Subsection 4(c) is amended by changing the language before
subparagraph (i) to read as follows:
"(c) If your employment shall be terminated (y) after a Change of Control,
by the Company other than for Cause or (z) after a Change of Control, by
you for Good Reason or by your Voluntary Termination as provided in
Subsection
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<PAGE>
3(c)(ii), or (yy) within six months prior to a Change of Control, by the
Company under the circumstances described in Section 4.(2) above, then you
shall be entitled to the benefits provided below:"
(c) Subsection 4(c)(vii) is amended by adding the following language after
the words "Date of Termination" wherever these words appear in this Subsection :
"(or following the date of the Change in Control if your employment is
terminated under the circumstances described in Section 4.(2) above)"
(d) Subsection 4(d) is amended by changing the language in the first
sentence that reads: ", then for a twenty-four month period after such
termination," to read as follows:
", or by the Company within six months prior to a Change in Control under
the circumstances described in Section 4.(2) hereof, then for a
twenty-four month period after such termination,"
5. Defined Terms. Unless otherwise defined herein, all terms used in this
Amendment that are defined in the Agreement will have the meanings given to such
terms in the Agreement.
6. No Other Modifications. Except as specifically modified herein, all
terms and conditions of the Agreement will remain unchanged and in full force
and effect.
If this letter sets forth our agreement on the subject matter hereof,
please 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 to:
- ---------------------
[Name of Officer]
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<PAGE>
EXHIBIT 10(19)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of April 1,
1998, by and between Harrah's Operating Company, Inc. and/or one or more of its
subsidiaries ("Company") and [Name of Executive] ("Executive").
The Company and the Executive agree as follows:
1. Employment. The Company hereby employs the Executive as [Title] or in
such other capacity as the Company reasonably shall designate.
2. Duties. During the term of this Agreement ("Active Employment"), the
Executive shall devote substantially all of his working time, energies, and
skills to the benefit of the Company's business. The Executive agrees to serve
the Company diligently and to the best of his ability, and to follow the
policies and directions of the Company.
3. Compensation. The Executive's compensation and benefits during his
Active Employment shall be as follows:
(a) Base Salary. The Company shall pay the Executive a base salary
("Base Salary") of [$Salary] per year, which will be reviewed annually by the
Company during the term of this Agreement in accordance with its compensation
practices regarding senior executives. The Executive's Base Salary shall be paid
biweekly in accordance with the Company's normal payroll schedule. All payments
shall be subject to the Executive's chosen benefit deductions and the deduction
of payroll taxes and similar assessments as required by law.
(b) Bonus. In addition to the Base Salary, the Executive shall be
eligible for an annual bonus in accordance with the Company's bonus plan.
4. Insurance and Benefits. The Executive will be eligible to participate
in each employee benefit plan and receive each executive benefit that the
Company provides for its senior executives, in accordance with the applicable
plan rules.
5. Term. The term of this Agreement shall be for four (4) years, beginning
April 1, 1998, and ending March 31, 2002.
<PAGE>
6. No Cause Termination/Non-Renewal of Agreement. The Company may
terminate the Executive's Active Employment at any time without cause upon
thirty (30) days' prior written notice ("no cause termination"). The Company
also, in its sole discretion, may elect not to renew this Agreement upon its
expiration ("non-renewal of Agreement"). In the event of such termination or
non-renewal by the Company, the Executive shall remain an employee of the
Company and shall be entitled only to the salary and benefits set forth below,
unless otherwise specified in this Agreement.
<TABLE>
<CAPTION>
Benefit Termination Date
<S> <C>
Base Salary (rate as of 18 months (78 weeks) ("Salary
Separation Date) Continuation Period") from last day
worked ("Separation Date").
PTO and Service Credit Separation Date.
Use of Credit Cards Separation Date.
Bonus--Payment and Eligibility (i) Eligible for prior year bonus if
termi-nated during payment year but
prior to payment; (ii) eligible for
prorated bonus for current year if
in job for more than
6 months and termination occurs
after June 30; (iii) not eligible
for bonus for year following
termination year.
Group Health and Life End of Salary Continuation Period.
Insurance 18-month COBRA rights period for
health insurance will commence on
Separation Date. (See also
Paragraph 10.)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Benefit Termination Date
<S> <C>
Retaining Existing Stock (i) Options from grants made prior
Options for Vesting and Other to 4/1/98 that have vested prior to
Rights Separation Date can be exercised
through end of Salary Continuation Period,
but unvested options from such grants
forfeited as of Separation Date; (ii)
options from grants made after 4/1/98
retained for exercise and vesting through
end of Salary Continuation Period. Exercise
of vested options after Salary Continuation
Period per plan rules.
Accelerated vesting of all options
if Change of Control occurs during
Salary Continuation Period
Eligibility for New Separation Date.
Restricted Stock or New Stock
Options
TARSAP Next potential vesting, based on Performance
targets, after Separation Date, at CEO's and
HRC's discretion. Accelerated vesting of all
shares if Change of Control occurs during
Salary Continuation.
Use of Financial Counseling End of Salary Continuation Period.
per Plan Provisions The maximum remaining benefit shall
be annual benefit remaining as of
Separation Date.
Savings and Retirement Plan End of year of Separation Date.
Deduction (Active
Participation)
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Benefit Termination Date
<S> <C>
Executive Deferred End of year of Separation Date.
Compensation Plan/Deferred Distribution will commence after
Compensation Plan (Active Salary Continuation Period, in
Participation) accordance with previously made
elections, and at the termination rate
unless the Executive qualifies for the
retirement rate. (See also Paragraph 11.) 3X
death benefit provision waived for death
after Separation Date. EDCP and other
deferred compensation balances will continue
to be protected by then-existing Escrow
Agreement subject to all terms and
conditions thereof.
</TABLE>
7. Death of Executive. Upon the death of the Executive during his Active
Employment, his salary and all rights and benefits hereunder will terminate, and
his estate and beneficiary(ies) will receive the benefits to which they are
entitled under the terms of the Company's benefit plans and programs by reason
of a participant's death during employment, including the 3X death benefit
provided by the EDCP (applies only if death during Active Employment) and the
applicable rights and benefits under the Company's stock plans. If the Executive
dies during the Salary Continuation Period, all of the provisions of the
previous sentence apply except that the remaining salary continuation will be
paid in a lump sum to the Executive's estate.
8. Termination by Company for Cause. The Company shall have the right to
terminate the Executive's Active Employment for cause. All salary and benefits
shall cease, except COBRA rights and as otherwise provided in applicable benefit
plans. Termination for cause shall be effective immediately upon notice sent or
given to the Executive. For purposes of this Agreement, the term "cause" shall
mean and be strictly limited to: (i)
-4-
<PAGE>
conviction of any crime that materially discredits the Company or is materially
detrimental to the reputation or goodwill of the Company; (ii) commission of any
material act of fraud or dishonesty against the Company, or commission of an
immoral or unethical act that materially reflects negatively on the Company, or
engaging in willful misconduct; provided that the Executive shall first be
provided with written notice of the claim against him under this provision (ii)
and with an opportunity to contest said claim before the Board of Directors; or
(iii) material breach of the Executive's obligations under Paragraph 2. of this
Agreement, as so determined by the Board of Directors.
9. Voluntary Termination/Notice Period. The Executive may terminate this
Agreement voluntarily at any time and for any or no reason during its term upon
thirty (30) days' prior written notice to the Company, except as specified in
this paragraph. If the Executive is going to work or act in competition with the
Company as described in Paragraph 14. of this Agreement, the Executive must give
the Company six (6) months' prior written notice of his intention to do so. The
written notice provided by the Executive shall specify the last day to be worked
by the Executive ("Separation Date"), which Separation Date must be at least
thirty (30) days or six (6) months (as appropriate) after the date the notice is
received by the Company. Unless otherwise specified herein, or in a writing
executed by both parties, the Executive shall not receive any of the benefits
provided in this Agreement after the Separation Date set forth in his written
notice.
10. Certain Health Insurance Benefits. If (i) the Executive reaches the
age of 50 and, when added to his number of years of continuous service with the
Company, the sum of his age and years of service equals or exceeds 65, and at
any time after the occurrence of both such events the Executive's employment is
terminated pursuant to Paragraph 6., above; or (ii) the Executive reaches the
age of 55 and has attained 10 years of continuous service with the Company, and
at any time after the occurrence of both such events the Executive's employment
terminates for any reason other than by the Company for "cause" as described in
paragraph 8., above, the Executive and his then-eligible dependents shall be
entitled to participate in the Company's group health insurance plan, as amended
from time to time by the
-5-
<PAGE>
Company, after the Executive's Separation Date or the end of the Salary
Continuation Period, as applicable, for the remainder of the Executive's life
("Life Coverage Period"). During the Life Coverage Period, the Executive shall
pay 20% of the current premium (revised annually) on an after-tax basis each
quarter, and the Company shall pay 80% of said premium on an after-tax basis,
which contribution will be imputed income to the Executive. As soon after the
Separation Date as the Executive becomes eligible for Medicare coverage, the
Company's group health insurance plan shall become secondary to Medicare.
If the Executive engages in any of the activities described in Paragraph
14.(a), below, during the Life Coverage Period, the entitlement of the Executive
and his then-eligible dependents to participate in the Company's group health
insurance plan shall terminate automatically, without any further action or
notice by either party, subject to applicable COBRA rights, which shall commence
on the Separation Date. If the Executive engages in any of the activities
described in said Paragraph 14.(a)(i) in a business which does not compete with
the Company or any of its subsidiaries during the Life Coverage Period, the
Company's group health insurance plan shall become secondary to any primary
health insurance plan or coverage made available to the Executive by that
business.
11. EDCP Retirement Rate. If the Executive reaches the age of 50 and, when
added to his number of years of continuous service with the Company, the sum of
his age and years of service equals or exceeds 65, and at any time after the
occurrence of both such events the Executive's employment is terminated pursuant
to Paragraph 6., above, the Executive shall be entitled to receive his
distributions from EDCP at the retirement rate. For EDCP retirement rate
purposes, the Executive will receive service credit for the Salary Continuation
Period.
12. Change in Control. If a Change in Control, as defined in the
Executive's Severance Agreement, occurs during the Executive's Active
Employment, and if the Severance Agreement is in force when the Change in
Control occurs, then the Severance Agreement supersedes and replaces this
Agreement. If, prior to a Change in Control (as defined above), the Executive's
Active Employment has been terminated for any reason by either party or this
Agreement is not renewed by the Company, then the Executive's Severance
Agreement terminates automatically.
-6-
<PAGE>
13. Disability. If the Executive becomes disabled prior to the termination
of his Active Employment or the non-renewal of this Agreement, he will be
entitled to apply at his option for the Company's long-term disability benefits.
If he is accepted for such benefits, then the terms and provisions of the
Company's benefit plans and the programs (including the EDCP and the Company's
Stock Option and Restricted Stock Plans) that are applicable in the event of
such disability of an employee shall apply in lieu of the salary and benefits
under this Agreement, except that (i) the Escrow Agreement (if then in force)
and his indemnification agreement will continue in force (the Escrow Agreement
will be subject to amendment or termination in accordance with its terms), and
(ii) he will be entitled to the lifetime group insurance benefits described in
Paragraph 10. If the Executive is disabled so that he cannot perform his duties
(as determined by the Human Resources Committee (HRC), and if he does not apply
for long-term disability benefits or is not accepted for such benefits, then the
Company may terminate his duties under this Agreement. In such event, he will
receive eighteen months salary continuation, together with all other benefits,
and during such period of salary continuation any stock options and restricted
stock grants then in existence will continue in force for vesting purposes.
However, during such period of salary continuation for disability, Executive
will not be eligible to participate in the annual bonus plan, nor will he be
eligible to receive stock option or restricted stock grants or any other
long-term incentive awards except to the extent approved by the HRC.
If the Executive becomes disabled during the Salary Continuation Period,
he will be entitled only to the salary and benefits described in Paragraphs 6.
and 10., above, for the periods set forth in those respective paragraphs.
14. Non-competition.
(a) Non-competition. During the Executive's Active Employment, and
during the Salary Continuation Period described in Paragraph 6., above, the
Executive:
(i) shall not engage in any activity, whether as employer,
proprietor, partner, stockholder (other than the holder of less than 5% of the
stock of a corporation the securities of which are traded on a national
securities exchange or in the over-the-counter market), director, officer,
employee, consultant
-7-
<PAGE>
or otherwise, in competition with (x) the casino, casino/hotel and/or
casino/resort businesses conducted at the date hereof by the Company or any
subsidiary or affiliate ("Company" for purposes of this paragraph 14) or (y) any
casino, casino/hotel and/or casino/resort business in which the Company is
substantially engaged at any time during the active employment period;
(ii) shall not solicit, in competition with the Company, any
person who is a customer of the businesses conducted by the Company at the date
hereof or of any business in which the Company is substantially engaged at any
time during the term of this Agreement.
(b) Scope of Covenants; Remedies. The following provisions shall
apply to the covenants of the Executive contained in this Paragraph 14.:
(i) the covenants contained in paragraphs (i) and (ii) of
Paragraph 14.(a) shall apply within the United States, Canada and Mexico, plus
any territories in which Company is actively engaged in the conduct of business
while the Executive is employed under this Agreement, including, without
limitation, the territories in which customers are then being solicited;
(ii) without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the Executive of
the covenants contained in this Paragraph 14., it is expressly agreed by the
Executive and the Company that such other remedies cannot fully compensate the
Company for any such violation and that the Company shall be entitled to
injunctive relief to prevent any such violation or any continuing violation
thereof;
(iii) each party intends and agrees that if, in any action
before any court or agency legally empowered to enforce the covenants contained
in this Paragraph 14., any term, restriction, covenant or promise contained
therein is found to be unreasonable and accordingly unenforceable, then such
term, restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency; and
(iv) the covenants contained in this Paragraph 14. shall
survive the conclusion of Executive's employment with the Company.
-8-
<PAGE>
15. Post Employment Cooperation. Upon the termination of his Active
Employment, the Executive will cooperate with, and provide information to, the
Company in assuring an orderly transition of all matters being handled by him.
Upon the Company providing reasonable notice to him, he will also appear as a
witness at the Company's request and/or assist the Company in any litigation,
bankruptcy or similar matter in which the Company or any affiliate thereof is a
party; provided that the Company will defray any approved out-of-pocket expenses
incurred by him in connection with any such appearance and that, if the
Executive is no longer receiving salary compensation from the Company, the
Company will compensate him for all time spent, at either his then current
compensation rate or his salary rate as of the Separation Date, whichever is
higher. The Company agrees further to indemnify him as prescribed in his
Indemnification Agreement and Article TENTH of the Certificate of Incorporation
of Harrah's Entertainment, Inc., as amended, filed on November 2, 1989, in the
Office of the Secretary of State of the State of Delaware and recorded in Book
935, Page 780, et seq.
16. Release. Upon the termination of the Executive's Active Employment,
and in consideration of the receipt of the salary and benefits described in this
Agreement, except for claims arising from the covenants, agreements, and
undertakings of the Company as set forth herein and except as prohibited by
statutory language, the Executive forever and unconditionally waives, and
releases Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., their
subsidiaries and affiliates, and their officers, directors, agents, benefit plan
trustees, and employees ("Released Parties") from any and all claims, whether
known or unknown, and regardless of type, cause or nature, including but not
limited to claims arising under all salary, vacation, insurance, bonus, stock,
and all other benefit plans, and all state and federal anti-discrimination,
civil rights and human rights laws, ordinances and statutes, including Title VII
of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act,
concerning his employment with Harrah's Operating Company, Inc., its
subsidiaries and affiliates, and the cessation of that employment
-9-
<PAGE>
17. General Provisions.
(a) Notices. Any notice to be given hereunder by either party to the
other may be effected by personal delivery, in writing, or by mail, registered
or certified, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses set forth below, but each
party may change his or its address by written notice in accordance with this
Paragraph 17.(a). Notices shall be deemed communicated as of the actual receipt
or refusal of receipt.
If to Executive: ---------------------------
---------------------------
---------------------------
If to Company: Harrah's Operating Company, Inc.
1023 Cherry Rd.
Memphis, TN 38117
Attn: General Counsel
(b) Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provision shall, nevertheless, continue in full force and without
being impaired or invalidated in any way.
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee, without regard to its
conflict of laws provisions.
(d) No Conflicting Agreement. By signing this Agreement, Executive
warrants that he is not a party to any restrictive covenant, agreement or
contract which limits the performance of his duties and responsibilities under
this Agreement or under which such performance would constitute a breach.
(e) Headings. The Section, paragraph, and subparagraph headings are
for convenience or reference only and shall not define or limit the provisions
hereof.
(f) Amendments. Any amendments to this Agreement must be in writing
and signed by both parties.
(g) Binding Agreement. This Agreement is binding on the parties and
their heirs, successors and assigns.
-10-
<PAGE>
(h) Survival of Provisions. The provisions of this Agreement shall
survive any termination thereof if so provided herein and if necessary or
desirable fully to accomplish the purposes of such provisions, including without
limitation the rights and obligations of the Executive under Paragraphs 6, 14,
15, and 16 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Harrah's Operating Company, Inc.
By:
----------------------------
---------------------------------
(typed name)
Executive
-11-
<PAGE>
EXHIBIT 10(20)
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum to Employment Agreement ("Addendum") is entered into as of
April 1, 1998, by and between Harrah's Operating Company, Inc. and/or one or
more of its subsidiaries ("Company") and John M. Boushy ("Executive").
The Company and the Executive agree that, so long as the Executive is
actively employed and is a member of the Senior Partners Group at the time of
the renewal specified herein, the Company will renew the Executive's Agreement
for an additional four (4) year term on or about March 1, 1999, such that the
term of said Agreement will run from March 1, 1999, through February 28, 2003.
In Witness Whereof, the parties have executed this Addendum as of the date
first written above.
Harrah's Operating Company, Inc.
By: /s/ Philip G. Satre
-----------------------------
Philip G. Satre
Chairman, President and Chief
Executive Officer
/s/ John M. Boushy
------------------------------
John M. Boushy
Executive
<PAGE>
EXHIBIT 10(21)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of May 4, 1998,
by and between Harrah's Operating Company, Inc. and/or one or more of its
subsidiaries ("Company") and Gary W. Loveman ("Executive").
The Company and the Executive agree as follows:
1. Employment. The Company hereby employs the Executive as VP and COO.
2. Duties. During the term of this Agreement ("Active Employment"), the
Executive shall devote substantially all of his working time, energies, and
skills to the benefit of the Company's business. The Executive agrees to serve
the Company diligently and to the best of his ability, and to follow the
policies and directions of the Company.
3. Compensation. The Executive's compensation and benefits during his
Active Employment shall be as follows:
(a) Base Salary. The Company shall pay the Executive a base salary
("Base Salary") of $500,000 per year, which will be reviewed annually by the
Company during the term of this Agreement in accordance with its compensation
practices regarding senior executives and which shall not be reduced during the
Executive's Active Employment without his written consent. The Executive's Base
Salary shall be paid biweekly in accordance with the Company's normal payroll
schedule. All payments shall be subject to the Executive's chosen benefit
deductions and the deduction of payroll taxes and similar assessments as
required by law.
(b) Bonus. In addition to the Base Salary, the Executive shall be
eligible for an annual bonus, as described in the attached Addendum.
4. Insurance and Benefits. The Executive will be eligible to participate
in each employee benefit plan and receive each executive benefit that the
Company provides for its senior executives, in accordance with the applicable
plan rules, except as provided herein or in the Addendum to this Agreement.
<PAGE>
5. Term. The term of this Agreement shall be for three (3) years,
beginning May 4, 1998, and ending May 3, 2001.
6. No Cause Termination/Non-Renewal of Agreement. The Company may
terminate the Executive's Active Employment at any time without cause upon
thirty (30) days' prior written notice ("no cause termination"). The Company
also, in its sole discretion, may elect not to renew this Agreement upon its
expiration ("non-renewal of Agreement"). In the event of such termination or
non-renewal by the Company, the Executive shall remain an employee of the
Company and shall be entitled only to the salary and benefits set forth below,
unless otherwise specified in this Agreement.
<TABLE>
<CAPTION>
Benefit Termination Date
- ------- ----------------
<S> <C>
Base Salary (rate as of 12 months (52 weeks) ("Salary
Separation Date) Continuation Period") from last day
worked ("Separation Date").
PTO and Service Credit Separation Date.
Use of Credit Cards Separation Date.
Bonus--Payment and Eligibility (i) Eligible for prior year bonus if
termi-nated during payment year but prior to
payment; (ii) eligible for prorated bonus
for current year if in job for more than 6
months and termination occurs after June 30;
(iii) not eligible for bonus for year
following termination year.
Group Health and Life End of Salary Continuation Period.
Insurance 18-month COBRA rights period for
health insurance will commence on
Separation Date.
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Benefit Termination Date
- ------- ----------------
<S> <C>
Retaining Existing Stock See attached Addendum and Matrix.
Options for Vesting and Other
Rights
Eligibility for New Separation Date.
Restricted Stock or New Stock
Options
TARSAP See attached Addendum and Matrix.
Use of Financial Counseling End of Salary Continuation Period.
per Plan Provisions The maximum remaining benefit shall
be annual benefit remaining as of
Separation Date.
Savings and Retirement Plan End of year of Separation Date.
Deduction (Active
Participation)
Executive Deferred End of year of Separation Date. Distribution
Compensation Plan/Deferred will commence after Salary Continuation
Compensation Plan (Active Period, in accordance with previously made
Participation) elections, and at the termination rate
unless the Executive qualifies for the
retirement rate. 3X death benefit provision
waived for death after Separation Date. EDCP
and other deferred compensation balances
will continue to be protected by
then-existing Escrow Agreement subject to
all terms and conditions thereof.
</TABLE>
-3-
<PAGE>
Subject to the provisions of Paragraph 12, below, nothing herein shall be
construed as limiting the Executive's right to take other employment or engage
in self-employment following his termination pursuant to this Paragraph 6,
without adversely affecting his rights under this same Paragraph.
7. Death of Executive. Upon the death of the Executive during his Active
Employment, his salary and all rights and benefits hereunder will terminate, and
his estate and beneficiary(ies) will receive the benefits to which they are
entitled under the terms of the Company's benefit plans and programs by reason
of a participant's death during employment, including the 3X death benefit
provided by the EDCP (applies only if death during Active Employment) and the
applicable rights and benefits under the Company's stock plans. If the Executive
dies during the Salary Continuation Period, all of the provisions of the
previous sentence apply except that the remaining salary continuation will be
paid in a lump sum to the Executive's estate.
8. Termination by Company for Cause. The Company shall have the right to
terminate the Executive's Active Employment for cause. All salary and benefits
shall cease, except COBRA rights and as otherwise provided in applicable benefit
plans. Termination for cause shall be effective immediately upon notice received
by the Executive. For purposes of this Agreement, the term "cause" shall mean
and be strictly limited to: (i) conviction of any crime that materially
discredits the Company or is materially detrimental to the reputation or
goodwill of the Company; (ii) commission of any material act of fraud or
dishonesty against the Company, or commission of an immoral or unethical act
that materially reflects negatively on the Company, or engaging in willful
misconduct; provided that the Executive shall first be provided with written
notice of the claim against him under this provision (ii) and with an
opportunity to contest said claim before the Board of Directors of the Company
(excluding the Executive); or (iii) material breach of the Executive's
obligations under Paragraph 2. of this Agreement, as so determined by the Board
of Directors (excluding the Executive), after (x) the Executive has received
notice of the breach and has failed to cure same within 10 business days
thereafter, and (y) the Executive has had an opportunity to appear and contest
said claim before said Board of Directors.
-4-
<PAGE>
9. Voluntary Termination/Notice Period. The Executive may terminate this
Agreement voluntarily at any time and for any or no reason during its term upon
thirty (30) days' prior written notice to the Company, except as specified in
this paragraph. If the Executive is going to work or act in competition with the
Company as described in Paragraph 12. of this Agreement, the Executive must give
the Company six (6) months' prior written notice of his intention to do so. The
written notice provided by the Executive shall specify the last day to be worked
by the Executive ("Separation Date"), which Separation Date must be at least
thirty (30) days or six (6) months (as appropriate) after the date the notice is
received by the Company. Unless otherwise specified herein, or in a writing
executed by both parties, the Executive shall not receive any of the benefits
provided in this Agreement after the Separation Date set forth in his written
notice.
10. Change in Control. If a Change in Control, as defined in the
Executive's Severance Agreement, occurs during the Executive's Active
Employment, and if the Severance Agreement is in force when the Change in
Control occurs, then the Severance Agreement supersedes and replaces this
Agreement, except that the documents attached to and made part of this Agreement
(the Addendum to Employment Agreement, the Matrix captioned "Extended
Vesting/Exercisability", and the document entitled "Gary Loveman-TARSAP) shall
remain in full force and effect except to the extent the Severance Agreement
provides greater benefits. If, prior to a Change in Control (as defined above),
the Executive's Active Employment has been terminated for any reason by either
party or this Agreement is not renewed by the Company, then the Executive's
Severance Agreement terminates automatically.
11. Disability. If the Executive becomes disabled prior to the termination
of his Active Employment or the non-renewal of this Agreement, he will be
entitled to apply at his option for the Company's long-term disability benefits.
If he is accepted for such benefits, then the terms and provisions of the
Company's benefit plans and the programs (including the EDCP and the Company's
Stock Option and Restricted Stock Plans) that are applicable in the event of
such disability of an employee shall apply in lieu of the salary and benefits
under this Agreement, except that the Escrow Agreement (if then in force) and
his
-5-
<PAGE>
indemnification agreement will continue in force (the Escrow Agreement will be
subject to amendment or termination in accordance with its terms). If the
Executive is disabled so that he cannot perform his duties (as determined by the
Human Resources Committee (HRC), and if he does not apply for long-term
disability benefits or is not accepted for such benefits, then the Company may
terminate his duties under this Agreement. In such event, he will receive twelve
months salary continuation, together with all other benefits, and during such
period of salary continuation any stock options and restricted stock grants then
in existence will continue in force for vesting purposes. However, during such
period of salary continuation for disability, Executive will not be eligible to
participate in the annual bonus plan, nor will he be eligible to receive stock
option or restricted stock grants or any other long-term incentive awards except
to the extent approved by the HRC.
If the Executive becomes disabled during the Salary Continuation Period,
he will be entitled only to the salary and benefits described in Paragraph 6.,
above, for the period set forth in that paragraph.
12. Non-competition.
(a) Non-competition. During the Executive's Active Employment, and
during the Salary Continuation Period described in Paragraph 6., above, the
Executive:
(i) shall not engage in any activity, whether as employer,
proprietor, partner, stockholder (other than the holder of less than 5% of the
stock of a corporation the securities of which are traded on a national
securities exchange or in the over-the-counter market), director, officer,
employee, consultant or otherwise, in competition with (x) the casino,
casino/hotel and/or casino resort businesses conducted at the date hereof by the
Company or any subsidiary or affiliate ("Company" for purposes of this Paragraph
12.) or (y) any casino, casino/hotel and/or casino resort business in which the
Company is substantially engaged at any time during the Active Employment
period;
(ii) shall not solicit, in competition with the Company, any
person who is a customer of the businesses conducted by the Company at the date
hereof or of any business in which the Company is substantially engaged at any
time during the term of this Agreement.
-6-
<PAGE>
(b) Scope of Covenants; Remedies. The following provisions shall
apply to the covenants of the Executive contained in this Paragraph 12.:
(i) the covenants contained in paragraphs (i) and (ii) of
Paragraph 12.(a) shall apply within the United States, Canada and Mexico, plus
any territories in which Company is actively engaged in the conduct of business
while the Executive is employed under this Agreement, including, without
limitation, the territories in which customers are then being solicited;
(ii) without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the Executive of
the covenants contained in this Paragraph 12., it is expressly agreed by the
Executive and the Company that such other remedies cannot fully compensate the
Company for any such violation and that the Company shall be entitled to
injunctive relief to prevent any such violation or any continuing violation
thereof;
(iii) each party intends and agrees that if, in any action
before any court or agency legally empowered to enforce the covenants contained
in this Paragraph 12., any term, restriction, covenant or promise contained
therein is found to be unreasonable and accordingly unenforceable, then such
term, restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency; and
(iv) the covenants contained in this Paragraph 12. shall
survive the conclusion of Executive's employment with the Company.
13. Post Employment Cooperation. Upon the termination of his Active
Employment, the Executive will cooperate with, and provide information to, the
Company in assuring an orderly transition of all matters being handled by him.
Upon the Company providing reasonable notice to him, he will also appear as a
witness at the Company's request and/or assist the Company in any litigation,
bankruptcy or similar matter in which the Company or any affiliate thereof is a
party; provided that the Company will defray any approved out-of-pocket expenses
incurred by him in connection with any such appearance and that, if the
Executive is no longer receiving salary from the Company, the Company will
compensate the Executive for all time spent, at the rate of compensation of (i)
his then current employment or (ii) his Base
-7-
<PAGE>
Salary on the Separation Date/Agreement expiration date, whichever is higher.
The Company agrees further to indemnify him as prescribed in his Indemnification
Agreement and Article TENTH of the Certificate of Incorporation of Harrah's
Entertainment, Inc., as amended, filed on November 2, 1989, in the Office of the
Secretary of State of the State of Delaware and recorded in Book 935, Page 780,
et seq.
14. Release. Upon the termination of the Executive's Active Employment,
and in consideration of the receipt of the salary and benefits described in this
Agreement, except for claims arising from the covenants, agreements, and
undertakings of the Company as set forth herein and except as prohibited by
statutory language, the Executive forever and unconditionally waives, and
releases Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., their
subsidiaries and affiliates, and their officers, directors, agents, benefit plan
trustees, and employees ("Released Parties") from any and all claims, whether
known or unknown, and regardless of type, cause or nature, including but not
limited to claims arising under all salary, vacation, insurance, bonus, stock,
and all other benefit plans, and all state and federal anti-discrimination,
civil rights and human rights laws, ordinances and statutes, including Title VII
of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act,
concerning his employment with Harrah's Operating Company, Inc., its
subsidiaries and affiliates, and the cessation of that employment.
15. General Provisions.
(a) Notices. Any notice to be given hereunder by either party to the
other may be effected by personal delivery, in writing, or by mail, registered
or certified, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the addresses set forth below, but each
party may change his or its address by written notice in accordance with this
Paragraph 15.(a). Notices shall be deemed communicated as of the actual receipt
or refusal of receipt.
If to Executive: ---------------------------
---------------------------
---------------------------
-8-
<PAGE>
If to Company: Harrah's Operating Company, Inc.
1023 Cherry Rd.
Memphis, TN 38117
Attn: General Counsel
(b) Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provision shall, nevertheless, continue in full force and without
being impaired or invalidated in any way.
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee, without regard to its
conflict of laws provisions.
(d) No Conflicting Agreement. By signing this Agreement, Executive
warrants that he is not a party to any restrictive covenant, agreement or
contract which limits the performance of his duties and responsibilities under
this Agreement or under which such performance would constitute a breach.
(e) Headings. The Section, paragraph, and subparagraph headings are
for convenience or reference only and shall not define or limit the provisions
hereof.
(f) Amendments. Any amendments to this Agreement must be in writing
and signed by both parties.
(g) Binding Agreement. This Agreement is binding on the parties and
their heirs, successors and assigns.
(h) Survival of Provisions. The provisions of this Agreement shall
survive any termination thereof if so provided herein and if necessary or
desirable fully to accomplish the purposes of such provisions, including without
limitation the rights and obligations of the Executive under Paragraphs 6, 12,
13, and 14 hereof.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Harrah's Operating Company, Inc.
By: /s/ Philip G. Satre
---------------------------
Philip G. Satre
Chairman, President
and Chief Executive Officer
/s/ Gary W. Loveman
------------------------
Gary W. Loveman
Executive
-10-
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
This Addendum to Employment Agreement ("Addendum") is entered into as of
May 4, 1998, by and between Harrah's Operating Company, Inc. and/or one or more
of its subsidiaries ("Company") and Gary W. Loveman ("Executive").
The Company and the Executive agree to add the provisions set forth below
to the Employment Agreement between the parties also entered into as of May 4,
1998.
1. Management Bonus. As a salary grade 35 employee, the Executive will
have a target bonus of 60%, with a maximum of 120%, in accordance with the
provisions of the management bonus plan. For 1998, the Executive will receive a
pro-rated bonus based on his hire date, if a bonus is paid.
2. TARSAP. An award of 75,000 restricted shares for the Executive was
approved by the Human Resources Committee ("HRC") at its April 30, 1998,
meeting. Vesting will be identical to vesting for previous TARSAP grants under
the TARSAP program, except that for 3/1/99, the vesting will be 2/3 of any
achieved performance vesting percentage. For annual performance vesting
thereafter, the incremental target will be 30%, similar to other participants.
See attached Matrix dated 4/30/98 and the document entitled "Gary
Loveman-TARSAP," which are made a part of this Addendum, for provisions
regarding extended vesting and exercisability of TARSAP shares.
3. Stock Options. An award of 175,000 stock options for the Executive was
approved by the HRC at its April 30, 1998, meeting. The exercise price of all
such options will be $26.125 per share. The vesting schedule will be: 33,500
shares (1/1/99); 50,000 shares (1/1/00); 50,000 shares (1/1/01); and 41,500
shares (1/1/02). See attached Matrix dated 4/30/98, which is made a part of this
Addendum, for provisions regarding extended vesting and exercisability of the
award of stock options described above. Provisions regarding extended vesting
and exercisability of any further award of stock options and/or restricted
stock, if made, will be the same as those applying to other Executives with
Employment Agreements, which provisions are detailed in Paragraph 6 of those
Agreements.
<PAGE>
4. Temporary Housing and Commuting. During the term of the Agreement, the
Company will provide to the Executive an apartment in Memphis. To the extent
that said provision of housing constitutes taxable income to the Executive, the
Company will pay him an amount equal to (a) the tax on the cost of the housing,
plus (b) the tax on the amount described in (a), plus the tax on any payments
described in (b), so that the Executive will be held harmless from any taxes due
on the provision of housing. The Company also will reimburse the Executive for
reasonable weekend commuting expenses to/from Boston. It is understood that this
reimbursement is not taxable to the Executive.
In Witness Whereof, the parties have executed this Addendum as of the date
first written above.
Harrah's Operating Company, Inc.
By: /s/ Philip G. Satre
-----------------------
Chairman, President and
Chief Executive Officer
/s/ Gary W. Loveman
----------------------------
Gary W. Loveman
Executive
-2-
<PAGE>
4/30/98
Gary W. Loveman
Extended Vesting/Exercisability
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Years of Active Employment
----------------------------------------------------------------------------------------
Event Benefit Plan Less Than Two Years Two-Three Years Three Years +
- ------------------- ------------ ---------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C>
Stock No further vesting Next annual vesting Next annual vesting
Options
No further 1 year to exercise after 2 years to exercise after
exercisability termination termination
Resigns
------------ ---------------------------- -------------------------- ---------------------------
TARSAP No further vesting Next vesting at CEO and Next vesting at CEO and HRC
HRC discretion discretion
- ------------------- ------------ ---------------------------- -------------------------- ---------------------------
Termination Stock Next annual vesting Next annual vesting Next annual vesting
Without Cause Options
1 year to exercise 1 year to exercise after 2 years to exercise after
after termination termination termination
------------ ---------------------------- -------------------------- ---------------------------
TARSAP Next performance vesting at Next vesting at CEO and Next vesting at CEO and HRC
CEO and HRC discretion HRC discretion discretion
- ------------------- ------------ ---------------------------- -------------------------- ---------------------------
Resigns, Then Change No further vesting Next annual vesting Next annual vesting is
in Control Within Stock is accelerated upon Change accelerated upon Change in
One Year Options in Control Control
No further exercisability
1 year to exercise after 2 years to exercise after
termination unless cashed termination unless cashed
out per merger out per merger
------------ ---------------------------- -------------------------- ---------------------------
TARSAP No further vesting Next vesting accelerated Next vesting accelerated at
at CEO and HRC discretion CEO and HRC discretion
- ------------------- ------------ ---------------------------- -------------------------- ---------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Termination Accelerated vesting of Accelerated vesting of Accelerated vesting of
Without Cause, Stock all remaining options all remaining options upon all remaining options upon
Then Change in Options upon Change in Control Change in Control Change in Control
Control Within
One Year 1 year to exercise 1 year to exercise 2 years to exercise
after termination unless after termination unless after termination unless
cashed out per merger cashed out per merger cashed out per merger
----------- ------------------------ -------------------------- --------------------------
TARSAP Accelerated vesting of Accelerated vesting of Accelerated vesting of all
all remaining shares all remaining shares upon remaining shares upon
upon Change in Control Change in Control Change in Control
- -------------- ----------- ------------------------ -------------------------- --------------------------
* Stock 50% vesting of 50% vesting of 50% vesting of
Options remaining shares remaining shares remaining shares
1 year for estate to 1 year for estate to 1 year for estate to
Death exercise after death exercise after death exercise after death
----------- ------------------------ -------------------------- --------------------------
TARSAP No acceleration or No acceleration or No acceleration or
further vesting further vesting further vesting
- -------------- ----------- ------------------------ -------------------------- --------------------------
*
Stock 50% vesting of 50% vesting of 50% vesting of
Options remaining shares remaining shares remaining shares
Disability
Under 1 year to exercise 1 year to exercise 1 year to exercise
LTD after disability after disability after disability
plan
----------- ------------------------ -------------------------- --------------------------
TARSAP No acceleration or No acceleration or No acceleration or
further vesting further vesting further vesting
----------- ------------------------ -------------------------- --------------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
- -------------- ----------- ------------------------ -------------------------- --------------------------
<S> <C> <C> <C> <C>
Continued vesting Continued vesting Continued vesting
Disability As Stock during 1 year salary during 1 year salary during 1 year salary
Determined Options continuation continuation continuation
by HRC (not
under LTD) Exercisable during Exercisable during Exercisable during
1 year salary 1 year salary 1 year salary
continuation continuation continuation
----------- ------------------------ -------------------------- --------------------------
TARSAP Continued vesting Continued vesting Continued vesting
during 1 year salary during 1 year salary during 1 year salary
continuation continuation continuation
- -------------- ----------- ------------------------ -------------------------- --------------------------
</TABLE>
* These rights are the same as currently provided under the Stock Option
plan and TARSAP program.
-3-
<PAGE>
Corrected
Gary Loveman - TARSAP
<TABLE>
<CAPTION>
Gary Loveman Others
Year Vesting Percentage Vesting Percentage Vest Date
- ------ ------------------- ------------------ ---------
<S> <C> <C> <C>
1998 13.4 20 3/1/99
20.0 30
26.8 40
1999 43.4 50 3/1/00
50.0 60
56.8 70
2000 73.4 80 3/1/01
80.0 90
86.8 100
2001 100 100 1/1/02
</TABLE>
<PAGE>
EXHIBIT 10(23)
INTEROFFICE MEMO
TO: Kell Houssels
FROM: Phil Satre
DATE: November 25, 1998
RE: Termination of Employment and Commencement of Consulting Agreement
Kell, this memo will outline the terms of the mutual understanding between
you and Harrah's Entertainment, Inc. and Showboat, Inc. regarding the
termination of your employment and the commencement of your consulting services.
In setting forth these terms, it is our mutual intention to fulfill and reflect
the provisions of your employment agreement dated June 1, 1998, and your
consulting agreement which is attached to your employment agreement.
1. In accordance with our mutual understanding, your employment will
terminate effective December 31, 1998. This will be considered termination
without cause under your employment agreement. You will continue to receive your
current salary through December 31, 1998.
2. You will receive all of the financial remuneration as provided in your
employment agreement upon termination without cause, as follows:
(a) A $1.1 million cash payment which will be paid on December 31,
1998.
(b) Payment of PTO accrued under our PTO plan through December 31,
1998.
(c) Payment of accrued Showboat vacation of 205.33 hours x $192.31
($39,487.01).
<PAGE>
(d) Payment of any financial counseling services incurred through
December 31, 1998, per the Company's financial counseling plan
(up to $7,500 for the period 6/1/98 - 1/3/99).
(e) Payment of any deferred compensation per your deferral
elections.
(f) Reimbursement of any expenses accrued through December 31,
1998.
(g) Entitlement to any prorata bonus earned by you under the
Harrah's annual management bonus plan for seven months during
1998 (from 7/1/98 to 12/31/98). Bonus points are approved by
the Harrah's Human Resources Committee in February and any
bonus earned will be payable by March 15, 1999.
It is understood applicable tax withholdings will be deducted
from the payments made to you.
3. Your one year consulting agreement will become effective January 1,
1999. Per this agreement, you will receive a consulting fee of $800,000. Of this
amount, $400,000 will be paid on Monday, January 4, 1999 (which is the first
business day after December 31), and the remaining $400,000 will be paid in 12
equal installments with the first of such installments payable on January 4,
1999 and the second through the twelfth installments payable each successive 30
days after January 1 pursuant to the terms of the consulting agreement. In
conjunction with your termination of employment and the commencement of your
consulting agreement, it is understood your benefits as an employee will
terminate December 31, 1998 including cancellation of stock options and future
participation in incentive compensation plans.
4. In regard to your consulting agreement, your assigned services will be
consistent with the duties outlined in the agreement and will include:
- Service at my direction as a member of the Board of Directors
of Star City Holdings Ltd. including attendance at Board
meetings in Sydney, Australia.
-2-
<PAGE>
- Consulting services and assistance regarding the sale of
Showboat Las Vegas and other ongoing Showboat matters related
to personnel, political and development issues.
- Other similar projects that I may assign as needed.
5. You will continue to serve as a member of the Board of Directors of
Harrah's Entertainment, Inc. pursuant to the terms of your employment agreement.
Commencing January 1, 1999, you will receive the fees of an outside director
while your Board service continues.
6. Commencing January 1, 1999, you will receive the insurance benefits
called for by your consulting agreement.
It is understood that the provisions concerning your termination of
employment and your consulting services are governed by your employment and
consulting agreements. Please sign this memorandum indicating your understanding
that the financial terms of your termination of employment and the commencement
of your consulting services, as outlined above, are consistent with your
agreements.
I have appreciated your valuable work and insight as Division President of
Showboat and I look forward to your future services as a consultant and your
continuing work as a director of Harrah's Entertainment, Inc.
/s/ Philip G. Satre
----------------------------
Philip G. Satre
for Harrah's Entertainment, Inc.
and Showboat, Inc.
/s/ J. Kell Houssels, III
- -----------------------------
J. Kell Houssels, III
-3-
<PAGE>
EXHIBIT 10(31)
Amendment to
The Harrah's Entertainment, Inc.
1990 Stock Option Plan (the "Plan")
-----------------------------------
Harrah's Entertainment, Inc. (the "Company") hereby adopts this Amendment
to the Plan effective October 29, 1998:
Section L of the Plan is amended by adding the following language at the
end thereof:
"Notwithstanding the above, the options of an employee who
terminates employment with the Company or a Subsidiary and who,
within 30 days, becomes employed ("JCC Employment") by Jazz Casino
Company, L.L.C. or an affiliate or parent thereof ("JCC") will
continue in force and continue to vest for such an individual while
in JCC Employment. Termination of JCC Employment will be considered
termination of employment under the Plan (unless the individual is
re-employed by the Company or a Subsidiary within 30 days).
Termination of the Company's or a Subsidiary's equity and management
interests in the New Orleans casino property will also be considered
termination of employment under the Plan, provided, however, the
status of any unvested options at that time as to any individual
will be decided by the Company's Chief Executive Officer who will
have discretion to accelerate vesting, allow vesting to continue, or
deem the unvested options to be forfeited as he or she deems
appropriate."
This Amendment was duly approved by the Human Resources Committee of the
Board of Directors on October 29, 1998.
/s/ Rebecca W. Ballou
-------------------------------
Rebecca W. Ballou
Secretary of Harrah's Entertainment, Inc.
<PAGE>
EXHIBIT 10(39)
Amendment to Harrah's
Entertainment, Inc. 1990
Restricted Stock Plan (the "Plan")
----------------------------------
Harrah's Entertainment, Inc. (the "Company") hereby adopts this Amendment
to the Plan effective October 29, 1998.
1. The reference to "Section 4(e)" in the Amendment dated April 30,
1998, is corrected to "Section 5(e)."
2. Section 5(a) of the Plan is amended by changing "200" to "500".
3. Section 5(e) of the Plan is amended by adding the following language
at the end thereof:
"Notwithstanding the above, the restricted shares of an employee who
terminates employment with the Company or a Subsidiary and who,
within 30 days, becomes employed ("JCC Employment") by Jazz Casino
Company, L.L.C. or an affiliate or parent thereof ("JCC") will
continue in force and continue to vest for such an individual while
in JCC Employment. Termination of JCC Employment will be considered
termination of employment under the Plan (unless the individual is
re-employed by the Company or a Subsidiary within 30 days).
Termination of the Company's or a Subsidiary's equity and management
interests in the New Orleans casino property will also be considered
termination of employment under the Plan, provided, however, the
status of any invested restricted shares at that time as to any
individual will be decided by the Company's Chief Executive Officer
who will have discretion to accelerate vesting, allow vesting to
continue, or deem the unvested shares to be forfeited as he or she
deems appropriate."
This Amendment was duly approved by the Human Resources Committee of the
Board of Directors on October 29, 1998.
/s/ REBECCA W. BALLOU
-----------------------------------
Rebecca W. Ballou
Secretary of Harrah's Entertainment, Inc.
<PAGE>
EXHIBIT 10(51)
Amendment dated as of October 29, 1998 to the
Harrah's Entertainment, Inc. ("Company")
Executive Deferred Compensation Plan ("Plan")
---------------------------------------------
Pursuant to approval granted by the Human Resources Committee of the
Company's Board of Directors, the following amendments to the Plan are hereby
adopted:
1. Section 2.6 of the Plan is amended to add the following sentence at the
end thereof:
"Compensation includes deferrals into this Plan derived from the Rio
Properties, Inc. d/b/a Rio Suite Hotel and Casino Supplemental Retirement
and Deferred Compensation Plan (the "Rio SERP")."
2. The first sentence of Section 2.7(a) is amended to read as follows:
"a) "Deferral Commitment" means a Salary Deferral Commitment, a Bonus
Deferral Commitment, a Fee Deferral Commitment or another deferral
commitment allowed by the Company under this Plan and for which a
Participation Agreement or other appropriate agreement has been filed with
the Company."
3. Section 2.14 is amended to read as follows:
"2.14 "Participant" means any individual who is participating or has
participated in this Plan as provided in Article III."
4. Section 3.2 (b) is amended to read as follows:
"(b) Savings and Retirement Plan Exception. In addition to the deferrals
permitted under (a) above, any Participant that participates at the
before-tax percentage of six percent (6%) under the 401(k) plan or Savings
and Retirement
<PAGE>
Plan of the Participant's Employer shall be deemed to have elected to
defer into this Plan that portion of eligible 401(k) plan or Savings and
Retirement Plan earnings which the Participant elected to defer under such
401(k) plan or Savings and Retirement Plan up to six percent (6%) which
could not be deferred on a before-tax basis under any such plan due to any
law or regulation, but excluding any amount which was actually deferred
into any such plan but distributed back to the Participant in a following
plan year."
5. Section 3.2 is amended by adding the following subsection (e):
"(e) Certain executives of Rio Hotel & Casino, Inc. will be permitted to
defer specified amounts in the Rio SERP into the EDCP pursuant to
agreements with such executives."
6. Section 2.17 is amended to add the following sentence at the end thereof:
"Unless otherwise determined by the Chief Executive Officer of the
Company, a Participant who is or was an employee of an acquired subsidiary
of the Company will also receive credit under this Plan for his or her
prior years of credited service with the acquired subsidiary which service
was accrued immediately prior to the acquisition of such subsidiary
provided the Participant attains the status of an employee of the Company
or a Company subsidiary (directly or indirectly owned by the Company) as a
result of the acquisition and continues in such employment until his or
her participation in this Plan commences. The determination of such
credited service will be made by the Company's Corporate Compensation
Department and the Participant's years of credited service under the
acquired subsidiary's qualified pension or retirement plan may be used for
this purpose."
7. Sections 4.3 (a) and (b) are amended to read as follows:
"(a) Eligibility. Matching contributions shall be credited to Participants
who are eligible to participate in the 401(k) plan or Savings and
Retirement Plan of their Employer and elect to make a six percent (6%)
before-tax contribution
-2-
<PAGE>
into such 401(k) plan or Savings and Retirement Plan and such before-tax
contribution is limited due to any law or regulation.
(b) Amount. The Employer shall credit to each Participant's Account a
matching contribution for each calendar year equal to one-hundred percent
(100%) of the Participant's Compensation elected to be deferred under this
Plan for the year, such compensation being limited for purposes of this
calculation to a maximum of six percent (6%) of the Participant eligible
401(k) plan or Savings and Retirement Plan earnings (which shall for this
purpose include salary deferrals but will not include bonus amounts or
board fees). The matching contribution amount will be offset by the actual
matching contribution allocated to the Participant under the 401(k) plan
or Savings and Retirement Plan of the Participant's Employer."
8. Section 4.4(b) is amended to read as follows:
"(b) Employer Matching Contribution. A Participant who terminates
Employment for reasons other than Retirement, Total and Permanent
Disability or Death shall be vested in the Employer matching contributions
made for any particular year in accordance with the vesting provisions of
the 401(k) plan or Savings and Retirement Plan of the Participant's
Employer as any such plan may be amended from time to time."
9. Section 5.4 is amended by changing 5.4(a) (ii) to read as follows:
"(ii) three (3) times the sum of all amounts deferred by the Participant
under this Plan (not including interest or earnings thereon) until the
date of death, provided the amounts counted for this purpose will not
include deferrals derived from the SERP or similar plan of an acquired
subsidiary."
7. Section 5.4(b) (I) is amended by adding the following language at the end
thereof:
"and shall not include deferrals derived from the SERP or similar plan of
an acquired subsidiary."
-3-
<PAGE>
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
---------------------
-4-
<PAGE>
EXHIBIT 11
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- -------------- -------------
Income before extraordinary losses............................... $ 121,717,000 $ 107,522,000 $ 98,897,000
Extraordinary losses, net........................................ (19,693,000) (8,134,000) --
-------------- -------------- -------------
Net income................................................... $ 102,024,000 $ 99,388,000 $ 98,897,000
-------------- -------------- -------------
-------------- -------------- -------------
BASIC EARNINGS PER SHARE
Weighted average number of common shares outstanding............. 100,231,327 100,618,139 102,598,281
-------------- -------------- -------------
-------------- -------------- -------------
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary losses............................... $ 1.21 $ 1.07 $ 0.96
Extraordinary losses, net........................................ (0.19) (0.08) --
-------------- -------------- -------------
Net income................................................... $ 1.02 $ 0.99 $ 0.96
-------------- -------------- -------------
-------------- -------------- -------------
DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding............. 100,231,327 100,618,139 102,598,281
Additional shares based on average market price for period
applicable to:
Restricted stock........................................... 215,513 86,827 88
Stock options.............................................. 1,072,833 549,101 1,137,792
-------------- -------------- -------------
-------------- -------------- -------------
Average number of common and common equivalent shares
outstanding.................................................... 101,519,673 101,254,067 103,736,161
-------------- -------------- -------------
-------------- -------------- -------------
DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Income before extraordinary losses............................... $ 1.19 $ 1.06 $ 0.95
Extraordinary losses, net........................................ (0.19) (0.08) --
-------------- -------------- -------------
Net income................................................... $ 1.00 $ 0.98 $ 0.95
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
<PAGE>
EXHIBIT 12
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
1998(A) 1997(B) 1996(C) 1995(D) 1994(E)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
RETURN ON REVENUES-CONTINUING
Income from continuing operations............ $ 121,717 $ 107,522 $ 98,897 $ 78,810 $ 49,984
Revenues..................................... 2,004,015 1,619,210 1,586,020 1,578,795 1,349,941
Return..................................... 6.1% 6.6% 6.2% 5.0% 3.7%
RETURN ON AVERAGE INVESTED CAPITAL
Income from continuing operations............ $ 121,717 $ 107,522 $ 98,897 $ 78,810 $ 49,984
Add: Interest expense after tax.............. 72,707 48,233 43,187 56,650 46,993
------------ ------------ ------------ ------------ ------------
$ 194,424 $ 155,755 $ 142,084 $ 135,460 $ 96,977
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Average invested capital..................... $ 2,426,028 $ 1,815,869 $ 1,619,880 $ 1,377,354 $ 1,229,524
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Return..................................... 8.0% 8.6% 8.8% 9.8% 7.9%
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
RETURN ON AVERAGE EQUITY (F)
Income before extraordinary items and
cumulative effect of change in accounting
policy..................................... $ 121,717 $ 107,522 $ 98,897 $ 78,846 $ 86,303
Average equity............................... 793,492 722,298 682,489 618,778 606,009
Return..................................... 15.3% 14.9% 14.5% 12.7% 14.2%
RATIO OF EARNINGS TO FIXED CHARGES (G)
Income from continuing operations............ $ 121,717 $ 107,522 $ 98,897 $ 78,810 $ 49,984
Add:
Provision for income taxes................. 74,600 68,746 67,316 60,677 75,391
Interest expense........................... 117,270 79,071 69,968 73,890 76,363
Interest included in rental expense........ 9,718 7,692 7,663 6,738 5,244
Amortization of capitalized interest....... 1,444 606 763 580 628
(Income) or loss from equity investments... 4,709 (473) (473) -- --
Adjustment to include 100% of
nonconsolidated, majority-owned affiliate
(h)...................................... 12,254 -- -- (34,775) (7,438)
------------ ------------ ------------ ------------ ------------
Earnings as defined.......................... $ 341,712 $ 263,164 $ 244,134 $ 185,920 $ 200,172
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Fixed charges:
Interest expense........................... $ 117,270 $ 79,071 $ 69,968 $ 73,890 $ 76,363
Capitalized interest....................... 2,526 6,860 11,025 3,636 3,764
Interest included in rental expense........ 9,718 7,692 7,663 6,738 5,244
Adjustment to include 100% of
nonconsolidated, majority-owned affiliate
(h)...................................... 12,071 -- -- 56,652 17,069
------------ ------------ ------------ ------------ ------------
Total fixed charges.......................... $ 141,585 $ 93,623 $ 88,656 $ 140,916 $ 102,440
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Ratio of earnings to fixed charges......... 2.4 2.8 2.8 1.3 2.0
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 12 (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
1998(A) 1997(B) 1996(C) 1995(D) 1994(E)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EBITDA AND ADJUSTED EBITDA
Income from continuing operations............ $ 121,717 $ 107,522 $ 98,897 $ 78,810 $ 49,984
Add/(less):
Income tax provision....................... 74,600 68,746 67,316 60,677 75,391
Interest expense........................... 117,270 79,071 69,968 73,890 76,363
Depreciation and amortization.............. 159,183 122,396 102,338 95,388 86,644
Amortization of deferred finance charge.... (4,866) (3,021) (3,151) (3,626) (2,844)
Amortization of debt discounts and
premiums................................. 74 (12) (21) (53) (176)
------------ ------------ ------------ ------------ ------------
Earnings before interest, taxes, depreciation
and amortization (EBITDA) (i).............. 467,978 374,702 335,347 305,086 285,362
Add/(less):
Write-downs and reserves................... 7,474 13,806 52,188 93,348 --
Project opening costs...................... 11,066 19,518 5,907 450 15,313
Venture restructuring costs................ 6,013 6,944 14,601 -- --
Gains on sales of ownership interests in
nonconsolidated affiliates............... (13,155) (37,388) -- (11,773) --
Gain on sale of land....................... (6,607) -- -- -- --
Management contract termination fee........ (10,254) -- -- -- --
Costs in connection with Missouri
initiative............................... 4,994 -- -- -- --
Provision for settlement of litigation and
related costs............................ -- -- -- -- 53,449
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Adjusted EBITDA (i).......................... $ 467,509 $ 377,582 $ 408,043 $ 387,111 $ 354,124
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------------------
(a) 1998 includes $7.5 million in pretax charges for write-downs and reserves
and a $13.2 million gain on the sale of equity interests in a
nonconsolidated subsidiary. 1998 also includes the financial results of
Showboat, Inc., from its June 1, 1998, date of acquisition.
(b) 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 a New Zealand subsidiary.
(c) 1996 includes $52.2 million in pretax charges for write-downs and reserves.
(d) 1995 includes $93.3 million in pretax charges for write-downs.
(e) 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.
(f) 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.
<PAGE>
EXHIBIT 12 (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
(g) As discussed in Note 11 to the Consolidated Financial Statements in the 1998
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: 1998, $7.9 million; 1997, $7.8 million; 1996,
$5.2 million; 1995, $6.8 million; and 1994, $5.5 million.
(h) For purposes of computing this ratio, "earnings" consist of income before
income taxes plus fixed charges (excluding capitalized interest) and
minority interests (relating to subsidiaries whose fixed charges are
included in the computation), excluding equity in undistributed earnings of
less than 50% owned investments. "Fixed charges" include interest whether
expensed or capitalized, amortization of debt expense, discount or premium
related to indebtedness and such portion of rental expense that we deem to
be representative of interest. As required by the rules which govern the
computation of this ratio, both earnings and fixed charges are adjusted
where appropriate to include the financial results for the Company's
nonconsolidated majority-owned subsidiaries. Accordingly, 1994 and 1995 have
been adjusted to include the financial results and fixed charges for
Harrah's Jazz Company. For 1998, the computation of the ratio has been
adjusted to include the financial results and fixed charges of the East
Chicago partnership from its June 1, 1998, date of acquisition.
(i) Adjusted EBITDA consists of EBITDA (earnings before interest, taxes,
depreciation and amortization) before write-downs and reserves, project
opening costs, venture restructuring costs, gains on sales of equity
interests and nonoperating assets and provisions for settlement of
litigation and related costs. EBITDA and Adjusted EBITDA are supplemental
financial measures used by management, as well as by industry analysts, to
evaluate Harrah's operations. However, EBITDA and Adjusted EBITDA should not
be construed as an alternative to Income from operations (as an indicator of
Harrah's operating performance) or to Cash flows from operating activities
(as a measure of liquidity) as determined in accordance with generally
accepted accounting principles and presented in the Company's Consolidated
Financial Statements. All companies do not calculate EBITDA in the same
manner. As a result, EBITDA as presented by our Company may not be
comparable to similarly titled measures presented by other companies.
<PAGE>
FINANCIAL AND STATISTICAL HIGHLIGHTS
(IN MILLIONS, EXCEPT COMMON STOCK DATA AND FINANCIAL PERCENTAGES AND RATIOS)
(SEE NOTES 1 AND 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
COMPOUND
GROWTH
1998(a) 1997(b) 1996(c) 1995(d) 1994(e) RATE
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues............................................ $ 2,004.0 $ 1,619.2 $ 1,586.0 $ 1,578.8 $ 1,349.9 10.4%
Income from operations.............................. 287.8 213.5 236.9 209.4 267.2 1.9%
Income before income taxes and minority interest.... 203.3 183.6 172.1 151.6 139.3 9.9%
Income from continuing operations................... 121.7 107.5 98.9 78.8 50.0 24.9%
Net income (f)...................................... 102.0 99.4 98.9 78.8 78.4 6.8%
COMMON STOCK DATA
Earnings per share--diluted
Continuing operations............................. 1.19 1.06 0.95 0.76 0.49 25.1%
Net income (f).................................... 1.00 0.98 0.95 0.76 0.76 7.1%
FINANCIAL POSITION
Total assets (f).................................... 3,286.3 2,005.5 1,974.1 1,636.7 1,738.0 17.3%
Total assets of continuing operations............... 3,286.3 2,005.5 1,974.1 1,636.7 1,595.0 19.8%
Long-term debt...................................... 1,999.4 924.4 889.5 753.7 727.5 28.8%
Stockholders' equity (f)............................ 851.4 735.5 719.7 585.5 623.4 8.1%
CASH FLOWS
Provided by operating activities.................... 300.4 255.1 285.7 213.7 227.3 7.2%
EBITDA (g).......................................... 468.0 374.7 335.3 305.1 285.4 13.2%
Adjusted EBITDA (g)................................. 467.5 377.6 408.0 387.1 354.1 7.2%
Capital expenditures................................ 245.2 290.5 390.0 231.8 301.8 (5.1)%
FINANCIAL PERCENTAGES AND RATIOS
Return on revenues--continuing...................... 6.1% 6.6% 6.2% 5.0% 3.7%
Return on average invested capital (h).............. 8.0% 8.6% 8.8% 9.8% 7.9%
Return on average equity (h)........................ 15.3% 14.9% 14.5% 12.7% 14.2%
Ratio of earnings to fixed charges.................. 2.4 2.8 2.8 1.3 2.0
</TABLE>
- ------------------------
(a) 1998 includes $7.5 million in pretax charges for write-downs and reserves
(see Note 7) and a $13.2 million gain on the sale of equity interests in a
nonconsolidated restaurant subsidiary. 1998 also includes the financial
reports of Showboat, Inc., from its June 1, 1998, date of acquisition.
(b) 1997 includes $13.8 million in pretax charges for write-downs and reserves
(see Note 7) and a $37.4 million gain on the sale of equity in a New Zealand
subsidiary.
(c) 1996 includes $52.2 million in pretax charges for write-downs and reserves
(see Note 7).
(d) 1995 includes $93.3 million in pretax charges for write-downs, primarily
related to our New Orleans casino development project.
(e) 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.
(f) Amounts for periods prior to the June 30, 1995, dividend of PHC common stock
to our stockholders reflect the impact of the financial position and results
of operations for the discontinued hotel business in those periods.
(g) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs and
reserves, project opening costs, venture
<PAGE>
FINANCIAL AND STATISTICAL HIGHLIGHTS
(IN MILLIONS, EXCEPT COMMON STOCK DATA AND FINANCIAL PERCENTAGES AND RATIOS)
(SEE NOTES 1 AND 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS) (CONTINUED)
restructuring costs, gains on sales of subsidiary equity interests and
nonoperating assets and provisions for settlement of litigation and related
costs. See Exhibit 12 to our 1998 Form 10-K for the computations of EBITDA
and Adjusted EBITDA. EBITDA and Adjusted EBITDA are supplemental financial
measures used by management, as well as industry analysts, to evaluate our
operations. However, EBITDA and Adjusted EBITDA should not be construed as
an alternative to Income from operations (as an indicator of our 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. All companies do not calculate EBITDA in the same manner. As a
result, EBITDA as presented by our Company may not be comparable to
similarly titled measures presented by other companies.
(h) Ratio computed based on Income before extraordinary items and cumulative
effect of change in accounting policy.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In this discussion, the words "Harrah's Entertainment," "Company," "we,"
"our" and "us" refer to Harrah's Entertainment, Inc., together with its
subsidiaries where appropriate. We are one of the leading casino entertainment
companies in the United States, operating casinos in more markets than any other
casino company. We seek to differentiate ourselves through a unique strategy
aimed at building loyalty to our brands from our guests. To accomplish this
objective, we have invested significant time and resources learning who the best
customers in our industry are and what they want from casino entertainment
experiences. We are building our brands with a focus on those customers who are
avid, experienced players, especially those who play in more than one market.
Our strategy is comprised of four integrated components: national geographic
distribution, quality facilities, proprietary technology and superior customer
service. We believe these four components combine to create a sustainable
competitive advantage for Harrah's Entertainment. We begin our review of our
1998 results with a discussion of two acquisitions which reflect our pursuit of
our strategy.
STRATEGIC ACQUISITIONS
We completed our acquisition of Showboat, Inc. ("Showboat") on June 1, 1998.
We paid approximately $520.0 million in cash and assumed approximately $635.0
million in Showboat debt. Our acquisition of Showboat gives us a stronger
presence in the key growth and feeder markets of Atlantic City and Chicago. In
Atlantic City, Showboat provides us with a very strong additional brand in a
strategic Boardwalk location that complements our existing Harrah's location in
the Marina district. In the Chicago market, the combination of Showboat's
riverboat casino complex southeast of Chicago in neighboring Indiana and
Harrah's in Joliet, Illinois, southwest of Chicago, makes it possible for us to
seek the loyalty of a broader share of visitors from the Chicago area. The
acquisition also gives us a presence in Sydney, Australia, through Showboat's
management and partial ownership of the Star City casino. A Showboat property in
Las Vegas is a nonstrategic asset for us and is reported as an asset
held-for-sale in our financial statements. Our acquisition of Showboat is being
accounted for as a purchase.
On January 1, 1999, we completed our merger with Rio Hotel & Casino, Inc.
("Rio"). In connection with the merger, we issued approximately 25 million
shares of our common stock and assumed Rio's outstanding debt. Rio is an
all-suite hotel-casino with more than 2,500 suites and 116,000 square feet of
gaming space featuring approximately 2,400 slot machines and 100 table games.
Rio Secco, an 18-hole championship golf course, is located nearby and is owned
by Rio. In addition, Rio owns or has the right to acquire approximately 35 acres
of land adjacent to its existing facilities available for further development.
The addition of Rio to the family of Harrah's Entertainment properties provides
our customers who frequent Las Vegas a choice between two distinct, high-quality
experiences, a high quality Las Vegas strip destination and a high quality
resort experience. Our merger with Rio is being accounted for as a purchase.
Two of our technology initiatives will enable us to expand the benefits of
these strategic acquisitions beyond the simple addition of casino square footage
to our Company:
- Total Gold, our national player rewards and recognition program, was
introduced late in 1997 and has proven a successful and valuable means of
serving our target customers. Total Gold allows customers to earn points
for slot play and redeem those points for cash, merchandise, food, lodging
or show tickets at any of our Harrah's casinos across the country. We plan
to expand this program to include the player card programs offered by Rio
and Showboat.
- The Winner's Information Network, or WINet, our national database of
customers, enables us to more effectively recognize every Harrah's
customer at any Harrah's property, to more efficiently communicate with
our customers, to better understand how and where our customers like to
play and to better target promotions and offers. The addition of
Showboat's and Rio's customer
2
<PAGE>
databases to WINet will enable us to reach new customers, many of whom are
outside of traditional Harrah's feeder markets, with the appropriate
offers and promotions to encourage cross-market play within the Harrah's
Entertainment family of casinos.
RELOCATION OF CORPORATE HEADQUARTERS
In January 1999, we announced plans to relocate our corporate headquarters
and move our senior corporate executives and their support staffs to Las Vegas,
Nevada, beginning in 1999. The Company's national service headquarters will
remain in Memphis, Tennessee. We feel that immersing our senior executives in
the epicenter of the casino industry will improve our business and market
knowledge base, enhance product and service innovation, fuel our corporate
development and increase our visibility and accessibility to important employee,
industry, political and customer constituencies. We believe our entire national
distribution network will benefit from this exposure within the world's largest
casino marketplace and that establishing a headquarters in Las Vegas will
enhance our ability to attract and retain the highest quality senior executives
in gaming industry roles. The cost of this relocation is not expected to be
material.
OPERATING RESULTS AND DEVELOPMENT PLANS
OVERALL
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
-----------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT
EARNINGS PER SHARE) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- -------- -------- -------- -------- ----------
Revenues......................................................... $2,004.0 $1,619.2 $1,586.0 23.8% 2.1%
Operating profit................................................. 346.7 258.7 284.7 34.0% (9.1)%
Income from operations........................................... 287.8 213.5 236.9 34.8% (9.9)%
Income before extraordinary items................................ 121.7 107.5 98.9 13.2% 8.7%
Net income....................................................... 102.0 99.4 98.9 2.6% 0.5%
Earnings per share-diluted before extraordinary items............ 1.19 1.06 0.95 12.3% 11.6%
Net income....................................................... 1.00 0.98 0.95 2.0% 3.2%
Operating margin................................................. 14.4% 13.2% 14.9% 1.2pts (1.7)pts
</TABLE>
Comparisons of our overall financial results between years can be difficult
due to the inclusion in each period of various nonrecurring charges and credits,
including write-downs and reserves, project opening costs, venture restructuring
costs, gains on the sales of our ownership interests in nonconsolidated
subsidiaries, a 1998 gain on the sale of land and proceeds from the cancellation
of a management contract. Please see Other Factors Affecting Net Income for
further discussion of these
3
<PAGE>
charges and credits. The table below presents pro forma comparisons of our
operating results, which have been adjusted to exclude these items.
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
----------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT
EARNINGS PER SHARE) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- -------- -------- -------- ---------- ---------
Revenues......................................................... $2,004.0 $1,619.2 $1,586.0 23.8% 2.1%
Operating profit................................................. 352.1 290.1 342.8 21.4% (15.4)%
Income from operations........................................... 299.2 251.9 309.6 18.8% (18.6)%
Income before extraordinary items................................ 116.5 108.1 142.2 7.8% (24.0)%
Earnings per share-diluted before extraordinary items............ 1.15 1.07 1.37 7.5% (21.9)%
Operating margin................................................. 14.9% 15.6% 19.4% (0.7)pts (3.8)pts
</TABLE>
RIVERBOAT CASINOS
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
------------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- ------ ------ ------ ---------- ----------
Casino revenues.................................................. $661.9 $614.8 $596.0 7.7% 3.2%
Total revenues................................................... 702.7 656.2 629.1 7.1% 4.3%
Operating profit................................................. 121.0 124.2 141.2 (2.6)% (12.0)%
Operating margin................................................. 17.2% 18.9% 22.4% (1.7)pts (3.5)pts
</TABLE>
Year-over-year revenue increases reported by our riverboat casinos resulted
primarily from the March 1997 opening of Harrah's St. Louis-Riverport and the
operating improvements by that property in 1998. However, overall operating
profits and margins declined over this three year period due to new and
increased competition in all riverboat markets, higher gaming taxes paid by
Harrah's Joliet, and costs related to a successful ballot initiative in
Missouri.
CHICAGOLAND. While revenues increased 6.0% at Harrah's Joliet in 1998
compared to the prior year, operating profit declined 14.4% due to the impact of
higher Illinois gaming taxes. The addition of riverboat casinos in neighboring
Indiana beginning in June 1996 caused declines in revenues, operating profit and
margin. However, during the last half of 1997 and continuing in 1998 Harrah's
Joliet has regained the gaming volume that was initially lost. Operating profit
and margin in 1997 compared to 1996 at Joliet reflected the impact of higher
marketing and promotional expenses that resulted from the increased competition.
During first quarter 1998, we completed construction of a climate-controlled
walkway joining Harrah's Joliet's self-parking garage to its pavilion, and a new
VIP lounge was opened. During third quarter 1998, we began construction of a
204-suite hotel at this property. Estimated cost of this project is $29.1
million, and completion is projected for fourth quarter 1999.
We own a 55% noncontrolling interest in the partnership owning the East
Chicago Showboat property. Our share of income from the partnership, which
totaled $0.6 million in 1998, is included in Equity in losses of nonconsolidated
affiliates and reported separately in the Consolidated Statements of Income (see
Other Factors Affecting Net Income). We have entered into an acquisition
agreement with the partners owning the remaining 45% ownership interest in the
East Chicago Showboat property which will increase our ownership interest to
approximately 99.5%. Upon consummating such agreement, we will also amend the
partnership agreements to give us greater flexibility in operating the East
Chicago property. The transaction is subject to receipt of necessary regulatory
approvals and is
4
<PAGE>
expected to close during first quarter 1999. We also plan to rebrand the East
Chicago Showboat Casino as a "Harrah's" property during first quarter 1999.
In anticipation of acquiring the additional interest in the East Chicago
property and the amendment of the partnership agreements, we will begin
consolidating this partnership with the financial results of our other
businesses in first quarter 1999.
LOUISIANA. Harrah's Shreveport's 1998 revenues declined 3.0% compared to
1997 and operating profit declined 10.6% due to substantial new hotel and
entertainment amenities added by our competitors in 1998. This performance
follows a 1.9% decline in revenues in 1997 compared to 1996; however, operating
profit increased 2.5% in 1997, despite the entrance of a new competitor into the
market in third quarter 1996.
Construction was completed in third quarter 1998 on expanded parking
facilities at Harrah's Shreveport. In fourth quarter 1998, we announced plans to
construct a 503-room hotel with almost 17,000 square feet of convention center
space. Groundbreaking for the new hotel is slated for April 1999 and it is
expected to open in late third quarter 2000. Estimated cost for the new hotel
and amenities is $123.0 million.
MISSISSIPPI. Combined revenues from our Mississippi operations decreased
6.6% in 1998 from 1997 levels, due to the closing in second quarter 1997 of our
original Tunica property. Our Mississippi properties' combined operations netted
a combined loss for 1998 due to disrupted operations at Harrah's Tunica for much
of the year in connection with the on-going testing of service initiatives.
Combined revenues increased 3.3% in 1997 over 1996, while operating income
increased $6.0 million.
We have reached an agreement to sell our original Tunica property to another
casino company, who has announced its intention to renovate and operate a casino
in this location. Subject to regulatory approval and customary closing
conditions, we expect to consummate the sale during first quarter 1999. Our gain
from the disposition of this asset will be immaterial.
MISSOURI. Revenues at Harrah's North Kansas City increased 3.1% in 1998
over the prior year and operating profit increased 10.7%. 1997 revenues were up
from 1996 due primarily to the addition of a second riverboat casino in May
1996. However, operating profit for 1997 declined 24.9% from 1996, 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 was the decision during first quarter 1996 to discontinue
the property's admission charge.
Harrah's St. Louis-Riverport reported operating income of $15.8 million for
1998, compared to a loss of approximately $1.4 million for 1997. Revenues were
$44.1 million higher in 1998 than they were for the approximate ten-month period
in which the property was open in 1997. The St. Louis-Riverport casino
entertainment complex 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 Entertainment, and shoreside facilities
jointly-owned with another casino company. Our pro rata share of the operating
losses of the shoreside facilities joint venture was $10.9 million for 1998 and
$11.5 million for 1997. These losses are included in Equity in losses of
nonconsolidated affiliates, which is reported separately in the Consolidated
Statements of Income (see Other Factors Affecting Net Income).
During 1998, we incurred $5.0 million of nonrecurring costs in connection
with a successful campaign for a referendum in Missouri seeking approval of
games of chance on riverboats in artificial basins. In November 1998, the people
of Missouri voted to amend that state's Constitution to deem all floating casino
facilities in compliance with state law.
In third quarter 1998, we acquired the assets of a riverboat casino in
Kansas City formerly operated by a third party, including a 28,000 square feet
casino riverboat, shoreside facilities, certain
5
<PAGE>
land, all gaming equipment and computerized customer databases. Our plans for
the acquired riverboat, land and shoreside facilities have not been finalized.
ATLANTIC CITY
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
----------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- ------ ------ ------ -------- -----------
Casino revenues.................................................. $540.8 $314.9 $310.1 71.7% 1.5%
Total revenues................................................... 590.8 349.5 338.6 69.0% 3.2%
Operating profit................................................. 129.2 73.3 75.0 76.3% (2.3)%
Operating margin................................................. 21.9% 21.0% 22.2% 0.9pts (1.2)pts
</TABLE>
Harrah's Atlantic City achieved record revenues for the second consecutive
year in 1998, and operating profit increased 12.1% in 1998 compared to 1997.
1998 results also include seven months of operations of Showboat Atlantic City,
which was acquired on June 1, 1998.
A new 416-room hotel tower was opened at Harrah's Atlantic City 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 further expansion of our
Harrah's Atlantic City property 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.
SOUTHERN NEVADA
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
--------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- ------ ------ ------ -------- ---------
Casino revenues.................................................. $230.8 $191.0 $190.8 20.8% 0.1%
Total revenues................................................... 346.3 288.2 289.8 20.2% (0.6)%
Operating profit................................................. 48.1 41.9 68.0 14.8% (38.4)%
Operating margin................................................. 13.9% 14.5% 23.5% (0.6)pts (9.0)pts
</TABLE>
1998 record revenues in Southern Nevada were driven by Harrah's Las Vegas,
which set revenue records in each quarter of 1998. 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 of that year. The construction activity, which began in mid-1996, often
impeded access to the Las Vegas property, and operating profits and margins 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 1998 operating profit was 20.3% above 1997
levels; however, operating margin declined slightly. Operating profit and margin
declines from 1996 to 1997 were due to higher operating costs associated with
completing construction and reopening the renovated areas.
6
<PAGE>
NORTHERN NEVADA
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
------------------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- ------ ------ ------ ---------- ----------
Casino revenues.................................................. $226.8 $217.3 $226.5 4.4% (4.1)%
Total revenues................................................... 296.3 287.8 299.2 3.0% (3.8)%
Operating profit................................................. 46.5 44.5 59.8 4.5% (25.6)%
Operating margin................................................. 15.7% 15.5% 20.0% 0.2pts (4.5)pts
</TABLE>
In Northern Nevada, revenues increased 3.0% over 1997 revenues and operating
profit was 4.5% higher. These results were driven by Harrah's Lake Tahoe where
operating profit was 17.2% more than in 1997. 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.
MANAGED CASINOS-INDIAN LANDS AND OTHER
Our Indian and other managed results were led by the addition of management
fees from managed tribal-owned casinos for the Eastern Band of Cherokee in
Cherokee, North Carolina, which opened in November 1997, and the Prairie Band of
Potawatomi north of Topeka, Kansas, which opened in January 1998, and from the
Star City casino in Sydney, Australia, for which we assumed management with the
Showboat acquisition on June 1, 1998.
On June 30, 1998, we ceased management of the Sky City casino complex in
Auckland, New Zealand. Our management contract was bought out by the owner, Sky
City Limited, and a $10.3 million termination fee was received. During third
quarter 1997, we sold our remaining 12.5% equity interest in Sky City Limited
(see Other Factors Affecting Net Income).
On November 2, 1998, we ceased management of the casino owned by the Upper
Skagit Tribe, located on Indian lands near Seattle, Washington. We have
guaranteed the Upper Skagit Tribe's development financing, but under the terms
of the termination agreement the Tribe has agreed to fund the retirement of the
mortgage. However, there is no assurance that payment will be made and we have
continued exposure of up to $11.4 million under that guarantee.
See Debt and Liquidity for further discussion of our guarantees of debt
related to Indian projects.
OTHER GAMING OPERATIONS
In fourth quarter 1998, Interactive Entertainment Limited ("IEL") announced
plans to discontinue all operations of its Sky Games business and to write off
assets related to that business. In conjunction with that announcement, we wrote
off our remaining investment in IEL of $0.8 million. During 1997, we recognized
$2.3 million of non-cash nonrecurring income from IEL in consideration for the
termination of our 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.
During 1998, we launched the first national brand advertising campaign by a
casino company. A portion of the cost of the brand advertising campaign was
funded by the displacement of advertising and marketing dollars spent in the
past by the individual properties. The cost for the campaign in excess of the
amounts contributed to this effort by the properties totaled approximately $9.3
million in 1998.
7
<PAGE>
OTHER FACTORS AFFECTING NET INCOME
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/(DECREASE)
-----------------------
<S> <C> <C> <C> <C> <C>
(INCOME)/EXPENSE
(IN MILLIONS) 1998 1997 1996 98 VS 97 97 VS 96
- ----------------------------------------------------------------- -------- -------- -------- -------- ----------
Development costs................................................ $ 9.0 $ 10.5 $ 12.0 (14.3)% (12.5)%
Write-downs and reserves......................................... 7.5 13.8 52.2 (45.7)% N/M
Project opening costs............................................ 8.1 17.6 5.9 (54.0)% N/M
Equity in (income) losses of nonconsolidated affiliates.......... 15.0 11.1 (1.2) 35.1% N/M
Corporate expense................................................ 37.9 27.2 34.3 39.3% (20.7)%
Venture restructuring costs...................................... 6.0 6.9 14.6 (13.0)% (52.7)%
Interest expense, net............................................ 117.3 79.1 70.0 48.3% 13.0%
Gain on sales of equity interests in nonconsolidated
affiliates..................................................... (13.2) (37.4) -- (64.7)% N/M
Other income..................................................... (19.6) (11.8) (5.2) 66.1% 126.9%
Effective tax rate............................................... 36.7% 37.4% 39.1% (0.7)pts (1.7)pts
Minority interests............................................... $ 7.0 $ 7.4 $ 5.9 (5.4)% 25.4%
Extraordinary losses, net of income taxes........................ 19.7 8.1 -- N/M 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
1998 included write-offs of obsolete assets, write-down to market value of an
idle riverboat, a reserve for the termination of a development agreement with an
Indian tribe and certain Year 2000 costs. Write-downs and reserves for 1997 were
primarily related to a $13.0 million reserve against debtor-in-possession
financing provided to the casino project in New Orleans in which we are a
minority partner. 1996 Write-downs and reserves included write-downs for the
impairment of certain long-lived assets, primarily our original Tunica,
Mississippi, casino property, as well as the accrual of reserves for certain
contingent obligations.
Project opening costs for 1998 were incurred in connection with an
initiative to develop and implement the strategies and employee training
programs designed to better focus our employees on serving our targeted
customers. 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 the newer
Harrah's Tunica property and the costs incurred in connection with the
initiative to develop and implement the strategies and employee training
programs which were continued in 1998. 1996 project opening costs related to the
second quarter opening of the newer Tunica property and an expansion at Harrah's
North Kansas City.
Equity in (income) losses of nonconsolidated affiliates for 1998 included
our pro rata share of the losses incurred by the joint venture portion of the
St. Louis development, our share of losses from the Jazz Casino Company, L.L.C.,
and our share of losses (to the extent of our investment) in IEL. These losses
were partially offset by our share of income from the East Chicago partnership,
our Star City investment and a restaurant affiliate. 1997 consists primarily of
our pro rata share of the losses incurred by the joint venture portion of the
St. Louis development, including our $1.9 million share of the joint venture's
preopening costs, and our share of losses incurred by IEL. These losses are
partially offset by our share of income from a restaurant affiliate.
Corporate expense increased in 1998 versus 1997 due to additional costs
arising from the Showboat acquisition, higher training and development costs and
higher benefits costs. Corporate expense decreased in 1997 versus 1996 due
primarily to cost savings efforts. Venture restructuring costs for all years
represent our costs, including legal fees, associated with the pursuit and
successful development of a reorganization plan for the New Orleans casino (see
Capital Spending and Development). Interest
8
<PAGE>
expense increased in 1998 over 1997 due to debt assumed and incurred in
connection with the acquisition of Showboat (see Debt and Liquidity). 1997
interest expense increased over 1996 primarily as a result of higher debt levels
incurred to fund a stock repurchase program and expansion projects. Other income
increased in 1998 due to higher interest earned on the cash surrender value of
certain life insurance policies and the sale of land in the Atlantic City area.
In 1997, Other income increased over 1996 due to higher interest income earned
on the cash surrender value of certain life insurance policies, the inclusion in
1997 of dividend income from our New Zealand investment and gains on sales of
nonoperating property.
In 1998, we sold our interest in a restaurant affiliate and recorded a
pretax gain of $13.2 million. During 1997, we sold our remaining equity interest
in Sky City Limited, and recorded a pretax gain on the sale of $37.4 million. We
sold our ownership interest in an entertainment, business and retail center in
Pittsburgh, Pennsylvania, to our partner for cash during fourth quarter 1997.
Under the terms of the sale agreement, we retain the right to pursue development
of a casino entertainment facility at the site if casino gaming is legalized in
this 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.
Extraordinary losses reported in 1998 and 1997 are due primarily to the
early extinguishments of debt and include the premium paid to holders of the
debt retired and the write-off of related unamortized deferred finance charges.
(See Debt and Liquidity-Early Extinguishments of Debt.)
CAPITAL SPENDING AND DEVELOPMENT
NEW ORLEANS CASINO
On October 30, 1998, Harrah's Jazz Company ("Jazz"), a partnership in which
one of our former subsidiaries was a partner, consummated a plan of
reorganization. Jazz originally was formed to develop, own and operate the only
land-based casino entertainment facility in New Orleans, Louisiana. Jazz filed
for bankruptcy protection on November 22, 1995, before completing construction
of a permanent casino facility. As a result of consummating its reorganization,
Jazz ended its bankruptcy, all litigation relating to the bankruptcy filing has
been dismissed and a newly formed limited liability company, Jazz Casino
Company, L.L.C. ("JCC"), has recommenced construction of the casino.
We own approximately 43% of the equity of JCC's publicly-held parent company
(which may be reduced to approximately 40% as a result of certain option
exercises) and will manage the casino under a management agreement. We have
guaranteed (i) JCC's initial $100.0 million annual tax payment to the State of
Louisiana (and, subject to certain conditions, agreed to provide the guarantee
for four additional years), (ii) $166.5 million of JCC bank debt, and (iii)
completion and opening of the casino on or before October 30, 1999 (subject to
force majeure). We are also obligated to make a $22.5 million subordinated loan
to JCC as a part of the financing of construction of the casino. We will receive
certain fees in connection with the management of the casino and for providing
the bank and state guarantees, subject to deferral in certain circumstances. The
casino is currently expected to open by late October 1999.
YEAR 2000
We are working to address the potential impact of the Year 2000 ("Y2K") on
the systems and equipment that are essential to our operations, including
information technology systems, gaming operations and equipment, facilities, and
suppliers. In late 1996, we began an assessment of all
9
<PAGE>
technology systems and infrastructure supporting operations and in 1997
developed a strategy and approach for addressing Y2K issues across the Company.
We have created a Y2K Task Force and a Y2K Support Office. Representatives
from the Task Force meet periodically with senior management to discuss status,
accomplishments, issues, and costs. The Y2K Support Office has three teams: Core
Information Technology, responsible for company-wide, standard systems;
Property, responsible for property-specific systems and equipment, which
includes the Company's non-information technology (i.e., embedded technology)
equipment; and Suppliers/ Procurement, responsible for ensuring that external
suppliers and new equipment purchases are Y2K ready.
It is our position that we should not eliminate all impacts of Y2K. Instead,
we are focusing our energies in areas that would more likely impact our
operations. To accomplish our overarching objective, the Y2K Task Force has
prioritized its efforts according to the potential impact to our business if a
system is not Y2K ready. Priorities, in order, are: Business Critical-required
to operate the business; High Priority-significant impact to revenues, operating
costs, or customer services; and Other-used by the business but not considered
Business Critical or High Priority. The major phases of our approach are
Awareness, Assessment, Renovation, Testing and Certification, Implementation,
and Contingency Planning. Each phase is fully in progress, and Awareness and
Assessment are nearly complete. The following table sets forth the expected date
of final completion as of December 31, 1998, with respect to each priority area:
<TABLE>
<S> <C>
Business Critical............................................................. July 1999
High Priority................................................................. October 1999
Other......................................................................... No date set
</TABLE>
The following table provides an overview of Business Critical items for
Harrah's brand properties and Memphis-based facilities and our progress to date.
<TABLE>
<CAPTION>
Y2K Y2K READINESS INTERNALLY VENDOR
BUSINESS CRITICAL ITEMS STRATEGY STATUS(1) TESTED CERTIFIED
- ---------------------------------------------------- ---------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Casino Management System............................ Renovate/Test Y2K Ready Complete N/A
Elevators........................................... Test Y2K Ready Complete Complete
Financial Systems................................... Renovate/Test 2nd Qtr '99 2nd Qtr '99 Complete
Fire Alarm/Sprinkler Systems........................ Test Y2K Ready Complete Complete
GPS/Navigational Systems............................ Test Y2K Ready Complete Complete
HVAC................................................ Test/Renovate 1st Qtr '99 Complete Complete
Key Lock System..................................... Renovate/Test 2nd Qtr '99 Complete Complete
IBM AS400/OS400..................................... Renovate/Test Y2K Ready Complete Complete
Kiosks.............................................. Test Y2K Ready Complete Complete
Lodging Management System........................... Test Y2K Ready Complete Complete
Payroll............................................. Renovate/Test 2nd Qtr '99 2nd Qtr '99 Complete
Phone System-PBX.................................... Renovate/Test 1st Qtr '99 1st Qtr '99 Complete
Point-of-Sale System (Micros)....................... Renovate/Test Y2K Ready Complete Complete
Procurement and Payables............................ Replace/Test 2nd Qtr '99 2nd Qtr '99 Complete
Slot Data System.................................... Renovate/Test 2nd Qtr '99 Complete Complete
Scales/Countroom Equipment.......................... Test Y2K Ready Complete Complete
Slot Devices........................................ Test 1st Qtr '99 2nd Qtr '99 In Progress
Surveillance/Security............................... Test 1st Qtr '99 1st Qtr '99 Complete
Time & Attendance................................... Replace/Test 4th Qtr '99 2nd Qtr '99 Complete
UPS/Generator....................................... Test Y2K Ready Complete Complete
WINet (Customer Database)........................... Renovate/Test Y2K Ready Complete Complete
</TABLE>
- ------------------------
(1) For purposes of this document, "Y2K Ready" means it is anticipated that the
product, process, or mechanism will operate during and after the Year 2000
in a manner that will not create a material and adverse impact on our
operations.
10
<PAGE>
As noted in the table above, we intend to test the majority of Business
Critical items to verify vendor Y2K compliance claims. Such testing generally
entails creating a test environment to roll the date forward to simulate the
transition from December 31, 1999, to January 1, 2000, test that the year 2000
is recognized as a Leap Year, and perform other tests such as end of month,
quarter, and year processing.
Contingency plans have been developed for some Business Critical areas,
including Time and Attendance and Procurement. Contingency plans will be
developed and tested for selected Business Critical and High Priority items,
identified on the basis of risk assessment, by November 1999.
We have been identifying and communicating with Business Critical and High
Priority suppliers about their plans and progress in addressing Y2K problems.
Detailed evaluations of the most critical suppliers have been initiated. These
evaluations will be followed by the development of contingency plans, which are
scheduled to be complete by November 1999. The process of evaluating suppliers
began in October 1998 and is largely complete. Follow-up reviews are scheduled
through June 1999.
The total costs of system replacements and upgrades to address potential Y2K
problems, as well as enhancing business and operational functionality in some
areas, are currently estimated to be approximately $9.5 million. The total
amount expended through December 31, 1998, was approximately $3.3 million, of
which approximately $1.7 million related to the cost to repair, replace, and
improve software and related hardware and equipment, approximately $1.6 million
related to the cost of replacing embedded-technology equipment (primarily in the
Property area), and approximately $20,000 related to the costs of identifying
and communicating with significant suppliers. The estimated future cost is
approximately $6.2 million, of which approximately $5 million relates to the
cost to repair, replace, and improve software and related hardware and
equipment, approximately $1.2 million relates to the cost of replacing
embedded-technology equipment (primarily in the Property area), and
approximately $5,000 relates to the costs of identifying and communicating with
significant suppliers. These costs, along with internal resource hours, are
being separately tracked. We continue to evaluate the estimated costs associated
with Y2K issues, and if significant issues are identified in the future, such
costs could increase. Although we are devoting considerable resources to resolve
Y2K issues, we continue to support and implement other systems, operations and
initiatives.
In connection with the acquisition of Rio, we have conducted a Y2K readiness
review and assessment. Rio is currently incorporated into our Y2K program, as
are the Showboat properties. Rio Y2K costs are currently estimated at
approximately $3 million, the majority of which represents the replacement of
the Rio property's slot system. Such estimated costs could increase if
significant issues are identified in the future.
Based upon our efforts to date and the status of the plans to address
identified issues, we believe that our Business Critical systems are compliant
or will be made compliant by December 1999. One of the greatest challenges of
the Y2K issue is the potential impact of items outside of our control, such as
those of utility companies, phone and network systems, and financial
institutions. We are assessing the Y2K status of such items on an ongoing basis
and developing contingency plans for Business Critical areas. However, should we
and/or our significant suppliers fail to timely correct material Y2K issues,
such failure could have a significant impact on our ability to operate as we did
before Y2K. In such an event, we will develop contingency plans designed to
minimize any impact to the extent possible. The impact on our operating results
of such failures and of any contingency plans to be designed to address such
events cannot be determined at this time. We believe the "most likely reasonable
worst case scenario" is one in which there are power outages. Although we have
backup power supplies and generators and contingency plans to address this type
scenario, an extended power outage could impact our operating results. Like all
other businesses, our ability to predict the impact of the Y2K Problem and the
efficacy of our solutions with respect thereto is limited by the unprecedented
nature of the problem.
11
<PAGE>
AIRLINE INVESTMENT
During third quarter 1998, we invested $15.0 million in a new airline based
in Las Vegas. Beginning in mid-1999, the new airline plans to offer conveniently
scheduled nonstop flights between its Las Vegas hub and New York, Miami, Los
Angeles and San Francisco. Additional routes are expected to be added within the
first year of operations. In addition to obtaining a 19.9% voting interest in
the airline, we also entered into a marketing agreement to support joint
promotions involving the airline and our Las Vegas properties. Our investment in
the airline allows us to offer additional valued services and conveniences to
our customers. We have no commitment to provide additional funds to the airline.
Rio also made a $15 million investment in this airline; therefore, upon the
closing of the Rio acquisition, our equity interest in the new airline increased
to approximately 47.8%, but our voting power is limited by contract to 25%.
SUMMARY
In addition to the specific development and expansion projects discussed in
Operating Results and Development Plans, we perform on-going refurbishment and
maintenance at our casino entertainment facilities in order to maintain our
quality standards. We also continue to pursue development and acquisition
opportunities for additional casino entertainment facilities that meet our
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.
Our 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 are expected to be made
available from operating cash flows, the Bank Facility (see Debt and Liquidity),
joint venture partners, specific project financing, guarantees of third party
debt and, if necessary, additional debt and/or equity offerings. Our capital
spending for 1998, excluding the Showboat acquisition, totaled approximately
$245.2 million. Estimated total capital expenditures for 1999 are expected to be
between $360 million and $440 million, excluding the acquisition of Rio and the
possible further expansion of Harrah's Atlantic City.
DEBT AND LIQUIDITY
ISSUANCE OF SENIOR NOTES
It has been our intention to refinance a portion of our short-term,
floating-rate borrowings under our revolving credit facility (the "Bank
Facility") with debt that has fixed rates and longer maturities. In connection
with obtaining consent from our bank lenders for the Rio merger, we agreed to
refinance a significant portion of our current short-term, floating-rate debt
with long-term, fixed-rate debt. In December 1998, we issued $750 million of
7 7/8% Senior Subordinated Notes due 2005 and used the proceeds to reduce the
amount outstanding under our Bank Facility. In January 1999, we issued $500
million of 7 1/2% Senior Notes due 2009 and used the proceeds to further reduce
amounts outstanding under our Bank Facility.
BANK FACILITY
During April 1998, our Bank Facility was amended and restated to increase
total borrowing capacity to $2.1 billion and to modify the debt covenants. The
terms of the Bank Facility provided for
12
<PAGE>
scheduled reductions in borrowing capacity, and the first such scheduled
reduction occurred on July 31, 1998, when borrowing capacity was reduced by $50
million. The Bank Facility was further amended in December 1998 to facilitate
our merger with Rio and to eliminate further scheduled reductions in borrowing
capacity. With the issuance of the 7 7/8% Senior Subordinated Notes discussed
above, our available borrowing capacity under the Bank Facility was reduced by
$537 million. As of December 31, 1998, $1.1 billion in borrowings were
outstanding under the Bank Facility, with an additional $28.6 million committed
to back letters of credit. After consideration of these borrowings, $398.5
million of additional borrowing capacity was available to the Company as of
December 31, 1998.
With the issuance in January 1999 of the 7 1/2% Senior Notes discussed
above, our outstanding borrowings and total borrowing capacity under the Bank
Facility were further reduced by $495 million.
During third quarter 1998, the borrowing cost on the Bank Facility increased
from a base rate of either Eurodollar plus 50 basis points or the prime lending
rate to a base rate of either Eurodollar plus 75 basis points or the prime
lending rate in accordance with the terms of the Bank Facility agreement.
EARLY EXTINGUISHMENTS OF DEBT
On May 1, 1998, our principal operating subsidiary, Harrah's Operating
Company, Inc. ("HOC,") redeemed all $200 million of its 8 3/4% Senior
Subordinated Notes due 2002 (the "8 3/4% Notes") at a call price of 102.0%, plus
accrued and unpaid interest through the May 1, 1998, redemption date. We retired
the 8 3/4% Notes using proceeds from our Bank Facility. An extraordinary charge,
net of tax, of $3.3 million was recorded during second quarter 1998 in
conjunction with this early extinguishment of debt.
On June 15, 1998, our newly acquired subsidiary, Showboat, redeemed
approximately $218.6 million face amount of its 9 1/4% First Mortgage Bonds due
2008 and approximately $117.9 million face amount of its 13% Senior Notes due
2009 (collectively, the "Showboat Notes"). We recorded the liabilities assumed
in the Showboat acquisition, including the Showboat Notes, at their fair value
as of the consummation date of the transaction. The difference between the
consideration paid to the holders of the Showboat Notes pursuant to this tender
offer and the carrying value of the Showboat Notes on the consummation date,
together with the cost of conducting the tender offer, were recorded in the
second quarter as an extraordinary loss of $13.3 million, net of tax.
Concurrently with the tender offer, we solicited and obtained the necessary
consents to amend the respective Indentures governing each of the Showboat Notes
to eliminate or modify substantially all of the negative covenants, certain
events of default, and to make certain other changes to the Indentures.
During third quarter, we defeased the remaining balance of the Showboat
Notes. Treasury securities were purchased and deposited with trustees to pay the
scheduled interest payments to the first call date and the premium and principal
on the securities outstanding on such date. These treasury securities are
reported as assets and the remaining balance of the Showboat Notes is reported
in Long-term debt in the Consolidated Balance Sheets.
As a result of the permanent reduction in the capacity of our Bank Facility
in December 1998, a proportionate amount of the deferred financing charges were
written off and recorded as an extraordinary loss of $1.4 million, net of tax.
In conjunction with our pending agreement to increase our ownership in the
entities which own and operate the Showboat Casino in East Chicago, we announced
in February 1999 our commencement of a fixed spread cash tender offer for all
outstanding 13 1/2% First Mortgage Bonds due 2003 (the "13 1/2% Bonds") of
Showboat Marina Casino Partnership and Showboat Marina Finance Corporation. The
consideration for each $1,000 principal amount of 13 1/2% Bonds validly tendered
and accepted for purchase will be a price resulting in a yield to the first
redemption date of the 13 1/2% Bonds equal to 50 basis points over the yield of
a reference security maturing at the first redemption date, plus accrued
13
<PAGE>
interest. The tender offer is scheduled to expire on March 13, 1999, unless
extended by HOC. Concurrently with the tender offer, we are soliciting consents
from holders of the 13 1/2% Bonds to amend the Indenture under which the 13 1/2%
Bonds were issued.
INTEREST RATE AGREEMENTS
To manage the relative mix of our debt between fixed and variable rate
instruments, we have entered into interest rate swap agreements to modify the
interest characteristics of our outstanding debt without an exchange of the
underlying principal amount. The differences to be paid or received under the
terms of our 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 pursuant to the
terms of our interest rate swap agreements will have a corresponding effect on
our future cash flows.
These agreements contain a credit risk that the counterparties may be unable
to meet the terms of the agreements. We minimize that risk by evaluating the
creditworthiness of our counterparties, which are limited to major banks and
financial institutions, and do not anticipate nonperformance by the
counterparties.
For more information regarding our interest rate swap agreements as of
December 31, 1998, please see Note 5 to our Consolidated Financial Statements.
GUARANTEES OF THIRD PARTY DEBT AND OTHER COMMITMENTS
The agreements under which we manage 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, we must pay the shortfall to
the tribe. Such advances, if any, would be repaid to us 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. Our aggregate monthly
commitment pursuant to the contracts for the three Indian-owned facilities we
now manage, which extend for periods of up to 48 months from December 31, 1998,
is $1.2 million.
We may guarantee all or part of the debt incurred by Indian tribes with
which we have entered into a management contract to fund development of casinos
on the Indian lands. For all existing guarantees of Indian debt, we have
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 our obligations in the event these guarantees were
enforced. Additionally, we have received limited waivers from the Indian tribes
of their sovereign immunity to allow us to pursue our 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, 1998, was $103.5 million, excluding the guarantee related to the
Upper Skagit Tribe's debt.
See Capital Spending and Development for discussion of our guarantees of
debt and other commitments related to the New Orleans casino.
SHELF REGISTRATION
To provide for additional financing flexibility, Harrah's Entertainment,
together with its wholly-owned subsidiary, HOC, have available until December
2000 an effective shelf registration statement with the Securities and Exchange
Commission. The registration allowed for the issuance of up to $750 million of
HOC debt securities. $500 million of Senior Notes was issued on January 12,
1999, thereby reducing the amount available under the shelf registration to $250
million. The terms and
14
<PAGE>
conditions of the HOC debt securities, which would be unconditionally guaranteed
by Harrah's Entertainment, would be determined by market conditions at the time
of issuance.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
COMPETITIVE PRESSURES
Due to the limited number of new markets opening for development, the focus
of many casino operators has shifted to investing in existing markets in an
effort to attract new customers, thereby increasing competition in those
markets. Our properties in the long-established gaming markets of Nevada and New
Jersey have generally reacted less significantly to the changing competitive
conditions. With the exception of the additional supply being added in Las
Vegas, the amount of supply change within these markets has represented a
smaller percentage change than that experienced in some riverboat markets. In
riverboat markets, the additions to supply had a more noticeable impact due to
the fact that competition was limited in the early stages of many of these
markets. As companies have completed expansion projects, supply has typically
grown at a faster pace than demand in some markets and competition has increased
significantly. Furthermore, several operators, including Harrah's Entertainment,
have announced plans for additional developments or expansions in some markets.
In the Las Vegas market, a new "mega" facility opened in October 1998, and
others are planned and under development. The impact that the additional supply
will have on our operations cannot be determined at this time.
Over the last decade, 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. We manage three such facilities. The future growth potential from
Indian casinos is also uncertain, however. See Political Uncertainties for
information concerning a California referendum.
Although the short-term effect of these competitive developments on our
Company has been negative, we are not able to determine the long-term impact,
whether favorable or unfavorable, that these trends and events will have on our
current or future markets. We believe that the geographic diversity of our
operations; our focus on multi-market customer relationships; our service
training, measurements and rewards programs; and our continuing efforts to
establish our brands as premier brands upon which we have built strong customer
loyalty have well-positioned us to face the challenges present within our
industry. We have introduced WINet, a sophisticated nationwide customer
database, and our Total Gold Card, a nationwide reward and recognition card,
both of which we believe provide competitive advantages, particularly with
players who visit more than one market.
INDUSTRY CONSOLIDATION
As evidenced by the number of public announcements by casino entertainment
companies over the last year of plans to acquire or be acquired by other
companies, including our acquisitions of Showboat and Rio, consolidation in the
gaming industry is now underway. We believe we are well-positioned to, and may
from time to time, pursue additional strategic acquisitions to further enhance
our distribution, strengthen our access to target customers and leverage our
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. During
fourth quarter 1998, voters in the state of California approved a referendum to
allow an expansion of gaming offerings on Indian lands in that state. At this
time, the ultimate impacts that the federal commission and the approval of the
California referendum will have on the industry are uncertain. From time to
time, individual jurisdictions have also considered
15
<PAGE>
legislation or referendums which could adversely impact Harrah's Entertainment's
operations, and the likelihood or outcome of similar legislation and referendums
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, 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 our financial
results.
EFFECTS OF INFLATION
Inflation has had little effect on our historical operations. Generally, we
have not experienced any significant negative impact on gaming volume or on
wagering propensity of our customers as a result of inflationary pressures.
Further, we have been successful in increasing the amount of wagers and playing
time of our casino customers through effective marketing programs. We have also,
from time to time, adjusted our 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 our operations. Inflation tends
to increase the value of our casino entertainment properties.
INTERCOMPANY DIVIDEND RESTRICTION
Agreements governing the terms of our bank debt require us 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 Entertainment. The
amount of HOC's restricted net assets, as defined, computed in accordance with
these covenants regarding restricted payments was approximately $856.1 million
at December 31, 1998. Harrah's Entertainment's principal asset is the stock of
HOC, a wholly-owned subsidiary which holds, directly and through subsidiaries,
the principal assets of our businesses. Given this ownership structure, these
restrictions should not impair our ability to conduct our business through our
subsidiaries or to pursue our development plans.
RECENTLY ISSUED ACCOUNTING STANDARDS
We are currently evaluating the provisions of two recently issued accounting
pronouncements. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative financial instruments. The provisions of SFAS No. 133
require that a company recognize all derivatives as either assets or liabilities
on its balance sheet and that the instruments be valued at their fair value. The
Statement also defines the criteria and conditions which govern the recognition
of subsequent changes in the fair value of the instrument as being either
balance sheet or income statement events. SFAS No. 133 is effective for years
beginning after June 15, 1999.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-up Activities." SOP 98-5 requires that the
costs of all start-up activities, as defined in the SOP, be expensed as
incurred. The SOP is effective for years beginning after December 15, 1998.
We do not expect the adoption of these pronouncements to materially impact
our results of operations or financial position.
16
<PAGE>
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 our
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 and hotels that would be owned or managed by the Company and the pursuit
of strategic acquisitions; (C) the redevelopment of the casino in New Orleans;
(D) planned capital expenditures for 1999 and beyond; (E) the impact of the
WINet and Total Gold Card Programs; (F) any future impact of the Showboat
acquisition or the Rio merger; and (G) Year 2000 compliance plans. 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 conditions, weather and other hazards, site
access matters and building permit issues; access to available and feasible
financing; regulatory, licensing and other government 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, including international and national economic problems; litigation,
judicial actions and political uncertainties, including gaming legislative
action, referenda, and taxation; actions or inactions of suppliers and vendors
regarding Year 2000; 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.
17
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................... $ 158,995 $ 116,443
Receivables, less allowance for doubtful accounts of $14,356 and $11,462............ 55,043 43,767
Deferred income taxes (Note 8)...................................................... 22,478 17,436
Prepayments and other............................................................... 27,521 21,653
Inventories......................................................................... 15,306 13,011
------------ ------------
Total current assets.............................................................. 279,343 212,310
------------ ------------
Land, buildings, riverboats and equipment
Land and land improvements.......................................................... 323,692 218,703
Buildings, riverboats and improvements.............................................. 1,624,346 1,334,279
Furniture, fixtures and equipment................................................... 711,966 600,358
------------ ------------
2,660,004 2,153,340
Less: accumulated depreciation...................................................... (789,847) (675,286)
------------ ------------
1,870,157 1,478,054
Excess of purchase price over net assets of businesses acquired, net of amortization
of $40,051 and $33,580 (Note 2)..................................................... 383,450 43,363
Investments in and advances to nonconsolidated affiliates (Note 14)................... 273,508 152,401
Deferred costs and other (Note 4)..................................................... 479,874 119,378
------------ ------------
$ 3,286,332 $ 2,005,506
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................................... $ 57,864 $ 45,233
Construction payables............................................................... 629 7,186
Accrued expenses (Note 4)........................................................... 172,021 156,694
Current portion of long-term debt (Note 5).......................................... 2,332 1,837
------------ ------------
Total current liabilities......................................................... 232,846 210,950
Long-term debt (Note 5)............................................................... 1,999,354 924,397
Deferred credits and other............................................................ 112,362 98,177
Deferred income taxes (Note 8)........................................................ 75,457 22,361
------------ ------------
2,420,019 1,255,885
------------ ------------
Minority interests.................................................................... 14,906 14,118
------------ ------------
Commitments and contingencies (Notes 6 and 11 through 14)
Stockholders' equity (Notes 3, 13 and 14)
Common stock, $0.10 par value, authorized--360,000,000 shares,
outstanding--102,188,018 and 101,035,898 shares (net of 3,036,562 and 3,001,568
shares held in treasury).......................................................... 10,219 10,104
Capital surplus..................................................................... 407,691 388,925
Retained earnings................................................................... 451,410 349,386
Accumulated other comprehensive income.............................................. 6,567 2,884
Deferred compensation related to restricted stock................................... (24,480) (15,796)
------------ ------------
851,407 735,503
------------ ------------
$ 3,286,332 $ 2,005,506
------------ ------------
------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated balance sheets.
36
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Revenues
Casino................................................................... $ 1,660,313 $ 1,338,003 $ 1,323,466
Food and beverage........................................................ 231,568 196,765 188,081
Rooms.................................................................... 153,538 128,354 115,456
Management fees.......................................................... 64,753 24,566 16,227
Other.................................................................... 78,320 78,954 78,729
Less: casino promotional allowances...................................... (184,477) (147,432) (135,939)
----------- ----------- -----------
Total revenues......................................................... 2,004,015 1,619,210 1,586,020
----------- ----------- -----------
Operating expenses
Direct
Casino................................................................. 868,622 685,942 649,720
Food and beverage...................................................... 116,641 103,604 95,909
Rooms.................................................................. 41,871 39,719 35,460
Depreciation of buildings, riverboats and equipment...................... 130,128 103,670 92,130
Development costs........................................................ 8,989 10,524 12,021
Write-downs and reserves (Note 7)........................................ 7,474 13,806 52,188
Project opening costs.................................................... 8,103 17,631 5,907
Other.................................................................... 475,449 385,630 358,000
----------- ----------- -----------
Total operating expenses............................................... 1,657,277 1,360,526 1,301,335
----------- ----------- -----------
Operating profit..................................................... 346,738 258,684 284,685
Corporate expense........................................................ (37,890) (27,155) (34,348)
Equity in (losses) income of nonconsolidated affiliates (Note 14)........ (14,989) (11,053) 1,182
Venture restructuring costs.............................................. (6,013) (6,944) (14,601)
----------- ----------- -----------
Income from operations..................................................... 287,846 213,532 236,918
Interest expense, net of interest capitalized (Note 1)..................... (117,270) (79,071) (69,968)
Gains on sales of equity interests in nonconsolidated affiliates........... 13,155 37,388 --
Other income, including interest income.................................... 19,575 11,799 5,160
----------- ----------- -----------
Income before income taxes and minority interests.......................... 203,306 183,648 172,110
Provision for income taxes (Note 8)........................................ (74,600) (68,746) (67,316)
Minority interests......................................................... (6,989) (7,380) (5,897)
----------- ----------- -----------
Income before extraordinary losses......................................... 121,717 107,522 98,897
Extraordinary losses, net of tax benefit of $10,522 and $4,477 (Note 9).... (19,693) (8,134) --
----------- ----------- -----------
Net income................................................................. $ 102,024 $ 99,388 $ 98,897
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) per share-basic
Before extraordinary losses.............................................. $ 1.21 $ 1.07 $ 0.96
Extraordinary losses, net................................................ (0.19) (0.08) --
----------- ----------- -----------
Net income............................................................. $ 1.02 $ 0.99 $ 0.96
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) per share-diluted
Before extraordinary losses.............................................. $ 1.19 $ 1.06 $ 0.95
Extraordinary losses, net................................................ (0.19) (0.08) --
----------- ----------- -----------
Net income............................................................. $ 1.00 $ 0.98 $ 0.95
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding................................. 100,231 100,618 102,598
Dilutive effect of stock compensation programs............................. 1,289 636 1,138
----------- ----------- -----------
Weighted average common and common equivalent shares outstanding........... 101,520 101,254 103,736
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(NOTES 3, 13 AND 14)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED
COMMON STOCK COMPENSATION
------------------------ OTHER RELATED TO
SHARES CAPITAL RETAINED COMPREHENSIVE RESTRICTED
OUTSTANDING AMOUNT SURPLUS EARNINGS INCOME STOCK TOTAL
----------- ----------- --------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1996 Comprehensive Income...
----------- ----------- --------- ----------- --------------- ------------- ---------
----------- ----------- --------- ----------- --------------- ------------- ---------
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 benefit 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
1997 Comprehensive Income...
----------- ----------- --------- ----------- --------------- ------------- ---------
----------- ----------- --------- ----------- --------------- ------------- ---------
Balance--December 31, 1997........ 101,036 10,104 388,925 349,386 2,884 (15,796) 735,503
Net income...................... 102,024 102,024
Unrealized gain on available-
for-sale securities, less
deferred tax provision of
$2,110........................ 3,567 3,567
Foreign currency adjustment..... 116 116
Net shares issued under
incentive compensation plans,
including income tax benefit
of $787....................... 1,152 115 18,766 (8,684) 10,197
1998 Comprehensive Income...
----------- ----------- --------- ----------- --------------- ------------- ---------
Balance--December 31, 1998........ 102,188 $ 10,219 $ 407,691 $ 451,410 $ 6,567 $ (24,480) $ 851,407
----------- ----------- --------- ----------- --------------- ------------- ---------
----------- ----------- --------- ----------- --------------- ------------- ---------
<CAPTION>
COMPREHENSIVE
INCOME
--------------
<S> <C>
Balance--December 31, 1995........
Net income...................... $ 98,897
Unrealized gain on available-
for-sale securities, less
deferred tax provision of
$26,112....................... 40,842
Treasury stock purchases........
Net shares issued under
incentive compensation plans,
including income tax benefit
of $1,576.....................
1996 Comprehensive Income... $ 139,739
--------------
--------------
Balance-December 31, 1996.........
Net income...................... $ 99,388
Realization of gain due to sale
of equity interest in New
Zealand subsidiary, net of
deferred taxes of $14,653..... (22,735)
Decline in market value of other
available-for-sale securities,
less deferred tax benefit of
$16,362....................... (25,775)
Treasury stock purchases..........
Net shares issued under incentive
compensation plans, including
income tax benefit of $702......
1997 Comprehensive Income... $ 50,878
--------------
--------------
Balance--December 31, 1997........
Net income...................... $ 102,024
Unrealized gain on available-
for-sale securities, less
deferred tax provision of
$2,110........................ 3,567
Foreign currency adjustment..... 116
Net shares issued under
incentive compensation plans,
including income tax benefit
of $787.......................
1998 Comprehensive Income... $ 105,707
--------------
Balance--December 31, 1998........
--------------
--------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 10)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
Cash flows from operating activities
Net income.................................................................. $ 102,024 $ 99,388 $ 98,897
Adjustments to reconcile net income to cash flows from operating activities
Extraordinary losses, before income taxes................................. 29,491 12,611 --
Depreciation and amortization............................................. 159,183 122,396 102,338
Write-downs and reserves.................................................. 6,535 13,806 52,188
Other noncash items....................................................... 28,835 27,712 27,985
Minority interests' share of net income................................... 6,989 7,380 5,897
Equity in losses (income) of nonconsolidated affiliates................... 14,989 11,053 (1,182)
Realized gains on sales of equity interests in nonconsolidated
affiliates.............................................................. (13,155) (37,388) --
Net gains from asset sales................................................ (6,536) (4,117) --
Net change in long-term accounts.......................................... 17,260 (1,452) (375)
Net change in working capital accounts.................................... (45,244) 3,713 (14)
---------- ---------- ----------
Cash flows provided by operating activities............................. 300,371 255,102 285,734
---------- ---------- ----------
Cash flows from investing activities..........................................
Payment for purchase of Showboat, Inc., net of cash acquired................ (475,334) -- --
Land, buildings, riverboats and equipment additions......................... (140,386) (229,529) (314,465)
(Decrease) increase in construction payables................................ (6,557) (10,789) 13,257
Investments in and advances to nonconsolidated affiliates................... (76,052) (54,477) (75,553)
Purchase of marketable equity securities for defeasance of debt............. (65,898) -- --
Proceeds from sales of equity interests in nonconsolidated affiliates....... 17,000 53,755 --
Proceeds from other asset sales............................................. 12,728 26,570 1,355
Other....................................................................... (28,739) (6,483) (8,255)
---------- ---------- ----------
Cash flows used in investing activities................................. (763,238) (220,953) (383,661)
---------- ---------- ----------
Cash flows from financing activities
Proceeds from issuance of senior subordinated notes, net of issue costs of
$12,552................................................................... 737,448 -- --
Net borrowings under Revolving Credit Facility, net of financing costs of
$9,332 in 1998 and $982 in 1996........................................... 362,262 239,500 133,518
Debt retirements............................................................ (563,522) (202,115) (2,488)
Premiums paid on early extinguishments of debt.............................. (24,569) (9,666) --
Minority interests' distributions, net of contributions..................... (6,200) (9,952) (10,840)
Purchases of treasury stock................................................. -- (41,022) (13,014)
Other....................................................................... -- (45) --
---------- ---------- ----------
Cash flows provided by (used in) financing activities................... 505,419 (23,300) 107,176
---------- ---------- ----------
Net increase in cash and cash equivalents..................................... 42,552 10,849 9,249
Cash and cash equivalents, beginning of year.................................. 116,443 105,594 96,345
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 158,995 $ 116,443 $ 105,594
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
2
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
In these footnotes, the words "Company," "Harrah's Entertainment," "we,"
"our" and "us" refer to Harrah's Entertainment, Inc., a Delaware corporation,
and its wholly-owned subsidiaries, unless otherwise stated or the context
requires otherwise.
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Organization. We are one of the leading casino
entertainment companies in the United States, operating in more markets than any
other casino company. Our U.S. operations include nine land-based casinos, seven
riverboat or dockside casinos, and three casinos on Indian reservations. We also
own a partial interest in and manage a land-based casino in Sydney, Australia,
and own a noncontrolling interest in and will manage a land-based casino in New
Orleans, Louisiana, upon its anticipated completion in late October 1999.
PRINCIPLES OF CONSOLIDATION. Our Consolidated Financial Statements include
the accounts of Harrah's Entertainment and its subsidiaries after elimination of
all significant intercompany accounts and transactions. We follow the equity
method of accounting for our investments in 20% to 50% owned companies and joint
ventures and for our 55% noncontrolling interest in a partnership. (See Note
14.)
CASH AND CASH EQUIVALENTS. Cash includes the minimum cash balances required
to be maintained by a state gaming commission, which totaled approximately $14.0
million and $8.3 million at December 31, 1998 and 1997, 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 $21.7 million and $31.2 million at December 31, 1998
and 1997, respectively. We capitalize the costs of improvements and
extraordinary repairs that extend the life of the asset. We expense maintenance
and repairs costs as incurred. Interest expense is capitalized on internally
constructed assets at our overall weighted average borrowing rate of interest.
Capitalized interest amounted to $2.5 million, $6.9 million and $11.0 million in
1998, 1997 and 1996, respectively.
We depreciate our buildings, riverboats and equipment 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. The shares of Harrah's Entertainment common stock we hold
in treasury are reflected in our Consolidated Balance Sheets and Consolidated
Statements of Stockholders' Equity and Comprehensive Income as if those shares
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 consolidated casinos and casino hotels.
Casino promotional allowances consist principally of the retail value of
complimentary food and beverages, accommodations, admissions and entertainment
provided to casino patrons. The estimated
2
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs of providing such complimentary services, which we classify as casino
expenses through interdepartmental allocations, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Food and beverage........................................ $ 97,934 $ 83,491 $ 81,857
Rooms.................................................... 28,473 19,290 15,673
Other.................................................... 6,138 3,768 4,491
---------- ---------- ----------
$ 132,545 $ 106,549 $ 102,021
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
AMORTIZATION. We amortize Excess of purchase price over net assets of
businesses acquired and other intangibles on a straight-line basis over periods
up to 40 years. We use the interest method to amortize deferred financing
charges over the term of the related debt agreement.
PROJECT OPENING COSTS. Project opening costs represent primarily the direct
salaries and other operating costs we incur prior to the opening of new
facilities and in connection with the expansion of existing facilities. For new
facilities, these costs are deferred and expensed upon opening of the facility.
For expansion projects, we expense the costs as incurred. Costs we have incurred
in connection with an initiative to develop and implement strategies and
employee training programs designed to better focus the Company on serving our
targeted customers are also expensed as incurred and included in project opening
costs.
EARNINGS PER SHARE. In accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," we
compute our basic earnings per share by dividing Net income by the number of
weighted average common shares outstanding during the year. Our diluted earnings
per share is computed by dividing Net income by the number of weighted average
common shares and common stock equivalents outstanding during the year. For each
of the three years ended December 31, 1998, common stock equivalents consisted
solely of net restricted shares and stock options outstanding under our employee
stock benefit plans (see Note 13).
RECLASSIFICATIONS. We have reclassified certain amounts for prior years to
conform with our presentation for 1998.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires that we 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.
Our actual results could differ from those estimates.
2) ACQUISITIONS
We are accounting for each of the transactions described below as a
purchase. Accordingly, the purchase price is being allocated to the underlying
assets acquired and liabilities assumed based upon their estimated fair values
at the date of acquisition. We determine the estimated fair values based on
independent appraisals, discounted cash flows, quoted market prices and
estimates made by management. For each transaction, the allocation of the
purchase price will be completed within one year from the date of the
acquisition. To the extent that the purchase price exceeds the fair value of
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
2) ACQUISITIONS (CONTINUED)
the net identifiable tangible and intangible assets acquired, such excess will
be allocated to goodwill and amortized over 40 years. For periods prior to the
completion of the purchase price allocation, our financial statements include
estimated goodwill amortization expense.
SHOWBOAT, INC. On June 1, 1998, we completed our acquisition of Showboat,
Inc. ("Showboat") for $520.0 million in cash and assumption of approximately
$635 million of Showboat debt. The operating results for Showboat are included
in our Consolidated Financial Statements from the date of acquisition.
As a result of this transaction, we now own and operate the Showboat casinos
in Atlantic City, New Jersey, and Las Vegas, Nevada. The Las Vegas Showboat
property is a non-strategic asset and is recorded as an asset held-for-sale. At
December 31, 1998, the estimated net realizable value of this property, net of
estimated selling expenses, carrying costs and interest costs through the
assumed date of sale, is included in Deferred costs and other assets in the
Consolidated Balance Sheets. We also own a 55% noncontrolling interest in the
partnership which owns and operates the Showboat East Chicago casino.
Accordingly, this investment is accounted for under the equity method. We also
own a 24.6% equity ownership interest in and manage the Star City casino in
Sydney, Australia. We account for our investment in this entity under the equity
method one month in arrears.
Subsequent to the closing of the acquisition, we completed tender offers and
consent solicitations for Showboat's 9 1/4% First Mortgage Bonds due 2008 (the
"Bonds") and 13% Senior Subordinated Notes due 2009 (the "Notes"). As a result
of these tender offers, $218.6 million face amount of the Bonds and $117.9
million face amount of the Notes were retired on June 15, 1998. Due to the early
extinguishment of the Bonds and the Notes, we reported extraordinary losses
totaling $13.3 million, after income tax benefit, equaling the excess of the
premium paid over the carrying value of the Bonds and the Notes retired and the
related costs of the tender offers and consent solicitations. As a result of the
receipt of the requisite consents, we eliminated or modified substantially all
of the negative covenants, certain events of default, and made other changes to
the respective indentures governing the Bonds and the Notes.
During third quarter 1998, we defeased the remaining balance of the Showboat
Bonds and Notes. Treasury securities were purchased and deposited with trustees
to pay the scheduled interest payments to the first call date and the premium
and principal on the securities outstanding on such date. These treasury
securities are reported as other assets, and the remaining balances of the
Showboat Bonds and Notes are reported in Long-term debt in our Consolidated
Balance Sheets.
In fourth quarter 1998, we entered into an agreement with the partners in
the East Chicago property to increase our ownership in that partnership to
approximately 99.5%. Upon consummation of this agreement, we also will amend the
partnership agreements to give us control of the partnership and greater
flexibility in operating this property. This transaction is subject to receipt
of necessary regulatory approvals and is expected to close during first quarter
1999. We plan to rebrand the property as a "Harrah's" property during first
quarter 1999.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
2) ACQUISITIONS (CONTINUED)
The following unaudited pro forma consolidated financial information for the
Company has been prepared assuming that the Showboat acquisition and the debt
extinguishments discussed above had occurred on the first day of the respective
periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1998 1997
- ------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Revenues.......................................................... $ 2,163.4 $ 1,997.1
--------- ---------
--------- ---------
Income from operations............................................ $ 304.4 $ 233.7
--------- ---------
--------- ---------
Income before extraordinary losses................................ $ 106.7 $ 76.8
--------- ---------
--------- ---------
Net income........................................................ $ 87.0 $ 68.7
--------- ---------
--------- ---------
Earnings per share-diluted
Income before extraordinary losses.............................. $ 1.05 $ 0.76
--------- ---------
--------- ---------
Net income...................................................... $ 0.86 $ 0.68
--------- ---------
--------- ---------
</TABLE>
These unaudited pro forma results are presented for comparative purposes
only. The pro forma results are not necessarily indicative of what our actual
results would have been had the Showboat acquisition been completed as of the
beginning of these periods, or of future results.
RIO HOTEL & CASINO, INC. In third quarter 1998, we entered into a
definitive merger agreement with Rio Hotel & Casino, Inc. ("Rio"). The merger
was completed on January 1, 1999. Harrah's Entertainment acquired all Rio
outstanding shares in a one-for-one stock transaction valued at $525 million and
assumed Rio's outstanding debt.
OTHER. During third quarter 1998, we completed the acquisition of various
assets of a riverboat casino operated by a third party in Kansas City, Missouri.
The assets we acquired included a 28,000 square foot casino riverboat and
related shoreside facilities, land, gaming equipment and computerized customer
databases.
3) STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's Entertainment 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 Entertainment'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 Harrah's Entertainment 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
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
3) STOCKHOLDERS' EQUITY (CONTINUED)
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 our Board at one cent per Right.
In October 1996, our Board of Directors approved a plan, which expired on
December 31, 1997, under which we repurchased 2,993,700 shares of Harrah's
Entertainment common stock at an average price of $18.05 per share. The
repurchased shares are held in treasury.
Under the terms of employee stock benefit programs previously approved by
our stockholders, we have reserved shares of Harrah's Entertainment common stock
for issuance under the Restricted Stock and Stock Option Plans. (See Note 13 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, 1998:
<TABLE>
<CAPTION>
RESTRICTED STOCK
STOCK PLAN OPTION PLAN
----------- -------------
<S> <C> <C>
Total shares authorized for issuance under the plans............. 8,400,000 13,850,000
Shares issued and options granted, net of cancellations.......... (6,196,054) (12,260,278)
----------- -------------
Shares held in reserve for issuance or grant under the plans as
of December 31, 1998........................................... 2,203,946 1,589,722
----------- -------------
----------- -------------
</TABLE>
4) DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Deferred costs and other consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Star City management contract, net of amortization of $1,976........ $ 133,524 $ --
Trademark, net of amortization of $981.............................. 66,319 --
U.S. Treasury securities held for defeasance of debt................ 64,510 --
Cash surrender value of life insurance (Note 13).................... 52,904 45,835
Deferred finance charges, net of amortization of $16,453 and
$11,471........................................................... 21,913 6,056
Other............................................................... 140,704 67,487
----------- ----------
$ 479,874 $ 119,378
----------- ----------
----------- ----------
</TABLE>
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Insurance claims and reserves......................................... $ 45,770 $ 46,870
Payroll and other compensation........................................ 48,521 45,413
Accrued interest payable.............................................. 18,465 9,287
Other accruals........................................................ 59,265 55,124
---------- ----------
$ 172,021 $ 156,694
---------- ----------
---------- ----------
</TABLE>
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
5) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Revolving Credit Facilities
5.4%-8.5% at December 31, 1998, maturities to 2000................ $ 1,086,000 $ 720,500
Secured Debt
7.1%, maturity 2028............................................... 99,232 --
9 1/4%, maturity 2008............................................. 58,269 --
13%, maturity 2009................................................ 2,393 --
Unsecured Senior Subordinated Notes
7 7/8%, maturity 2005............................................. 750,000 --
8 3/4%, redeemed in 1998.......................................... -- 200,000
Unsecured Notes Payable
10.00%-12.67%, maturities to 2001................................. 3,605 5,326
Capitalized lease obligations, 4.9%-7.2%, maturities to 2001........ 2,187 408
------------ ----------
2,001,686 926,234
Current portion of long-term debt................................... (2,332) (1,837)
------------ ----------
$ 1,999,354 $ 924,397
------------ ----------
------------ ----------
</TABLE>
As of December 31, 1998, aggregate annual principal maturities for the four
years subsequent to 1998 were: 1999, $2.3 million; 2000, $1.1 billion; 2001,
$3.9 million; and 2002, $1.2 million.
REVOLVING CREDIT FACILITIES. During April 1998, our reducing revolving and
letter of credit facility (the "Facility") was amended and restated to increase
the total available borrowing capacity to $2.1 billion. Pursuant to its terms,
$1 billion of the amended and restated Facility was restricted as to its use:
$800 million was only available to fund the Showboat acquisition and $200
million could only be used to retire the Company's 8 3/4% Notes. These funds
were used for the designated purposes during second quarter 1998.
In connection with obtaining the consent of the lenders under the Facility
to our merger with Rio, we agreed in December 1998 to modify certain terms of
the Facility relating to mandatory principal reductions, financial covenants and
the interest rates charged under such Facility (the "Amended Facility"). Our
Amended Facility provided for us to repay a total of $750.0 million of amounts
available under the Amended Facility by June 30, 1999. We satisfied this
provision using the proceeds from debt offerings completed in December 1998 and
January 1999. The Amended Facility is unsecured. The Amended Facility agreement
contains financial covenants requiring us to maintain a specific tangible net
worth and to meet other financial ratios. Its covenants limit our ability to pay
dividends and to repurchase our outstanding shares.
As of December 31, 1998, the Amended Facility consisted of a $1.4 billion
reducing revolving and letter of credit facility maturing July 31, 2000, and a
separate $111.0 million revolving credit facility, renewable annually at the
lenders' option through the July 31, 2000, maturity date. Of the $1.5 billion
total borrowing capacity available to us under the Amended Facility, there is a
sub-limit of $50 million for letters of credit. Our borrowings under the Amended
Facility bear interest at either a base rate or a Eurodollar rate, each adjusted
for an applicable margin (as defined in the Amended Facility agreement). The
base rate is equal to the higher of the following: (i) a certificate of deposit
rate plus
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
5) LONG-TERM DEBT (CONTINUED)
0.50%; (ii) the prime rate; or (iii) the overnight federal funds rate plus
0.50%. At December 31, 1998, the weighted average annual fees on letters of
credit and commitment fees on the unutilized portion of the Amended Facility
were 0.88% and 0.14%, respectively.
As of December 31, 1998, our borrowings under the Amended Facility were $1.1
billion and an additional $28.6 million was committed to back certain letters of
credit. After consideration of these borrowings, $398.5 million of the Amended
Facility was available to us.
EARLY EXTINGUISHMENTS OF DEBT. During May 1998, our principal operating
subsidiary, Harrah's Operating Company, Inc. ("HOC"), redeemed its $200 million
8 3/4% Senior Subordinated Notes due 2000 (the "8 3/4% Notes"). In May 1997, HOC
redeemed its $200 million 10 7/8% Senior Subordinated Notes due 2002 (the
"10 7/8% Notes"). Both redemptions were funded using proceeds from the Facility.
See Note 2 for discussion of the early extinguishments in June 1998 of certain
debts assumed in the Showboat acquisition and of the defeasance of the remaining
Showboat Bonds and Notes in August 1998. See Note 9 for a discussion of the
extraordinary items arising from the early extinguishments of these debts.
ISSUANCE OF NOTES. During December 1998, HOC completed a public offering of
$750.0 million principal amount of 7 7/8% Senior Subordinated Notes due 2005
(the "7 7/8% Notes"). The 7 7/8% Notes are unsecured and contain covenants
which, among other things, place limitations on HOC's ability to incur liens.
Subsequent to the end of 1998, HOC completed a public offering of $500.0
million principal amount 7 1/2% Senior Notes due 2009 (the "7 1/2% Notes"). The
7 1/2% Notes, which are unsecured, were issued with essentially the same
financial covenants as the 7 7/8% Notes.
The net proceeds from both debt offerings were used to reduce our
outstanding borrowings under the Amended Facility. Harrah's Entertainment has
unconditionally guaranteed HOC's obligations under both the 7 7/8% Notes and the
7 1/2% Notes.
INTEREST RATE AGREEMENTS. To manage the relative mix of our debt between
fixed and variable rate instruments, we have entered into interest rate swap
agreements to modify the interest characteristics of our outstanding debt
without an exchange of the underlying principal amount. At December 31, 1998, we
were a party to six interest rate swap agreements to effectively convert a total
of $300 million in variable rate debt to a fixed rate. Pursuant to the terms of
these swaps, we receive variable payments tied to LIBOR in exchange for our
payments at a fixed interest rate. The fixed rates we pay and the variable rates
we receive are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
SWAP RATE RECEIVED
PAID (VARIABLE) AT
NOTIONAL AMOUNT (FIXED) DEC. 31, 1998 SWAP MATURITY
- ---------------------------------------------------- ----------- ------------- --------------
<S> <C> <C> <C>
$50 million......................................... 6.985% 5.221% March 2000
$50 million......................................... 6.951% 5.234% March 2000
$50 million......................................... 6.945% 5.234% March 2000
$50 million......................................... 6.651% 5.384% May 2000
$50 million......................................... 5.788% 5.251% June 2000
$50 million......................................... 5.785% 5.251% June 2000
</TABLE>
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
5) LONG-TERM DEBT (CONTINUED)
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 received by us pursuant to the terms of our interest rate
agreements will have a corresponding effect on our future cash flows. These
agreements contain a credit risk that the counterparties may be unable to meet
the terms of the agreements. We minimize that risk by evaluating the
creditworthiness of our counterparties, which are limited to major banks and
financial institutions, and do 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 our publicly traded
debt, the fair value of our long-term debt, including the interest rate swap
agreements, at December 31, 1998 and 1997, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------------------- --------------------
CARRYING MARKET CARRYING MARKET
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ----------------------------------------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding debt............................... $ (2,001.7) $ (2,019.0) $ (926.2) $ (930.9)
Interest rate swap agreements (used for hedging
purposes).................................... (0.2) (6.2) (0.4) (4.6)
</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 we would pay to terminate the
agreements as of the date reported.
6) LEASES
We lease both real estate and equipment used in our operations and classify
those leases as either operating or capital leases following the provisions of
SFAS No. 13, "Accounting for Leases." At December 31, 1998, the remaining lives
of our real estate operating leases ranged from one to five years, with various
automatic extensions totaling up to 44 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Noncancelable
Minimum.................................................... $ 15,409 $ 16,455 $ 14,774
Contingent................................................. 4,029 2,929 2,032
Sublease................................................... (258) (294) (313)
Other........................................................ 4,168 3,584 3,435
--------- --------- ---------
$ 23,348 $ 22,674 $ 19,928
--------- --------- ---------
--------- --------- ---------
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
6) LEASES (CONTINUED)
Our future minimum rental commitments as of December 31, 1998, were as
follows:
<TABLE>
<CAPTION>
NONCANCELABLE
OPERATING
LEASES
-------------
<S> <C>
1999........................................................................... $ 10,774
2000........................................................................... 9,727
2001........................................................................... 9,145
2002........................................................................... 8,286
2003........................................................................... 7,975
Thereafter..................................................................... 74,840
-------------
Total minimum lease payments............................................... $ 120,747
-------------
-------------
</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.
7) WRITE-DOWNS AND RESERVES
Our operating results include various pretax charges to record asset
impairments, contingent liability reserves and project write-offs. In 1998, such
charges related primarily to our write-off of abandoned assets and write-down of
other assets to estimated market value. The 1997 charge was primarily a reserve
against the debtor-in-possession financing provided to Harrah's Jazz Company.
During 1996, in recognition of changing economic conditions and competitive
environments in which certain long-lived assets are deployed, we re-evaluated
the recoverability of our 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." This casino facility was closed during 1997. We also recorded a reserve
during 1996 pursuant to the provisions of SFAS No. 5, "Accounting for
Contingencies," in recognition of our estimated liability arising from the
guarantee of third party debt. We believe that the estimates used to evaluate
the amounts of such write-downs and reserves were reasonable. However, actual
results could differ from our estimates made for purposes of these evaluations.
The components of our write-downs and reserves were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Write-off of abandoned assets and other costs............... $ 4,734 $ -- $ 2,644
Impairment of long-lived assets............................. 2,740 806 33,369
Reserve for debtor-in-possession loans to Harrah's Jazz
Company................................................... -- 13,000 --
Reserve for contingent liability exposure................... -- -- 14,034
Write-off of investment in and advances to nonconsolidated
affiliate................................................. -- -- 2,141
--------- --------- ---------
$ 7,474 $ 13,806 $ 52,188
--------- --------- ---------
--------- --------- ---------
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
8) INCOME TAXES
Our federal and state income tax provision (benefit) allocable to identified
income statement and balance sheet line items was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes and minority interests............ $ 74,600 $ 68,746 $ 67,316
Extraordinary losses......................................... (10,522) (4,477) --
Stockholders' equity
Unrealized gain (loss) on marketable equity securities..... 2,110 (16,362) 26,112
Compensation expense for tax purposes in excess of amounts
recognized for financial reporting purposes.............. (787) (702) (1,576)
Other........................................................ -- -- 1,045
--------- --------- ---------
$ 65,401 $ 47,205 $ 92,897
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense attributable to Income before income taxes and minority
interests consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal.................................................... $ 45,084 $ 78,306 $ 42,003
State...................................................... 6,531 5,407 6,622
Deferred..................................................... 22,985 (14,967) 18,691
--------- --------- ---------
$ 74,600 $ 68,746 $ 67,316
--------- --------- ---------
--------- --------- ---------
</TABLE>
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 interest were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<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 2.2 2.5
Excess of purchase price over net assets of businesses
acquired.................................................... 1.1 -- --
Minority interests in partnership earnings.................... (1.2) (1.4) (1.2)
Other......................................................... (0.4) 1.6 2.8
--- --- ---
36.7% 37.4% 39.1%
--- --- ---
--- --- ---
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
8) INCOME TAXES (CONTINUED)
The components of our net deferred tax balance included in the Consolidated
Balance Sheets were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax assets
Investments in nonconsolidated affiliates.......................... $ 31,773 $ --
Compensation programs.............................................. 25,447 24,232
Self-insurance reserves 5,302 5,838
Bad debt reserve................................................... 4,735 4,281
Project opening expenses........................................... 2,573 2,400
Debt costs......................................................... 1,592 902
Deferred income.................................................... 1,137 1,114
Other.............................................................. 4,423 6,014
----------- ----------
76,982 44,781
----------- ----------
Deferred tax liabilities
Property........................................................... (60,016) (45,806)
Management contract................................................ (46,733) --
Trademarks......................................................... (23,212) --
Investment in nonconsolidated affiliates........................... -- (3,900)
----------- ----------
(129,961) (49,706)
----------- ----------
Net deferred tax liability......................................... $ (52,979) $ (4,925)
----------- ----------
----------- ----------
</TABLE>
9) EXTRAORDINARY ITEMS
The components of our extraordinary losses for 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Losses on early extinguishments of debt............................... $ (27,824) $ (12,611)
Harrah's share of nonconsolidated affiliate's extraordinary loss...... (2,391) --
---------- ----------
(30,215) (12,611)
Income tax benefit.................................................... 10,522 4,477
---------- ----------
Extraordinary losses, net of income taxes............................. $ (19,693) $ (8,134)
---------- ----------
---------- ----------
</TABLE>
The losses on early extinguishments of debt in both 1998 and 1997 are due to
the premiums paid to the holders of the debt retired and the write-off of
related unamortized deferred finance charges. See Note 5 for information
regarding the specific debt issues retired in each period. Our 1998 results also
include our share of an extraordinary loss incurred by a nonconsolidated
affiliate as a result of that entity's reorganization and refinancing of its
debt.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
10) SUPPLEMENTAL CASH FLOW INFORMATION
The increase (decrease) in Cash and cash equivalents due to the changes in
long-term and working capital accounts, net of effect of business acquired, was
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------------- ----------
<S> <C> <C> <C>
Long-term accounts
Deferred costs and other assets.................... $ (6,457) $ (1,746) $ (2,279)
Deferred credits and other long-term liabilities... 23,717 294 1,904
---------- --------------- ----------
Net change in long-term accounts..................... $ 17,260 $ (1,452) $ (375)
---------- --------------- ----------
---------- --------------- ----------
Working capital accounts
Receivables........................................ $ (21,734) $ (12,062) $ 8,088
Inventories........................................ (1,269) (565) 1,202
Prepayments and other.............................. (2,134) (3,427) 2,902
Accounts payable................................... 13,561 5,606 (18,373)
Accrued expenses................................... (33,668) 14,161 6,167
---------- --------------- ----------
Net change in working capital accounts........... $ (45,244) $ 3,713 $ (14)
---------- --------------- ----------
---------- --------------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR INTEREST AND TAXES. The following
table reconciles our Interest expense, net of interest capitalized, per the
Consolidated Statements of Income, to cash paid for interest:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Interest expense, net of amount capitalized................. $ 117,270 $ 79,071 $ 69,968
Adjustments to reconcile to cash paid for interest
Net change in accruals.................................... (16,917) (5,961) (8,664)
Amortization of deferred finance charges.................. (4,982) (3,021) (3,151)
Net amortization of discounts and premiums................ 74 (12) (21)
---------- --------- ---------
Cash paid for interest, net of amount capitalized........... $ 95,445 $ 70,077 $ 58,132
---------- --------- ---------
---------- --------- ---------
</TABLE>
Cash payments, net of refunds, for income taxes amounted to $51,785, $36,479
and $34,578 for 1998, 1997 and 1996, respectively (see Note 8).
11) COMMITMENTS AND CONTINGENCIES
CONTRACTUAL COMMITMENTS. We continue to pursue additional casino development
opportunities that may require, individually and in the aggregate, significant
commitments of capital, up-front payments to third parties, guarantees by the
Company of third party debt and development completion guarantees. Excluding
guarantees and commitments for the New Orleans casino development project (see
Note 14), as of December 31, 1998, we had guaranteed third party loans and
leases of $120 million, which are secured by certain assets, and had commitments
of $36 million, primarily construction-related. The amount of guaranteed third
party loans includes our continuing exposure under a guaranty of the remaining
$11.4 million balance outstanding under the development loan for a casino
facility owned by the Upper Skagit Tribe that we ceased managing in 1998. Under
the terms of the termination agreement, the Tribe has agreed to fund the
retirement of the loan. The guaranty
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
contains an element of risk that, should the Tribe be unable to perform, the
Company would be responsible for repayment of the loan.
The agreements under which we manage 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 payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund this payment, we must pay the shortfall to the tribe.
Such advances, if any, would be repaid to us 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. As of December 31, 1998, the
aggregate monthly commitment pursuant to these contracts, which extend for
periods of up to 48 months from December 31, 1998, was $1.2 million.
SEVERANCE AGREEMENTS. As of December 31, 1998, the Company has severance
agreements with 45 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 to 3.0 times the executive's average 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 the Company's
incentive plans. The estimated amount, computed as of December 31, 1998, that
would be payable under the agreements to these executives based on earnings and
stock options aggregated approximately $38.8 million.
TAX SHARING AGREEMENTS. In connection with the 1995 spin-off of certain
hotel operations (the "PHC Spin-off") to Promus Hotel Corporation ("PHC"),
Harrah's Entertainment entered into a Tax Sharing Agreement with PHC wherein
each company is obligated for those taxes associated with their respective
businesses. Additionally, Harrah's Entertainment is obligated for all taxes for
periods prior to the PHC Spin-off date which are not specifically related to PHC
operations and/or PHC hotel locations. Our obligations under this agreement are
not expected to have a material adverse effect on our consolidated financial
position or results of operations.
SELF-INSURANCE. We are 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.
12) LITIGATION
Harrah's Entertainment and certain of its subsidiaries had 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
owned an approximate 47% interest and which filed for protection under Chapter
11 of the U.S. Bankruptcy Code (see Note 14). In October 1998, the plan of
reorganization of Harrah's Jazz Company was consummated, and these lawsuits were
dismissed.
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. On November 3, 1998, the
people of the State of Missouri voted to amend the State's
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
12) LITIGATION (CONTINUED)
Constitution to deem all floating casino facilities in compliance with state
law, and all litigation regarding the issue which had been pending has been
dismissed.
In addition to the matters described above, we are 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, we believe
that the final outcome of these matters will not have a material adverse effect
upon our consolidated financial position or our results of operations.
13) EMPLOYEE BENEFIT PLANS
We have established a number of employee benefit programs for purposes of
attracting, retaining and motivating our employees. The following is a
description of the basic components of these programs.
STOCK OPTION PLAN. Our employees may be granted options to purchase shares
of Harrah's Entertainment common stock under the Harrah's Entertainment 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 February 2008.
A summary of SOP activity for 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
--------------------
NUMBER OF
WEIGHTED AVG. COMMON SHARES
EXERCISE --------------------
PRICE OPTIONS AVAILABLE
(PER SHARE) OUTSTANDING FOR GRANT
------------- --------- ---------
<S> <C> <C> <C>
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
Additional shares authorized........... N/A -- 3,500,000
Granted................................ 15.94 3,891,119 (3,891,119)
Exercised.............................. 10.29 (241,409) --
Canceled............................... 19.71 (661,128) 661,128
--------- ---------
Balance-December 31, 1998.............. 16.99 10,313,154 1,589,722
--------- ---------
--------- ---------
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
13) EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Options exercisable at December 31..................... 2,257,662 1,536,964 1,079,125
Weighted average fair value per share of options
granted during year.................................. $ 7.39 $ 9.98 $ 9.13
</TABLE>
Options granted and canceled during 1996 include the activity resulting from
a special program approved by the Company during that year designed to restore
the intended incentive offered to employees by SOP grants. This special program
enabled 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 then 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 the options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- -----------------------
<S> <C> <C> <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-$14.32 4,118,017 8.3 years $ 12.96 1,027,354 $ 8.98
15.88- 21.22 5,447,059 10.0 years 18.98 837,135 18.53
22.55- 27.45 711,896 7.1 years 24.25 357,286 23.34
29.72- 35.59 36,182 5.7 years 32.27 35,887 32.25
------------ ----------
10,313,154 2,257,662
------------ ----------
------------ ----------
</TABLE>
As allowed under the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," we apply the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
to account for the SOP and, accordingly, do not recognize compensation expense.
Had compensation expense for the SOP been determined in accordance with SFAS No.
123, our Net income and Earnings per share would have been reduced to the pro
forma amounts indicated in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- -------------------- --------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income......................... $ 102,024 $ 93,628 $ 99,388 $ 89,570 $ 98,897 $ 93,787
Earnings per share
Basic............................ 1.02 0.93 0.99 0.89 0.96 0.91
Diluted.......................... 1.00 0.92 0.98 0.88 0.95 0.90
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
13) EMPLOYEE BENEFIT PLANS (CONTINUED)
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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield......................................... 0.0% 0.0% 0.0%
Expected stock price volatility................................. 47.0% 41.0% 39.0%
Risk-free interest rate......................................... 4.3% 5.8% 6.2%
Expected average life of options (years)........................ 5 7 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 Entertainment 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 February 2008. 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.
The Company 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 our 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 1998, 1997 and 1996, including
the TARSAP awards, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Number of shares granted..................................... 990,893 309,833 825,406
Weighted-average grant price per share....................... $ 17.26 $ 19.46 $ 20.52
Amortization expense (in millions)........................... 6.9 4.5 0.9
</TABLE>
SAVINGS AND RETIREMENT PLAN. We maintain 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 is fully matched. Amounts contributed to the plan
are invested, at the participant's direction, in a Harrah's Entertainment
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 the matching contribution over five years of credited service. Our
contribution expense for this plan was $18.1 million, $14.6 million and $14.1
million in 1998, 1997 and 1996, respectively.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
13) EMPLOYEE BENEFIT PLANS (CONTINUED)
DEFERRED COMPENSATION PLANS. The Company maintains deferred compensation
plans under which certain employees may defer a portion of their compensation.
Amounts deposited into these plans are unsecured liabilities of the Company and
earn interest at rates approved by the Human Resources Committee of our Board of
Directors. The total liability included in Deferred credits and other
liabilities for these plans at December 31, 1998 and 1997, was $49.6 million and
$46.7 million, respectively. In connection with the administration of one of
these plans, we have purchased company-owned life insurance policies insuring
the lives of certain directors, officers and key employees.
MULTI-EMPLOYER PENSION PLAN. Approximately 4,800 of our employees are
covered by union sponsored, collectively bargained multi-employer pension plans.
We contributed and charged to expense $4.4 million, $2.4 million and $2.1
million in 1998, 1997 and 1996, respectively, for such plans. The plans'
administrators do not provide sufficient information to enable us to determine
our share, if any, of unfunded vested benefits.
14) NONCONSOLIDATED AFFILIATES
NEW ORLEANS CASINO DEVELOPMENT. In November 1995, Harrah's Jazz Company
("Jazz"), a partnership formed for purposes of developing, owning and operating
the exclusive land-based casino entertainment facility (the "Casino") in New
Orleans, Louisiana, and its wholly-owned subsidiary, Harrah's Jazz Finance
Corp., filed petitions for relief under Chapter 11 of the Bankruptcy Code.
During October 1998, the plan of reorganization (the "Plan") of Jazz was
consummated.
Pursuant to the Plan, a newly formed limited liability company, Jazz Casino
Company, L.L.C. ("JCC") is responsible for constructing and opening the Casino.
JCC leases the site for the Casino from the City of New Orleans and will operate
the Casino pursuant to a casino operating contract with the State of Louisiana
gaming board.
In exchange for an equity investment in JCC's parent of $75 million
(including $60 million in debtor-in-possession loans to Jazz which were
converted to equity at Plan consummation), a subsidiary of our Company acquired,
at the time of Plan consummation, approximately 44% of the equity in JCC's
parent. Our ownership interest has been reduced to approximately 43% due to the
exercise by an unrelated party of an option to acquire a portion of our
interest, and our ownership interest may be reduced in the future to
approximately 40% in the event other unrelated parties exercise additional
options to acquire portions of our interest. We also own a warrant which
entitles us to acquire additional shares in JCC's parent sufficient to increase
our ownership interest in JCC's parent to 50% for a predetermined price.
We will manage the Casino pursuant to a management agreement under which a
subsidiary of our Company (the "Manager") will receive a base management fee of
3% of Casino revenues and 7% of Casino EBITDA, as defined, in excess of $75
million. We are obligated to defer receipt of management fees under certain
circumstances. We have also entered into settlements with former partners of
Jazz whereby such partners (or their creditors) are entitled to future payments
from us which are conditioned on the receipt of management fees by the Manager.
We (i) guarantee JCC's initial $100 million annual payment under the casino
operating contract to the State of Louisiana gaming board (the "State
Guarantee"); (ii) guarantee $166.5 million of a $236.5 million JCC bank credit
facility; (iii) guarantee to the State of Louisiana gaming board, City of New
Orleans, banks under the JCC bank credit facility and JCC bondholders,
completion and opening
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
14) NONCONSOLIDATED AFFILIATES (CONTINUED)
of the Casino on or before October 30, 1999 (subject to force majeure); and,
(iv) are obligated to make a $22.5 million subordinated loan to JCC to finance
construction of the Casino.
With respect to the State Guarantee, we are obligated to guarantee JCC's
first $100 million annual payment obligation commencing upon the earlier of
opening of the Casino or October 30, 1999 (subject to force majeure), and, if
certain cash flow tests and other conditions are satisfied each year, to renew
the guarantee beginning April 1, 2000, for each 12 month period ending March 31
up to the 12 month period ending March 31, 2004. Our obligations under the
guarantee for the first year of operations or any succeeding 12 month period is
limited to a guarantee of the $100 million payment obligation of JCC for the 12
month period in which the guarantee is in effect and is secured by a first
priority lien on JCC's assets. JCC's payment obligation (and therefore the
amount we have guaranteed) is $100 million at the commencement of each 12 month
period under the casino operating contract and declines on a daily basis by
1/365 of $100 million to the extent payments are made each day by JCC to
Louisiana's gaming board.
For providing the State Guarantee, we will receive fees from JCC of $6
million for the first and second years of operations (or the prorated amounts
thereof) and $5 million for each renewal year thereafter. We will also receive
fees for guaranteeing the JCC bank credit facility of approximately 2.75% of up
to $156.5 million of guaranteed debt, payable for periods during which such debt
is outstanding. Our credit support fees may be reduced in the event our
borrowing costs under our Facility increase after Plan consummation. We are
obligated to defer receipt of State Guarantee fees and a portion of the credit
support fees under certain circumstances.
DISPOSITIONS OF EQUITY INTERESTS. During 1997, we sold our remaining 12.5%
ownership interest in Sky City Limited ("Sky City"), a New Zealand
publicly-traded company which owns a casino entertainment facility in Auckland,
New Zealand, and recorded a pretax gain of $37.4 million. We continued to manage
the Sky City facility for a fee under a management contract until June 1998, at
which time Sky City terminated the management contract for a fee based upon an
agreed upon formula in the management contract. As a result of these
transactions, we no longer have any involvement with the Sky City facility.
During 1998, we sold our remaining equity interest in a restaurant affiliate
and recognized a gain on the sale of $13.1 million.
ACQUISITIONS OF EQUITY INTERESTS. As discussed in Note 2, in connection
with our acquisition of Showboat we acquired an equity interest in and the
management contract for Star City casino in Sydney, Australia. We also acquired
a 55% noncontrolling ownership interest in the partnership which owns and
operates a riverboat casino in East Chicago, Indiana. We have reached an
agreement with the partners to acquire a controlling ownership interest in the
East Chicago entity. As a result, we will consolidate the operations of this
entity into our Company in 1999.
During 1998, we acquired an ownership interest in a new airline based in Las
Vegas, Nevada. In addition to obtaining a 19.9% voting interest, we also entered
into a marketing agreement to support joint promotions involving the airline and
our Harrah's Las Vegas property. Rio is also an equity investee in the airline
and has a similar marketing arrangement with the airline for joint promotions
involving the Rio property. After completion of the Rio merger, our voting
interest in the airline increased to 25%.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
14) NONCONSOLIDATED AFFILIATES (CONTINUED)
COMBINED FINANCIAL INFORMATION. Summarized balance sheet and income
statement information of nonconsolidated affiliates, which we accounted for
using the equity method, as of December 31, 1998 and 1997, and for the three
fiscal years ended December 31, 1998, is included in the following tables.
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Combined Summarized Balance Sheet Information
Current assets........................................ $ 111,218 $ 18,937
Land, buildings and equipment, net.................... 1,094,195 379,147
Other assets.......................................... 355,505 179,976
------------ ----------
Total assets........................................ 1,560,918 578,060
------------ ----------
Current liabilities................................... 96,095 108,406
Long-term debt........................................ 808,334 467,970
------------ ----------
Total liabilities................................... 904,429 576,376
------------ ----------
Net assets........................................ $ 656,489 $ 1,684
------------ ----------
------------ ----------
Combined Summarized Statements of Operations
Revenues.............................................. $ 299,292 $ 23,464 $ 30,930
------------ ---------- ----------
------------ ---------- ----------
Operating income (loss)............................... $ (2,774) $ (44,115) $ (18,194)
------------ ---------- ----------
------------ ---------- ----------
Net loss.............................................. $ (33,245) $ (39,290) $ (22,080)
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
Our Investments in and advances to nonconsolidated affiliates are reflected
in the accompanying Consolidated Balance Sheets as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Investments in and advances to nonconsolidated affiliates
Accounted for under the equity method............................... $ 231,366 $ 132,049
Accounted for at historical cost.................................... 15,087 --
Available for sale and recorded at market value..................... 27,055 20,352
---------- ----------
$ 273,508 $ 152,401
---------- ----------
---------- ----------
</TABLE>
In accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," we adjust the carrying value of our
available for sale equity investments to include unrealized gains or losses. A
corresponding adjustment is recorded in the combination of our Stockholders'
equity and Deferred income tax accounts.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE STATED)
15) SUMMARIZED FINANCIAL INFORMATION
HOC is a wholly-owned subsidiary and the principal asset of Harrah's
Entertainment. Summarized financial information of HOC as of December 31, 1998
and 1997, and for the three fiscal years ended December 31, 1998, prepared on
the same basis as Harrah's Entertainment, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets...................................... $ 271,247 $ 206,009
Land, buildings, riverboats and equipment, net...... 1,870,157 1,478,054
Other assets........................................ 1,136,750 315,060
------------ ------------
3,278,154 1,999,123
------------ ------------
Current liabilities................................. 209,651 196,394
Long-term debt 1,999,354 924,397
Other liabilities................................... 187,247 123,838
Minority interests.................................. 14,906 14,118
------------ ------------
2,411,158 1,258,747
------------ ------------
Net assets...................................... $ 866,996 $ 740,376
------------ ------------
------------ ------------
Revenues............................................ $ 2,003,861 $ 1,618,998 $ 1,588,013
------------ ------------ ------------
------------ ------------ ------------
Income from operations.............................. $ 286,703 $ 213,942 $ 236,921
------------ ------------ ------------
------------ ------------ ------------
Income before extraordinary losses.................. $ 120,632 $ 105,343 $ 96,727
------------ ------------ ------------
------------ ------------ ------------
Net income.......................................... $ 100,939 $ 97,209 $ 96,727
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The agreements governing the terms of our bank debt contain certain
covenants which, among other things, place limitations on HOC's ability to pay
dividends and make other restricted payments, as defined, to Harrah's
Entertainment. The amount of HOC's restricted net assets, as defined, computed
in accordance with these covenants regarding restricted payments was
approximately $856.1 million at December 31, 1998.
21
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
Harrah's Entertainment 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 Entertainment is
required to include amounts based on estimates and judgments which it believes
are reasonable under the circumstances.
Harrah's Entertainment 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
Entertainment's financial statements through its Audit Committee, which is
composed solely of directors who are not Harrah's Entertainment officers or
employees. The Audit Committee meets from time to time with the independent
public accountants, management and the internal auditors. Harrah's Entertainment
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
and Chief Executive Officer
/S/ JUDY T. WORMSER
Judy T. Wormser
Vice President, Controller
and Chief Accounting Officer
2
<PAGE>
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
Entertainment") as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and comprehensive income and cash
flows for each of the three years ended December 31, 1998. These financial
statements are the responsibility of Harrah's Entertainment'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 Entertainment as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years ended December 31, 1998, in conformity with
generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
Memphis, Tennessee,
February 9, 1999.
2
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1998(1)
Revenues......................................... $ 414,447 $ 478,634 $ 586,242 $ 524,692 $ 2,004,015
Income from operations........................... 58,066 71,855 109,202 48,723 287,846
Net income....................................... 23,236 20,406 44,202 14,180 102,024
Earnings per share(3)
Basic.......................................... 0.23 0.20 0.44 0.14 1.02
Diluted........................................ 0.23 0.20 0.44 0.14 1.00
1997(2)
Revenues......................................... $ 374,099 $ 408,893 $ 438,248 $ 397,970 $ 1,619,210
Income from operations........................... 45,291 61,199 67,749 39,293 213,532
Net income....................................... 17,111 17,239 52,889 12,149 99,388
Earnings per share (3)
Basic.......................................... 0.17 0.17 0.53 0.12 0.99
Diluted........................................ 0.17 0.17 0.52 0.12 0.98
</TABLE>
(1) 1998 includes $13.2 million in pretax income from the second quarter 1998
sale of our interest in a restaurant subsidiary. 1998 also includes the
operating results for Showboat, Inc., for periods after its June 1, 1998,
acquisition.
(2) 1997 includes $37.4 million in pretax income from the third quarter 1997
sale of our equity interest in our New Zealand subsidiary (see Note 14), net
of $13.8 million in pretax charges for write-downs and reserves, including
$12.3 million recorded in third quarter (see Note 7).
(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.
2
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage
of of Date of
Name Incorporation Ownership Incorporation
- ---- ------------- --------- -------------
<S> <C> <C> <C>
Aster Insurance Ltd. Bermuda 100% 02/06/90
HEI Acquisition Corp. II Nevada 100% 07/22/98
Harrah's Operating Company, Inc. Delaware 100% 08/08/83
Dusty Corporation Nevada 100% 07/02/98
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 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 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 Nevada 100% 09/21/94
Company
Harrah's Interactive Investment Company Nevada 100% 09/21/94
Harrah's Kansas Casino Corporation Nevada 100% 11/12/93
HPB Corporation Kansas 100% 11/13/97
Harrah's Las Vegas, Inc. Nevada 100% 03/21/68
Harrah's Laughlin, Inc. Nevada 100% 07/10/87
Harrah's Louisiana Investment Company Nevada 100% 10/22/98
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 Michigan Corporation Nevada 100% 06/15/93
Harrah's Minnesota Corporation Nevada 100% 10/20/92
Harrah's NC Casino Company, LLC(3) North Carolina 99% 04/21/95
Harrah's New Jersey, Inc. New Jersey 100% 09/13/78
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 of Jamaica, Ltd. Bahamas 100% 07/12/85
Harrah's Pennsylvania Development Co. Nevada 100% 05/18/94
Harrah's Pittsburgh Management Company Nevada 100% 06/08/94
Harrah's Red River Corporation Nevada 100% 08/05/96
Harrah's Reno Holding Company, Inc. Nevada 100% 02/23/88
</TABLE>
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
Jurisdiction Percentage
of of Date of
Name Incorporation Ownership Incorporation
- ---- ------------- --------- -------------
<S> <C> <C> <C>
Harrah's Shreveport Investment Nevada 100% 04/23/92
Company, Inc.
Harrah's Shreveport Management Nevada 100% 04/23/92
Company, Inc.
Harrah's Skagit Valley Agency Corporation Nevada 100% 11/08/95
Harrah's Southeast Washington Casino Nevada 100% 11/21/95
Corporation
Harrah's Southwest Michigan Casino Nevada 100% 04/06/95
Corporation
Harrah's Travel, Inc. Nevada 100% 07/30/98
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
Rio Hotel & Casino, Inc. Nevada 100% 06/14/88
Rio Resort Properties, Inc. Nevada 100% 09/04/87
Rio Properties, Inc. Nevada 100% 02/24/92
Cinderlane, Inc. Nevada 100% 12/29/94
Twain Avenue, Inc. Nevada 100% 08/08/97
HLG, Inc. Nevada 100% 10/28/96
Rio Leasing, Inc. Nevada 100% 09/10/96
Rio Development Company, Inc. Nevada 100% 08/28/96
Rio Vegas Hotel Casino, Inc. Nevada 100% 09/28/88
Showboat, Inc. Nevada 100% 02/16/60
Showboat Australia PTY Limited(4) Australia 50% 08/11/93
Ocean Showboat, Inc. New Jersey 100% 09/12/83
Atlantic City Showboat, Inc. New Jersey 100% 01/10/84
Ocean Showboat Finance Corporation New Jersey 100% 12/22/86
Showboat Development Company Nevada 100% 06/09/83
Lake Pontchartrain Showboat, Inc. Nevada 100% 03/18/93
Showboat Canada, Inc. Canada 100% 06/28/93
Dion Showboat, Inc. Canada 100% 06/28/93
Showboat Grande, Inc. Nevada 100% 06/08/93
Showboat Indiana, Inc. Nevada 100% 09/13/93
Showboat LMI, Inc. Nevada 100% 07/26/94
Showboat Louisiana, Inc. Nevada 100% 05/18/93
Showboat Missouri, Inc. Nevada 100% 07/26/94
Showboat Mohawk, Inc. Nevada 100% 07/07/93
Showboat New Hampshire, Inc. Nevada 100% 07/26/94
Showboat One, Inc. Nevada 100% 07/26/94
Showboat Six, Inc. Nevada 100% 07/26/94
Showboat Seven, Inc. Nevada 100% 07/26/94
Showboat Eight, Inc. Nevada 100% 07/26/94
Showboat Nine, Inc. Nevada 100% 07/27/94
Showboat Ten, Inc. Nevada 100% 07/27/94
Showboat Eleven, Inc. Nevada 100% 07/27/94
Showboat Twelve, Inc. Nevada 100% 07/27/94
Showboat Thirteen, Inc. Nevada 100% 07/27/94
Showboat Fourteen, Inc. Nevada 100% 07/27/94
Showboat Fifteen, Inc. Nevada 100% 07/27/94
</TABLE>
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
<TABLE>
<CAPTION>
Jurisdiction Percentage
of of Date of
Name Incorporation Ownership Incorporation
- ---- ------------- --------- -------------
<S> <C> <C> <C>
Showboat Finance Corporation Nevada 100% 05/10/94
Showboat Intellectual Property, Inc. Nevada 100% 01/25/94
Showboat Land Company Nevada 100% 11/12/97
Showboat Operating Company Nevada 100% 04/10/73
Showboat Land LLC(5) Nevada 1% 11/04/97
Trigger Real Estate Corporation Nevada 100% 07/02/98
Waterfront Entertainment and Development, Indiana 100% 07/19/93
Inc.
Subsidiaries of Partnerships
East Chicago Second Century, Inc.(6) Indiana 03/16/94
Showboat Marina Finance Corporation(7) Nevada 03/07/96
Sydney Casino Management PTY Ltd.(8) Australia 06/09/93
</TABLE>
Note:
(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's Maryland Heights
Operating Company
(3) 99% Harrah's Operating Company, Inc., 1% Harrah's Management Company
(4) 50% Showboat, Inc., 50% Showboat Development Company
(5) 1% owned by Showboat Operating Company, 99% owned by Showboat Land Holding
Limited Partnership
(6) 100% owned by Showboat Marina Partnership. Stock has not been issued.
(7) 100% owned by Showboat Marina Casino Partnership
(8) Owned by Showboat Leighton Partnership and is the nominee corporation for
that partnership
Note:
Harrah's Operating Company. Inc. was formerly Embassy Suites, Inc. - name
changed on 6/30/95.
Harrah's merged into Harrah's Operating Company, Inc. on 8/31/95.
Harrah's Club merged into Harrah's Operating Company, Inc. on 8/31/95.
Showboat, Inc. merged into HEI Acquisition Corp. on 6/1/98 and was the surviving
entity.
PUBLIC COMPANY OWNERSHIP
<TABLE>
<S> <C> <C> <C>
Interactive Entertainment Limited(9) Bermuda 35.5% 01/28/81
JCC Holding Company Delaware 43% 08/20/96
National Airlines, Inc.(11) Delaware 47.8% 04/12/95
Sodak Gaming, Inc.(12) South Dakota 14.1% 06/29/89
Star City Holdings Ltd.(13) Australia 24.6%
(fka Sydney Harbour Casino Holdings Ltd.)
</TABLE>
(9) Harrah's Operating Company, Inc., stockholder.
(10) Harrah's Crescent City Investment Company, stockholder. JCC Holding
Company owns 100% of Jazz Casino Company, L.L.C., which operates the New
Orleans casino.
(11) Harrah's Entertainment, Inc. owns 3,000,000 shares of common stock (23.9%)
and Rio Hotel & Casino, Inc. owns 3,000,000 shares of common stock (23.9%)
of National Airlines, Inc.
(12) Harrah's Operating Company, Inc., stockholder.
(13) Showboat Australia PTY Ltd., stockholder.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 158,995
<SECURITIES> 0
<RECEIVABLES> 69,399
<ALLOWANCES> 14,356
<INVENTORY> 15,306
<CURRENT-ASSETS> 279,343
<PP&E> 2,660,004
<DEPRECIATION> 789,847
<TOTAL-ASSETS> 3,286,332
<CURRENT-LIABILITIES> 232,846
<BONDS> 1,999,354
0
0
<COMMON> 10,219
<OTHER-SE> 841,188
<TOTAL-LIABILITY-AND-EQUITY> 3,286,332
<SALES> 0
<TOTAL-REVENUES> 2,004,015
<CGS> 0
<TOTAL-COSTS> 1,657,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,270
<INCOME-PRETAX> 203,306
<INCOME-TAX> 74,600
<INCOME-CONTINUING> 121,717
<DISCONTINUED> 0
<EXTRAORDINARY> 19,693
<CHANGES> 0
<NET-INCOME> 102,024
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.00
</TABLE>
